Etsy, B Corporations and Tax Avoidance

Elizabeth Umlas, Lecturer, University of Fribourg (Switzerland)

Credit: Phillip Ingham, Tax Project:365 #4, Flickr CC

How can the Business and Human Rights movement and the B Corp movement learn from each other?

Certified B Corporations (the B is for “benefit”) are businesses with a stated mission to have a positive impact on society and the environment. At the moment B Corps are facing an important test. Etsy, the online store for handicrafts and the second certified B Corp to go public, has been in the news for alleged tax avoidance. In August, accusations surfaced that Etsy was dodging taxes in the U.S. by changing the structure of its Irish subsidiary to avoid having to disclose certain financial data publicly. That month, Americans for Tax Fairness (ATF), a coalition supported by unions and NGOs, sent a letter of concern to the founders of B Lab, which certifies B Corps.

 ATF noted that Etsy was due for recertification, and argued that the company would have to say “yes” to the B Lab Impact Assessment question of whether it minimizes taxes “through the use of corporate shells or structural means” (the question appears in the Impact Assessment’s “Disclosure Questionnaire,” which all companies must fill out.) ATF called on B Lab to “make Etsy’s B Corp designation contingent upon its elimination of the use of its subsidiary in Ireland to dodge taxes.” Corporate tax avoidance, as noted by the Business & Human Rights Resource Centre, “deprives governments of essential revenues that they need, in order to deliver on development, health, education, housing, access to water and other human rights.”

 A broad debate about improving measurement of the human rights impacts, positive and negative, of B Corporations (and other corporations) is long overdue.

Clearly B Corps are climbing up the agenda of the mainstream press: the Etsy story was carried by the likes of Bloomberg and the Financial Times. This coverage is encouraging because a broad debate about improving measurement of the human rights impacts, positive and negative, of B Corporations (and other corporations) is long overdue. In a recent co-authored paper, Making Corporations Responsible: The Parallel Tracks of the B Corp Movement and the Business and Human Rights Movement, Joanne Bauer and I argue that B Corps have the potential to contribute significantly to the current debate about the role and impact of business in society. More specifically, our paper explores how two movements, the Business and Human Rights (BHR) movement and the B Corp movement, can learn from each other and in doing so, make a greater contribution to this multi-faceted debate.

Our paper takes a close look at B Lab’s Impact Assessment and finds it contains several promising elements that could improve the way corporate impact on human rights is measured. But a key drawback of this Impact Assessment, which could come into play in the Etsy case, is that answers to the Disclosure Questionnaire are unweighted and do not count in a company’s ultimate score (companies must get at least 80 out of 200 points to qualify as certified B Corps). It is therefore left to B Lab assessors to decide on a case by case basis whether answers to a Disclosure Questionnaire eliminate a candidate company’s chances of becoming a B Corp.

 Our paper explores how two movements, the Business and Human Rights (BHR) movement and the B Corp movement, can learn from each other and in doing so, make a greater contribution to this multi-faceted debate.

It is noteworthy that both positive and negative elements are considered in a company’s application for B Corp status, and the assessment process itself is quite robust and thorough. The B Impact Assessment’s explicit question on tax dodging structures has the potential to push the envelope on an issue that current corporate reporting frameworks have failed to capture.

 In the end, if by making these changes to its Irish subsidiary, Etsy is disproving its own claims to be transparent, should not this part of the B Impact Assessment be strengthened by being made a mandatory part of scoring? Changing the B Impact Assessment in this way could head off the scrutiny and tough questions now being asked of B Lab by its critics and supporters alike.