Business Technology

Thursday 27 October 2016

'The world needs an effort to harmonise tax laws - and it needs to start with the US'

Published 06/10/2016 | 02:30

'It's a government that believes in investing in talent. And it's a government that believes in working with the private sector in creative ways,' Brad Smith says of Microsoft's experience in Ireland
'It's a government that believes in investing in talent. And it's a government that believes in working with the private sector in creative ways,' Brad Smith says of Microsoft's experience in Ireland

Microsoft's president and chief legal counsel Brad Smith recently led his company's successful legal defence against the US government's attempt to reach into Irish servers for email data. He spoke to our Technology Editor about tax, Ireland, owing a debt to Edward Snowden and why the recent €13bn Apple state aid case doesn't make the European Commission anti-American.

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Adrian Weckler (AW): Should Edward Snowden be pardoned by outgoing US president Obama?

Brad Smith (BS): I don't have a view on whether he should be pardoned solely because I don't have knowledge of all of the facts. But I do think we have to acknowledge in the technology sector that he helped bring to light a lot of facts of which we were unaware. And I think the world is a better place because of those disclosures.

AW: Do you think the Irish government was right to appeal the recent €13bn Apple tax ruling from the European Commission?

BS: I don't have a stake in the ground here or an opinion to offer on the specifics of the case. But I'd step back and say the world needs a globalised effort to harmonise tax laws. We do need a 21st century approach to taxation that countries around the world can feel comfortable with. I think it needs to start with the United States. The US really stands alone among the major developed countries with a tax system that is not territorial in nature. I think that injects an anomaly into the international tax regime. We need governments to come together with a new multilateral initiative. I think that can probably only happen if the US starts to move forward.

AW: Many US company executives and legislators say that this is overtly political and an attempt by European authorities to grab US taxes. What do you think?

BS: One should step back. Every time the European Commission makes a decision or regulates the tech sector, there are people in the US that sometimes read into it some kind of particular attitude toward American companies.

But I think one is better served by recognising a couple of things. Look, the industry's leaders today are basically either American or, in some cases, Chinese. So of course there's going to be a bigger impact on American companies because the industry reflects that.

People often ask me, on the privacy issue, 'do you think the European Commission or governments are acting on privacy solely because all of this technology is coming from American companies?' And my answer is always 'no', European governments have been acting at the forefront of privacy protection since 1945.

They've done this through progressive eras of technology and I just think that the importance of privacy is undeniable. The importance of tax treatment is undeniable. I think what we need are solutions that work across borders but that pay appropriate respect to different values across Europe and around the world. And I'm actually optimistic that if we set aside speculation about what motivates people. Or about what serves people best, we can actually start to hammer out some concrete steps.

AW: Regarding your recent €23bn acquisition of Linkedin, Salesforce are lobbying the European Commission to intervene on anti-competitive grounds. Are you worried about this?

BS: By definition, regulators need to approve the merger. We recognised that it couldn't close until three governments approved it. Two of those three, the Americans and the Canadians, have cleared it to close. And we have been engaged in a very healthy conversation with the European Commission. They ask lots of questions as they always do and as they always should. I think they have good questions. I think we have good and clear answers to their questions. From my perspective this is an acquisition they is going to promote competition.

If one wants to look at the CRM market, obviously if Salesforce thought that, as the largest CRM provider, it could buy LinkedIn, as it obviously did, I have to believe that as the fourth largest CRM provider, we can buy LinkedIn. So I look forward to the continuing conversation and I remain strongly of the view that it will bring more competition to the marketplace.

AW: Salesforce executives have repeatedly warned that Microsoft will cut off critical data from LinkedIn to competitors. Could this happen?

BS: It is not something that we have any intention of doing. The LinkedIn data is public today and we want to make that data useful in lots of new ways. So the European Commission has naturally been reviewing with us the whole range of issues and I think we have good plans and pro-competitive plans at that."

AW: You have extensive operations in the UK. Is the prospect of hard Brexit affecting Microsoft's disposition towards the UK?

