Facebook, Zynga, The Cayman Islands and Ireland. Another great day for ethics.

On foot of my blog about the ongoing tax avoidance issues yesterday (which follows below), I was amazed to read the very brilliant Colm Keena's story in today's Irish Times newspaper - http://www.irishtimes.com/newspaper/finance/2013/0102/1224328327411.html

I'm actually getting tired of blogging about what has become a tax avoidance issue but for some reason, the information just keeps coming to me. There's that much of it about. Shocking.

So it was interesting to see changes at Facebook and Zynga's Irish operation. I'm sure they're completely unrelated to the tax avoidance issue.....

Colm reports that Facebook are moving all its non-US revenues to a new Irish subsidiary. 

Facebook Payments International Limited, a new Irish company, will now take on the billing from Facebook Ireland Limited, which showed revenue of 1 billion euro in 2011 - up from 229 million in 2010.

What's interesting too is that it lost 18.7 million on that revenue of 1 billion and why you might ask?  Because largely, of payments it made to its parent Facebook Ireland Holdings Limited owned by Facebook entities in the Cayman Islands.

These are exactly the same type of controversial charges by parent companies to create losses (and thereby, meaning they pay little or no tax) and are very similar to the devices used by Starbucks and others - so highly criticised. 

What's also stunning is that Facebook has a registered company in The Cayman Islands ultimately - one of the great tax shelters of our time after Ireland. Interesting still, is that it's an unlimited company, meaning it can avoid prying eyes from journalists and not be subject to the usual company rigours.

Which is really quite shocking for a PLc.
In fact the whole thing just stinks.

One of the ways Facebook generates these revenues is by way of "game credits" from gaming company Zynga.

And it would seem, Znyga is another Irish company success! 

Zynga Game Ireland Limited (I kid you not) reported a pre-tax profit of a meagre 4.8 million on revenues of 369 million. This small, poor profit is because of.... yes you've guessed it.... payments to other Zynga companies.

Exactly as Facebook/Starbucks and them all, are accused of, in order to avoid tax. By making payments to parent companies elsewhere, they avoid tax when those payments either exceed the income or practically wipe out any profit.

So for example, of that 369 million revenue, a stunning 191 million for example, was paid in "royalties" to another Zynga company with registered offices at Solicitors in Dublin. 

That very company in turn, despite revenues of 191 million and no employees, reported a loss of 35 million! Get the pattern? Because....wait for it....it paid 50 million to its parent company in "royalties" and a further contribution of 174 million in R&D which is 224 million paid out after only generating 191 million.

Funny too that only in November, Znyga's finance chief, David Wehner, left to join...Facebook as vice-president of corporate finance. Doesn't surprise me anyway....

Avoiding tax isn't illegal, just immoral.

And it seems it's widespread. In fact with Google, Facebook, Zynga, Amazon, Starbucks, Microsoft all getting a mention already and so many previously "respected" names, it's hard to imagine that it's just not common practice.

However, it would seem that a lot of other companies with a lot of advisers, are involved in this style of doing business despite being sheltered by an appearance of integrity. On the scale of billions, which these activities are, would require the active involvement of a myriad of professionals.

And yet again, they all have one thing in common, one thing that's bringing these stories to light.

Ireland.

Brand Index Top brands 2012 just out. Google not in top 10 because of tax issue. Europe's "biggest tax haven", Ireland, is going to suffer too.

Well welcome back and indeed I hope your 2013 is as good as I plan mine to be! I think the great thing about Christmastime is that everyone else is off so you don't come back to lots of emails and messages.

Social media and Business shuts down too - I think this year more than most because things have been so tough, everyone needed the break from it. Equally of course, there was little point in staying open given the general lack of activity.

So although I was keeping an eye, not a lot happened during the break you can be assured....although the march over The Fiscal Cliff in the USA, is pretty scary in itself.

One of the more major issues that I blogged many times towards the end of 2012 was the tax avoidance issue and where Ireland now facilitates widespread European tax avoidance. 

The Google Story is here http://streamabout.blogspot.ie/2012/12/the-tax-controversy-continues-now.html.

