Author: jessestay

This is a cross-post from my other blog, Stay N Faithful, a blog I set up for Political and Religious posts (be sure to click and subscribe if you want more posts like these). I asked my brother, Ben Stay, if he could comment on the current tax situation of America, and gave him access to post there. The article was so good, and since he used Google and Google+ as examples, I thought it was worth sharing here – it’s definitely worth a read if you’re worried about the current state of employment in this nation. Ben is an International Tax Consultant and works with taxes on a day-to-day basis. He consults with companies and people that are dealing with cross border transactions and ventures. I hope you enjoy this as much as I did – my eyes were opened as I read it.

Currently the US essentially has the highest corporate income tax rate in the world at 35% and by including state taxes. Many people probably think that because they are big, rich companies, they should be paying at least as high as the individual tax rate. Corporations also do not get tax breaks for capital gains like individuals do, nor do they get a tax break on dividend income unless it’s from another US company in which they own 80% or more. This means that US corporations potentially have a higher tax base and thus may be paying even more taxes than individuals. So you may be saying, “So what? At least I’m not paying more taxes.” Well…this is what we’re seeing because of the taxes on corporations.

To put it conceptually, the government needs to fund itself and needs to get revenue in one way or another. This is not a debate about how much revenue the government should use, just a debate in the method in which they get it. If you think about it, the profits that corporations make are taxed twice: once by the corporation and a second time when distributed to their shareholders. This means that people can get more money if they plan around that. Any US citizen is taxed by the US government no matter where they live, so there’s little to be done to avoid the individual taxes. However, corporations and the locations where the income is earned is pretty flexible given how flat the world has become. The result is planning around where the income is earned and in corporate tax planning.

I make a living off of helping corporations plan where their income is earned. Being a US practitioner, my expertise is in US tax law, and given the high US corporate tax rate, my planning is around shifting income out of the US. Globally, any tax practitioner knows that you plan around the US by avoiding pushing any income into the US. The common places to use with planning are Luxembourg, the Netherlands, and Switzerland which have given great incentives for corporations to move their businesses and income to their countries. They do it through tax rulings. Essentially their tax system is not solidified with rules that are intended to catch everything a company does, so most everything is negotiated with the tax authorities. The tax authorities will give you a lower rate the more income you are bringing into their country. In other words, they incentivize companies to move income out of their home country and into one of these European countries. They then receive tax revenue they did not have before and we in the US lose the tax revenue.

Perhaps this still is not completely clear, so let me run through a common example of how it’s done. Google, a US company, was in the news for its 2.4% effective tax rate. That means that based on its billions in revenue only 2.4% is the amount anticipated that will be taxed. The report mentioned that it was using a Dutch sandwich structure and pushing income offshore to Bermuda. I do not know exactly what the structure entails, but I imagine it is something like this:

Google owns all sorts of brands and has operations throughout the world. Only one company can own the brand, so the other companies operating elsewhere in the world will pay a royalty fee for the right to use the license. The company that owns the brand or Intellectual Property (“IP”) receives the royalty payments as income. This is where a lot of income shifting is done. Even though Google is based in the US, they set up companies in countries throughout the world and one of those locations is the Netherlands where they probably get a very favorable tax rate from a negotiated ruling. The Netherlands is probably willing to give a really low rate considering they generate billions in IP income. Let’s take Google+ as an example. This is a more recent brand that Google developed. If they “developed” the brand in the Netherlands (the details of this can be complicated but it’s what companies do globally), then any other company in the Google family that utilizes that brand pays a royalty to the Dutch company. The companies paying the royalty get a deduction just as they would from salary expenses. That means the US company gets a deduction that reduces the amount of US taxes that are charged.

Google also has a lot of cash built up and is generating a lot of new jobs. However, this cash is likely not available in the US and the jobs are likely going overseas. This is because it’s too expensive to bring the cash back to the US (remember 35% tax rate on dividends) and the jobs are going overseas to support the development of IP outside the US. The bottom line is it’s too expensive to do business in the US, so all the cash and potential jobs that are being created by our huge iconic US companies are going overseas where they can get more profit. This is not about patriotism or pride, this is simple economics. Companies will go under if they don’t do similar planning because their competitors will be more profitable and run them out of business.

The solution? I am not completely sure, but I can tell you what the UK is doing. The UK had a 28% corporate tax rate, significantly lower than the US. However, they are lowering the rate further by reducing it by 1% each year until they get to 23%. They are also giving incentives for companies to do business there through some debt schemes and other strategies. Their version of the IRS (HMRC) is working together with my UK tax counterparts on how to give incentives to bring business and income back into the UK. In other words, they are supporting tax planning schemes that will compete with these Dutch, Lux, and Swiss schemes. I would love to sell work to clients on how they can save money and hassle by moving income into the US, but it would require a fundamental change in the corporate tax system.

I love my country, but we are behind the times and perhaps too prideful to lower the rate, thinking that since we are such an economical powerhouse and land of opportunity companies will do business here regardless. However, I think we are losing money and jobs at a tremendous rate and will continue to do so until we make ourselves competitive. If you want domestic examples of what happens economically, look at why Volkswagen moved their US headquarters from Detroit to Northern Virginia…taxes! Virginia has made themselves very business friendly and has given incentives for companies to move here. Companies move among states for tax incentives, so are we surprised that companies would completely leave the US given the disparity in tax rates between countries is even larger than the disparity between states.

