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Not everyone was impressed by Patagonia founder Yvon Chouinard’s decision to transfer his ownership of the company to a climate change group.
After Mr. Chouinard received glowing reviews for his philanthropy, led by a New York Times exclusive headlined “Patagonia Founder Gives Away the Company to Fight Climate Change,” those crunching the numbers pointed out that the move offers considerable tax advantages.
“Patagonia founder Yvon Chouinard has described his decision to give away the company as his last-ditch effort to do all he could to protect the planet, however, it’s also helping him skirt around $700 million of tax bills. Funny that!” tweeted Net Zero Watch.
Declaring that “Earth is now our only shareholder,” the billionaire moved 100% of his nonvoting shares to the Holdfast Collective, a newly formed nonprofit dedicated to fighting the “climate crisis,” and all of his family’s voting shares to the Patagonia Purpose Trust, which his family and its advisers control.
The deal’s structure puts Mr. Chouinard in a position to save an estimated $700 million in federal capital-gains taxes had he sold the $3 billion outdoor gear-and-apparel giant, as well as allowing his heirs to avoid estate and gift taxes while keeping his family in control of the company, according to a Bloomberg analysis.
The details shook the hero-of-the-environment narrative that characterized the coverage of Wednesday’s announcement, as fossil-fuel supporters and media figures on the left and right called attention to the tax benefits.
ProPublica senior editor Jesse Eisinger tweeted that The New York Times’ “paean to the Patagonia [founders’] machinations was erroneous. It’s a massive tax avoidance scheme,” while National Review dinged the “socialist billionaire who’s getting a sweet tax deal.”
A Patagonia spokesperson defended the arrangement, noting that Mr. Chouinard would pay about $17.5 million in taxes on the shares transferred to the Patagonia Purpose Trust. Those voting shares represent 2% of his holdings, while the nonvoting shares comprise 98%.
“There are no estate or capital gains taxes because there are no generational gifts or death, and there was no sale,” the spokesperson said in an email. “There was never an ask from anyone in the Chouinard family that we create a structure to avoid taxes.”
As a 501©4 nonprofit, Holdfast can make unlimited political donations, although contributions to the group are not tax-deductible.
Tom Pyle, president of the American Energy Alliance, called the climate narrative disingenuous.
“I’m all for paying as little taxes as possible, but let’s not pretend that this complex business arrangement is about saving the planet,” Mr. Pyle said. “It’s really about fueling Mr. Chouinard’s political causes while still retaining control of the company, and creating a tax shelter for his heirs in the process.”
He added that it was “also ironic because Patagonia products wouldn’t exist without oil and natural gas, which will most certainly be the target of this newly created political organization.”
Patagonia founder Yvon Chouinard has described his decision to give away the company as his last-ditch effort to do all he could to protect the planet, however, it’s also helping him skirt around $700 million of tax bills. Funny that!#CostOfNetZero
👉 https://t.co/HRZbhO6ZGB pic.twitter.com/FVhFlZ4yyG
— Net Zero Watch (@NetZeroWatch) September 16, 2022
Indeed, Patagonia has been long accused of hypocrisy for supporting anti-fracking activism even though the company’s product line is heavily dependent on nylon and polyester, both petroleum-based fibers.
Patagonia has responded by shifting to recycled fabrics. The company said it seeks to phase out “virgin petroleum-based fabrics and materials by 2025,” and in the fall 2022 product line, “only 1% of our entire material usage by weight includes virgin nylon.”
In its announcement, Patagonia said that annual profits not reinvested back into the business will be distributed “as a dividend to the Holdfast Collective to help fight the climate crisis,” resulting in an estimated annual dividend of about $100 million.
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