A coalition of labor groups and advocacy organizations is calling on Etsy to scrap its tax strategy through which it channels revenue through its subsidiary in Dublin, Ireland.
Americans for Tax Fairness (ATF) is contesting Etsy’s status as a so-called “B Corporation,” a designation that carries a commitment on the part of the firm to adhere to “higher standards of transparency, accountability and performance,” according to B Lab, the nonprofit group that manages the certification process.
ATF maintains that Etsy’s tax strategy falls short of the ethical business practices the B Corp. status is supposed to denote, arguing that it is using its Irish subsidiary as a tax haven to avoid paying its fair share in the United States.
After going public earlier this year, Etsy must now be recertified as a B Corp., and ATF is asking B Lab to make the company’s “designation contingent upon its elimination of the use of its subsidiary in Ireland to dodge taxes.”
“Etsy is now one of those corporations ducking out on its obligations to the nation that made its success possible,” ATF wrote in a letter to B Lab. “When corporations do not contribute their fair share of taxes, other businesses and individual taxpayers have to make up the difference.”
Etsy feels like it’s gotten a bad rap.
The CEO of the online marketplace took to the company’s blog this week in an effort “to set the record straight” about a series of changes to Etsy’s tax structure, taking a shot at the some of the press coverage on the issue.
“While I welcome increased scrutiny as a natural part of being a public company, some of the recent media reports about Etsy’s tax structure have been grossly inaccurate and misleading,” Chad Dickerson wrote.
At issue is an overhaul of Etsy’s global tax framework the company implemented in January, changes Dickerson said were made to better reflect the fact that the online craft hub has become an international marketplace, with overseas purchases now accounting for 30 percent of the firm’s gross merchandise sales.
Etsy stipulates in its terms of service that users outside of North American and South America register with its subsidiary, Etsy Ireland. Critics of that arrangement charge that it enables Etsy to evade the disclosure requirements of domestic securities regulations, and to move an untold pile of money through tax-friendly Ireland, effectively dodging its share of U.S. taxes.
In defending the company’s tactics, Dickerson presented a set of “myths” and “facts” pushing back against the notion that Etsy is betraying core values of transparency and corporate responsibility.
“We’re not offshoring or using … any other elaborate tax scheme that is out there. This is a simple structure,” Dickerson said.
He defended the company’s commitment to transparency by pointing out that Etsy makes its public filings in accordance with the laws of each country in which it operates.
“We file our tax returns and pay our taxes in many states and countries, but we don’t publish those filings for everyone to read,” he said. “This is a standard business practice and not unique to Etsy.”
Dickerson also took issue with the characterization in some press reports that Etsy had shifted its tax structure in secret, noting that the company had made fulsome disclosures in its filings with the U.S. Securities and Exchange Commission.
More broadly, he conceded that Ireland indeed offers a beneficial tax environment, but pointed out that setting up shop in Dublin made sense for many other reasons.
“We incorporated in Ireland in 2011 because, with lots of talented people, easy transportation, and, yes, an attractive tax rate, Ireland happens to be a great place to do business,” Dickerson said.
In an email, an Etsy spokeswoman addressed the ATF letter calling for B Lab to make B Corp. recertification contingent on reforming its tax framework, reiterating Dickerson’s contention that there is nothing underhanded about the company’s policy.
“We enjoy a strong partnership with B Lab, and have since our initial certification in 2012,” the spokeswoman said. “We believe we have a tax structure that reflects our growing international business and our values – it’s a straightforward structure that meets our tax obligations and allows us to invest in services for our Etsy community. We have always been inspired by being part of a movement that advocates for the harmony of business interests with social and environmental responsibility.”