Microsoft's shameful governance and use of Luxembourg and Ireland's help in doing it is here http://streamabout.blogspot.ie/2012/12/starbucks-try-to-sort-it-microsoft-now.html

Starbucks story here  http://streamabout.blogspot.ie/2012/12/starbucks-are-we-seeing-death-of-brand.html

US senate view of Ireland as a tax haven along with Costa Rica/Belize is here 
http://streamabout.blogspot.ie/2012/12/now-dropbox-comes-to-dublin-for-greatly.html

Amazon, WPP and others appalling tax behaviour is here http://streamabout.blogspot.ie/2012/12/starbucks-amazon-google-microsoft-wpp.html 

In particular, Ireland has become Europe's "biggest tax haven" in the view of the US Government no less and gets mentioned in the same breath as Costa Rica and Belize. Imagine.

Although this tax avoidance controversy was sparked by the poor corporate behaviour of Starbucks, it quickly extended to Facebook, Amazon, Dropbox, LinkedIn and most notably Google with most having their European HQ in Dublin - largely to facilitate the tax avoidance through the infamous "transfer pricing". It's a story that is so bad it's not going away any day soon and I did wonder if the bad publicity would reflect on the brands themselves. 

And it has.

Clearly it has nearly destroyed Starbucks and no bad thing either. They behaved badly in doing what they did but worse following a "faux" PR attempt to make amends by offering to pay tax. And in doing so, cut into their staff incomes to achieve it. A company that's being exposed for what it really is rather than what we thought it was.

Google has also come out thus far, as being pretty poor too and therefore I was interested to see the annual 'Brandindex Table' by YouGov in the UK which asks 2,000 different people a day about good/bad things about brands, that Google has itself fallen off a brand cliff. Google have dropped out of the top 10 altogether. It has dropped from a 26.7 rating to 11.7 which is about as dramatic it can be in the short time and largely, according to BrandIndex, because of the tax issue.

Another avoider to also feel the wrath on the same issue is Amazon. 

Amazon dropped from first to third - 32.1 rating down to 24.1 and again it's been late to the controversy so it will suffer more.

Here is the Top 10-

The top brand was The BBC Iplayer (remember this is a UK survey); John Lewis (big Department store with terrific advertising); Amazon; Money Saving expert; Marks & Spencer; Ipad/Apple; Sainsburys (retail grocery); BBC.co.uk; Samsung and lastly, Cathedral City (a cheese I think).

So there's no doubt, brands that have been involved (and there's a lot) in this tax avoidance 2012 issue, will see damage in 2013 unless they put it right. However, countries that are associated with it and that actually contribute to it, will feel the damage too. 

Most notably those countries that terrorise their citizens into paying tax and at the same duplicitous time, help large corporates shamefully avoid it.

Ireland beware.

The Tax controversy continues. Now Google is in the frame. And Ireland is still in the dock.

Google now enters the frame regarding the ongoing tax controversy in the UK, Europe and Ireland.

According to The Sunday Independent, it has paid less that 70 million euro tax between 2005 and 2011 on sales of 47 billion through its Irish operations. That's 0.14% tax.

It keeps tax bills low through royalty payments filtered through Ireland, the Netherlands and then eventually....Bermuda. Tax research UK said that Ireland has the "laxest transfer pricing rules of anywhere in Europe" and "Ireland doesn't ask questions of companies that are located there". It would seem we want them so badly, we let them off all the hooks.

France has raided their offices many times and slapped Google with a 1.68 billion tax bill on the other hand. Italy are doing something similar and have told parliament that they have found millions in undeclared income and unpaid tax.

A British parliamentary body have dubbed Google's tax practices, with notable reference to Ireland as "utterly immoral" because tax avoidance is not illegal per se.

Google is shifting income from where they do business to tax shelters - Ireland being Europe's biggest. The Starbucks issue is really bringing all this into focus and will lead to changes in international law.

Google Inc., the holding company for example was able to only pay 2.5 billion tax on 26 billion of profits in 2011. Not bad eh?

There's no doubt Google do comply with all Irish tax regulation but this is what is being called into question. Ireland and a tax regime that helps large multinationals avoid tax elsewhere.