BS: Not at this point. We have committed to two data centres in the UK. So we'll have Ireland, Amsterdam and then the UK, France and Germany. The UK's an important country. At some level it's even interesting to look at the UK and Ireland together. Both Dublin and London have grown so much and have become such important cosmopolitan centres. We very much hope that the UK will continue to thrive. I hope that we'll continue to be able to bring to the UK talent from across Europe and from around the world.

AW: But the UK Prime Minister is talking about pulling that country out of the European single market.

BS: We will simply have to follow what goes on there. We'll have to adapt. I think from my own perspective, the single most important factor will be the ability to bring some of the world's most important talent to come work in the United Kingdom.

AW: But how can you do that if the British government cuts down on immigration?

BS: Well that's why I'm not the prime minister of the UK! But when I look at our research facility at Cambridge, for example, it has incredibly talented people from around the world.

AW: So you're not concerned?

BS: I think it's too early to be concerned and it's too early to be sanguine. I think the issues are too important and we'll have to see how it unfolds.

AW: Do you think the case involving the US government (ordering you to give up email information from your data centre in Ireland) is over?

BS: I feel very optimistic that decision of the second circuit court will prevail.

AW: Did the Irish Government's intervention (with an amicus brief) have a significant impact?

BS: I think it did. It was very important in making clear that this is an issue that affects governments on the other side of the Atlantic. When I think of all the other groups that filed amicus briefs, the Irish Government is at the top of the list in terms of importance.

AW: As a big tech multinational company that has been in Ireland a long time, were you reassured by the Irish Government's response in moving to support Apple's position in the recent €13bn European tax case?

BS: I'm not going to offer a view on that specific decision. But what continues to impress me in Ireland today is what has impressed me in Ireland for 25 years. This is a government that understands what is required to grow.

And it's a government that believes in investing in talent. And it's a government that believes in working with the private sector in creative ways.

I remember when I first moved to Redmond [Washington, Microsoft headquarters] in the late '90s.

That was a point in time when the Irish government was probably the first government to recognise that although it had created a tech sector based on CD and DVD manufacturing, the future was going to be about data and data centres.

A delegation from the Department of Enterprise came to visit us in Redmond. They asked us to build our first data centre in Ireland to serve Europe. We said we'd love to, but it wasn't feasible because there was no broadband cable that connected Ireland with the continent. So they said 'will you give us three months?'

We said 'of course'. And in less than three months they had hammered out an agreement with the then Global Crossing and the cable was laid months later. So now there's a big [Microsoft] data centre here in Ireland.

To me what the speaks to is not any single issue but a broad approach. This is a government that gets it in terms of technology and talent and how they need to come together and that's what actually gives me the greatest source of confidence.

AW: Has Microsoft made any progress in the hiring and participation of female engineers and employees?

BS: I think we have some progress behind us but we have way more progress ahead of us. I think Satya [Nadella, Microsoft ceo] has really brought a broad and deep focus across the company. I think that there are some areas where we're starting to see movement in the demographics. And I do share the sense that if, at the end of the day, if you don't see improvement in the numbers, then you should assume that you're not actually seeing a lot of improvement.

So we're starting to see improvement. I'm very optimistic in what I think we will be able to accomplish in the next few years. I do think it's a multi-year clause that we need to pursue.

AW: Is it a pipeline issue?

BS: I would say two things. Yes, of course there are pipeline issues. But one should never assume that the pipeline needs to define your performance. I believe that a company can outperform the pipeline if it acts with real determination. I think our goal as a company should absolutely be to outperform the pipeline. And also we need a second goal, which we're pursuing, to invest with everybody else in strengthening the pipeline.

And when one is talking about women, this really is fundamentally thinking about how we start with girls early in school. It's about how we make computational thinking and computer science more interesting. It's about how we make it more broadly appealing to groups of people.

I think the bottom line from my perspective is very straightforward. We are moving forward but we need to move a lot farther and this is one of the real issues and causes of our time. We need to continue to embrace it that way.

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