Microsoft put their tax-evasion in writing and now they owe $29 billion
I'm coming to Minneapolis! Oct 15: Presenting The Internet Con at Moon Palace Books. Oct 16: Keynoting the 26th ACM Conference On Computer-Supported Cooperative Work and Social Computing.
If there's one thing I took away from Propublica's explosive IRS Files, it's that "tax avoidance" (which is legal) isn't a separate phenomenon from "tax evasion" (which is not), but rather a thinly veiled euphemism for it:
That realization sits behind my series of noir novels about the two-fisted forensic accountant Martin Hench, which started with last April's Red Team Blues and continues with The Bezzle, this coming February:
A typical noir hero is an unlicensed cop, who goes places the cops can't go and asks questions the cops can't ask. The noir part comes in at the end, when the hero is forced to admit that he's being going places the cops didn't want to go and asking questions the cops didn't want to ask. Marty Hench is a noir hero, but he's not an unlicensed cop, he's an unlicensed IRS inspector, and like other noir heroes, his capers are forever resulting in his realization that the questions and places the IRS won't investigate are down to their choice not to investigate, not an inability to investigate.
The IRS Files are a testimony to this proposition: that Leona Hemsley wasn't wrong when she said, "Taxes are for the little people." Helmsley's crime wasn't believing that proposition â it was stating it aloud, repeatedly, to the press. The tax-avoidance strategies revealed in the IRS Files are obviously tax evasion, and the IRS simply let it slide, focusing their auditing firepower on working people who couldn't afford to defend themselves, looking for things like minor compliance errors committed by people receiving public benefits.
Or at least, that's how it used to be. But the Biden administration poured billions into the IRS, greenlighting 30,000 new employees whose mission would be to investigate the kinds of 0.1%ers and giant multinational corporations who'd Helmsleyed their way into tax-free fortunes. The fact that these elite monsters paid no tax was hardly a secret, and the impunity with which they functioned was a constant, corrosive force that delegitimized American society as a place where the rules only applied to everyday people and not the rich and powerful who preyed on them.
The poster-child for the IRS's new anti-impunity campaign is Microsoft, who, decades ago, "sold its IP to to an 85-person factory it owned in a small Puerto Rican city," brokered a deal with the corporate friendly Puerto Rican government to pay almost no taxes, and channeled all its profits through the tiny facility:
That was in 2005. Now, the IRS has come after Microsoft for all the taxes it evaded through the gambit, demanding that the company pay it $29 billion. What's more, the courts are taking the IRS's side in this case, consistently ruling against Microsoft as it seeks to keep its ill-gotten billions:
Now, no one expects that Microsoft is going to write a check to the IRS tomorrow. The company's made it clear that they intend to tie this up in the courts for a decade if they can, claiming, for example, that Trump's amnesty for corporate tax-cheats means the company doesn't have to give up a dime.
This gambit has worked for Microsoft before. After seven years in antitrust hell in the 1990s, the company was eventually convicted of violating the Sherman Act, America's bedrock competition law. But they kept the case in court until 2001, running out the clock until GW Bush was elected and let them go free. Bush had a very selective version of being "tough on crime."
But for all that Microsoft escaped being broken up, the seven years of depositions, investigations, subpoenas and negative publicity took a toll on the company. Bill Gates was personally humiliated when he became the star of the first viral video, as grainy VHS tapes of his disastrous and belligerent deposition spread far and wide:
If you really want to know who Bill Gates is beneath that sweater-vested savior persona, check out the antitrust deposition â it's still a banger, 25 years on:
In cases like these, the process is the punishment: Microsoft's dirty laundry was aired far and wide, its swaggering founder was brought low, and the company's conduct changed for years afterwards. Gates once told Kara Swisher that Microsoft missed its chance to buy Android because they were "distracted by the antitrust trial." But the Android acquisition came four years after the antitrust case ended. What Gates meant was that four years after he wriggled off the DoJ's hook, he was still so wounded and gunshy that he lacked the nerve to risk the regulatory scrutiny that such an anticompetitive merger would entail.
What's more, other companies got the message too. Large companies watched what happened to Microsoft and traded their reckless disregard for antitrust law for a timid respect. The effect eventually wore off, but the Microsoft antitrust case created a brief window where real competition was possible without the constant threat of being crushed by lawless monopolists. Sometimes you have to execute an admiral to encourage the others.
