Thursday, July 25, 2019

All politics is not local

I write about ESRI in this blog on occasion - most recently, in March 2016. And ESRI just made the news again - not a local news outlet, and not a geo news outlet, but Quartz.

The headline? A giant US government contractor went offshore to avoid a pittance in African taxes.

The subhead? "Stairway to Haven."

It turns out that Mauritius, a small island nation in the Indian Ocean, has signed some treaties and set up a tax code that makes it advantageous for firms to base their operations there. Which is what ESRI Southern Africa has done.

The structure in Mauritius allows the company to pay an effective tax rate of just 3%, according to the leaked documents. That means that between 2013 and 2015, the company might have avoided paying about $550,000 in taxes when compared to the 2015 average African corporate tax rate of 28.14%. That’s a pittance for a company like Esri, but meaningful for nations it works in like Mozambique, the Democratic Republic of Congo, and Lesotho, which have among the lowest GDPs per capita in the world, and heavily rely on earnings from corporations doing business in their countries.

ESRI has responded by noting that ESRI Southern Africa is independent of ESRI.

“This organization is one of our 87 international distributors. While these companies are largely independently owned and operated, they are closely associated with Esri and are the exclusive representatives for Esri in their territories,” Berry wrote, adding: “To our knowledge, nothing about our distributor’s operations in Mauritius, or in the other countries where they represent us, is inconsistent with the goals and values of Esri.”

Regarding the "largely independently owned" part, 20% of ESRI Southern Africa is owned by a Dangermond family trust. (Jack and Laura Dangermond ARE ESRI.)

But regarding whether the company's actions are consistent with the goals and values of the Redlands firm - I argue that they are.

In U.S. law, and presumably in Mauritius law, the duty of a corporation is to make money for its owners/shareholders. In fact, companies have been successfully sued by shareholders when they do NOT perform their fiduciary duties.

So while ESRI is getting a definite PR black eye by locating operations in a tax haven, such an action is not illegal, and in fact is commendatory.