Dutch Sandwich, Anyone? Yum, Yum

According to ABC News Friday evening, reporting on research by Bloomberg writer

Image representing Sergey Brin as depicted in ...

Sergey Brin, Google co-founder via CrunchBase

Jesse Drucker, Google, Microsoft and other corporations are using a financial strategy called the “Dutch sandwich” to legally avoid corporate taxes in the United States.  ABC News said that the practice, also called “income shifting”, amounts to the diversion of at least $60 Billion a year from the tax coffers of the U.S. government.  They also said that it was all legal and that Congress was “aware of the practice.

OK, this is high finance and I’m just a dumb old engineer, but I have some questions:

1.  Even though Google is a multinational company it was founded and headquartered in the USA.  Didn’t it thereby incur at least some moral obligation to their home country?  Or, at least for the 28% or so of their income derived here?  According to writer David Callahan,

The U.S. National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google’s creation. Taxpayers also paid for a scholarship for the company’s cofounder, Sergey Brin, while he worked on that research.

Drucker might have also mentioned the federal government’s role in helping to create the Internet in the first place. Or all the other kinds of government spending that turned Silicon Valley into a scientific powerhouse starting in the 1960s.

Public views of the Citizens United v. Federal...

Public Views of Citizens United case, via Wikipedia

2.  If, according to the Supreme Court in Citizens United v. FEC, corporations have the same first-amendment rights as people, shouldn’t they have similar tax obligations too?

3.  If some might object to the above objection as double taxation, would not the Citizens United be double election influence by the same token?

4.  Considering that a disproportionate share of profits of such large companies go to compensate top management, couldn’t this Dutch Sandwich be considered an indirect “tax avoidance” by them as well?

I sure wish someone would explain the logic of this to me.  And, by the way, if teachers cost $50,000 a year to hire, counting benefits, wouldn’t that $60 Billion hire 120,000 teachers? I’m just asking.  I’m just a simple voter but I can do arithmetic.

P.S.  You know, the Tea Party just might be on to something after all.  You know, about those Congress persons of both parties.

About Jim Wheeler

U. S. Naval Academy, BS, Engineering, 1959; Naval line officer and submariner, 1959 -1981, Commander, USN; The George Washington U., MSA, Management Eng.; Aerospace Engineer, 1981-1999; Resident Gadfly, 1999 - present. Political affiliation: Democratic.
This entry was posted in Accountability, excessive executive salaries, Federal Government, Government waste, Taxes. Bookmark the permalink.

9 Responses to Dutch Sandwich, Anyone? Yum, Yum

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  2. ansonburlingame says:


    “Moral Obligations”? Let’s try these two for corporations.
    1. Obey the laws of the land
    2. Make money for their business, employees and stockholders through growth of their company.

    Now if the law allows you to deduct interest on you home from your taxes, do you voluntarily choose not to make such a deduction? More broadly, do you include all possible deductions on your own personal tax return?

    Now why should any corporation not take advantage of the law, as written, to keep tax payments as low as allowed? Do they have a moral obligation to pay higher taxes, despite what the law allows?

    If you want greater “morality” in tax laws, change the laws please.

    And what pray tell does Citizens United have to do with tax laws? I thought it was about spending money kept by corporations (legally) in accordance with such laws.

    Do you really expect to encourage “giving” taxes based on moral obligations of some sort or do you expect PAYING taxes strictly in accordance with the law? The federal government is not a CHURCH the last time I checked thus no biblical or other religious demand to pay “extra” beyond that required by law.



  3. Jim Wheeler says:


    You are right about one thing for sure. A corporation has an obligation to be as profitable in the interest of their management and their shareholders. No argument there. Capitalism good, socialism bad. But it seems to me that in this case the boards have sought out a devious loophole in the law that denies tax revenue to the country that benefits them.

    Do they have a legal right to do it? You betcha. Is there a moral argument, at a time when the country is struggling under the GR for not doing it? I think so. If top business magnates like Gates and Buffett can be philanthropic, if Apple Computer can donate computers all over the country to education, why isn’t is reasonable to criticize Google for manipulating a loophole that ought to be unintended? I say “seems” because I, being paranoid, can’t help but wonder if a cadre of Congress persons purposely engineered the laws this way.

