Etsy under Pressure from Tax Fairness Group

Americans for Tax Fairness, a coalition of 453 national and state organizations advocating for tax reform, has challenged the B Corporation status of Brooklyn-based Etsy, Inc., following the online craft seller’s restructuring of a subsidiary in Ireland, a tax haven, to dodge U.S. taxes.

B Corporation status is not an official Internal Revenue Service designation such as S corporation or C corporation,  but instead is overseen by a nonprofit group known as B Lab. In a document defining “Why B Corps Matter,” B Lab states, “By voluntarily meeting higher standards of transparency, accountability and performance, Certified B Corps are distinguishing themselves in a cluttered marketplace by offering a positive vision of a better way to do business.”

However, Americans for Tax Fairness objects to Etsy receiving the designation, citing the company’s use of a subsidiary in Ireland to lower its taxes. In a letter to B Lab, ATF asked the nonprofit to “make Etsy’s designation contingent on its elimination of the use of its subsidiary in Ireland to dodge taxes.”

Etsy needs to be recertified by B Lab in order to maintain B Corp status after the company made its initial public offering in April. “B Lab has the opportunity to make a clear statement that tax dodgers do not deserve B Corp status,” said American for Tax Fairness Executive director Frank Clemente in a statement.

Despite publicizing itself as a B Corp, Etsy recently changed the structure of its subsidiary in Ireland, a tax haven, so that it doesn’t have to publicly report certain financial data, making it easier to avoid taxes. In using the Emerald Isle to lower its tax rate, Americans for Tax Fairness claims Etsy has joined the ranks of other tech giants such as Apple, Google and Microsoft that have used similar tax strategies.

In the letter last week to B Lab, Clemente wrote, “B Corp status is an important standard that a lot of consumers use when making decisions about which companies to buy products and services from. It is important that this standard not be weakened by a previously certified B Corp that has changed its behavior and is now using unethical business practices. … Etsy is now one of those corporations ducking out on its obligations to the nation that made its success possible. When corporations do not contribute their fair share of taxes, other businesses and individual taxpayers have to make up the difference.”

Etsy disputed the group’s claims. "We enjoy a strong partnership with B Lab, and have since our initial certification in 2012,” a company spokesperson said in a statement forwarded to Accounting Today.  “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."

Etsy CEO Chad Dickerson also defended the company’s tax practices in a blog post Monday, writing, “As a global company, it is smart business practice for us to have an efficient tax structure. To put it simply, we want our taxation to reflect our actual business. So, we are now paying taxes for our international operations (those outside of the Americas) in Ireland, where our international headquarters is located, as well as the other countries in which we operate. 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. As our international business grows, so has our headcount based in Dublin and we now have a team of almost 40 there, spanning engineering, seller development, finance, payment, recruitment, HR, and legal.”