Just because something is legal doesn't mean that it's okay, from a values and ethics perspective. This is precisely why so many people are frustrated with the very notion of a corporation; it has most of the rights and none of the moral compass of a human. I find it troubling that so many folks here are quick to argue what distills to, "if it won't land you in prison and it's better for your shareholders, you pretty much have a responsibility to behave in an antisocial manner". Antisocial as in: short term profits over societally accretive goals for the future.
I feel comfortable in my position because corporations benefit directly and indirectly from infrastructure provided by all three levels of government; everything from roads to schools for their employees kids. A smart player would put money back into the public coffers so that people could be taken care of, not hoard it for the already-wealthy. Why? Because there needs to be a functioning middle class to buy your products (and click on your ads).
I'm reminded of Penn Jillette talking about how he rapes and murders exactly as much as he wants (eg. not at all) without needing a divine entity to tell him not to do those horrible things.
I find this notion laughable, that a "moral compass" prevents individuals from attempting to lower their tax burden as much as corporations. Individuals are no different than corporations in the desire to avoid paying taxes. The difference is that the amounts are smaller, so they can't afford as many lawyers, and the tax laws are less complex, so generally fewer loopholes are available.
If it was advantageous for individuals to set up European subsidiaries for tax purposes, I guarantee everyone would be doing it, "moral compass" be damned.
> I find this notion laughable, that a "moral compass" prevents individuals from attempting to lower their tax burden as much as corporations.
Correct, I'd argue a functioning moral compass would keep a person from seeing it as a "burden" to begin with. Paying for what I take out and for the less fortunate (until it's my turn to be struck by misfortune) is not a burden, just like waiting in a queue until it's my turn is not an inconvenience. Being aware of the randomness of my own birth and having empathy doesn't require a moral compass, it requires intelligence; it leads to having a moral compass.
That you can find that "laughable" you owe to the fact that you were born and cared for as a baby, creating a lot of costs and work for a lot of people, none of which with anything but their moral compass humming gently as a compensation.
If all you care about is paying in so you can take out, and to help cover unlucky people until it's your rainy day, you don't need any taxes at all, just insurance.
In practice taxes are used for all sorts of things which you may or may not agree with (e.g. foreign wars), and other things that you may agree with but maybe don't believe tax and government is the most efficient way to provide it.
The blasé assumption that tax == moral is just another form of the left wing assumption that people working for the state have a slight moral superiority over people working in the private sector (and who are therefore tainted by the desire for profit).
For some things, there aren't really any better options than paying taxes. Military spending comes to mind. For others, it's sort of an open question (roads and healthcare are cases where countries frequently strike different balances). For yet others, tax is obviously the wrong solution. Nobody these days thinks governments should be in the steel or coal businesses, except China.
Unfortunately the nature of tax is that it's rather hard to express your views about it outside of general elections.
> In practice taxes are used for all sorts of things which you may or may not agree with (e.g. foreign wars), and other things that you may agree with but maybe don't believe tax and government is the most efficient way to provide it.
So? You can't evade taxes for A but not B -- if you evade taxes, you are actually more likely to hit, say, orphans, than, say, big business or war profiteers.
I can't respond to "may". If you think there is a better way, humor me, though even then I don't see how one should be allowed to "have the cake and eat it", namely profit from the infrastructure upheld in no small part with taxes, but then not pay taxes because there are better ways. Then make business and be a citizen where it's done a better way, or try to change it where you are.
And yes, I'm aware that taxes get spent on all sorts of crappy things, that doesn't invalidate the general idea or the social contract, and just because I think "trying to minimize taxes whenever possible by all means" is always immoral, doesn't mean I think all taxes are moral in all instances.
> The blasé assumption that tax == moral is just another form of the left wing assumption that people working for the state have a slight moral superiority over people working in the private sector
Except I don't have that assumption, so it can't possibly be a form of that. That simply doesn't parse.
Though we could discuss the meaning of "profit". Someone who voluntarily reads stories to children with cancer does profit from that, too, and furthermore they are also considering the profit others have from that. So it's still a "desire for profit". Hey, even Jesus asked "what does it profit a man..", profit in itself apparently not the issue, but rather what profit, and at what costs to whom or at what point down the road. Profit, in my books, isn't just measured in the amount of money or land something nets, but in everything it involved to get there.
