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Andreea Dobrila/Q79793835/CCA609

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Google’s behaviour regarding the tax avoidance issue: ethically correct or

not?

Student: Andreea Nicoleta DobrilaUnit tutor: Catherine Sweet

January 2012, Southampton

3

Southampton Solent University

Faculty of Creative Industries and Society


Contents

I. Introduction 5

II. Literature Review 7

III. Methodology 11

IV. Results 12

V. Discussions 13

VI. Conclusion 15

VII. Recommendations 16

VIII. References 17

IX. Appendices 19

1. Stakeholder map 19

2. Trade Associations adhered to by Google 20

3. Google’s biggest advertisers 21

4. Issues Matrix 22

5. PESTLE Analysis 23

6. Transcript 1 24

7. Transcript 2 25

8. Primary research – The Survey 27

9. Primary research - The Interview (Female respondent) 32

10.Primary research – The Interview (Male respondent) 33

11.Letter addressed to a senator by the Consumer Watchdog non-profit

organisation 34

12.Ethics policy form 36

4


I. Introduction

Google is perhaps the most important company in the field of the online technology,

holding a near search engine monopoly over its competitors and providing the online

users with more sources of information than Bing, Amazon, MSN or Apple (Deep,

2010). Founded in 1998 by Larry Page and Sergey Brin, two Stanford PhD students,

the company quickly became an established search engine brand, emphasising the

respect of certain values, such as integrity, usefulness, privacy and freedom of

expression, among others. However, Google’s motto “Don’t be evil” might lead people

into believing that Google is an ethical thought leader.

Lately, Google has been in the spotlight on the grounds of tax avoidance in the UK, but

also in America, by moving its revenues in Ireland and Netherlands, in the end being

deposited in tax havens, in Bermuda. Over the 2011 fiscal year, the company paid £6m

in taxes, despite gaining more than £6bn in revenues (Warman, 2013). Margaret

Hodge, the Public Account Committee’s chairwoman challenged the idea of Google

being immoral (''We are not accusing you of being illegal, we are accusing you of being

immoral'') during the parliamentary hearing, in which Google’s Vice-president of Sales

for Northern and Central Europe was questioned about how the company manages its

profits and governmental taxes (Ebrahimi, 2012).

As an international brand, recognised worldwide, Google has to deal with multiple

stakeholder groups, among which customers, competitors, trade groups, the media, but

also multiple tax jurisdictions governments (See Appendix 1). From the following

sentence: “Every day Google answers more than one billion questions from people

around the globe in 181 countries and 146 languages” it may seem that the customers

are the most important stakeholder group. (Google, 2012) However, on tax avoidance,

they are not the most important stakeholder group, but governments are, as they has

the power of sanctioning the Internet and tax legislation, but also of fining for tax

evasion. Throughout this paper, answers are provided to the following research

5


questions: Should Google overlook this unethical accusation and continue focusing on

keeping its shareholders satisfied by higher profits or should it pay great attention to its

other major stakeholder groups, such as the politicians and the multiple tax jurisdiction

governments, concerned about Google’s tax avoidance? Would not solving this

problem and therefore, disregarding the important political stakeholders affect the

company’s reputation? Does Google need to properly manage this ethical issue of tax

avoidance or can this problem be ignored, as Google is an established company in the

technological field?

This aim of this paper is to test the validity of the following hypothesis:

The unethical issue reflected by Google’s tax avoidance strategy damages its

reputation with key stakeholder groups, particularly governments and politicians,

but it does not affect Google’s relation with its consumers

While considering the following terms of reference:

To assess the degree to which “being immoral” might affect Google’s reputation

in the near future and on the long-term in the UK;

To critically analyse the impact that Google’s reputation might suffer from the tax

avoidance issue, by making full use of the secondary research.

To conduct primary research in order to evaluate the English stakeholders’

perception about Google, as a “manipulative tax payer corporation” and find out

whether their future behaviour towards the company will be influenced in any

way.

To critically analyse the relationship that Google has with its key stakeholder

groups in the UK and to explain how the issue of tax avoidance might turn into a

crisis unless properly managed;

To provide recommendations in order to avoid the issue of tax avoidance turning

into a crisis and damaging Google’s reputation.

