TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, January 30, 2013

Johnston: Dell's Multiple Restructurings Aid It in Tax Avoidance

Tax Analysts David Cay Johnston, Dell's Multiple Restructurings Aid It in Tax Avoidance, 138 Tax Notes 499 (Jan. 28, 2013):

David Cay Johnston discusses a restructuring by Dell Inc. that would enable it and other U.S. multinationals to avoid being taxed on their U.S. profits. 

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David Cay Johnston again? The article does not identify what tax avoidance Dell is involved in. It does identify corporate structural changes that Johnston does not understand and which he presumes are for tax avoidance.

His source - an American living in France - with an economics degreee from Princeton. (Does that factoid mean he is smart and doesn't lie?) Who makes a living trying to collect the IRS up to 10% fee for turning in taxpayers who didn't pay what they should have. I hope he's not on the jury in a death penalty case.

Posted by: air65cav | Jan 30, 2013 7:35:57 AM

@ air65cav,

Ah, yet another post from someone hiding behind a nom d'Internet -- read: lacking he courage to sign their name and take responsibility for their words-- who criticizes without reading or, perhaps, understanding.

But perhaps I am wrong and there is a solid business purpose for these restructurings, for flowing money around the world through tax havens, for the creation of entities that in some cases last as long as a day, for repeatedly making what are -- at best -- inaccurate filings. As I wrote: This makes business sense? I cannot fathom how -- except to escape taxes.

And the esteemed Reuven Avi-Yonah weighs in, too, on the same side. SO did others I did not quote and so have others who have since been in touch.

So please Air65Cav, whoever you really are (a Dell troll perhaps?), do offer something constructive. Show us a business purpose for all of this and do so in the context of Dell's minimalist disclosures and the public record as to its federal tax payments.

Posted by: David Cay Johnston | Jan 30, 2013 9:07:55 AM

Professor Johnston begins (and ends) his reply to my post with an ad hominem attack on me because I did not have the "courage" to sign my name. I use the internet handle when I make comments that could be termed political. I do not have the luxury of tenure. I also have to attract and keep clients, approximately 50% of whom might not agree (and could take offense) to my political beliefs. Even one of the original bloggers at PowerLine Blog was threatened with being punished by his BigLaw firm over a post he made.

After launching the ad hominem, Professor Johnston retreats to reliance on authority - some other leftist law professor and some other unnamed authorities agree with him. Well, God is on my side, Professor.

Professor Johnston's argument seems to be that because he does not know why Dell organized itself in a particular manner, they must have done it for tax avoidance purposes. (I guess it helps to be so brilliant.) Maybe they did? And more power to them. My clients pay me because they know I live for tax avoidance. Do Professors Johnston and Avi-Yonah teach their students how to minimize taxes? If not, what do they teach?

Professor Johnston apparently has a very thin skin and has no problem making personal attacks on me. Sir, I have also been published many times by Tax Notes & BNA and signed my name to "technical" tax articles. It certainly doesn't take much courage to hold leftist, pro-tax views in a university environment. As for me, let's see. air65cav - think 1st AirCav, 1965, Southeast Asian War Games, 2nd place finisher.

Posted by: air65cav | Jan 30, 2013 12:32:12 PM


You ignore the issue you raised in your sneering (in my opinion) first post. Can you identify business reasons for these restructurings other than tax avoidance? Can you do so in the context of the minimalist disclosures and what are, at best, numerous false filings as well as the disclosures Dell has made about its actual tax payments? And can you show where there is no valid issue under the principles of SEC regulation I cited? Can you show that no prudent investor would reasonably want to know more about what Dell did than its one-sentence disclosure?

You imply that I have tenure. I do not. And I never call myself professor, either. My part-time position is “distinguished visiting lecturer,” but the ancient protocol is that anyone who is a scholarly teacher can be, and is, called professor by their students and peers. Unlike your imaginary cloister of self-reinforcing like minds, robust debate is encouraged where I am fortunate to teach and students, in their evaluations, report they got their money’s worth.

Not signing your name is not only cowardly, in my opinion. It also lets you play lose with facts because you are not accountable, as I am for everything I have written in the past 46 years as an investigative reporter and author.

You hurl invective from a nom d'Internet, but fail to show any error in fact or concept. You falsely assert I did not show things which the text and graphics make clear. You also denigrate what you assume (wrongly) are my political views.

You want to play games about bravery -- well, I once hunted down and confronted a stone-cold killer the cops failed to catch, winning a freedom for an innocent man, one of many examples I could site that are just as irrelevant to the tax issues here as your laudable war games success.

Tax policy is at the core of democracy. Indeed, democracy is the child of the invention of a moral basis for taxation As the great conservative Edmund Burke noted in 1793 "the revenue of the state is the state."

Tax strategies are an important issue for public scrutiny, yet you suggest I should not have written about this (“David Cay Johnston again?”) or, alternatively, that this blog should not have referenced my column. I consider that illegitimate rhetoric.

Thin skin? Wrong. I engage. I welcome criticism and unlike most journalists invite it -- I even publish all my contact information in dozens of places and did so even when I had small children at home and wrote about violent criminals. The posts here are called debate. I write. You criticize. Then I criticize what you write, asking you to marshal facts instead of insinuations. You object and raise irrelevant issues. I object and criticize and, again, ask that you show that I am wrong on the facts or concepts.

I never expect anyone to share my opinions. I do hope they prompt reflection and insightful response, adding to our public pool of understanding of issues vital to making our democracy endure. And I base my opinions on attributed, verifiable facts that I have checked out and cross-checked. When I err, I correct forthrightly.