The whole saga is unravelling and Ireland is starting to look like the con of Europe. Our European partners will not let us away with this any longer.

Starbucks try to sort it, Microsoft now in the Tax avoidance headlights. Ireland is facilitating widespread European tax avoidance. Shocking.

Actually that's a TV commercial that was used around the world in 2009 for IDA Ireland. I was on the team that did it and were terribly proud of it then. Now, I'm not, in what's developing as being more clear that Irish investment policy is a sham and simply facilitating widespread tax evasion.

Ireland, it is becoming clear, is at the centre of facilitating widespread European tax avoidance along with countries like Luxembourg and Bermuda. Our investment policy in attracting high-profile US dot coms, is nothing to do with innovation or a "great workforce" that draws US multinationals here - it's because of our tax breaks, pure and simple. It allows them to divert other european revenue to Ireland, declare it here and pay low tax. Rather than declare it where it's generated and pay it there.

The premise that big multinationals invest in Ireland because of something other than tax, is a lie. You can see previous blogs on this issue here;

- On Starbucks UK http://streamabout.blogspot.ie/2012/12/starbucks-are-we-seeing-death-of-brand.html  

- On last weeks Dropbox announcement to base in Dublin http://streamabout.blogspot.ie/2012/12/now-dropbox-comes-to-dublin-for-greatly.html 

- And general tax avoidance http://streamabout.blogspot.ie/2012/12/starbucks-amazon-google-microsoft-wpp.html

Starbucks, following a series of protests against them in the UK Saturday, by 'UKUncut' after the dreadful revelations regarding their low, low, UK tax, have made efforts to settle. However, the whole tax avoidance story against Facebook, Amazon, Starbucks and others emerging, threw Ireland into the headlights. It's their stories that's unravelling ours.

Vodafone now are starting to get a mention and they too have a major Irish presence.

Starbucks attempted settlement with UK Revenue by offering to pay 10 million a year tax, for two years. Big deal. Their chief executive, gets 16 million a year alone. Their brand is damaged for ever and they'll not recover from it.

Being mentioned too, by the US Government as Europe's "biggest tax haven" and, mentioned in the same breath as countries like Belize and The Cayman Islands, Is good old Ireland. Ireland's investment policy, it's becoming obvious, seems to be driven by helping major companies avoid tax elsewhere. In fact, 50% of Irish government income revenue tax comes from US Multinationals. Clearly, they don't generate that tax and revenue in Ireland.

At a meeting I attended with US Secretary of State Hillary Clinton last Thursday, she talked about US companies investment in Ireland. At nearly 2 billion usd, it's more than US companies invest in India, Brazil, China, and Russia....COMBINED. Now we know why.

The reason? Nice climate? Nah. Great workforce? nope. Super tax incentives? Absolutely. And for most, call that, tax avoidance.

And this is an Irish Government, knowingly complicit in widespread tax avoidance, that persecutes its own citizens to pay their tax. 

And a new brand to take over the Irish story as a tax avoider (taking the mantle from Starbucks), is our good friends, Microsoft.

Microsoft is channelling Windows 8 online sales to Luxembourg in order to avoid tax in the UK of over 2 billion euro. According to The Sunday Times, Microsoft keeps a small office in a Luxembourg business park with 6 staff that handles millions of pounds in European online sales.

The bulk of that money is then transferred elsewhere. Any ideas? Yep to its European headquarters in Dublin, Ireland. Profits are then routed to Bermuda without UK corporation tax being paid.

Bermuda? Luxembourg? Dublin? And this is Microsoft. Dear oh dear. Ireland's role in this is truly appalling.

Luxembourg is a long practitioner of these black arts and is now the highest GDP per head of the population in the world, largely because of these sham transactions. Its tax rate of 21% can be reduced through negotiation and other royalty taxes can be as low as 6% to even 1%. 

(Indeed, it's right bang in the middle of the new, and coming to a screen near you, JP Morgan tax avoidance scheme - 200 million? JP Morgan? THE brand of trust??? Jesus).

One of the most profitable companies in Luxembourg is Amazon who has their European headquarters there. European Headquarters in Luxembourg??? ...jeez. Amazon therefore avoids UK tax on about 2.9 billion sterling of revenue generated by British consumers.