6


II. Literature review

1. Ethics VS MoralityPeople often use these two terms with the same meaning, even though a distinction

between the two is made: “ethics is concerned with the study of morality and the

application of reason to elucidate specific rules and principles that determine right and

wrong for a given situation”, whereas “morality is concerned with the norms, values and

beliefs embedded in social processes which define right and wrong for an individual or

a community. (Crane & Matten 2010, p 8) Therefore, the difference between the two

terms is that “ethics” is the philosophy behind a set of rules and principles, whilst

“morality” is a generic term used to refer to people’s values and beliefs. Taking this

distinction into account, this paper will analyse Google’s ethical behaviour or morality in

relation to the tax avoidance issue and provide an answer as to why the British

government considers it to be immoral.

2. About Morality: philosophical foundations“What are morals derived from: sentiment or reason?” David Hume, Scottish

philosopher, believes that the reason does not impel someone to action, as it is “cool

and disengaged” (Cahn and Markie 2006, p. 269), however, the taste or sentiment

offers pleasure or prevents pain, which represent the incentive of people acting in a

certain manner. As far as Google’s actions are concerned, most people would argue

that it is driven by the pleasure of having the bank accounts full, which would then

become the reason of gaining money. It appears that gaining more and more money

represent Google’s ultimate goal. Hume, together with Immanuel Kant, Jeremy

Bentham, W. D. Ross and John Stuart Mill explain that people behave the way they do

in order to reach happiness, no matter what this might be. (Cahn and Markie 2006)

Therefore Google’s “happiness” is represented by the increase in its revenues. Is in

this case the happiness connected to Feinberg’s “psychological egoism”, which points

out that those who do good, do so, in order to them to feel better about themselves,

and not merely to help others unselfishly? Furthermore, he adds that people are only

7


capable of achieving their own interest and nothing more. It is debatable whether

Google’s management team performs tax avoidance in order to obtain significant

amounts of money or whether the tax money is used to create job openings and help

people directly.

In contrast to the above-named philosophers, morality is considered by Shopenhauer

as “denial of the will to life”, as it does not allow one’s judgement to flourish and is

subject to rules (Cahn and Markie 2006, p. 360). However, in the case of Google, the

morality of the rules implemented by the government allowed the company to find

loopholes in the law as far as tax avoidance is concerned and use it in its advantage.

Arguably, the same government may represent, in the utilitarian Bentham’s point of

view, a member of the community bothered by this tax-avoidance loophole. Bentham

also talks about the happiness of the community, “a fictitious body”, which is ruled by

“the sum of the interests of the several members who compose it” (Cahn and Markie

2006, p. 309). Therefore, the government, as a member of the community and

regulatory force expresses its dissatisfaction towards Google’s tax avoidance affairs

that are possible to the applicable law.

3. Ethics in businessAfter taking into account the philosophical views on ethics and morality of some of the

greatest philosophers the world has had, it is important to also consider the business

ethics in the contemporary times. Crane and Matten state that ethics has a major role

in how businesses are run, as they contribute to societies, by “providing employment,

paying taxes and acting as an engine to economic development” (2010, p. 9).

However, does this mean that Google is outside the law by moving its revenues in tax

havens, even though tax avoidance is permitted by the British government?

Some might agree that Google is a capitalist defined by Luntley (1989) as one of “those

who believe that the free market, driven by profit motive, is the most appropriate way of

organising the distribution of goods and services in the society (cited in Tan 1996, p.5).

8


Taking this definition into account and applying it to Google, it might seem that what the

tech giant search is doing is focused on gaining more and more money, but is doing so,

by complying with the law. Tan argues that the law affects all companies, in some way

or another and that it is best to have some knowledge on the laws or regulations

affecting the business environment in order to “to make good business decisions”

(1996, p.2). Google proved to have the right knowledge, but the UK government does

not condone Google’s conduct at all. One way to look at this situation would be that the

regulations implemented by the government “are designed to promote the public

welfare” (Cross and Miller 2012, p. 181), but an error was made in the tax avoidance

regulation. The British’ representatives in the government blame multinational

companies like Google, for maximising their profits through tax avoidance, which is

wrong, as the money does not reach the British population to benefit them. Why should

Google do the right thing and pay bigger taxes, when the government isn’t? The

difference is that the government has the power to issue laws and it can take any

decision regarding one of their main interests: the taxes (Crane and Matten 2010,

Nelson 2006).

