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5/21/2013
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Debate Grows Over Big Tech Taxes

Lawmakers are increasingly targeting the tax practices of big companies like Apple and Google. But should the focus be on the rules of international business?

The public grilling of a Google representative by British MPs last week over allegedly playing fast and loose with tax on its substantial profits has been criticized by a former White House staffer.

"Putting someone in front of a panel and yelling at them is a substitute for change," one-time secretary of labor Robert Reich told the BBC this morning.

That's not to say that Reich is a supporter of the kind of sharp accounting that the British arms of Google, Amazon and even Starbucks have faced in the past few months -- quite the opposite, in fact. Reich simply feels that politicians like Brit MP Margaret Hodge and her committee telling Google it actually is "evil" is bad tactics.

"It's a cheap way of convincing the public something is getting done," he said. "Companies like Google are simply playing one country off against another country, so countries, including the U.K., need to band together to broker tax treaties and agreements to stop this, as all these companies care about is getting their taxes down."

[ For more on lawmakers' grilling of Google execs, see British MPs Attack Google On Taxes. ]

Reich's contribution is part of a growing debate on both sides of the Atlantic over the issue of how best to tax U.S.-based tech firms that nimbly move profits around to radically minimize their tax exposure.

In Britain last week, Google was in the crosshairs -- so much so that the search giant's CEO, Eric Schmidt, went on the record over the weekend to suggest he supports the U.K. government leading an international debate about reforming business taxation.

In an article for British Sunday newspaper The Observer, Schmidt wrote, "At a time when families are having to tighten their belts and funding for vital public services is under pressure, corporate taxation is rightly a hot topic. And as a company that has always aspired to do the right thing, we understand why Google is at the center of that debate."

Now, in Washington, the spotlight has circled to Apple, which in a prepared submission told another hostile committee of lawmakers that it does not use "tax gimmicks" and indeed "pays an extraordinary amount in U.S. taxes."

But even as policymakers berate companies alleged to be egregious about slick accounting, a growing chorus of business leaders agree with Reich and Schmidt and believe that reform efforts should be directed smack back at legislators.

That view is shared by the head of U.K. business organization the Confederation for British Industry Sir Roger Carr, who on Monday called on politicians to adapt the rules that allow companies like Apple and Google to so easily expatriate their profits. "If you want a different outcome," Carr said, "the rules must be rewritten to achieve the change that is required."

Carr elaborated on this in an interview with The Daily Telegraph. "As politicians pursue fairness, it is important that any criticisms are grounded in fact and hasty solutions or political point-scoring do not trigger long term unintended consequences," he said. "Tax avoidance cannot be about morality [but] should be calculated in keeping with the law of the land."

That's a clear reference to companies like Google and Apple, who say their actions are completely consistent with international finance rules as they now stand.

In his Sunday comment piece, Schmidt said, "Our hope is to move the debate forward, with everyone engaged constructively in developing a clearer, simpler system -- one in which companies that abide by the law know that the politicians who devised the rules are willing to defend and commend them. Politicians -- not companies -- set the rules."

Interestingly, both Carr and Schmidt attended a meeting with British Prime Minister David Cameron on Monday to discuss global business problems -- though members of the British press were specifically told that the issue of Google's tax affairs would not be discussed.

Urban transformation requires IT innovation. Here's how five U.S. cities are forging ahead. Also in the new, all-digital Future Cities issue of InformationWeek Government: Video surveillance provided valuable clues to the Boston Marathon bombings, serving as a lesson to other cities. (Free registration required.)

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