Kim Dotcom and America’s Diabolic Intellectual Property Laws

kim dotcom

The Secret Life of Kim Dotcom: Spies, Lies and the War for the Internet

By David Fisher

Paul Little Books (2013)

Book Review

Kim Dotcom, a recent German billionaire immigrant to New Zealand, continues to fight a US extradition order for alleged Internet piracy, money laundering and racketeering. Dotcom, who legally changed his name from Kim Schmitz in 2001, was first arrested January 20, 2012 – during a military-style assault by an elite anti-terrorist team on his Auckland home. It would be nearly four years, in late 2015, before the New Zealand government convened an extradition hearing. The court granted the request for extradition, which is currently under appeal.

The case has caused great embarrassment for New Zealand prime minister John Key. Not only did the Government Security Communications Bureau (GSCB) illegally spy on Dotcom primary to his arrest, but New Zealand courts ruled the arrest warrant and the government order to seize his assets were illegal.

Fisher provides an excellent summary of Dotcom’s financial empire and the legal and technological intricacies of the case against him. The book paints an ugly picture of a servile National government that seems to view New Zealand as a US colony and happily suspends the New Zealand Bill of Rights at the behest of the FBI and US corporate interests – in this case the Motion Picture Association of America (MPAA).

The case revolves around Megaupload, a service Dotcom created in 2004 (preceding Dropbox by three years) enabling Internet users to store and share large files. The MPAA cried foul when Megaupload users began sharing downloaded new release films.

Fisher (and the lawyers Dotcom consulted prior to starting Megaupload) maintain he is in total compliance with the US Digital Millennium Copywrite Act (DMCA). This law holds sharing websites (like YouTube) harmless for copyrighted materials posted by third parties, provided the sites remove them after being notified by copyright owners. Dotcom’s lawyers also contend that copyright violation isn’t an extraditable offense. This is why the US government has added additional charges of money laundering and racketeering.

Despite Dotcom’s status as a New Zealand resident, the US Department of Justice is claiming jurisdiction because all global email traffic passes through eastern Virginia. Dotcom (and Fisher) believe the FBI targeted the billionaire after he made a $50,000 donation to Wikileaks. Additionally, Fisher believes Dotcom may have influenced Edward Snowden’s decision to flee to Hong Kong. Dotcom started Megupload in Hong Kong prior to moving to New Zealand and still has major business ties there.

Dotcom’s appeal against the extradition order will likely extend into late 2017.

How Big Corporations Avoid Tax

The Tax Free Tour

Film Review

VPRO-Marijee Meerman 2013

The Tax Free Tour is an hour long Dutch documentary (in English) about the highly specialized field of corporate tax avoidance. I found it astounding how many American corporations use overseas tax havens to avoid paying tax in the US. Some of the better known names include Walt Disney, Wells Fargo, Google, AT&T, Apple and even companies that promote themselves as socially responsible, like Starbucks and Amazon.

Apple, one of the worst offenders, pays only 1.9% of their annual income in corporate tax. As a US company headquartered in Silicon Valley, Apple should be liable to the standard 35% corporate tax rate. Their secret is diverting nearly all their income to a subsidiary in Ireland (which has one of the lowest corporate tax rates) – after first passing their royalty income through a Netherlands subsidiary (the Dutch charge virtually no tax on intellectual property revenue), a company listed in Virgin Islands and back to Ireland. In the accounting trade, this is known as a Double Irish with a Dutch sandwich.

The filmmakers calculate that profits offshored for tax avoidance purposes totaled more than $20 trillion in 2010. Approximately 100 of the world’s largest companies have subsidiaries in the Netherlands, owing to their low taxes on intellectual property royalties. Walmart has six Dutch companies, even though they don’t have a single Dutch store. Starbucks also diverts all their royalty income to the Netherlands. Because they have a trademark on “frappuccino,” they declare a certain percentage of the price as a “royalty” (and pay no tax on it).

My favorite part is near the end when a British Select Committee challenges a Starbucks executive on his claim that their British coffee houses have been running at a loss for fifteen years. After asking why they don’t close their British stores, she gets him to admit they avoid $1.6 million pounds in corporate taxes by diverting their UK income to the Netherlands. He won’t tell her how much tax they pay the Dutch government. Allegedly Starbucks and the Dutch government have a secret agreement not to disclose the amount. The committee chair sternly reminds the executive of all the free public services Starbucks receives in the UK, at the expense of other taxpayers.

Amazon avoids corporate tax by diverting a sizable portion of their revenue to Luxemburg. Google shelters their profits in Bermuda. Other favored corporate tax havens include Cyprus, the Cayman Islands, Mauritius, Singapore, Hong Kong, the UAE and Kenya.

The irony is that most of this income can’t be transferred to shareholders. Paying it out as dividends would necessitate repatriating the revenue to the company’s home country – and paying the prevailing corporate rate. Thus much of this money is loaned (as treasury bonds) to deeply indebted western countries – who struggle to balance their books owing to the trillions of dollars lost from tax avoidance.

Crossposted at Daily Censored