A decade in IRS hell will be even more painful for Microsoft than the antitrust years were. For one thing, the Puerto Rico scam was mainly a product of ex-CEO Steve Ballmer, a man possessed of so little executive function that it's a supreme irony that he was ever a corporate executive. Ballmer is a refreshingly plain-spoken corporate criminal who is so florid in his blatant admissions of guilt and shouted torrents of self-incriminating abuse that the exhibits in the Microsoft-IRS cases to come are sure to be viral sensations beyond even the Gates deposition's high-water mark.
It's not just Ballmer, either. In theory, corporate crime should be hard to prosecute because it's so hard to prove criminal intent. But tech executives can't help telling on themselves, and are very prone indeed to putting all their nefarious plans in writing (think of the FTC conspirators who hung out in a group-chat called "Wirefraud"):
Ballmer's colleagues at Microsoft were far from circumspect on the illegitimacy of the Puerto Rico gambit. One Microsoft executive gloated â in writing â that it was a "pure tax play." That is, it was untainted by any legitimate corporate purpose other than to create a nonsensical gambit that effectively relocated Microsoft's corporate headquarters to a tiny CD-pressing plant in the Caribbean.
But if other Microsoft execs were calling this a "pure tax play," one can only imagine what Ballmer called it. Ballmer, after all, is a serial tax-cheat, the star of multiple editions of the IRS Files. For example, there's the wheeze whereby he has turned his NBA team into a bottomless sinkhole for the taxes on his vast fortune:
Or his "tax-loss harvesting" â a ploy whereby rich people do a "wash trade," buying and selling the same asset at the same time, not so much circumventing the IRS rules against this as violating those rules while expecting the IRS to turn a blind eye:
Ballmer needs all those scams. After all, he was one of the pandemic's most successful profiteers. He was one of eight billionaires who added at least a billion more to his net worth during lockdown:
Like all forms of rot, corruption spreads. Microsoft turned Washington State into a corporate tax-haven and starved the state of funds, paving the way for other tax-cheats like Amazon to establish themselves in the area. But the same anti-corruption movement that revitalized the IRS has also taken root in Washington, where reformers instituted a new capital gains tax aimed at the ultra-wealthy that has funded a renaissance in infrastructure and social spending:
If the IRS does manage to drag Microsoft through the courts for the next decade, it's going to do more than air the company's dirty laundry. It'll expose more of Ballmer's habitual sleaze, and the ways that Microsoft dragged a whole state into a pit of austerity. And even more importantly, it'll expose the Puertopia conspiracy, a neocolonial project that transformed Puerto Rico into an onshore-offshore tax-haven that saw the island strip-mined and then placed under corporate management:
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
My next novel is The Lost Cause, a hopeful novel of the climate emergency. Amazon won't sell the audiobook, so I made my own and I'm pre-selling it on Kickstarter!
Ireland's privacy regulator is a gamekeeper-turned-poacher
This Saturday (May 20), Iâll be at the GAITHERSBURG Book Festival with my novel Red Team Blues; then on May 22, Iâm keynoting Public Knowledgeâs Emerging Tech conference in DC.
On May 23, Iâll be in TORONTO for a book launch thatâs part of WEPFest, a benefit for the West End Phoenix, onstage with Dave Bidini (The Rheostatics), Ron Diebert (Citizen Lab) and the whistleblower Dr Nancy Olivieri.
When the EU passed its landmark General Data Protection Regulation (GDPR), it seemed like a privacy miracle. Despite the most aggressive lobbying Europe had ever seen, 500 million Europeans were now guaranteed a digital private life. Could this really be?
If youâd like an essay-formatted version of this post to read or share, hereâs a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
Well, yesâŚand no. Despite flaws (Right to Be Forgotten), the GDPR has strong, well-crafted, badly needed privacy protections. But to get those protections, Europeans need their privacy regulators to enforce the rules.
Thatâs where the GDPR miracle founders. Europe includes several tax-havensâââMalta, Cyprus, the Netherlands, Luxembourg, Irelandâââthat compete to offer the most favorable terms to international corporations and other criminals. For these havens, paying little to no tax is just table-stakes. As these countries vie to sell themselves out to giant companies, they compete to offer a favorable regulatory environment, insulating companies from lawsuits over corruption, labor abuses and other crimes.
