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Google and the G20

The furore over Syria at the G20 meeting has distracted attention from the potentially highly significant agreement by the leaders of the world’s largest economies to support an ‘ambitious and comprehensive’ plan to address the massive global problem of multinational corporations’ failure to pay tax where they earn it, using transfer pricing and other methods to pay lower tax elsewhere or none at all.

The issue has been in the news in the UK since last year, when Google was accused by a parlimentary select committee of ‘immoral tax avoidance’. And earlier this year the amount of corporation tax paid by Apple in the UK during 2012 was announced: zero.

The companies are in effect taking advantage of outdated tax legislation, designed almost a century ago to avoid trade across borders leading to double taxation. Often, then, they are acting legally, and this was the basis of the now notorious response by Eric Schmidt, the executive chairman of Google to criticism of his company’s tax affairs.

According to Schmidt, all that any company ought to do is keep within the law, and fulfil its fiduciary duties to its shareholders, and Google was doing both. But the idea that moral obligations overlap with legal ones is hardly worth a response.  If Mr Schmidt were drowning in the river Cherwell, he’d be unimpressed by my defending my failure to throw him a lifebelt on the ground that I’m within my legal rights to walk on. And corporation law doesn’t support, let alone require, aggressive tax avoidance. All that’s needed is reasonable managerial judgement.

I suspect that many boards of multinationals feel that their aggressive tax avoidance is justified because they believe that their companies have ‘earned’ their profits and are therefore entitled to keep them, as long as they keep within legal limits.

This idea requires a theory of property. And as far as I can see, no half-decent theory will justify what they are doing. According to most utilitarian or consequentialist theories, property rights are useful fictions, so the test of any alleged right is whether assuming and respecting it will do more good than not. It’s pretty clear that the money that could have been paid by Google and Apple would have been put to better use by governments around the world than through its being used to pay dividends to shareholders and bonuses to employees.

But what about a non-consequentialist view of ethics? Can’t people become entitled to property through, say, owning their talents, or hard work? For the sake of argument, let’s assume they can. But a theory of property needs an account not only of justice in acquisition, but also of justice in transfer. Now consider just one asset: land. It is of course absurd actually to believe that all land owned in the world today was originally justly acquired, but again let’s assume that it was. It’s no less absurd, however, to believe that it has been justly transferred. And because of the significance of this single asset, any other contemporary claim to property rights – because it is bound to depend at some point on some alleged right to land – drops away.

What should non-consequentialists do? They can’t just ignore the problem and assume, like Eric Schmidt, that contemporary legal rights rest on moral rights to ownership. Rather, they have to look elsewhere in their theories for a principle of rectification. It seems to me that the most obvious principle is that of benevolence (and if they don’t have such a principle then it seems to me we’re hardly dealing with what most nowadays would call a ‘morality’ at all – Google’s ‘do no evil’ on its own isn’t enough). And that brings us back to producing the greatest good.

In other words, it’s not only consequentialists who should welcome the G20’s decision on tax, but anyone with a morality worth the name – and I hope that includes Eric Schmidt.

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8 Comment on this post

  1. Perhaps a libertarian account could help Google’s cause. I think most libertarians would disagree with your claim that “the money that could have been paid by Google and Apple would have been put to better use by governments around the world than through its being used to pay dividends to shareholders and bonuses to employees.” For instance, Google could argue that income is better left in the hands of private individuals and firms, and that tax revenue is a wasted resource in the hands of government. As an example, the United States is the largest donor to foreign aid, yet most of that money comes from private donors. Conversely, Sweden’s government gives the highest percentage of their revenue, and their citizens give very little privately.1 Therefore, perhaps, resources left in the hands of private individuals will do more good than resources in the hands of government institutions. I’m not a libertarian, so please forgive my rudimentary examination. Like you, I believe Google ought to pay their fair share of taxes, because taxes can do good things. I’m just saying that there is a (more than) “half-decent” theory that could justify what Google is doing.

    1 See Joseph Heath’s book “Filthy Lucre”. I can’t seem to find mine, otherwise I would provide a page number.

  2. Thanks, Dave. Fair point, but this isn’t so much a debate between libertarianism and non-libertarianism as an empirical one. And I have to confess the evidence here seems to me so weak that I’d be willing to stick to my absurdity charge. The possible world in which the rich in the UK hand over, say, 40% of their income voluntarily is pretty distant from the one we’re in. Now consider the specific case. If Google pay their tax, that will decrease the burden on all tax-payers. Since most of them will be considerably worse off than Google stakeholders and employees, the money would be more efficiently used to that end. (I admit that the precision I’m assuming here is unrealistic. But at the macro- level I think the argument’s probably OK. If the rich in the UK didn’t avoid tax, that might well have a real effect on the net amount taken from the rest of us.)

  3. So… imagine Google has a bunch of competitors. Imagine these competitors legally minimise their tax burdens so as to deliver maximum shareholder value. Now imagine that Eric Schmidt is afflicted with a dose of Guardian-reader morality and decides he thinks Google should give extra money to the government. What do you think happens to Google over time? What do you think happens to Eric Schmidt?

    Maybe you think that’s irrelevant and that he should do the good thing irrespective of the consequences for his company. But assuming the obvious happens and Google loses competitiveness (and eventually goes bust) then I don’t think this situation is as obvious as you make it sound. Imagine there’s three people on a lifeboat and enough food for one. There are two strong people (A & B) and one weak one (C). A intends to eat it. You would seem to have B forbear in favour of C who has no show. So the outcome is that A eats it and B & C starve. In terms of consequences your strategy – unilateral action on behalf of B – guarantees that A wins. If, instead, you argued that B & C should attempt some sort of joint reform of the system so that there was a different distribution of resources, then I think there is more to be said for it. But I’m afraid I don’t see why Google *on their own* ought to be in favour of policies that weaken Google relative to their rivals. [Perhaps I’ve misread your position and you’re actually arguing “that Google ought to support tax reform” rather than “that Google ought to volunteer to throw more money into Government coffers”? If so, sorry.]