4. Issues and crisis managementBy respecting the ethics imposed by the society, companies manage to avoid problems

and to maintain a good reputation, defined by Regester and Larkin as “a vital

commercial asset” (2005, p. 1), which is of great importance for their stakeholders,

defined as:

any persons or groups that hold something of value that can be used as rewards

or constraints in exchange for goods, services, or organisational policies and

operating standards. (Heath 1997, p. 28)

For Google, its most important stakeholders as far as the tax avoidance issue is

concerned are the politicians (and multiple tax jurisdictions governments), its

advertisers and its shareholders. The other stakeholder groups need to be maintained

9


up-to-date (See Appendix 4). By respecting the law, Google has managed to upset

some stakeholder groups, represented by the politicians. Due to its good reputation,

Google has managed, in time, to own the monopoly over the other search engines, as

it is the most reliable and provides the online users with more searches than its

competitors do. However, being an important, established multinational company has

made it easier for the society to accuse this tech giant of tax avoidance, due to

Google’s methods of maximising its profits.

Google’s tax avoidance affair is now an issue, which the management needs to careful

consider. Parsons adds that is it important to take into account the ethical concerns, as

”ethics is key to professionalism and credibility in the field” (2004, p. xvi). Mismanaged

issues can transform into crisis, which may damage the organisation’s reputation and

financial status. Conversely,

Successful management of a crisis situation is about recognising you have one,

taking the appropriate actions to remedy the situation, being seen to take them

and being heard to say the right things. (Regester and Larkin 2005, p. 163)

Google already knows this, as it has developed a PR strategy, saying “Why is the

government targeting us, when the law is the same for everyone?” emphasising the

fact that Google’s tax avoidance activities are completely legit. However, the British

government accuses them of being immoral. If the government decides to implement

the unilateral anti-tax-haven legislation, then Google might be forced to pay the full

amount of the avoided taxes, which might result in the company being liable to pay

billions of pounds, money which would be taken from the investors’ dividends.

Moreover, in order to financially recover, Google would have to increase its ad fees,

which would most definitely result in Google losing its advertiser clients, who represent

Google’s revenue sources.

10


III. Methodology

The methodology was based on triangulation of the primary and secondary research, in

the form of qualitative theories on philosophy, business ethics, issues management,

and background information on how Google has been managing the ethical issue of tax

avoidance lately. The primary research is represented by quantitative and qualitative

data in the form of an online survey, created using the Survey Monkey software and of

an offline interview. The online survey was filled in by a sample of 20 people, aged 18-

24, whereas only two respondents (one man and one female), over 45, took part in the

interview. This was the preferred method of finding what people over 45 believe of the

ethical controversy surrounding Google at the time being. As they live a busy life, it was

easier for them to have a face-to-face conversation than doing the interview online. As

far as those aged 18-25 are concerned, using the Internet represented the easiest way

to get in touch with them and ask them to fill in the survey.

One limitation of the primary research is that only two people participated at the

interview; however it offered insights into whether people over 45 would still use the

Google search engine, taking into account the fact that Google avoids paying its taxes

to the British Government. Another limitation was represented by the fact that the

survey was distributed on Facebook, thus reaching only fellow students. The full

versions of the survey and the interviews can be found in Appendix 8, 9 and 10.

11


IV. Results

Google’s representatives did not commented too much on this topic, but when Eric

Schmidt, Google’s chairman, appeared in the media, declaring that: “I am very proud of

the structure that we set up. We did it based on the incentives that the governments

offered us to operate” (Kumar and Wright 2012), one of Google’s most important

stakeholder group was very surprised. Although, transparency is a valued trait in the

PR industry, the way Google addressed to the media, is definitely an extra reason why

the British government is so keen on making Google pay more taxes. His statement

received a reply from Britain’s Business Secretary, who declared for The Daily

Telegraph: “It may well be [capitalism] but it’s certainly not the job of governments to

accommodate it.” (2012) Britain’s Prime-Minister, David Cameron, has also stated that

he will try to come up with a solution against the issue of tax avoidance that we will

discuss during the G8 summit (Devlin 2013). Google’s arrogance may lead one into

believing that Google will keep its search engine monopoly, even if the British

government adopts a law that will force Google pay more taxes, thus damaging

Google’s reputation and credibility as a multinational company.

