Vintage Ethics: Etsy Crafts an Offshore Tax Dodge

Who knew a New Age crafts seller could be so, well, crafty? Etsy, the online marketer of handmade earrings, vintage watches and millions of other precious items, proudly brands itself a socially responsible corporation. But when it comes to the socially responsible act of paying its fair share of taxes, Etsy is decidedly old school.

The Brooklyn-based company recently changed the structure of its subsidiary in corporate-friendly Ireland so that it doesn't have to publicly report certain financial data, making it easier to avoid taxes. In using the Emerald Isle to dodge American taxes, Etsy joins other infamous offshore corporate tax-avoiders like Apple, Google and Microsoft.

Apple, for instance, used multiple Irish subsidiaries to avoid paying almost any tax at all on $74 billion in sales from 2009-12.

Etsy also joins a larger fraternity of American corporations that use a variety of offshore tax havens to collectively dodge $90 billion in U.S. taxes every year.

But few if any of those other companies make such bold ethical claims as Etsy, whose website declares: "We are building a human, authentic and community-centric global and local marketplace." And: "By building and supporting this people-powered economy, we hope to inspire global business practices that are sustainable, responsible and profitable."

Etsy has even gone to the trouble of being certified a "B Corporation" -- "B" referring to social benefit and meaning the company has a moral responsibility for the well-being of its workers, communities and environment. This is in contrast to a typical "C corporation," whose only duty is maximizing profit for its shareholders.

B Lab, the organization that grants B Corporation status includes tax avoidance among the criteria for certification. B Lab asks on a questionnaire: "Has the Company reduced or minimized taxes through the use of corporate shells or structural means?" When it's up for recertification, Etsy may well find that question tough to get around. Unfortunately for Etsy, a change in ownership, including the offering of an IPO -- which Etsy did in April - requires the company to reapply for B Corporation status.

The subsidiary Etsy created in Ireland is called an "unlimited liability company" and although it still has to file certain information with the government, it doesn't need to make its balance sheets or other financial statements open to general inspection, as public companies usually do. That secrecy facilitates tax avoidance.
For a company that claims "transparency" as one of its guiding principles, Etsy's explanation of its Irish scheme is decidedly murky: "Our new corporate structure changed how we use our intellectual property and implemented certain intercompany arrangements. This may result in a reduction in our overall effective tax rate."

Offshore corporate tax dodging is in the spotlight now because of plans in Congress to fund road and bridge repair and construction by using the taxes owed on the $2 trillion in profits American corporations have stashed overseas. But those plans all envision rewarding the worst corporate tax dodgers with a big tax break. Big American corporations don't need another tax cut, they need to start paying their fair share of taxes. Especially those that ship jobs and shift profits offshore!

When corporations use fancy offshore accounting tricks to dodge their taxes, the rest of us pick up the tab. To compensate, either taxes are raised on individuals and small businesses or less money is available to invest in roads, schools, medical research and other vital public services.

All its high-flown moral language notwithstanding, Etsy is now one of those corporations ducking out on its obligations to the nation that made its success possible. It's also a hypocrite!

The company modestly states on its website: "We hope to make the world a little more like Etsy." Instead, it seems Etsy is becoming a little more like the world -- or at least the world of corporate tax dodging

Take action and sign our petition to urge Etsy to live up to its values and stop exploiting Irish tax-haven loopholes. Sign here!

Read our open letter to B Lab challenging Etsy's recertification as B Company here.