Google was being grilled in London while Apple was in the docks in the US. The questions they were being asked was, “Are you an MNC?” The two chief executives, aided and abetted by an army of legal eagles deftly side-stepped the question and talked about how the tax codes of both the countries are forcing them to spend huge amounts in lawyer fees, diluting their efforts to create more gee-whiz bells and whistles in their products.
This post is an effort to see how one can go about answering the question from the lawmakers.
Which company can be legitimately called an MNC? No, I do not want names, just tell me what they can and cannot do?
Let us take it from the beginning. They can operate in a number of nations, simultaneously, through subsidiaries typically. Therefore Apple, Google, Amazon are all MNCs, right?
Wrong. MNCs are beholden to the nations they operate in. What I mean is they pay taxes against their revenues in the various countries. Let us try this again. If a company makes a product in country A and sells it in Country B, where should it pay taxes? Even more complicated, the products are sold in country to A to citizens of that country after having been made in that country but sales are registered in another country, country B. I do not know. May be in Country A or in Country B, or in both. But, the way I understand is, it cannot end up paying no taxes at all. This is my simplistic understanding of what fairness is. You are welcome to your opinion, but remember, I am answering the question I asked in the title!
Google has a company in Ireland – indeed, it has two companies, one tax resident in Ireland where business operations including sales in UK are registered and the other in Bermuda – and all the profits that accrue are sent to Bermuda. Lo and behold, Bermuda has zero taxes!
That is, these MNCs end up paying no taxes anywhere! So, they really cannot be MNCs. What are they, then? They are Transnational Corporations, TNCs. I read this appellation many years ago, at least a decade and a half ago. And, I think the hearings and other interactions between the lawmakers of UK and the US and the chiefs of Google and Apple have just cemented this name.
Now onwards, Apple, Google, Amazon, … are not mere MNCs; they are the all powerful TNCs. And, there is nothing these companies are doing that can be called illegal. OK, I forgot to mention, these companies, or their predecessors would have had a big hand in drafting these legislations. The truism is laws are made for the others to follow! What about the “spirit” of the laws? Eric Schmidt of Google challenged the interrogator to define “spirit”! Perhaps something United Breweries makes?
The easiest defense these companies throw against the charge of tax avoidance is that the tax laws are made for old ways of doing business, not for the faster wheeling-dealing of the Internet Age, where everything is in the Cloud! “Change the tax code!” is the war cry, across the Atlantic pond.
Here comes the TNCs powerful hold. If you dared change it in the direction that increases the TNCs tax liability, all companies will have tax residencies in Bermuda or places of that sort! Even while calling for an “international tax system”, it is evident that more than internationalism it is the race to zero tax rate (remember Apple “bargained” with the Irish government to fix the tax rate at 2%), dictated to by TNCs, that governs.
The difference between MNCs and TNCs is merely in the brazenness of the demand for zero taxes – a gun pointed at the heads of governments. And, Apple, Google, Amazon et all are that brazenness personified. They are not MNCs, but TNCs.
Raghuram Ekambaram
References
1. http://www.guardian.co.uk/technology/2013/may/22/google-boss-international-tax-system-eric-schmidt
2. Apple chief calls on US government to slash US corporate tax, Dan Roberts and Dominic Rushe, The Guardian, May 21, 2013
3. Disarming Senators, Apple Chief Eases Tax Tensions, Nelson D. Schwartz and Brian X. Chen, The New York Times, May 21, 2013
This post is an effort to see how one can go about answering the question from the lawmakers.
Which company can be legitimately called an MNC? No, I do not want names, just tell me what they can and cannot do?
Let us take it from the beginning. They can operate in a number of nations, simultaneously, through subsidiaries typically. Therefore Apple, Google, Amazon are all MNCs, right?
Wrong. MNCs are beholden to the nations they operate in. What I mean is they pay taxes against their revenues in the various countries. Let us try this again. If a company makes a product in country A and sells it in Country B, where should it pay taxes? Even more complicated, the products are sold in country to A to citizens of that country after having been made in that country but sales are registered in another country, country B. I do not know. May be in Country A or in Country B, or in both. But, the way I understand is, it cannot end up paying no taxes at all. This is my simplistic understanding of what fairness is. You are welcome to your opinion, but remember, I am answering the question I asked in the title!
Google has a company in Ireland – indeed, it has two companies, one tax resident in Ireland where business operations including sales in UK are registered and the other in Bermuda – and all the profits that accrue are sent to Bermuda. Lo and behold, Bermuda has zero taxes!
That is, these MNCs end up paying no taxes anywhere! So, they really cannot be MNCs. What are they, then? They are Transnational Corporations, TNCs. I read this appellation many years ago, at least a decade and a half ago. And, I think the hearings and other interactions between the lawmakers of UK and the US and the chiefs of Google and Apple have just cemented this name.
Now onwards, Apple, Google, Amazon, … are not mere MNCs; they are the all powerful TNCs. And, there is nothing these companies are doing that can be called illegal. OK, I forgot to mention, these companies, or their predecessors would have had a big hand in drafting these legislations. The truism is laws are made for the others to follow! What about the “spirit” of the laws? Eric Schmidt of Google challenged the interrogator to define “spirit”! Perhaps something United Breweries makes?
The easiest defense these companies throw against the charge of tax avoidance is that the tax laws are made for old ways of doing business, not for the faster wheeling-dealing of the Internet Age, where everything is in the Cloud! “Change the tax code!” is the war cry, across the Atlantic pond.
Here comes the TNCs powerful hold. If you dared change it in the direction that increases the TNCs tax liability, all companies will have tax residencies in Bermuda or places of that sort! Even while calling for an “international tax system”, it is evident that more than internationalism it is the race to zero tax rate (remember Apple “bargained” with the Irish government to fix the tax rate at 2%), dictated to by TNCs, that governs.
The difference between MNCs and TNCs is merely in the brazenness of the demand for zero taxes – a gun pointed at the heads of governments. And, Apple, Google, Amazon et all are that brazenness personified. They are not MNCs, but TNCs.
Raghuram Ekambaram
References
1. http://www.guardian.co.uk/technology/2013/may/22/google-boss-international-tax-system-eric-schmidt
2. Apple chief calls on US government to slash US corporate tax, Dan Roberts and Dominic Rushe, The Guardian, May 21, 2013
3. Disarming Senators, Apple Chief Eases Tax Tensions, Nelson D. Schwartz and Brian X. Chen, The New York Times, May 21, 2013
2 comments:
Interesting, Raghu. In sarkari parlance, there is no definition of 'multinational', though all of us, including the lawmakers use the term quite often to refer to 'foreign' companies operating in Indian soil. 'Transnational' is an accepted term and Tatas are an Indian Transnational company.
Thanks Aditi; I made a fanciful distinction between MNCs and TNCs. I think each unit of an MNC is nominally under the rules and regulations of the country in which it is operating. TNCs, on the other hand, range over ALL the nations they are operating in.
By the way, is there much difference between Tatas and Infosys [leave aside the diversification factor] in how they conduct themselves in the various countries?
RE
Post a Comment