In order to find whether people are aware of Google’s tax avoidance and care enough

not to use the search engine anymore, a first first step of the primary research was

done, by using an online survey. The sample was represented by a number of 19

people, aged 18-25, out of which 12 was females and 7 males. All of them were using

the internet frequently. The interesting part was represented by the fact that out of 19

people, only one was using another search engine e.g. Amazon, proving Google’s

monopoly over the other search engines. Out of 19 people (100%), 15% stated that

they would use the same methods of tax avoidance if they were in a similar situation,

31% pointed that that as long as it is permitted by law, then it is alright, whereas the

majority of 52% argued that it is not ethically correct. Even so, a stagerrering 95%

affirmed that they would continue using it, as the subject does not represent an interest

to them and it does not affect them directly.

12


V. Discussion

The most important stakeholder group that Google has in the present situation is

represented by the politicians, who find the tax avoidance issue very concerning. As

stated in the Results section, David Cameron, the British Prime-Minister has stated that

the leaders gathered for the G8 summit taking place this year will be the perfect

opportunity to discuss the tax avoidance issue and how it can be tackled by the world’s

most powerful nations. However legit tax avoidance is, it is not morally correct and it

seems that the British government is decided to make Google pay a higher amount of

taxes. Is it then safe to assume that the ethics is separated from the law and that it is

more important than it? Should the British government adopt the “unilateral anti-tax-

haven legislation” (Nelson 2006, p. 149), Google will no longer be able to transfer its

profits to tax havens, such as Bermuda. Strange as it may seem, Bermuda, which is a

British territory, is a tax haven, whereas Great Britain does not approve of this taxing

system. It is possible that during the G8 summit, leaders can find a solution to tax

avoidance, although it seems unlikely as this represents a large-scale change. Should

this happen, or at least, the British government adopting the anti-tax-haven legislation,

Google might be accused of tax evasion and might be forced to pay billions of pounds,

in taxes to the UK government. In the case of this possibility becoming reality, then

Google would have to pay his debt, which means that it faces the possibility of

bankruptcy. The dividends would not be given to its shareholders, and Google could

also risk losing its main revenue source, as in order to survive, the company would

have to increase the ad fees, thus most of the advertisers being forced to terminate

their contract with Google and look for additional ways in which they can promote their

companies. This represents the crisis that it might impact Google on a long period of

time, in the UK.

However, it seems that Google will not suffer in the near future, as adopting a law takes

time. Moreover, the primary research has shown that the general public is aware of the

problem that Google is facing at the moment, but that they are simply not interested in

13


taking a stand. This means that more than 95% of people will continue using its search

engine, as it has proved to be the most reliable out of the most search engines on the

online technology market. As long as there are millions of people using Google, the

profits will continue coming from its advertisers.

Another short-term possibility might be reflected in Google’s value of its stocks, which

might drop, which might influence some of the shareholders into selling their shares.

Be that as it may, Google’s profits will not be influenced very much by this fact.

14


VI. Conclusion

In the near future, Google’s reputation will not be affected by its action of not paying the

right amount of tax money. As proved by the primary research, people will keep using

the search engine provided by Google, as most of them stated that it is the most

reliable out of the all search engines. Moreover, they also affirmed that they are not

directly affected by whether Google pays its taxes or not, so there is no reason, why

they should stop using it.

However, in the long run, in the eventuality that Google gets involved in a political

conflict with the government of the Great Britain, then this might stain its reputation and

it might be forced to pay its taxes in full if the UK government is sanctioning a law that

clearly states that multinational companies are compelled by law to pay the exact

amount of taxes rightfully belonging to the state and adopting the anti-tax-haven

legislation, which will not allow companies to move their money offshore, in order to

benefit of lower tax corporation rates.

In addition, in the UK, the government offers incentives to multinational companies,

such as Google, helping them to set their branches in the UK. The ulterior reason of

why the British government wants for Google to pay its taxes lies in the fact that

multinational companies have big revenues, and if doing business in the UK, then they

would have to pay significant taxes and contribute to the social and economic

development of the country.

Having provided some insights into ethical theories as well as providing valuable

information derived from the primary research, the question to whether it is better to

pay taxes or not pay taxes and create job openings, instead, for a high number of

people still remains.