All of this is made possibleâââand even encouragedâââby the design of European federalism, which lets companies easily shift which flag of convenience they fly. Once a company re-homes in a country, it can force Europeans across the union to seek justice in that countryâs courts, under the looming threat that the company will up sticks for another haven if the law doesnât bend over backwards to protect corporate citizens from the grievances of flesh-and-blood humans.
Big Techâs most aggressive privacy invaders have long flown Irish flags. Ireland is âheadquartersâ to Google, Meta, Tinder, Apple, Airbnb, Yahoo and many other tech companies. In exchange for locating a handful of jobs to Ireland, these companies are allowed to maintain the pretense that their global earnings are afloat in the Irish Sea, in a state of perfect, untaxable grace.
That cozy relationship meant that the US tech giants were well-situated to sabotage Irelandâs privacy regulator, who would be the first port of call for Europeans whose privacy had been violated by American firms. For many years, itâs been obvious that the Irish Data Protection Commission was a sleeping watchdog, with infinite tolerance for the companies that pretend to make Ireland their homes. 87% of Irish data protection claims involve just eight giant US companies (that pretend to be Irish).
But among for hardened GDPR warriors, the real extent of the Data Protection Commissionerâs uselessness is genuinely shocking. A new report from the Irish Council for Civil Liberties reveals that the DPC isnât merely tolerant of privacy crimes, theyâre gamekeepers turned poachers, active collaborators in privacy abuse:
The reportâs headline figure really tells the story: the European Data Protection Boardâââwhich oversees Irelandâs DPCâââoverturns the Irish regulatorâs judgments 75% of the time. Itâs actually worse than it appears: that figure only includes appeals of the DPCâs enforcement actions, where the DPC bestirred itself to put on trousers and show up for work to investigate a privacy claim, only to find that the corporation was utterly blameless.
But the DPC almost never takes enforcement actions. Instead, the regulator remains in its pajamas, watching cartoons and eating breakfast cereal, and offers an âamicable resolutionâ (that is, a settlement) to the accused company. 83% of the cases brought before the DPC are settled with an âamicable resolution.â
Corporations can bargain for multiple, consecutive amicable resolutions, allowing them to repeatedly break the law and treat the finesâââwhich they negotiate themselvesâââas part of the price of doing business.
This is illegal. European law demands that cases that involve repeat offenders, or that are likely to affect many people, must be fully investigated.
Irelandâs government has stonewalled on calls for an independent review of the DPC. The DPC continues to abet lawlessness, allowing corporations to use privacy invasive techniques for surveillance, discrimination and manipulation. In 2022, the DPC concluded 64% of its cases with mere reprimandsââânot even a slap on the wrist.
Meanwhile, the DPC trails the EU in issuing âcompliance ordersââââwhich directly regulate the conduct of privacy-invading companiesâââonly issuing 49 such orders in the past 4.5 years. The DPC has only issues 28 of the GDPRâs âone-stop-shopâ fines.
The EU has 26 other national privacy regulators, but under the GDPR, they arenât allowed to act until the DPC delivers its draft decisions. The DPC is lavishly funded, with a budget in the EUâs top five, but all that money gets pissed up against a wall, with inaction ruling the day.
Despite the collusion between the tech giants and the Irish state, time is running out for Americaâs surveillance-crazed tech monopolists. The GDPR does allow Europeans to challenge the DPRâs do-nothing rulings in European court, after a long, meandering process. That process is finally bearing fruit: in 2021, Johnny Ryan and the Irish Council for Civil Liberties brought a case in Germany against the ad-tech lobby group IAB:
But Europeans should not have to drag tech giants out of Ireland to get justice. Itâs long past time for the EU to force Ireland to clean up its act. The EU Commission is set to publish a proposal on how to reform Irelandâs DPA, but more muscular action is needed. In the new report, the Irish Council For Civil Liberties calls on the European Commissioner for Justice, Didier Reynders, to treat this issue with the urgency and seriousness that it warrants. As the ICCL says, âthe EU can not be a regulatory superpower unless it enforces its own laws.â
Catch me on tour with Red Team Blues in Toronto, DC, Gaithersburg, Oxford, Hay, Manchester, Nottingham, London, and Berlin!
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
[Image ID: A toddler playing with toy cars. The cars are Irish police cars. The toddler's head has been replaced with the menacing, glowing red eye of HAL9000 from Stanley Kubrick's '2001: A Space Odyssey.' The toddler's knit cap is decorated with the logos for Apple, Google, Facebook and Tinder.]
