Tax avoidance, and corporate responsibility

uncle-sam-pay-your-taxes1Would you consider Apple, Coca-Cola, General Electric, Google, Microsoft, Nike and PepsiCo good corporate citizens? Certainly they position themselves that way, and they deserve credit for their leadership around human rights (Apple, Nike), climate change (GE), water (Coca-Cola), renewable energy (Google, Microsoft) and sustainable agriculture (PepsiCo).

But when it comes to paying corporate income taxes, they have some explaining to do.

That, at least, is the conclusion that I came to after reading an excellent report on tax avoidance titled Offshore Shell Games, and published last month by Citizens for Tax Justice and US PIRG.

Corporate taxation is all over the news these days as US firms move their headquarters overseas for tax reasons, in a process known as inversion. But aggressive maneuvering to avoid taxes is nothing new, as I wrote today in a story for Guardian Sustainable Business.

Here’s how the story begins:

America’s a great country. That’s why people from all over the world — including, lately and tragically, thousands of poor children from Central America — clamor to get in. So why are some of America’s wealthiest companies trying to get out?

It’s simple, really — they don’t want to pay US taxes.

You’ve probably heard about Walgreen’s, your neighborhood pharmacy that is contemplating moving its headquarters to Switzerland to reduce its tax bill. Medtronic, the big medical device company based in Minneapolis, Minnesota, has plans to move to Ireland, for tax-avoidance purposes. Then there’s Mylan, a maker of generic drugs based near Pittsburgh, Pennsylavia, which intends to incorporate in the Netherlands, where the tax rate is lower. Mylan’s CEO, as it happens, is Heather Bresch — the daughter of US Senator Joe Manchin, a West Virginia Democrat — and she says she has no choice but to go.

Other companies aren’t going so far as to relocate their headquarters, a process known as inversion that often requires them to acquire a company based elsewhere. Instead, to avoid US taxes, they are parking their earnings offshore, often in tax havens like Bermuda and the Cayman Islands that levy no corporate income taxes. That tactic, which like the inversions is legal, is being employed by companies that position themselves as good corporate citizens — among them Apple, Coca-Cola, General Electric, Google, Microsoft, Nike and PepsiCo.

Exploiting loopholes in the tax laws may or may not be legal–the IRS is hopelessly outgunned by big corporate tax departments–but it’s unethical.

The report from Citizens for Tax Justice and US PIRG, which makes for surprisingly compelling reading, details a number of questionable tax avoidance strategies that allow companies to shift earnings, purely for tax purposes, from high-tax jurisdictions like the US to tax havens. Here are my favorite fun facts from the report:

The report found that subsidiaries of US companies reported earning $94bn in Bermuda, which has a gross domestic product of just $6bn. That doesn’t compute. US firms reported earning another $51bn in the Cayman Islands, where GDP is about $3bn.

This is outrageous, and please don’t tell me that the way to fix the problem is to reduce the admittedly high US corporate income tax rate. The US cannot compete with places where the tax rate is zero.

All of these companies, of course, benefit enormously from government services–public education, police, the rule of law, highways, etc. Those companies that don’t pay their fair share shift the burden to others–small businesses that can’t afford high-priced accountants, companies that don’t have overseas operations and therefore can’t take advantage of the opportunity engage in tax-avoiding shenanigans and, of course, the rest of us.

You can read the rest of my story here.

You remember carbon offsets, don’t you?

SUV-vs-Carbon-OffsetsYou remember carbon offsets, don’t you? When companies like Dell, Yahoo!, News Corp. and HSBC promised to go carbon neutral, they decided to do so, in part, by financing projects to develop clean energy, or plant trees, or capture methane gas from landfills or farm animals that would, in theory, offset their own emissions. In regulated markets, mostly in Europe, traders bought and sold billions of dollars in carbon credits. Carbon finance was going to be the next big thing.

That was so, well, 2007. These days, you don’t hear much talk about carbon neutral. And the price of carbon credits on regulated markets has collapsed; you can buy a credit, once worth 32 euros (about $42), for about 4.5 euros ($6) these days on the European exchange. Here in the US, cap-and-trade was rejected by Congress. Carbon offsets came under attack, rightly or wrong, as a scam.