Apple is at it too. Its sales of UK Itunes goes straight to its HQ in Luxembourg. With a turnover of 836 million sterling, it employs 16 staff. For a company turning over near a billion, 16 people. A sham!!!

Microsoft's online store in the UK references the fact that if you buy online you are in fact dealing with Microsoft Luxembourg and ultimately, as we all know now, Ireland. 

One Microsoft Ireland company accounts reveal it receives about 1.7 billion sterling in UK revenue and no corporation tax is paid on any of that money. Another Microsoft Ireland company - Microsoft Ireland research - reported 4.3 billion usd in profits for licensing rights in 2011 (so clearly not generated in Ireland) which presumably paid the super Irish tax avoidance rate of 12.5% or lower.

Profits from this Irish company are paid to another Irish company - Round Island One - which pays its dividends to Round Island Holdings based in....Bermuda. Shocking. 

I am Irish. 

A country that has put its citizens into poverty in order to pretend that it was "honourable" and honouring promises to bank investors (bondholders). One wonders was pressure put on by these multinationals?

When in fact it was at the same time dishonouring its European partners by facilitating enormous tax avoidance. IDA need to explain it all now.

This needs disclosure because if we don't that, our European partners will demand it. We should act before they start to crucify us over this. 
And they will.

We're looking like the con merchants of Europe.

Starbucks. Are we seeing the death of a brand?

Starbucks is really beginning to lose its gloss as a brand. And it's their own fault.

Under scrutiny recently about paying low tax (alongside Google, Amazon et al) it made a publicity moment by saying that it was prepared to enter talks with the UK Government in order to actually pay more tax. Good move...perhaps.

They've paid relatively little UK tax and route their profits to that transparent tax country, Switzerland.  Clever maybe, immoral definitely, but from a brand perspective....disaster.

At the same time, on almost the same day, it started a process to reduce staff benefits and by implication, is getting its staff to pay the increased tax. Faced with massive protests this Saturday by UK Uncut (http://www.ukuncut.org.uk/), it paid 8.6 million in tax over 14 years on sales of over 3 billion. Its tax practices have been branded "immoral" by The House of Commons's Public Accounts committee.

Starbucks has now decided to cut the lunch breaks of its 7,000 staff, sick leave and maternity benefits. It has also removed managers cash incentives (they now get a plaque instead - Yippee!) and workers have to sign their new employment agreement. In a real mealy-mouthed way it has done away with giving new mums on its staff a hamper and instead they get, a card with a Starbucks bib (!). I'm sure they're thrilled! Congratulation and Birthday staff cards are gone too. I'm not kidding you.

Starbucks say the two matters - tax and employee benefits - are totally unrelated, although they told staff not to discuss the new terms. But those staff are of course Social Media savvy and strong Bloggers so they've unleashed an insider Social Media army against themselves.

If you're in any doubt, you'll find them here, courtesy of The Guardian.
http://www.guardian.co.uk/business/interactive/2012/dec/03/starbucks-uk-employees-new-contracts?intcmp=239

Started in Seattle 1971, it is the largest coffeehouse in the world, present in 61 countries. 


This was a brand that had everything.
Innovation, coolness, music, store hipness and in a matter of weeks is in danger of losing it all.

The tax issue may claim more big brands, yet.

Starbucks, Amazon, Google, Microsoft, WPP all in the news about tax avoidance through Ireland. And now they know it.

The British Government is to explore an internationally co-ordinated new tax designed to capture the earnings of companies like Amazon, Google but also Starbucks, according to The Telegraph. The particular focus is to force online companies pay more tax on sales they generate in the UK. Some use a variety of legitimate, but certainly questionable, ways of avoiding tax. In the case of Starbucks, for example, they apply fees from their Dutch parent to minimise their local UK tax.

And it's causing an outrage against the brand. 
And rightly so.

Activist Group, 'UKUncut' has announced a day of action (Saturday Dec 8) against Starbucks and these protests are aimed at bringing Starbucks to their senses or to put them out of business. One way or the other. 