15


VII. Recommendations

1) Google should stop acting on the defensive side, stating that they are fully

entitled to avoid paying taxes to the UK government; instead they should

organise a press conference, during which, the chairman, Eric Schmidt, admits

that Google’s tax avoidance strategy is legal and that they are simply complying

with the law. Why should they have to be held accountable when the law is the

same for everyone? Because Google is a multinational company is not enough.

That even though tax avoidance is legal and quite the opposite of the tax

evasion, Google is still paying its taxes. However, Google’s team of

professionals is continuously looking for a solution that can satisfy the moral

needs of the British government, affected by the current situation.

2) If Google does not come to the conclusion that they should be paying the full

amount of taxes owed to the UK government, then one solution for them would

be to donate money, each year, towards the development of the universities,

hospitals, charities, sponsorships i.e. destined to students who cannot afford

paying for studying in universities, but also research in the field of health, for

example. This option is valid and it creates a two-way communication platform,

not with its key stakeholders (the politicians, thus governments), but with

another important, inter-related group: the general public and the advertisers

using Google as a means of promoting their services or products. If they stop

advertising on the platform provided by Google, then this might result into a

3) Another option, still aimed at the general public’s interest would be for Google to

follow Starbuck’s example of paying a certain amount of money (e.g., 20 million

dollars) in the next two years to the Public Accounts Committee.

16


VIII. References

BLACKBURN, S., (2001). A very short introduction. Oxford: Oxford University Press.

BRANDT, R.B., (1996). Facts, values and morality. Cambridge: Cambridge University

Press.

Cahn, Stephen M and Markie, P (2006). Ethics History, Theory and Contemporary

Issues. 3rd ed. Oxford: Oxford University Press.

CRANE, A. & MATTEN, D. (2010). Business ethics. 3rd edition. Oxford: Oxford

University Press.

DEEP (2010). 10 Toughest Competitors of Google in 2010 [online] Available at:

http://www.buzzom.com/2010/01/10-toughest-competitors-of-google-in-2010/

[Accessed: 13 Dec 2012]

EBRAHIMI, H. (2012) Starbucks, Amazon and Google accused of being 'immoral'

[online] Available at:

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9673358/

Starbucks-Amazon-and-Google-accused-of-being-immoral.html [Accessed: 13 Dec

2012]

EDWARDS, J. (2012). These Are Google's Biggest Advertisers, Ranked By Dollars

Spent Daily. [online] Available at: http://www.businessinsider.com/these-are-googles-

biggest-advertisers-ranked-by-dollars-spent-daily-2012-10#ixzz2GlI2sz4N [Accessed:

30 Dec 2012]

GOOGLE: FACTS ABOUT GOOGLE AND COMPETITION (2012). About Search.

[online] Available at: http://www.google.com/competition/howgooglesearchworks.html

[Accessed: 30 Dec 2012]

GOOGLE (2013). US Public Policy. [online] Available at:

http://www.google.com/publicpolicy/transparency.html [Accessed: 13 Dec 2012]

NEXIA (2012). UK tax regime aims to attract multinationals. [online] Available at:

http://www.nexia.com/UKtaxregimeaimstoattractmultinationals [Accessed: 30 Dec

2012].

17

http://www.google.com/publicpolicy/transparency.html

http://www.businessinsider.com/these-are-googles-biggest-advertisers-ranked-by-dollars-spent-daily-2012-10#ixzz2GlI2sz4N

http://www.businessinsider.com/these-are-googles-biggest-advertisers-ranked-by-dollars-spent-daily-2012-10#ixzz2GlI2sz4N

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9673358/Starbucks-Amazon-and-Google-accused-of-being-immoral.html

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9673358/Starbucks-Amazon-and-Google-accused-of-being-immoral.html


REGISTER, M AND LARKIN J (2008). Risk Issues and Crisis Management. 4th ed.

London: Kogan Page/CIPR

PAUL, R. & ELDER, L. (2006). The Miniature Guide to Understanding the Foundations

of Ethical Reasoning. [online] Available at: home.comcast.net/.../SAM-

EthicalReasoning20051%5B1%5D.pdf [Accessed: 13 Dec 2012]

PARSONS, PATRICIA J (2004). Ethics in Public Relations: A Guide to Best Practice.