So it came as a surprise to me to learn recently that the market for voluntary carbon credits is alive and well and growing, at least by some metrics.  A report by a nonprofit called Ecosystem Marketplace put the size of the market at 101 million tons of carbon offsets in 2012, which is up 4 percent over the previous year. In dollar terms, the value of the voluntary offset market fell by 11% to $523 million, as the prices that buyers were willing to pay fell. Even so, a not-insignificant number of companies and individuals are willing to act ahead of governments when it comes to curbing climate change. [click to continue...]

Taxing carbon at Disney, Microsoft and Shell

urlMany economists, left and right, favor a carbon tax. Requiring companies and, ultimately, all of us to pay when we generate greenhouse gas emissions would deliver many benefits. By raising the costs of fossil fuels, a carbon tax would help drive efficiency and conservation. It would stimulate investment in low-carbon sources of energy, and encourage research into new clean-energy technologies. It would, of course, reduce the emissions that cause global warming; right now, anyone is free to dump the equivalent of garbage into the atmosphere without paying a penalty.

More broadly, economists say, governments should impose taxes on things that we want less of, like alcohol, tobacco and pollution–these are known as Pigovian taxes–and try to reduce the costs of the things that we want more of, like jobs, which, unfortunately, cost more to create when government burdens employers with payroll taxes and health care mandates.

What impact might carbon taxes have on business? In my latest story for the Guardian Sustainable Business, I look at three companies — Disney, Microsoft and Shell — that have decided to impose carbon taxes on themselves. They also favor government action to regulate carbon emissions.

Here’s how the story begins:

Visitors who climb aboard the steam trains in the Disneyland resort in southern California need not worry about their carbon footprint. The trains are powered by soy-based cooking oil recycled from the resort’s kitchens.

It’s a Mickey Mouse gesture, really, when set against the millions of miles that park visitors travel by car and plane to reach Disneyland. But it’s driven, in part, by an innovative and forward-thinking tool that Walt Disney, which posted revenues of $42.3bn (£27.8bn) in 2012, uses to regulate its greenhouse gas emissions. A self-imposed carbon tax.

It’s not just Disney. Although most of the world’s governments have declined to put a price on carbon emissions, a handful of global companies, including Microsoft and Shell, have chosen to act on their own. They have established internal carbon prices in an effort to reduce emissions, promote energy efficiency and encourage the use of cleaner sources of power, just as a government tax or cap-and-trade program would.

You can read the rest of the story here.

Peak sustainability? Thankfully, not….

Dave Stangis and Tod Arbogast at the GreenBiz Forum

Dave Stangis and Tod Arbogast at the GreenBiz Forum

Have we reached “peak sustainability”? It’s an intriguing, and a worrisome idea, the notion that the much-hyped green business wave of the late 2000s has come and gone. But a day spent at the GreenBiz Forum in New York, where the idea of peak sustainability was bruited about, leads me to believe — and to hope — that we are nowhere near a peak.

Peak sustainability is a term coined by John Davies, a vice president and senior analyst at GreenBiz, who works with dozens of big companies. As part of the excellent  State of Green Business 2013 report, John has tracked the hiring of sustainability professionals by big companies and found that it has leveled off in recent years. He wrote:

It appears the wave of major companies hiring their first full-time sustainability executives crested long ago….If hiring a senior executive to champion and coordinate sustainability efforts full-time is a leading indicator of future efforts, there’s a case to be made that such efforts may have plateaued…. Could it be that pretty much everyone who’s coming to this party has already arrived?

sportsillustratedMeantime, marketing and media devoted to corporate sustainability, as well as to all things green, appears to be slipping. The high profile greening initiatives at GE, IBM and Walmart are lower profile lately. Remember the cover story on global warming in, of all places, Sports Illustrated? That ran way back in 2007. If SI has returned to the topic, I missed it. Its parent company, Time Inc., laid off its sustainability team as the magazine business slumped.

But as the GreenBiz Forum unfolded, an array of speakers, including both senior executives from big companies and idealistic young entrepreneurs, described how they are moving sustainability initiatives forward inside their organizations. Not fast enough, surely not boldly enough, but often in innovative ways that are likely to spread. Some examples: [click to continue...]

Corporate America embraces gays. But what about gay marriage?

Gay rights hasn’t been an issue in the presidential campaign, and that’s good. “On gay issues, silence is golden,” says Jonathan Capehart, a Washington Post editorial writer. As recently as during the 2004 election, you may recall, Republicans put gay-rights measures on state ballots to draw out voters who would favor George W. Bush over  John Kerry. “We’re not the punching bags we were two elections ago,” Capehart says. The tide is turning.

