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Etsy and Tax: Setting the Record Straight

Aug 31, 2015

by Chad Dickerson

Etsy.com handmade and vintage goods

At Etsy, two of our values are “we keep it real, always” and “we plan and build for the long term.” In the spirit of those values, I’m writing this blog post to set the record straight about the new global tax structure we implemented earlier this year. While I welcome increased scrutiny as a natural part of being a public company, some of the recent media reports about Etsy’s tax structure have been grossly inaccurate and misleading.

In January, we changed our global tax structure to better reflect the reality that Etsy is a global company. Etsy made its first cross-border sale in its first week of business. In the second quarter of this year, 30.2% of our Gross Merchandise Sales (GMS) was international. We also have our international headquarters in Dublin, with supporting offices in Toronto, Melbourne, Paris, London, and Berlin, and we serve Etsy buyers and sellers in nearly every country in the world.

The new tax structure was the culmination of work that our finance team began contemplating in 2009. We studied the topic thoroughly and, among many options, we chose the structure that was most straightforward and in line with our value of transparency.

As a global company, it is smart business practice for us to have an efficient tax structure. To put it simply, we want our taxation to reflect our actual business. So, we are now paying taxes for our international operations (those outside of the Americas) in Ireland, where our international headquarters is located, as well as the other countries in which we operate. We incorporated in Ireland in 2011 because, with lots of talented people, easy transportation, and, yes, an attractive tax rate, Ireland happens to be a great place to do business. As our international business grows, so has our headcount based in Dublin and we now have a team of almost 40 there, spanning engineering, seller development, finance, payment, recruitment, HR, and legal.  

Part of building and planning for the long-term means being mindful of finding the right balance in serving all of the many stakeholders who depend on Etsy: local communities, our sellers, our buyers, employees, shareholders and governments. Our global tax structure strikes the balance between meeting our tax obligations and our stated intent to continually invest as much as possible back into building services for our community. In my shareholder letter, I described this as Etsy’s Empowerment Loop:

People often ask me how I choose between the success of our community and the success of our business. My answer is that I don’t have to choose; we have built a business that does well when our community is successful. Making money matters to Etsy because our financial success creates long-term sustainability for our community. The more we invest in our platform, the more we enable Etsy sellers to pursue their craft and grow their businesses and the easier we make it for Etsy buyers to find unique goods. We call this Etsy’s Empowerment Loop.

At least one media report lumped us in with companies that have elaborate tax schemes which funnel money to offshore accounts in exotic locales. Etsy isn’t doing anything like that and the following myths about Etsy’s tax structure are just plain wrong:  

1. Myth: That the change in our global tax structure was made secretly or with secretive intent.

Truth: The press did not uncover anything we were trying to hide. On the contrary, we disclosed information about this in our S-1 (p.33) at the time of our IPO in March and also in each of our 10-Q filings for our first quarter earnings in May (p.14) and second quarter earnings in August (p.15) this year.

2. Myth: That Etsy’s new tax structure and Irish entity means we are dodging taxes we should be rightly paying.

Truth: At least one article grouped us with companies that “conceal how profits are shifted to zero-tax locales.” We don’t do that and didn’t consider doing it for a second. We pay taxes at the local rate in the US, Canada, Ireland, UK, France, Germany and Australia. We’re not offshoring or using a Double Irish structure or any other elaborate tax scheme that is out there. This is a simple structure.

3. Myth: That by not filing our Irish annual financial statements publicly, we are not being transparent.

Truth: We file our tax returns and pay our taxes in many states and countries, but we don’t publish those filings for everyone to read. This is a standard business practice and not unique to Etsy. Ireland is just one of many countries where we pay taxes. Our public financial filings with the SEC are the best source of information about the revenues we generate and the taxes we pay globally. Every year we break out the revenues and taxes we pay in the US and internationally, so that everyone can see them (refer to page F-37 within the Notes to Consolidated Financial Statements section of our S-1).

4. Myth: That the structure violates our values as a company and, in particular, our commitment to transparency.

Truth: If myths one, two and three were true, we would be violating our values. However, our global tax structure is straightforward, and we pay taxes around the world and make all the required filings wherever we operate. Our tax planning is done consistently with Etsy’s values: we care about Etsy sellers and are transparent about our actions. In fact, we intentionally avoided some of the more complex tax structures that perhaps are more frequently associated with tech companies because those structures are not aligned with our values.

As Etsy grows, we’re going to face other important inflection points and decisions. The driving force behind our decisions will always be our values and our belief that in following our values, we won’t have to choose between our community and our business. We will work harder to explain why we’re making particular choices and how they align with our core company values. It’s been a learning experience for us, and as always, we are focused on building for the long-term and will do what’s best for the broad community we serve.