Kogan Page/CIPR, London

TAN, W.L. (1996). Entrepreneurism: it is time for a clearer definition. Journal of Small

Business and Entrepreneurship [online] 13 (1), p.5

THE TELEGRAPH (2012). Google's tax avoidance is called 'capitalism', says chairman

Eric Schmidt. [online] Available at:

http://www.telegraph.co.uk/technology/google/9739039/Googles-tax-avoidance-is-

called-capitalism-says-chairman-Eric-Schmidt.html [Accessed: 13 Dec 2012]

WARMAN, M (2013). Google Dodged $1.6 Billion In Taxes – 'It's Called Capitalism,'

Says Chairman. [online] Available at:http://www.businessinsider.com/google-dodged-

16-billion-in-taxes-2013-1#ixzz2HQKazvfn [Accessed: 13 Dec 2012]

WORLD TAXPAYERS ASSOCIATION (2012). [online] Available at:

http://www.worldtaxpayers.org/?q=node/1 [Accessed: 13 Dec 2012]

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http://www.worldtaxpayers.org/?q=node/1

http://www.telegraph.co.uk/technology/google/9739039/Googles-tax-avoidance-is-called-capitalism-says-chairman-Eric-Schmidt.html

http://www.telegraph.co.uk/technology/google/9739039/Googles-tax-avoidance-is-called-capitalism-says-chairman-Eric-Schmidt.html

http://home.comcast.net/.../SAM-EthicalReasoning20051%5B1%5D.pdf

http://home.comcast.net/.../SAM-EthicalReasoning20051%5B1%5D.pdf


IX. APPENDICESAppendix 1: Google’s Stakeholder map

19


Appendix 2: Trade Associations Google adhered to

National Foreign Trade Council

20


US Chamber of Commerce

US Council for International Business

US Global Leadership Coalition

Other relevant third-party organizations Google has been a member of:

American Antitrust Forum

American Enterprise for Public for Public Policy Research

Council of Better Business Bureaus Inc.

National Taxpayers Union

Public Knowledge

Standards that Google have to complyIn respect to the tax avoidance issue, Google has to comply with the following

standards:

To provide clear information about its revenues

To pay its taxes in the countries doing business, which will benefit the public

sector

“To stimulate the economy in the public sector and to support legislation to limit

tax burden” (Word Tax Payers Association, 2012)

“Advocating public policies that foster an open international trade and

investment regime

21


Appendix 3

(Edwards, 2012) [online]

22


Appendix 4: Prioritised stakeholders in the tax avoidance issue

The general public, represented mainly by the online users, are a stakeholder group

that is not very interested in the tax avoidance issue, which is why they are listed in the

issues matrix. Even if some of them would be disturbed by the fact that Google chose

tax havens and governmental taxes are paid only at a small scale, they would still

choose the Google search engine. On average, at least 370 million people use it every

single day. [online]

23

Keep satisfied

ActivistsShareholders

Manage closely

GovernmentAdvertisers

Monitor(Minimum Effort)

Employees,The Public

Keep informed

Media

Low Interest High


Appendix 5: PESTLE Analysis

PoliticalThe US tax laws allowing the companies to transfer their profits to countries where

taxes do not exist represents a problem for the British government, which does not

allow multinational companies not to pay their taxes.

EconomicGoogle’s revenues are very high but its tax liabilities are aggressively managed to

ensure profitability. Google transfers a significant part of its profits to Scotland and the

Netherlands, which are then transferred to Bermuda, tax haven, where the tax is zero.

SocialGoogle might stain its reputation and lose its credibility in front of its online users.

There are millions of people around the world that use Google free of charge; if a

significant part decides to use the services of another search engine, still free of

charge, then those advertising on Google, will lose their intended target audiences and

might decide not to use it anymore as an advertising platform. The fact that they might

decide to choose the services of another company, might turn into a serious crisis for

Google, as most of its revenues come from the ads the company promotes.

TechnologicalRise of alternative social media platforms such as Twitter and Facebook, which means

advertisers forsake search engine advertising.

LegalGoogle accused of tax avoidance; anti-trust and anti-monopoly activists target Google

in EU and USA.