Some credit for this belongs to corporate America, which has over the last two decades embraced the gay community.  Capehart made his remarks during a panel discussion at the 2012 Out & Equal Workplace Summit, a gathering of LGBT people in the business world. Out & Equal, an advocacy group, champions workplace equality, in part because changes in the workplace become a catalyst for broader cultural changes. [click to continue...]

Corporate sustainability, by the numbers: Who’s up, who’s down, who cares?

This has been a big week for corporate sustainability rankings, with the Dow Jones Sustainability Index (DJSI) and the Carbon Disclosure Project releasing new reports. Vote Solar and the Solar Power Electric Industries Association showcased the  top 20 corporate users of solar power in the US. A book called Good Company just landed on my desk, along with its own 2012 Good Company Index. And October will bring the World Series, Halloween and, of course, the annual Newsweek “green” rankings of big public companies.

All of which raises a couple of questions.

Do these ratings and rankings matter?

More important: Should they?

Undeniably, they do matter, mostly but not entirely because of the prestige they confer upon companies that do well. Press releases are flying! “Carbon Disclosure Project Salutes Con Edison” (Really?) “PepsiCo Earns Sustainability Accolades.” “GM Named Top Solar User in the U.S. Auto Sector.” This is all well and good. Some middle-management executive had to fill out those CDP forms or buy those solar panels, and why not recognize their efforts with a salute or an accolade? [click to continue...]

Is investing in poor women good business?

A health educator at her work station in Bangladesh

One lesson of the Apple in China scandal is that factory monitoring is a necessary but insufficient way to improve the lives of workers in poor countries. Apple inspected its suppliers’ factories, but conditions remain harsh. While strengthening inspections and sanctions, smart brands and retailers are finding ways to help workers in their supply chains gain more control over their work and lives.

A program run by BSR (Business for Social Responsibility) called the HERproject, which gives women working in export factories access to health information, is an example of what could–and should–be done. Teaching young women about health, including reproductive health and family planning, is, by itself, a good thing. It also delivers a not-so-subtle message to factory owners that it might be good for their business to take better care of workers, instead of exploiting them until they are used up.

Many factory owners “see their workers as cogs in a machine” and act accordingly, says Racheal Yeager, who leads the HERproject for BSR. “That’s why there are high rates of turnover and high rates of absenteeism.”

“What we’re trying to do is change the mindset of the factory management,” she says. [click to continue...]

Why Google invests in clean energy

Last year, Google invested more than $915 million in clean energy projects–solar, wind and transmission.

That’s a lot of money, even for Google, which had $38 billion in revenues in 2011. The investments don’t appear to be core to the company’s mission of organizing information, and they have attracted criticism, as well as some careless reporting, implying that the Internet giant is exiting the alternative energy business.

Does Google have an energy policy? Does it need one?

To find out,  I recently went to see Rick Needham, Google’s director of green business operations, at the company’s fabled headquarters (well, fabled for a 13-year-old company, anyway) in Mountain View, CA.

I came away not merely persuaded that Google’s energy investments make sense, but thinking that other companies that consume lots of electricity and have a pile of cash on their balance sheets  — Apple, Microsoft and GE come to mind — should consider deploying some of their cash in the clean energy sector.

Clean-energy investing isn’t philanthropy for Google. It’s business. In fact, it’s a classic double-bottom line investment, one that is intended to deliver environmental as well as financial benefits.

[click to continue...]

Microsoft: Democratizing data to protect the planet

Much conversation around the greening of information technology is, frankly, boring. Energy-efficient data centers, PCs that sleep automatically, cloud computing that uses server capacity more efficiently–all important, to be sure, but dull.

What’s more intriguing are the ways IT is being used to attack big environmental problems.

IBM has gotten lots of attention, and rightfully so, for its Smarter Planet campaign, in which data is used to help unclog traffic congestion or develop new types of biodegradable, biocompatible plastics. Google has its power meter, which helps consumers manage energy consumption, and RechargeIT, an effort to speed the adoption of electric cars. Not to be outdone, Microsoft has developed several consumer-friendly services that use the power of data to save energy and preserve the environment.

Hohm helps homeowners save energy and money. Bing maps with real-time traffic information help commuters avoid fuel-wasting traffic congestion. Eye on Earth, currently available only in Europe, provides gives citizens air and water quality information they can use to protect their health, and to become more politically active. [click to continue...]