The UK Government wants to close the loop that allows web companies avoid millions of pounds on tax and in fact, repatriate a lot of it to Ireland, the lowest corporation tax economy in Europe (12.5%), to avoid paying it locally. 

There can be little doubt at all now, that the heralded Irish Government investment plan is little more than a sham, based purely on tax incentives for multi-nationals locating here. In fact, it could be said that it's based on facilitating widespread tax avoidance across Europe, technically legal as that might be. But this is why Ireland's 12.5% tax rate is under European pressure.

Up to 50% of Irish corporate tax revenue may relate to taxes paid on income earned by US multinationals outside Ireland.

I once looked after The Industrial Development Authority (IDA) Advertising so I have a good understanding of their level of expertise.....and although, applauded by Government, the truth is beginning to come out. It's all about tax.

It has been often thought as bizarre, that for a country the size of Greater Manchester, Ireland is the European HQ for Google, Facebook, LinkedIn and others. It is becoming more clearer that when companies locate here, it facilitates their tax avoidance elsewhere, such as in the UK. Tax avoidance is of course, not illegal.

Indeed, even the very British Ad Group, Martin Sorrells's WPP (part owners of Dublin Ad Agency DDFH&B and Group M), had based itself in Ireland for tax reasons and shockingly, the company is now discovered to be actually Jersey registered. One wonders why it needs to registered in a small, tiny island like Jersey known really only for its "special" tax facilitation? Good reasons, no doubt.

Amazon is also shockingly, actually registered in Luxembourg, another famed principality for its tax shelters and discreet facilities. Amazon? THE American retail success? It had used Luxembourg VAT laws to its own competitive advantage for example, charging only 3% on an ebook sold in Britain whereas other booksellers had to charge 20%. That loop is now being closed and I've been a fan of Amazon, but it's just worn thin.

Google, with a staff in the UK of 1,300 books most of its revenue to surprise, surprise, Ireland. So it earns money in the UK but funnels it through Ireland. That's Ireland's great tax regime I mean that attracts companies like these in the first place.

Actually Google's "Irish" revenue is recorded as 12.4 billion. How ridiculous is that? Gross profit in Ireland in 2011 was recorded at 9 billion!! It's truly ridiculous. 

The whole tax avoidance is unravelling and more and more are beginning to understand the tax avoidance which Ireland has been facilitating against its European partners, and most notably, our biggest trading partner, The UK. So much of these investment decisions have been PR spun as being based on attracting business to what is said, a better educated workforce in Ireland, when in fact, they are simply decisions based on tax "incentives".

And the UK are not happy about it.

For example, Amazon, last year in the UK, earned 3 billion sterling in sales. But only declared 207 million of those as being from the UK and consequently, over the last three years has only paid UK tax of 2.3 million on total sales of 7.1 billion. Shocking undoubtedly, but it's being called immoral by many, albeit utilising legal tax manoeuvres.

Microsoft in 2005 were commented on in The WSJ for routing profits from Germany into Ireland. I mean it's actually funny that one Microsoft subsidiary called 'Round Island One Ltd', is actually based in a solicitors office and turns out to be one of Ireland's greatest companies. It has 9 billion in profits in 2004 and no staff. Not bad eh? And nobody has ever heard of it.

Google, paid UK tax of a tiny 6 million on UK revenues last year of 2.5 billion. Wow.

Ireland is helping them do that through "phantom" services.
Ireland is Europe's biggest Tax haven, followed by Switzerland.
And Ireland's tax schemes are now coming under the spotlight as it starts its European presidency from January 1st.

But more importantly, it's making the lie told by successive Irish Governments that Ireland was somehow an attractive base because of its workforce, its green fields, its beautiful scenery.

And it's wrong.
And we need to say it's wrong even if it's to our own detriment.

Starbucks Ireland low tax isues, causes protest and boycott. Other brands starting to surface. Brand anger.

I recently blogged about the problems Starbucks UK are having as a brand, following revelations about their low tax payments, particularly in the UK. You can read it here; http://streamabout.blogspot.ie/2012/10/starbucks-brand-that-was-loved-could-be.html

Now they're being faced with a boycott and further protests.