Is this a solution to the jobs crisis? Perhaps. In order to lower the corporate tax rate, we can’t be afraid of increasing the individual tax rate. The idea is that if we bring more money and business to the US, the number of jobs and the standard of living will increase and offset the cost of an increased individual tax rate. Look at the individual rates in the UK and Switzerland. These countries also have a Value Added Tax which may be described as a federal sales tax that is ultimately paid by the end consumer. We will be paying more in taxes out of our pockets but decreasing taxes paid by our US corporations that are providing us jobs. We will get paid more to offset the cost and over time make our country competitive again. So let’s get off Wall-Street and over to the Hill and help Congress enact these cuts to provide future jobs and a better economy for our country. A number of people in Congress have put this on their agenda, but it would require a larger public support to see anything pass. I hope this article sheds some light on the situation and the action that our government needs to take. I think you will find that this is an issue that both sides would agree needs to see some action or we will be left in the dust with everyone moving offshore.

I’ve always suggested that the business collaboration space is a very saturated one. There’s perhaps the most popular one – Yammer, and then there are solutions such as SalesForce Chatter, MangoSpring, Cisco Quad, Confluence, and even build-your-own solutions such as Status.net. Even Microsoft and Sharepoint are beginning to enter this space. Those are just the most popular – there are many, many more solutions available. The fact is, there’s just a lot of competition in this space and they all offer similar features to one another. However, a new competitor has just entered this space that I think has the potential to shake up this saturated market, and it’s a big name, with big pockets and a whole lot of existing enterprise clients. That company is Google, and believe it or not, their latest announcement of integration of Google+ with Google Apps puts them right, square in the middle of this competition for business collaboration, and it’s a powerful one!

The Power of Circles


Google+ for Google Apps all starts with Google Circles. When you sign up for Google+ through your Google Apps account, you are given the opportunity to target updates to a circle just for your organization. This means you can use regular Google+, just as you do with your normal Google+ account, but you can make posts that only other members of your organization will see. Sound familiar? It should if you’re a user of Yammer or SalesForce Chatter or any of the other popular business collaboration suites.

Now, on top of your other Circles you can go back and click on just your company’s circle and view just the updates from other employees in your organization. Or, view your main stream and you’ll see updates from just your company, mixed in with the updates from your other friends on Google+.

Internal AND External Communication


The one thing I keep asking my reps at Yammer and SalesForce is that I need the ability to make some posts sent to my internal network public. Yammer sort of allows this by allowing posts you push to Twitter to also appear on your internal network (you do this by appending the hashtag, #yam, to your Tweet and it gest read by Yammer). None of the networks allow you to publish posts on their own network to make them also appear on external networks.

On Google+ this is built in. You post an update, target it to your company circle, but you can also target updates to external circles that you’ve created on Google+. This provides a powerful tool that can enable both people inside, and outside the company to participate in the conversations you start. It can also be a great way to get external feedback from a select group of people outside your organization – perhaps you could involve a focus group in the release of a new product before you launch it to the public. Circles make the perfect tool for this.

Targeted Notifications


I haven’t seen how thorough this works on Google+ for apps, but the potential is there. Right now on Google+ I can mouse over any of my circles and opt to notify everyone in the circle. They don’t even have to be following me for me to get their attention. For a company this can be very useful. Now you’ll have the ability to get the attention of a group of people in your company and start conversations around topics you need their participation in.

Hangouts


This is a really cool feature. Already, corporations across all of the world use various video collaboration and chat software. Most pay a lot of money for this. Google+ Hangouts is free, and can allow even more people to participate than many video collaboration tools on the market.  Not only that, but you have the potential to also allow video broadcasts to your company, and perhaps even allow people outside the company to participate and see your broadcasts. I hear Google uses Vdyo software to power Hangouts, and many companies are already using this, and paying big money for it. With Google+ for Apps and Hangouts, the service is free!

Microsoft Exchange Competition


The great thing about Google Apps is it gives an alternative to Microsoft’s email, documentation, calendaring, and contact management software, Exchange. Now businesses have an even greater reason to switch from Exchange, to, in my own opinion a more superior, cloud-based email software tool (Gmail/Google Mail). With Google Apps, businesses no longer have a need to host their own email or calendaring services. Google takes care of it for them. And on top of it you get Google+ for business collaboration which will integrate more and more with these other tools Google provides. Google+ just gives more reason to switch to Google Apps over Microsoft Exchange.

Google Apps is cheap compared to Exchange and other alternatives, especially when you consider all the things you get with it, now including Google+. To me it’s beginning to become a no-brainer for businesses to start considering Google Apps as an organization. The cool thing is that non-profits and single individuals can get Google Apps for free – that’s the power of a major enterprise software product, for no cost at all! It’s a no-brainer.

If you haven’t been considering Google Apps up until now, Google+ for Google Apps ought to start making you think. Google has built a pretty compelling product, and the thing I’m not seeing many people talk about right now is that Google+ now puts Google in a serious position to start entering the Enterprise space. I’m very excited for this move by Google and can’t wait to see where they go from here.

Disclosure: I am author of the just-released book, Google+ For Dummies, Portable Edition – that said, I am also author of 3 other Facebook books. My excitement is solely because I think this is a cool, and powerful feature of the Google Apps suite!