Laureate Education Inc. filed an S-1 on Friday, indicating its plans to go public. At the same time, it converted to a public benefit corporation in Delaware. According to the Baltimore Business Journal, Laureate is the world’s largest for-profit network of colleges.” With respect to Laureate’s status as a public benefit corporation, the S-1 states: “we redomiciled in Delaware as a public benefit corporation as a demonstration of our long-term commitment to our mission to benefit our students and society.” The prospectus touts that Laureate will be the first publicly traded public benefit corporation. I’m reading through the rest of the prospectus now and will post more analysis this week. . . stay tuned!
“DODGING” TAXES AND B CORP STATUS
There has been a growing controversy surrounding Etsy’s much-publicized B Corp status and Etsy’s recent move to save (“dodge”???) taxes by using an Irish subsidiary. Stories have appeared in Bloomberg Business, the WSJ, and even The Irish Times. The advocacy group, Americans for Tax Fairness, requested in an August 28, 2015, letter to B Lab that Etsy’s B Corp designation be made “contingent upon its elimination of the use of its subsidiary in Ireland to dodge taxes” (emphasis added). The pressure on Etsy apparently has been so strong that Chad Dickerson, Etsy’s CEO, felt the need to publish a blog post defending the company’s tax strategy.
Today, one of the country’s leading publications for tax professionals, Tax Analysts, reported on the controversy. (See Tax Notes Today, Sept. 2, 2015.) As a result of the Tax Analysts story, we may see the broader tax community begin to comment and, perhaps, become more familiar with B Corps. According to Tax Analysts and Americans for Tax Fairness, a few already have commented—apparently supporting the notion that Etsy’s tax strategy either is inconsistent with its B Corp status or is inconsistent with one of Etsy’s core values of being “a mindful, transparent, and humane business.” Specifically:
Professor Neil Buchanan (George Washington University): Regarding Etsy’s disclosure of the use of an Irish subsidiary in its June 30, 2015 SEC filing: “Translation: We figured out a technically legal way to cut our tax bill, and it doesn’t bother us that doing so reduces the ability of our government to fund programs that we otherwise claim to support. We’ll get back to you when we’ve figured out any other ‘operational efficiencies’ that we might exploit.” (Ars Technica, Aug. 13, 2015)
I respectfully disagree with Americans for Tax Fairness and the sentiments of my colleagues Professors Marian and Buchanan. B Corp status is determined by a company’s score on a 200 point scale. Although I am not intimately familiar with the B Corp scoring system, I understand that only two questions pertain to a company’s tax positions: one concerns whether a company has paid any tax fines or penalties and the other relates to tax-saving strategies (the subject of the Etsy controversy). I wouldn’t think that two unfavorable answers, much less one, should disqualify a company from B Corp status.
Moreover, B Corp status does not signify perfection. B Corp status does not even signify “beyond reproach.” B Corp status merely signifies that a company scored 80 out of 200 points on B Lab’s impact assessment scale. That’s it. If you like B Lab’s scale, then maybe you like B Corps. But, if you don’t like B Lab’s scale, then you may not like B Corps. I bet Walmart does not get 80 points on B Lab’s scale; however, Walmart’s failure to qualify as a certified B Corp should not automatically lead us to the conclusion that Walmart either is “bad” or is a tax “dodger.” (Although, Americans for Tax Fairness believes that Walmart is in fact a tax dodger.) I’m not ashamed to admit that I’ve shopped at Walmart many times.
Finally, as far as I am concerned, saving taxes in compliance with applicable law is admirable. If saving taxes means “dodging” taxes, then I suppose I’m just as guilty as Etsy. Every year when I file my tax return I look for every possible deduction I can take. In fact, those deductions always include charitable contributions to causes that I feel do “good” in this world. Am I “dodging” taxes when I take a big fat deduction for those charitable contributions? If so, that’s one tax “dodge” I don’t feel “bad” about.
Granted, many companies use elaborate tax-saving techniques that comply with the letter of the law but that violate the spirit of the law or that exploit loopholes. I do not like or condone those strategies any more than Americans for Tax Fairness or my above-quoted colleagues. AND, I agree that the government needs to be vigilant about monitoring, auditing, and punishing those companies that abuse the system.
On the other hand, consider this: If enough companies become B Corps or other well-behaving corporate citizens, perhaps our need for government programs and subsidies (and thus taxes) will diminish. Imagine that! (Yes, I’m sure I’ll get plenty of push back on that last assertion.)
In any event, let’s ease off on Etsy. Don’t let the perfect be the enemy of the good. Viewed from a wider perspective, the growing social enterprise movement, which includes B Corp and other “good company” certifications, is a positive development. Saving taxes is neither inherently bad nor good and, besides, it is really the government’s job to make that call. It is entirely legitimate for a social enterprise to employ tax-saving strategies, even with an Irish subsidiary.
UCONN SOCIAL ENTERPRISE AND ENTREPRENEURSHIP CONFERENCE │ STORRS, CT │ APRIL 23-24, 2015
Cross-posted at Business Law Professor Blog.
At the end of next week, I will be at the University of Connecticut School of Business and the Thomas J. Dodd Research Center for their Social Enterprise and Entrepreneurship Conference.
Further information about the conference is available here, a portion of which is reproduced below:
In October 2014, Connecticut joined a growing number of states that empower for-profit corporations to expand their core missions to expressly include human rights, environmental sustainability, and other social objectives. As a new legal class of businesses, these benefit corporations join a growing range of social entrepreneurship and enterprise models that have the potential to have positive social impacts on communities in Connecticut and around the world. Designed to evaluate and enhance this potential, SE2 will feature a critical examination of the various aspects of social entrepreneurship, as well as practical guidance on the challenges and opportunities presented by the newly adopted Connecticut Benefit Corporation Act and other forms of social enterprise.
Presenters at the academic symposium on April 23 are:
Mystica Alexander, Bentley University
Norman Bishara, University of Michigan
Kate Cooney, Yale University
Lucien Dhooge, Georgia Institute of Technology
Gwendolyn Gordon, University of Pennsylvania
Gil Lan, Ryerson University
Diana Leyden, University of Connecticut
Haskell Murray, Belmont University
Inara Scott, Oregon State University
Presenters at the practitioner conference on April 24 are:
Gregg Haddad, State Representative, Connecticut General Assembly (D-Mansfield)
Spencer Curry & Kieran Foran, FRESH Farm Aquaponics
Sophie Faris, Community Development, B-Lab
James W. McLaughlin, Associate, Murtha Cullina LLP
Michelle Cote, Managing Director, Connecticut Center for Entrepreneurship and Innovation
Mike Brady, CEO, Greyston Bakery
Jeff Brown, Executive Vice President, Newman’s Own Foundation
Justin Nash, President, Veterans Construction Services, and Founder, Til Duty is Done
Vishal Patel, CEO & Founder, Happy Life Coffee
Anselm Doering, President & CEO, EcoLogic Solutions
Dafna Alsheh, Production Operations Director, Ice Stone
Tamara Brown, Director of Sustainable Development and Community Engagement, Praxair
WILL CERTIFIED B CORPORATION ETSY BECOME A PUBLICLY-TRADED DELAWARE PUBLIC BENEFIT CORPORATION?
I consider the question above in a post at the Business Law Prof Blog here.