It doesn't get much more hypocritical and cynically exploitative than this: A corporation gets itself certified by a third party as socially progressive, convincing people that buying its goods is an act of doing good, only to turn around and structure itself so that it avoids paying taxes for the government programs that actually do good.
The online retailer Etsy says it is "committed to creating lasting change in the world" and boasts about how it does things like "bike our compost to community farms every week" from its headquarters in Brooklyn. But when it comes to paying its fair share for programs that support the public good, it's no different from General Electric, Exxon or Google.
As first reported by Bloomberg News, Etsy has structured itself so that it can route more of its profits through an Ireland-based subsidiary, and because that subsidiary is an unlimited liability company, "Etsy no longer needs to publicly disclose basic financial information about that unit."
Frank Clemente, the executive director of Americans for Tax Fairness, condemned the move in a column in The Huffington Post.
For a company that claims "transparency" as one of its guiding principles, Etsy's explanation of its Irish scheme is decidedly murky: "Our new corporate structure changed how we use our intellectual property and implemented certain intercompany arrangements. This may result in a reduction in our overall effective tax rate."
Offshore corporate tax dodging is in the spotlight now because of plans in Congress to fund road and bridge repair and construction by using the taxes owed on the $2 trillion in profits American corporations have stashed overseas. But those plans all envision rewarding the worst corporate tax dodgers with a big tax break. Big American corporations don't need another tax cut, they need to start paying their fair share of taxes. Especially those that ship jobs and shift profits offshore!
When corporations use fancy offshore accounting tricks to dodge their taxes, the rest of us pick up the tab. To compensate, either taxes are raised on individuals and small businesses or less money is available to invest in roads, schools, medical research and other vital public services.
What makes this all the more infuriating is that Etsy has registered itself as a "Certified B Corporation." The certification comes from the B Lab, a nonprofit whose ostensible purpose is to encourage corporations to not only consider the best interests of shareholders but to also consider the impact of their business decisions on workers, the communities they service, the environment and consumers. "B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency," according to the B Corp website. B Corp-certified businesses include Method-brand and Seventh Generation cleaning products, New Belgium beer, Relay Foods and the Patagonia clothing chain.
One of the questions that a B corporation has to answer is whether it has "reduced or minimized taxes through the use of corporate shells or structural means." Etsy's public statements have been cagey about how it reconciles its tax avoidance behavior with the B Corporation Declaration of Interdependence, which says in part, "we act with the understanding that we are each dependent upon another and thus responsible for each other and future generations."
What this looks more like is the Ayn Rand ethos so prevalent in Silicon Valley and its offspring – that those who earn wealth from society are not obliged to pay into the institutions created by society out of the recognition of our interdependence but are in fact obligated to shun them in favor of self-selected good deeds. Sure, we'll compost our garbage and use solar-powered LED lights, but we'll use dodges to keep our money out of the federal programs that help feed the hungry, house the homeless, educate our children or even pave the streets we use to ship our products.
This is not only a blight on Etsy but a threat to the core premise of the B Corporation movement. "Responsible taxpaying is only one part of the high standards to which B corporations are held," Matt Gardner wrote Tuesday on the Tax Justice blog. "But tax avoidance is a basic and fundamental betrayal of corporate citizenship. If Etsy is recertified despite persisting in its offshore tax hijinks, it will be harder to take seriously the 'benefit corporation' label."
If you agree that using secretive tax haven laws in Ireland is not what it means to be a "sustainable, responsible and profitable" corporation, sign this Americans for Tax Fairness petition.