Siliconcowboy's Blog

Technology, journalism, social media and social responsibility

Global Corporations Should Be Treated Like Ships At Sea

I’ve seen, and been involved in, a lot of discussions recently regarding corporate taxes and the tricks that various companies use to avoid paying them.

A recent column by former BusinessWeek columnist Steve Wildstrom at Tech.Pinions prompted me to add just a bit more. I’m going to take issue with two points in particular.

First, in his article, Wildstrom argues that a corporation has “a duty to its shareholders, its employees, even its customers to run its business in the most efficient, effective, and ultimately profitable way possible. And that responsibility includes not paying more than is required in taxes.”

That statement would be defensible if corporations were dealing with a single tax code in a single country.

But every major publicly traded company today incorporates itself wherever it sees fit, irrespective of where its corporate offices, employees or manufacturing resides. Every company creates multiple subsidiaries, and each of these resides in its own country. Every company moves money and product through channels that provide the best tax advantages, and so on.

The point being, that it’s not about “not paying more than is required.”

Clearly, these companies are avoiding what is required. In many cases, the avoidance techniques themselves are so complex that it is difficult even for the corporation to manage the money trail.

So the notion of “not paying more than what is required” falls flat. Quite simply, these corporations are setting themselves above the laws of individual countries and gaming the system wherever they go.

Further, they’re often lobbying for preferential treatment in ways that governments don’t fully understand. As a result, they get huge benefits without having to make good on their end of the bargain.

Calling these companies to the floor for these practices is often worse than the pain that’s already inflicted.

The second point that I’ll take issue with was the following:

“The real lesson … is about the tax code… It shows both how badly the law needs fixing and how difficult it will be to fix; every loophole is someone’s billion dollar opportunity.”

Actually, that’s not the only lesson, and it’s not even really accurate.

Many of the “tax loopholes” that corporations exploit were created by corporate lobbyists working behind the scenes with lawmakers. So it’s not the tax code per se that needs to be addressed, but the system that allows such blatant gaming of the tax code.

Other “loopholes” were actually well-intentioned provisions that would have worked well had the companies decided to maintain jurisdiction. But by moving to another locale, or setting up other organizations, they effectively run away from their responsibility.

Of course, there’s really no way to ensure that tax codes everywhere in the world are consistent, and in fact many states and countries purposefully relax their codes to attract businesses. So there’s actually an incentive built into the global economic system to avoid taxes.

And this brings up an important departure from Wildstrom’s piece.

The fact is that global corporations have effectively removed themselves from responsibility to any single country anywhere. They are their own country, they call their own shots, and in many cases, they are larger than all but a handful of real countries.

For all practical purposes, they are unbelievably huge ships in international waters. They can do pretty much whatever they want.

One could argue that they are responsible to shareholders and customers, but from a tax perspective, that’s hardly relevant. To global corporations today, taxes are merely an exploitable nuisance.

So what’s my answer to this second problem?

Apply the same standards to corporations that one would apply to a ship at sea. Create a universal tax code and a universal jurisdiction.  Implement economic zones that enable the benefits of commerce while ensuring that taxation is consistent and fair everywhere. Provide benefits that encourage universal participation in this model.

We may not be able to get all American corporations to pay all their due taxes here, but that doesn’t make it right, and it doesn’t mean that we should throw up our hands and say, “oh well, I guess there’s nothing we can do about it.”

In fact, there is a lot that we can do about it.


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This entry was posted on April 30, 2012 by in Social Responsibility.
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