Surely you cannot contend that it would not matter if Dell has found a way to exploit an IRS audit protocol to escape taxes, one that other companies could use to get around the obligations our Congress has imposed in its wisdom. Nor can I imagine that you think that the false filings and SEC issues I raise are of no consequence. Or do you think should be discussed only in quiet rooms, if at all?

So, again, please show -- if you can -- where I am wrong. Debate the facts.

And, please, as someone who took an oath to uphold our Constitution, stop implying that I should withdraw from public debate because the freedom to speak and publish is a right I cherish as much for you as for myself, no matter how little regard I hold right now for opinions you express without citing any factual basis and without taking personal responsibility for your words.

Posted by: David Cay Johnston | Jan 30, 2013 9:15:17 PM

Though I said I wouldn't comment on Mr. Johnston's articles anymore (because I think Prof. Caron includes them just to rile us up), I can't let this one pass.
The premise of this latest article by Mr. Johnston is that the restructuring by Dell is wrong, has no "public benefit," and parts of the structure or its reporting are possibly illegal. Considering Mr. Johnston has been writing about tax issues for a long time, his article indicates either an incredible naivete or a grand conceit. I think it is the latter, being that he knows the reason for the Dell restructuring is most likely to reduce taxes, but his viewpoint, which he does not describe, is that all tax planning is wrong. See articles in the Financial Times a month ago about it being "morally wrong" for Starbucks et al. to reduce taxes that might be owed to the UK. I do not believe that Mr. Johnston and his kind do not really understand that it is the first job of the Tax Director of Dell (and the tax department of every publicly held company) to reduce taxes; a tax director's job depends on it and is measured by the company's effective tax rate (and compared with others in the same industry). I think Mr. Johnston knows that is their duty as corporate officers. What I find so disngenuous about articles of this type -- so disingenuous to the point of being intellectually dishonest -- is the complete absence of an explanation of their political viewpoint. You don't have to go too far beneath the surface of this article (and about any other article criticizing corporate tax planning) to see that the premise of the authors is that we owe everything to the state -- our loyalty, our money, our lives. In Mr. Johnston's view of the world, we live to support the state and any action that reduces revenue it might possibly have is wrong and illegal. Some of us have a different view of the purpose of government.

Posted by: TexEcon | Jan 31, 2013 8:03:06 AM

I will jump in and add (non-anonymously) that I was also disappointed by this article. I had printed it yesterday morning and set it out on my desk, looking forward to reviewing it after teaching my international tax class. My international tax students love to hear about things like the Google Dutch Sandwich, Transocean's pulling of rigs into British waters for tax purposes, and so on, and I thought this article would provide another fun story for them.

Unfortunately, the article employs lots of scary speculation with little substance. We're told that Dell created several subs and that this is a nightmare for the fisc.

I suspect, like Professor Johnston and many others, that tax reasons drove the formation of these various subsidiaries. However, before writing an article, I would want to find a little bit more meat. I was looking forward to reading a little bit more about how these structures actually furthered tax avoidance. Perhaps a careful discussion of some treaty planning, earnings stripping, or things of that sort.

Instead, the article merely shows us that Dell moved some entities around, throws out some inflammatory rhetoric, and that's about it. How disappointing. Even if Professor Johnston is right (as I suspect he is) that the restructurings were tax-motivated, it'd be nice to see some actual analysis.

Posted by: andy | Jan 31, 2013 1:34:28 PM

@ TexEcon,

Your post is absurd and fact-free, but then people who use noms d’Internet often fit that description.

1) the “public benefit” issue I raised had to do with transparency and disclosure as they affect both investors and the amount of public resources required to enforce the tax laws (that is, not wasting taxpayer money).
2) Just the opposite your assertion that I view tax planning as “all wrong” is true. I plan my own taxes (and have written about it), paying off a charitable pledge last month because I feared clawbacks would return in 2013, raising the price of our gift.
3) of course a tax director’s job is to reduce taxes, but how it is done and whether it was done properly are legitimate issues of significance for investors, taxpayers and public policy.
4) your “owe everything to the state” line is utter nonsense, especially since I have written extensively on what our duties actually are.
5) my very first investigation, at 18, exposed taxpayer money wasted. I studied public administration in graduate school to better protect taxpayer interests by understanding how bureaucracies work, including strategies official use to obscure waste and inefficiency.
6) paying more taxes can sometimes leave you with more cash in your pocket, as I document in The Fine Print.
7) numerous official government reports (and even some by antagonistic journalistic competitors) going back decades document that my work has saved local, special district, state and federal taxpayers more than a quarter of a trillion dollars (along with many lives),which shows your closing point is nonsense.


Since the techniques are well known, and my column included with 7 pages of graphics, I felt the written descriptions were adequate for readers to get the point on escaping taxes.

I wanted to focus reader attention on other points – among them IRS awareness and inaction (as in Enron), lack of transparency, whether serial false filings can (or should) undo the tax planning and whether the tax police should have to waste extremely limited audit resource playing a game of hide the structure.

Walking readers through the serial false state findings and some other steps proved deadly boring, tough perhaps I was just not up to that task. I feared trips down one rabbit hole after another that added little value on the how-to side.

If and when the documents enter the public record you may find I missed an opportunity or you may agree with my judgment.

That said, point taken.

Posted by: David Cay Johnston | Jan 31, 2013 4:49:08 PM