    Furthermore, don’t consequentialists (at least) have to justify why they think this money would be more socially valuable in government hands than in private hands? My impression is that most economists (and senior civil servants!) would think you have a job on your hands to show that…

  4. Thx, Dave. ‘Imagine’ is right of course, since Google’s competitors (such as they are) aren’t engaging in aggressive tax avoidance to the same extent. Nor do I think it’s only Guardian readers who think what Google is doing is wrong. I’d be surprised if the vast majority of people in the UK didn’t think this. (It’s very interesting how much cross-party agreement there is on this in Parliament.)

    Nor does it seem to me obvious that in the scenario you describe Google will go bust. They could enhance their brand reputation by paying up, and thus increase advertising revenue. (Indeed I presume it is partly their current dominance that allows them to flaunt public morality so openly, as Starbucks to stop doing.) If it is in fact obvious, then if they’re going to do the most good by paying, then I think they should.

    I’m not sure what to say about the lifeboat scenario. The only principle I was relying on in my argument was benevolence, and if we assume that it doesn’t matter who survives then benevolence requires only doing what produces the best result. That would allow e.g. B to attack A and surrender the food to C, or to suggest they draw lots, or indeed to forbear and allow A to survive. But it doesn’t seem to require forbearance. As a matter of fact, I’m inclined to think that there are good consequentialist arguments for ‘secondary’ principles of fairness, so I might recommend a lottery.

    Indeed fairness is the moral concept that seems most central to the current debate about tax avoidance. What Google is doing seems to many people unfair, because they are going to great lengths to avoid paying their fair share. They might well be acting within the law (though this is still not clear), and that is why they have to ‘volunteer’. Not volunteering when most others (Starbucks, Barclays, Apple, and the British NHS, and a few others excepted) are doing their bit is reprehensible.

    On the effectiveness of state expenditure. I agree of course that it would be hard to prove that the state can produce more good than individuals in this particular case. There’s also a question about whether Google’s paying tax should be understood as decreasing the tax burden on the rest of us. But let’s assume it just increases the overall expenditure across the board. That will mean quite a lot more spent on health, social care for the worse off, and state education, which on the face of it seem pretty valuable.

  5. Hi Roger, thanks for replying. I agree that everyone can see that tax loopholes are a bad idea. But that’s different from asking particular companies to pay more than they are required to by the rules. I think it’s basically a commons type problem (I think that’s a better fit than my lifeboat analogy). Basically, all the people in the village can see that they have incentives to add another sheep (in one common Commons formulation) but that doesn’t make any particular member of the community especially bound to refrain from following his incentives. My concern was that you were singling out one member of the village (Mr Big) for especial opprobrium, and I don’t think that’s a great way to go – even if he has more sheep on the common than anyone else. The point is, without structural reform, gains from Mr Big’s beneficence will just be gobbled up by Mr Next Big Thing and Ms Big Thing After That. It strikes me as reasonable to put Mr Big on the spot regarding his support for structural reform. But it seems less reasonable to hassle him for being rational by following the incentives in front of him.

  6. Thank you, Dave — your comments have been very helpful. The problem with our tax legislation is that it hasn’t been properly updated since the early 1900s, and this gives companies the opportunity, if they hire the right accountants, to take advantage of the system. So of course I think that system should be changed, and it will be. In the meantime, however, what people are asking Google et al. to do is to be fair and reasonable, like most other companies. The rules are unclear, and require payment within a range. If you pay at the bottom of the range, you may be within the law, but you’re not within the bounds of reasonableness or fairness. I do agree it is a commons problem, and Google are essentially taking their best self-interested option: to cheat while most others are co-operating. I don’t like using the notion of ‘rationality’, but if I have to then I wouldn’t equate it with self-interest. Anyway, I think as far as the need for structural reform goes we’re on the same page.

    1. Hi Roger, thanks. I think “rationality” is a useful very limited concept, too, mainly because it elevates a few values to godlike status, while reducing all other values and norms to the status of mere taste. But I like the focus on self-interest. Not (just) because I’m an arse, but also because the only remotely convincing conceptions of the good life I’ve ever encountered have given lots of space for people to pursue their own ends. Without some sort of large space for one’s own projects, one’s life becomes a mere service vehicle for other people’s welfare. It’s the life of a beast of burden. That’s generally what I react to on this blog – presuppositions about how I ought to spend my life, and how morally outrageous it is that I’m not supporting/donating to some particular cause of the day. Self-interest, to me, is the best defence against that sort of well-intentioned but ultimately totalitarian moral encroachment into ordinary people’s lives. So sort of half a cheer for rationality, and three cheers for self-interest.

  7. Thanks, Dave. What you say reminds me of some of the things Bernard Williams said about utilitarianism in ‘Critique’ — that the theory makes me a cog in a machine, and it’s not clear why I’d be interested in continuing to turn. I disagree with his Humean view that reasons depend on our desires, which are of course highly self-interested. But I do agree that impartial theories like utilitarianism make a mistake in ignoring the special perspective we have on our own lives — a perspective we all take all the time, even the utilitarians among us. The idea that self-interest provides its own reasons is still around in contemporary ethics, but it’s often not recognized as such, as there is so much concentration on morality and impartiality. I’ve tried to say a bit about it in the chapter on the dualism of the practical reason in my *Reasons and the Good*, but I’m also hoping to get back to the question of what’s happened to self-interest in contemporary ethics at some point. So I’d say no cheers for rationality, one cheer for impartiality, and one cheer for self-interest!

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