Environmental (Not applicable)

24


Appendix 6: Transcripts The House of Commons Public Accounts

Committee (chaired by Margaret Hodge) hearing Matt Brittin, Google’s

Vice-president of Sales and Operations in Northern and Central Europe

“It is true that Bermuda is part of our operations and the reason for that is, as an

international company, when you set up operations outside your domestic market,

which in our case is the US, you look for where to locate your operations, and as I

explained, within the European Union, we chose to locate in Ireland, for the reasons

I’ve explained, but also you need to protect your intellectual property and set up

operations in countries around the world in order to do that.”

25


Appendix 7: Transcripts ABC news on ‘Google's Tax-Evasion Scheme

Costs BILLIONS Of Dollars’

It's a conventional saying among Americans that nothing is certain, except death and

taxes, but not if you're a clever corporation. Turns out some of the big American

companies, so much a part of your day, are finding innovative ways to dodge the tax

man. David Norris is on that money trail.

The report finds that Google has done some searching of its own for countries

overseas, where it can avoid US taxes.

Jesse Drucker, Reporter for Bloomberg: Over the last three years Google has saved

three billion dollars in income taxes.

David Muir, Interviewer: Three billion?

Jesse Drucker: Three billion with a ‘b’, yeah.

Narrator: Even though Google is primarily a US company based in Northern California,

all of the profits that makes overseas never come back to the US and therefore never

get taxed here. And here's how: Google license some of the intellectual property it

created here, in the US, to a subsidiary in Ireland, but it turns out Google's overseas

profits don't even get taxed there, because Google then reportedly funnels those profits

through the Netherlands and, then, to of all places to Bermuda, where the corporate tax

rate is zero. But how much of what Google does is actually in Bermuda?

David Muir, Interviewer: So you went to Bermuda?

Jesse Drucker: Yes.

David Muir, Interviewer: Did you find uh... uh massive global headquarters there?

Jesse Drucker: No.

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Narrator: Instead what he found was this simple office building. No Google side to be

found anywhere. It turns out just three employees, two lawyers and a manager. And

had Google not setup this money trail that ends up in Bermuda?

David Muir, Interviewer: Those profits would all come back to the US, where they

would be taxed here?

Jesse Drucker: Correct.

Narrator: But what Google is doing is all perfectly legal, all allowed by US tax law.

Bloomberg reports that Microsoft uses a similar strategy and that Facebook, reportedly,

is in the process of doing so too. All declined comment, but economists say there are

countless companies doing this, costing the US about sixty billion in tax dollars every

year. That’s enough to pay for 1.2 million public school teachers, to pay 48,000 miles of

highway, to pay for a year of college for 8.5 million students.

David Muir, Interviewer: The average American family, in the middle of this country, is

gonna look at this and say I can send my assets to Bermuda at a lower tax rate. Why

should Google or any other company be able to do this?

Jesse Drucker: That's a very fair question and I don't have a great answer for that.

Diane Sawyer, Anchorwoman: And what is Google saying tonight?

David Muir: Well they’re telling us the same thing they told to Bloomberg, at first, that

their practices are similar to those countless other global companies, but Diane, I’ve

talked to a former US treasury official, who said ‘Don't completely blame the

companies, the corporations here blame Congress.’ He says ‘lawmakers know full well

what's going on here’.

Diane Sawyer, Anchorwoman: Alright, thanks to Bloomberg for all their reporting on

this story.

Source: Youtube (http://www.youtube.com/watch?v=qagUQcEmUiE)

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Appendix 8: Primary research (Survey) + results

Q1

Q2

28


Q3

Q4

29


Q5

Q6

30


Q7

Q8

31


Q9

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Appendix 9: Primary research – The Interview (Female respondent)Interviewer: Hello and thank you for taking part in this interview, which will last no

more than five minutes.

Anonymous: I’m glad to help.

Interviewer: I am running this interview in order to discover whether people over 25

are aware of the tax avoidance strategy that Google implemented for a few years and,

most important, how this impacts their cyberspace-related behaviour.

Anonymous: Sounds intruiging.

Interviewer: First of all let me ask you if you own a computer or a laptop?

Anonymous: I do, but I do not use it frequently, only when I need to talk to my

daughter via Skype.

Interviewer: So, I assume that you if you are not aware of Google’s tax avoidance

strategy?

Anonymous: No, I actually don’t know much about the topic.

