[pavlov]

>... if those tax reduction schemes are legal many companies are legally bound by their stock holders to exploit them, or else be found negligent in their duties.

That's not the case. There is no way a company's management could be sued for "gross negligence in tax planning".

If shareholders are unhappy about this issue, their recourse is the same one that's always available to them: elect a new Board of Directors and hire new management that will follow the board's guidance on tax evasion schemes.

[tskaiser]

I admit to be completely out of my depth, but my understanding is that it is a fiduciary duty of the directors to act in the best interest of the shareholders. Tax planning is a huge part of profit and thus shareholder value, so wouldn't such "gross negligence" represent a breach of fiduciary duty?

[pavlov]

Suing directors for negligence is not easy at all. It's hard to imagine a shareholder lawsuit that basically says: "As a director you didn't guide management to move operations to Jersey, so we want you to pay us $100 million"... It's even harder to imagine a US court being friendly to such a case.

The greatest example of board negligence in this industry (that I can think of) in recent years would be when Hewlett-Packard's board hired Léo Apotheker as CEO in 2010. The board members had never met the man and his career had been on a different continent, yet they didn't even interview him in person before giving him the job!

Apotheker spent $10.2 billion to buy a British company named Autonomy. Soon after he was fired. Only a year later, HP was forced to write down $8.8 billion of Autonomy's purchase price.

That enormous loss was directly the fault of HP's board for hiring such a terrible CEO and letting him do the terrible deal. But shareholders didn't have any recourse; the best they could do is vote on a new board.

[tskaiser]

Thank you for the insight. It is one thing what holds in theory, and quite another what happens in reality, as you point out.

[jmalicki]

It is actually quite common.

Here is a list of hundreds of such open lawsuits:

http://shareholdersfoundation.com/content/new-cases

[pavlov]

Yes, shareholder lawsuits are common. But it's the company that pays, not directors.

HP actually paid $100 million in such a lawsuit for the Apotheker/Autonomy flop:

http://www.reuters.com/article/us-hp-classaction-pggm/hp-pay...

The 2010 Board of Directors who created and permitted the $8.8 billion loss paid nothing. They kept their compensation, and most stayed on the board.

[jmalicki]

In Seinfeld v. Slager (2012) the Delaware Chancery Court rejected the notion that the directors have a fiduciary duty to minimize taxes.

https://www.delawarelitigation.com/2012/07/articles/chancery...

[dijit]

What if they've done that already though.

What if the reason big companies avoid tax is that the shareholders ensure someone values fiscal results over supporting the country they earned the finance in is in the directors chair.

[pavlov]

Yes, that's exactly why American corporations do the things they do.

It's not a legal obligation though. Shareholders could choose to have corporations managed differently. That kind of "pro-tax" activist shareholders don't exist, but it's not inconceivable that large public funds (pensions etc.) could become such.

[Flenser]

Perhaps if governments started penalising corporate tax avoidance by confiscating a percentage of a company's shares the shareholders would be incentivised to make sure whoever is running the company will pay taxes fairly.

[an_account]

And how should the government define “tax avoidance”? With tax law? Oh wait, they already do it, and you get pentalized if you break it.

The problem isn’t Apple, the problem is the government can’t get its act together to pass tax reform.