    Is it OK for individuals to exploit off-shore investments through Cayman Island banks to hide income from the IRS? No, it’s illegal for individuals. (Why isn’t it illegal for corporations?) The tax people are notoriously inept at curtailing such activity, but they sure as hell are good at freezing the estates of the deceased until every last farthing is collected. I know that because the tax people in OK froze my aunt’s little estate for over a year to do just that. And if you think I’m too paranoid about politicians and business, look at the recent item in the news about the laws in Alabama. It is perfectly legal there for a lobbyist to give a politician up to $250 a day, no questions allowed. That’s over $90,000 a year. Are the feds any better? I leave it to you to make that case.

    But all this is actually NOT the main point of my post. I could have done it better. The principal objects of my CRITICISM are the SUPREME COURT and CONGRESS. The main point I intended , which you ignore in your comment, has to do with the Citizens United case and trying to show the absurdity of treating corporations as individuals in the one case and not the other. Corporations are OLIGARCHIES which under Citizens United are given political influence proportionate to the wealth they control and wildly disproportionate to the number of people making the decision.

    Do you think Google spends money on lobbying? I actually haven’t researched the question, but thanks to the Dutch Sandwich ploy they can certainly afford to.

    You know, I would probably never be chosen as a corporate board member because I happen to have an attitude. My attitude is that I think there should be room for patriotism in the board room, especially when business is going well. BTW, Google’s net profit for the third quarter was $2,170,000,000. For other readers who may be arithmetically challenged, that’s $2.17 BILLION dollars.

    Gee, I wonder where Finland gets the money for those extra teachers that makes them the number one educators in the world? Does Nokia pay taxes in Finland? I don’t know, just wondering.



  4. ansonburlingame says:


    I assume the all bold letters shows strength of conviction. Fine. But your objection continues to be pointed primarily towards corporations that use every “trick” possible to minimize taxes, yet all the “tricks” being legal.

    Then you launch at Congress and Supreme Court for writing and interpreting such laws that allow “tricks” to be played on the federal government.

    Simply stated you “see” corporations paying less taxes than in your view they SHOULD be paying and provide and “ought to” argument. Well “ought to” perhaps in your view, but certainly not the view of the law.

    ALL LAWS PASSED BY CONGRESS HAVE UNITENDED CONSEQUENCES in many, many cases. “We must pass it to determine what is in it” yet being a recent acknowledgement of such. On the other hand some laws have consequences that are preceisly INTENDED. Lobbyists thru congresspeople put those intentions into the law and it is passed by majority vote in two houses and signed by a president.

    Are you not in effect attacking our entire system of government because it is not “fair”? Some people are allowed to do things with which you disagree yet such “things” are perfectly legal.

    Look at it another way, perhaps. Do large groups of people, like unions, corporations, political action groups, even political parties themselves MANIPULATE the law or instead FOLLOW the law while remaining focused on their real goal (increasing salaries and benefits for workers, making money for the company, get across their messages, etc)

    I see no difference between manipulating the law or following it by smart people, dedicated to a goal and persuing it (even if I don’t like the goal). If in their “manipulation or adherence” to the letter of the law they cross the line and it results in illegal actions then have at them in my view.

    You however must prove such illegal acts in a court of law. That is EXACTLY what Citizens United accomplished, much to your dismay. Well fine. Blame the damn law as the source of the “evil” not the smart people that merely won their case in court.



  5. Jim Wheeler says:


    First off, the bold letters resulted from my inept attempt to make two words of the comment bold. WordPress offers suggestions about insertions to do such things but I am still learning. Apparently there is a “/” needed in the second or closing insertion to terminate the emphasis and I omitted it, thus making the entire rest of the comment bold. I could find no way to edit a comment after pressing “enter”. Such is the nature of the learning curve – no guts, no air medal. I keep trying. Interesting that it is so difficult to transmit feelings in writings, thus the evolution of emoticons I suppose. I have often marveled at the ability of former generations to express sentiments in long hand – no editing tools but a quill pen!

    Your defense of the corporations appears to amount to, “All’s fair in the game of competition” and that business is all about the money. In that regard all the evidence I know of, in this country at least, supports your conclusion. Certainly this view of the “game” was held by the likes of Leona Helmsley and Martha Stewart, but I imagine they consider themselves merely the victims of bad professional advice. Gordon Gekko would also approve, but he’s fictional. (Surely there aren’t real people like that?) Had they had better lawyers or financiers they probably wouldn’t have gotten into so much trouble. Yes, I know THEY crossed the legal line and Google didn’t. My point is that the line is vague, probably intentionally so, hence the loophole of the Dutch Sandwich, and if you have the right lawyers/financiers you can, yes legally, manipulate the system.