Interviewer: Well, Google uses this strategy, which involves moving the money in tax

havens such as Bermuda, where the corporation taxe is zero, helping Google save

millions and even billions in pounds. What do you think of the matter?

Anonymous: Well, as most multinational companies pay their taxes, it is only natural

that Google pays their taxes, too. This is the right thing to do, as the money can go

towards the development of various scientifical inventions, creating more job openings,

so economy could be improved towards the benefit of millions of people, pensions,

Interviewer: Will you continue using it, now that you found about its tax avoidance

strategy?

Anonymous: No, I will definitely use another search engine, because I do not want to

sponsor corruption and the development of only two social classes: the very rich and

the very poor. If this situation continues, then in the near future, the middle class will be

extinct.

Interviewer: Thank you for making time to answer my questions.

Anonymous: Thank you for sharing insights related to Google. It was very interesting

to find out more about this controversial topic.

33


Appendix 10: Primary research – The Interview (Male respondent)

Interviewer: Hello and thank you for taking part in this interview, which will last no

more than five minutes.

Anonymous: Good afternoon! Sure, no worries!

Interviewer: I am running this interview in order to discover whether people over 25

are aware of the tax avoidance strategy that Google implemented for a few years and,

most important, how this impacts their cyberspace-related behaviour.

Anonymous: Yes, I have heard something about this issue.

Interviewer: First of all let me ask you if you own a computer or a laptop?

Anonymous: I do, actually. I use it frequently, as I have to do most of work on it.

Interviewer: OK, my second question is: what exactly do you know about Google’s tax

avoidance strategy?

Anonymous: Well, from what I heard Google does some sort of legal schemes in

order not to pay the full tax amount to the British Government and it send all of its

revenues to Bermuda, where it doesn’t have to pay any taxes.

Interviewer: That’s true. Given that you know that Google avoids paying its taxes, will

you continue using its search engine?

Anonymous: Yes, if I would do the same if I would have my own company. As long as

it is legit, I don’t know where the problem is. If the government does not approve with

Google’s operating system, then they should implement some new changes in the law.

It is up to them. And to answer your last question, I would continue using it, as it the

most reliable and the search engines with over 1 million result searches.

Interviewer: Thank you for making time to answer my questions.

Anonymous: No problem.

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Appendix 11

Dec. 12, 2012Sen. Max Baucus ChairmanSenate Finance Committee511 Hart Senate Office Building2nd and C Streets NE Washington, DC 20510

Dear Sen. Baucus,

I am writing on behalf of Consumer Watchdog to urge you to hold a hearing into Google’s global tax avoidance strategies. The Internet giant claims to be following the rules as it stashes billions of dollars in an offshore account in Bermuda, but its tactics smack more of outright tax evasion. Using dubious tactics dubbed the “Double Irish” and the “Dutch Sandwich” Google apparently was able to pay only 3.2% in tax on its overseas profits in 2011 even though most of its sales were in countries with tax rates from 26 to 34%.

Bloomberg News Service revealed the dubious tactics. (http://www.bloomberg.com/news/2012-12-10/google-revenues-sheltered-in-no-tax-bermuda-soar-to-10-billion.html) Google apparently cut its overall effective tax rate from 28% in 2008 to 21% in 2011. The combined U.S. and state statutory tax corporate is about 39%. Google has parked its billions in off-shore accounts and, along with other corporate giants, is lobbying hard for a tax holiday to bring the money back into the United States at deeply discounted rates.

Governments in Europe, many of which have been targets of Google’s morally bankrupt tax policies, are actively seeking redress. But this is not a problem that only impacts other countries’ revenues. Google’s tactics strike at the U.S. treasury as well, forcing the rest of us to make up for the Internet giant’s unwillingness to pay its fair share. It will be necessary to work with other countries’ tax authorities and to amend our tax code to put an end to egregious loopholes that allow cynical exploitation by this generation’s Robber Barons. What makes Google’s activities so reprehensible is

35


its hypocritical assertion of its corporate motto, “Don’t Be Evil.”

We urge you to begin enacting the needed reforms in the tax code by scheduling a hearing in which Google CEO Larry Page and Executive Chairman Eric Schmidt are called to testify under oath and explain their company’s flagrant abuse of the tax code to the detriment of all who play fairly.

Sincerely,

John M. Simpson

Privacy Project Director

36


Appendix 12

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