NEW YORK (TheStreet) -- Following criticism for an offshore strategy that allows it to minimize its taxes, Etsy(ETSY) - Get Report is now facing pressure to dismantle the tax haven or risk losing its important classification as a socially and environmentally responsible B Corp.
Etsy faces a unique challenge here since the whole company's brand is based on maintaining the higher level of ethics associated with being a B Corp.
"Our reputation could be harmed if we lose our status as a Certified B Corporation, whether by our choice or by our failure to meet B Lab's certification requirements, if that change in status were to create a perception that we are more focused on financial performance and are no longer as committed to the values shared by Certified B Corporations," Etsy noted when it filed for its IPO.
The B Corp classification is doled out by an organization called B Lab to denote that a company values social and environmental responsibility. Etsy was certified as a B Corp in 2012, going along with the company's overall commitment to the "Etsy economy," but since the company recently went public, B Labs is re-evaluating the company's status to decide if it can keep the B Corp classification.
This reclassification has been made a bit messier thanks to a Bloomberg article last month that highlighted Etsy's "secret Irish tax haven," which lets Etsy reduce its tax burden and avoid disclosing financial information for that subsidiary. Etsy CEO Chad Dickerson responded to this report in a blog post claiming that the reports were "grossly inaccurate and misleading."
But the Americans for Tax Fairness, a tax policy advocacy group, apparently felt differently about the reports. The group is calling for Etsy to dismantle the haven, and if it doesn't, for B Lab to revoke its B Corp status.
Etsy, for its part, doesn't think its Irish subsidiary clashes with its values.
"We believe we have a tax structure that reflects our growing international business and our values -- it's a straightforward structure that meets our tax obligations and allows us to invest in services for our Etsy community," Etsy spokesperson Ellen Gonda said. "We have always been inspired by being part of a movement that advocates for the harmony of business interests with social and environmental responsibility."
Nonetheless, Americans for Tax Fairness thinks that while perhaps a standard corporate practice, the way that Etsy's subsidiary in Ireland allows it to reduce taxes should not be acceptable for a B Corp.
B Corp said it's still in the process of assessing Etsy and won't decide for sure until around the end of October.
"B Corp Certification is based on three essential pillars: overall social and environmental performance, legal accountability and public transparency," said Katie Holcomb, director of communications at B Lab. "It's the combination of all three that makes the B Corp certification unique and credible, while of course remaining imperfect. None of these pillars alone are sufficient; all three together provide a more solid foundation on which B Lab can make a judgement about the overall impact of a business."
If B Lab does decide to revoke Etsy's status as a B Corp, though, it could have huge implications for the company.
"Trying to take advantage of a tax loophole is the latest departure for the socially responsible core principles, and it is not surprising that it has put their B Corp status at risk," Wedbush analyst Gil Luria said.
The Ireland subsidiary was not the first issue to raise some questions. When Etsy decided to let sellers outsource some of their manufacturing, changing the previous policy of requiring all goods to be handmade, some sellers were concerned that Etsy was losing its ethos, as Dickerson referenced in the company's S-1. The company's decision to go public also raised some concerns for Etsy veterans.
"Etsy was founded with a socially responsible ethos that has been worn down over time," Luria explained. "The B Corp designation was one of the cornerstones of that ethos which had helped Etsy gather sellers, buyers and employees and was instrumental to its community culture."