    For many years in the press I have followed the game of tax evasion by individuals using off-shore accounts to hide income from the IRS which, as I mentioned, has usually been stymied by the “laws” of places like the Cayman Islands. There too people are simply taking advantage of loopholes to avoid taxes. It may not bother you, but it does me. The IRS is making some progress though. Below is a link to an article noting that UBS got caught last year and paid a fine of $780 million to avoid criminal prosecution relative to income-hiding. It’s probably chump-change to them, just the cost of doing “bidness”. (The scenario is redolent in my memory of the oil executive in the Glen Close TV series, “Damages”, which I think you said you also saw. Do you identify sympathetically with that guy? After all, he was merely working the system. If the environment is damaged in the process, what the hell. It’s legal.)

    Little wonder that the top echelon of America’s brain-power goes into finance – as Gordon Gekko would say, “That’s where the money is.” It’s all about the money.

    Finally, you said (rather angrily, I thought),

    “You however must prove such illegal acts in a court of law. That is EXACTLY what Citizens United accomplished, much to your dismay. Well fine. Blame the DAMN law as the source of the “evil” not the smart people that merely won their case in court.”
    (All caps emphasis mine. I’m still not confident enough to try the HTML attributes yet.)

    Well, if you look at my previous comment, I said,

    “The principal objects of my CRITICISM are the SUPREME COURT and CONGRESS. The main point I intended , which you ignore in your comment, has to do with the Citizens United case and trying to show the absurdity of treating corporations as individuals in the one case and not the other. Corporations are OLIGARCHIES which under Citizens United are given political influence proportionate to the wealth they control and wildly disproportionate to the number of people making the decision.”

    It sure sounds to me like I DID blame the “damn law”. Congress made it and the Supremes blessed it.



  6. ansonburlingame says:


    Now that we seem to agree that the “law” is the root of the evil that allows organizations and people to avoid responsibilities deemed important or even moral, the question seems to be how to write “ironclad” laws.

    Well, first of all might I suggest very short laws. State what you intend to control, state how you will control it, state the penalty for not following the law and the deed is done. Today many of our laws are far too complicated, to me at least. Why?

    Another approach is to only regulate through laws that which needs regulation. Start with the Constitution as a benchmark. If it ain’t there, don’t try to regulate it, federally. If it really NEEDS to be regulated, then change the Constitution.

    As for taxes, maybe we are taxing the wrong thing, which is too easy to hide, income. Try this approach. Tax any and all withdrawls from any financial account. If you charge $100 on your credit or debit card, tax it. Write a check, tax it. Pay in cash for goods or services, tax it. Tax it anytime someone spends money, not makes money.

    Almost all financial transactions today go through financial institutions. Thus collection of the tax is realitively easy or could be made so.

    Of course the best way is to simplify the tax code. Everyone gets a one page 1040 with a standard deduction, period. Actually why have any deductions. Just list all the income and tax it, period. No gimmicks and of course much lower tax rates.

    In the meantime I KNOW that however laws are written they will be “skirted” legally or illegally by many. I would much rather focus on what government can actually and truly control which is of course SPENDING.



    • Jim Wheeler says:


      1. As I think you know, I strongly agree with the idea of “very short laws”. You must realize however that Congress and the lawyers in it will not like this because it limits their principal means of justifying their own jobs, and that is why it will never happen.
      2. I am in favor of limiting the number of laws as well. Unfortunately we are a nation of complainers and as long as Congress’ jobs depend on constituents’ satisfaction, that won’t happen either.
      3. I also am highly in favor of replacing the tax code with something sane, like a flat tax with reasonably progressive exemptions and/or credits for those on the bottom rungs that make advancement reasonably possible. A straight flat tax would be regressively draconian.
      4. Controlling spending? I highly approve, but that probably would require electing Libertarians, or possibly Billy Long. I think I heard him say he wants to do that. Another possibility is that the GOP will live up to the Pledge. I really don’t know why I’m worried. Jonathan Swift would say he wasn’t either. Worried, that is.



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