Americans for Tax Fairness, an advocacy group for tax policies, has demanded that Etsy (NASDAQ:ETSY), the online retailer, be stripped of the certification normally awarded to companies adhering to tough social accountability and transparency standards.
Recertification with Conditions
The coalition comprising of a number of think tanks and labor unions has sent a letter to the non-profit B Lab, asking it to make the re-certification of Etsy depending on the American company abandoning its Irish tax strategy. It was revealed in August that Etsy has reorganized its Irish subsidiary. The action was done in a certain manner which concealed the arrangements of cost cutting from the views of the public. The New York headquartered company must complete the public disclosure questionnaire which asks queries concerning tax avoidance.
Etsy was certified as B Corp from 2012 and continues to be one. This means that will meet the rigorous standards of environmental and social performance and accountability. In its security filings, the company said that there is a possibility of harm to its reputation if it loses the B Corp certification. Standards for such certifications are set by B Lab and companies are required to get re-certified at periodic intervals.
Frank Clemente, the Executive Director, Americans for Tax Fairness, said that the tax evasion procedure adopted by Etsy is standard among large US multinationals. In a letter to B Lab, he said that he hoped that Etsy will be considered unacceptable to standards set by B Lab. He requested the latter to ensure that the B Corp designation enjoyed by the online retailing company be continued only if Etsy abandons its Irish strategy of dodging taxes by using an Irish subsidiary.
Etsy, during the earlier months of 2015, relocated a number of its intellectual properties to Dublin, its European headquarters. The company then lent its Irish unit money to purchase the intellectual property from its US counterpart. This arrangement is made to reduce the company American tax bill over a period of time. This will happen as the income linked with intellectual property based in Dublin will be taxes at Irish rates- about 12.5 percent. This is much lower than the US rate of 35 percent.
According to Andrew Kassoy, the co-founder of B Lab, Etsy has started the process of re-certification related to the C Corp status after the public stock offering it had in the early months of 2015. Companies are required to seek re-certification post transactions which include control changes like an IPO.