I was not terribly surprised to see a demonstration in Dublin on Friday outside their high profile outlet on Dame Street. The 'People before profit' alliance headed up by Richard Boyd Barrett in attendance, staged a peaceful lunchtime picket. In parts of the UK, it has not been so peaceful.

It's clear that Starbucks have minimised their Irish tax position as well.

According to The Irish Times, filed company accounts showed it paid less than 40,000 euro in taxes between 2005 and 2011 - 6 years. At the same time, it paid 5.7m euro to its parent in so called "royalty" payments thereby diminishing the tax it was required to pay in Ireland.

It is exactly these "royalty payments" that have created their UK problems.

Starbucks Ireland accounts show it made a "profit" for the first time last year of 524k euro on which it paid under 35k on tax - less than 10%. Only once in the previous 6 years did it record a tax payment - of 4k in 2008. Interestingly, in claiming "losses" that year of 5.5m euro, it still paid 1.3 million in royalties to its parent.

The Irish tax regime to attract investment at the standard 12.5% rate, has been constantly controversial. In the eyes of some, it is designed to promote widespread global tax evasion and is not based on the PR spin of investing in a young, vibrant Irish economy.

Starbucks will suffer as a brand, in these days of austerity because consumers don't like greed and corporate greed especially. Vodafone is now starting to get a mention. Notably too, a brand like Starbucks always had a bit of a "hippy honesty" and clearly their halo has slipped, or it was all pretend anyway. Image over substance.

Other brands that have the same issues will fall under the spotlight and be punished for it. Brand anger. A lot of people have themselves major difficulty in paying their tax and it will seem grossly unfair that corporates can avoid tax without penalty and largely, with Government consent.

As consumers suffer more and more, these issues are going to generate anger and brands are going to be punished. Starbucks suck will be a mantra.

It's a new issue that finds itself under the marketing umbrella, caused by austerity. And it signifies a change in consumer attitude that's going to grow. 

Brand anger. 

Starbucks. The brand that was loved could be in trouble over paying low tax.

Starbucks, the brand of choice for the new middle classes, is taking a hammering in the UK and will in Ireland, as its tax affairs become more public.
Whilst tax affairs have never really been the concern of marketing managers, in these days of austerity, issues like this come more to the fore.

The image above is one of many and taken from an 'Occupy London' protest.

A respected market research company 'YouGov' said Starbucks was facing a "brand catastrophe" and that consumer perceptions are declining daily after Reuters published an investigation into Starbucks low tax. It revealed that they only paid 8.6m stg in tax since they opened in the UK in 1998 (about 600,000 a year over 14 years).

In current climates, the public have a low tolerance of anything that even sounds like corporate greed but of course, Starbucks are only availing of "policies" from The British government/revenue to locate there. 

Indeed Ireland, has a widely acknowledged and hugely controversial, low 12.5% tax base which means that international companies who locate here, can wash global profits through Ireland at the lowest tax rate in Europe. It's a strategy that attracts investment which is based not on the PR spin of talent/resources/education, but rather, tax advantage. It is utter nonsense to suggest that if you allow corporates to avail of special tax incentives and evade tax in other markets where they trade by utilising EU provisions, that they won't avail of it.

Starbucks have now joined Google (headquartered in Ireland), Facebook (headquartered in Ireland) and Amazon as the focus of disquiet from the public about their tax affairs. Starbucks claim they're actually paying correct levels of tax due to loses incurred in their set-up in the UK although given that it attracts over one million customers a day in the UK, this is hard to believe. A business with that level of custom, should be profitable.

In the UK, tax is calculated on profits after interest costs and royalties and of course, adjusting those royalty costs, allow the company to minimise its tax. The fee is paid to the European HQ in Amsterdam and for example, in 2007 Starbucks would have been handsomely profitable if this "fee" wasn't paid.

However, payments like these, with the consent of HM Revenue, help corporates to avoid tax locally and about 25% of the 700 largest UK businesses paid almost no tax according to The Financial Times through devices such as these which smaller companies have no real access to.

Public anger over corporate tax is absolutely likely to continue and affect brand. Already campaigns against Starbucks, outside their stores, are planned.

The once doyenne of the middle classes could very quickly become a pariah.
And so too, very many others.