Yesterday, during a Press Conference after the U.S.-Africa Leaders Summit in Washington D.C., President Barack Obama announced who was to blame for the corporate tax inversion trend: accountants.
He said:
You have accountants going to some big corporations — multinational corporations but that are clearly U.S.-based and have the bulk of their operations in the United States — and these accountants are saying, you know what, we found a great loophole — if you just flip your citizenship to another country, even though it’s just a paper transaction, we think we can get you out of paying a whole bunch of taxes.
Well, it’s not fair. It’s not right. So there you go. It’s the accountants.
Except, as Michael Cohn at Accounting Today points out, while President Obama blames the accountants, others are blaming the lawyers.
So it’s the lawyers. And maybe also the accountants.
Which means that those terribly large multinational companies had no part to play. Zero.
Pfizer. Aon. Tower Group Eaton. Argonaut Group. Jazz Pharmaceuticals. All victims.
Right? That’s the point in making these accusations, is it not? To paint a picture that implies these power companies were powerless to challenge the devious schemes concocted by lawyers and accountants…
Or maybe, just maybe, those companies were active participants. Maybe they were even the driving force behind those conversions. Maybe they approached the lawyers and accountants and said, “How can we lower our taxes? We’ll do anything.” And maybe they meant it.
And when Walgreens recently said no to corporate inversions, maybe it wasn’t about saying no to lawyers and accountants but about bowing to public pressure and concerns from shareholders.
That doesn’t make as good of a speech though, does it?
We love to hate lawyers. I know this all too well since I’m one of them. I’ve heard all the lawyer jokes. I’ve seen the nasty comments about lawyers in social media. It can be pretty harsh. But here’s the thing. When we’re bashing lawyers over frivolous lawsuits and hefty lawyer’s fees (and no, I’m not defending those things), we tend to omit one spectacularly important detail: there wouldn’t be plaintiff’s lawsuits if there weren’t plaintiffs. Someone has to buy in.
Similarly, there wouldn’t be corporate inversions if there wasn’t a crazy long list of companies – mostly big pharma – standing in line ready to take advantage of existing tax laws. That line already includes AbbVie and Shire. Bloomberg reports that inversions are pending for Medtronic, Chiquita Brands, and Horizon Pharma, among others.
And Apple? It didn’t exactly push back at the idea of building a “Double Irish and Dutch Sandwich” when it came to tax planning. Nor did Microsoft. Or Twitter. Or Google.
Those incredibly wealthy companies have incredibly wealthy shareholders. They are not powerless. And in fact, many of them are happily atop Forbes’ List of The Richest People in America. Their lawyers and accountants are not.
For the record, only one practicing lawyer made the list – Joe Jamail, Jr., at #342 – and he’s not a tax or corporate attorney.)
Don’t misunderstand me. I’m not implying that there aren’t lawyers and accountants getting rich off of these tax planning techniques. Certainly, some are doing quite well (the Wall Street Journal singled out Skadden Arps, for example).
And I’m not saying that there aren’t lawyers and accountants who are doing the wrong thing and offering bad – and in some cases, illegal – advice. It does happen (see Paul Daugerdas et al).
But to point fingers at lawyers and accountants as if they are holding all the cards is plain wrong. If we want to talk about responsibility, let’s talk about responsibility.
Let’s talk about a bloated Tax Code that just keeps getting bigger. Let’s talk about a global tax system that encourages companies (and people) to flee. Let’s talk about stalled tax reform efforts.
So President Obama (a Harvard Law grad) and members of Congress (about 40% have law degrees), you can be angry about corporate inversions. You can publicly denounce companies that participate. You can try and put an end to it by changing the existing legislation. But those in Washington have no business blaming the lawyers and the accountants. We didn’t write the rules, you did.
