A global giant slipping through the tax net. The case of Google in Australia

Table of Contents

Executive Summary

1 Case Background

2 Body of the Analysis
2.1 Stakeholder Analysis
2.1.1 Who are Google’s Stakeholders?
2.1.2 What are the Stakeholders’ Stakes?
2.1.3 What Opportunities and Challenges do the Stakeholders present?
2.1.4 What Responsibilities do Google has towards their Stakeholders?
2.1.5 What Strategies should Google take to best address their Stakeholders?
2.2 Cooperate Governance based on OECD Principles
2.2.1 The Independence of the Board
2.2.2 Ethical and Responsible Decision-Making
2.2.3 Disclosure and Transparency
2.3 Corporate Social Responsibility
2.3.1 Economic Responsibilities
2.3.2 Legal Responsibilities
2.3.3 Ethical Responsibilities
2.3.4 Philanthropic Responsibilities
2.4 Corporate Social Performance
2.5 Ethical analysis

3 Conclusion

4 Recommendations
4.1 Demonstration of more Transparency
4.2 Improvement of Googles’ Ethical Responsibility

References

Executive Summary

This report was commissioned to examine the case study regarding tax avoidance of multinational companies, like Google. The research draws attention to the case background and raises the question to consider if the tax strategies used by Google in Australia are ethical. Further, it follows a stakeholder analysis of the company and a Corporate Governance Discussion. Afterwards the implementation of Corporate Social Responsibility and the Corporate Social Performance of Google are explained. Finally an ethical analysis and recommendations will be provided.

In conducting this report only secondary research methodologies were used implementing resources such as books and websites.

The stakeholder analysis showed that society also present an important group of stakeholders. In view of the tax avoidance it becomes clear through the corporate governance principles and compliance with corporate social responsibility and performance that Google acts in a legal framework. Thus Google would like to expand their competitiveness and increase profits by utilising tax avoidance. However, Google does not consider societies unethical perception of their actions. The resulting consequences of these actions are also disregarded. Therefore society is expected to compensate with higher tax payments and national budgetary shortfalls are acceptable.

Evaluation of the case study leads to the following recommendations: A weakness was identified in the transparency and ethical responsibility of the company towards their stakeholders. It is recommended that Google should show more transparency and improve social responsibility in order to satisfy stakeholders’ needs and wants. Special attention should be paid to ethical decision-making. Recommendations have been made to suggest that a more ethical view by Google could potentially improve the company’s perception in future.

1 Case Background

The American subsidiaries of Alphabet Inc., Google Inc., became known by offering internet services, as for example through the search engine of the same name; Google. The company was founded in 1998 by Larry Page and Sergey Brin. Google currently has 40,000 employees in 70 establishments in more than 40 countries. With the headquarters in Mountain View, California, Google is by far the most popular search engine today with a worldwide market share of 70 per cent (Google Inc. n.d.). The most important income source for Google is advertising. Customers can position themselves in the search engine according to the amount of their budget. For many years Google’s revenues and growth rates continuously increased and forecasts predict around 60 billion US dollars in turnover for 2016 (Statista 2014).

To legally avoid taxation Google organised a holding company in Ireland and redirect a large portion of their revenue there. Regardless of where advertising is initiated revenue often ends up at the Irish subsidiary. For example, whoever books online advertising with Google in Australia ultimately gets a contract with Google Ireland Ltd. The other establishments of Google merely act as service providers. Thereby Google pays significantly less tax because the corporate tax rate on the green island amounts to just 12.5 per cent. This company tax rate is the lowest among the 34 combined industrial countries in the Organisation for Economic Cooperation and Development (OECD). To avoid the tax payment completely, the holding is registered in Ireland but is located in tax havens like the Cayman Islands. After all, Google must generally make no tax payments there because the company is not taxable in Ireland according to Irish law. Google's putatively unprofitable Irish subsidiary is a classic example of how international large enterprises move their profits on the globe back and forth to pay as little as possible to the treasury (Theurer 2011; Voss 2012).

However, despite the obvious benefits, the question arises why multinational companies, like Google, try to avoid taxation and if the tax strategies used by them could be considered ethical.

2 Body of the Analysis

In this section of the report a stakeholder analysis is presented, followed by a Corporate Governance Discussion, based on OECD Principles, to analyse whether Google’s tax strategies are ethical. Subsequent insights into the Corporate Social Responsibility (CSR) and Corporate Social Performance (CSP) are provided and an ethical analysis is ultimately explained.

2.1 Stakeholder Analysis

External forces influence every enterprise, including Google. This forms the business environment of a company. If Google wants to position themselves ideally in the market and towards competitors, the company has to consider their environment and the influencing factors for their strategy planning. Stakeholders form the environment of the company. Every stakeholder has their own interests to pursue and represents these interests towards Google. The critical functions are describing, analysing, understanding and managing stakeholders (Carroll & Buchholtz 2013).

2.1.1 Who are Google’s Stakeholders?

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Figure 1: Google’s Stakeholders

Source: Google Inc. (n.d.)

The main stakeholders of Google are the customers comprising of all potential users and advertisers, as well as employees and investors (Google Inc. n.d). Nevertheless, concerning Google’s tax strategies the community also plays a significant role as it becomes evident in the course of the following chapters.

2.1.2 What are the Stakeholders’ Stakes?

There are three things that have to be considered to find out what stage each stakeholder has; power, legitimacy and urgency. All three things can affect the company.

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Figure 2: Stakeholder Typology

Source: Carroll & Buchholtz (2013)

Table 1: Categorisation of Google’s Stakeholder

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2.1.3 What Opportunities and Challenges do the Stakeholders present?

Investors represent a large opportunity for the company. From a financial perspective, these stakeholders are essential. The relationship between Google and their customers should be maintained constantly to be able to economise successfully. Even employees are an important part of the enterprise. They can be an opportunity as well as a challenge for Google. Without employees Google could not exist and it is a fact that the better a company treat their employees the greater is the output that a company can gain from them. The media have a strong presence on the surface so it is more of a challenge for Google. If Google doesn’t consider the media they can be hurt by them, usually regarding their image. Depending on the performance of Google, society can present an opportunity as well as a challenge because their perception is influenced by Google’s actions (Carroll & Buchholtz 2013).

2.1.4 What Responsibilities do Google has towards their Stakeholders?

Table 2: Google’s Responsibilities towards their Stakeholders

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Source: Carroll & Buchholtz (2013)

2.1.5 What Strategies should Google take to best address their Stakeholders?

Figure 3: Diagnostic Typology of Google’s Stakeholders

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Adapted from: Carroll & Buchholtz (2013)

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