What makes you think that if you minimise your tax payments, it's poor little orphans that get hit and not bloated military budgets or overweight bureaucracies? Isn't that just an assumption on your part? How can you know what governments would choose to spend less on, if they had less tax revenue?
Corporations normally do not profit directly from infrastructure provided by governments. The people who make them up benefit from them a lot, but they pay taxes already. The primary infrastructure corporations specifically use a lot is the courts, and arguably, patent/copyright systems. But these are relatively cheap to administer, especially as courts can charge fees and the patent system is actually a profit centre for government (in the USA).
Everything else (roads, schools, health, etc) is all about people, not the abstract groups they sometimes form. We'd still need them even if there were no corporations.
When I said "may or may not agree with", I meant that many things governments do are somewhat controversial. Not that I expected anyone to write an essay on all of them :-)
> What makes you think that if you minimise your tax payments, it's poor little orphans that get hit and not bloated military budgets or overweight bureaucracies? Isn't that just an assumption on your part? How can you know what governments would choose to spend less on, if they had less tax revenue?
Because that's what happens time and time again, from what I can tell when looking for information on that over the news I got to hear for all of my adult life. It has nothing to do with looking into a glass ball.
> Corporations normally do not profit directly from infrastructure provided by governments. The people who make them up benefit from them a lot, but they pay taxes already.
"Not directly", so? Without the people who need the infrastructure to live, there would be no corporations and no customers.
The problem is if your moral compass does prevent you from taking advantage of tax breaks, you're suddenly disadvantaged against those who do thus leading to pretty much any pragmatist to reconsider.
Given game theory logic, I'll pretty much abuse any loopholes I think I can, but that doesn't mean I don't think we should change the rules of the game.
And that's why we can't have nice things. Yes, if you refrain from defecting, you lose to others. That's why it's in everyone's best interest to severly punish anyone who games the system. That's why society developed customs and laws against theft and murder.
The "if it's legal, it's ok, morality be damned" attitude is antisocial - it's a danger to civilized world. Therefore everyone who wants to follow their moral code or at least likes civilization should not only refrain from abusing the rules, but actively shun people who game them. Cooperation is a superior solution, but a one that is unstable by itself and needs maintenance (i.e. enforcing the rules and setting up the expectation that defectors will be penalized).
People already do follow their own moral codes. However, morality is subjective. What's "right" to you isn't necessarily "right" to someone else.
Additionally, it's part of human nature to act in our own self-interest. Call it antisocial if you want, but it's part of us. We're people, not ants. Trying to fight against that desire is a losing battle.
Instead, the focus should be entirely on the system itself to create such tremendous disincentives for crime/cheating/etc that it's in our self interest to follow the law (e.g. the laws against theft and murder that you pointed out).
A corporation is under a lot more societal pressure than individuals in regards to following norms and ethics. Most corporations (including Google) only exists because people choose to do business with them and they are happy with their product and price.
Google does plenty of charitable ventures that don't add any value for this reason and it makes sense.
A corporations bottom line is hurt when people have negative views of their company, product or practices. Individuals don't really have this amount of pressure. An individual can be immoral but legal and likely not lose their income. If people have a negative view of a corporation and choose not to purchase their product or use their service, the corporation suffers and therefore has an incentive to behave ethically.
The reason that Google and other companies can get away with these practices is that most people don't care enough to not use their product. They still find their value proposition attractive. The gains from the unethical behavior is less than the lost revenue from those that do care.
Personally, I am not concerned about their minimizing taxes as I believe that the government isn't a great steward of the taxes they collect and the extra revenue brought it would not have a positive effect.
> If it was advantageous for individuals to set up European subsidiaries for tax purposes, I guarantee everyone would be doing it, "moral compass" be damned.
To a certain degree that already happens. U2 are often disliked in Ireland because they have a Dutch tax set up, so they hardly pay any taxes in Ireland. People even sneak "Pay your taxes" ballons into concerts, like this one at Gastonbury ( http://www.theguardian.com/commentisfree/2011/jun/28/glaston... )
Consider the Roth IRA backdoor whereby people who have too much income to directly start a roth can start one by converting a traditional IRA. This is directly in conflict with the intent of the law but is now a standard bit of financial advice.
The sensible answer to this issue is tax reform, to make sure the real world use of tax laws matches more closely to the intended consequences of the tax laws.
However, in the meantime, we can still send a clear message that the behaviour being engaged in is not desired. If words alone will not build enough momentum for change, then people could resort to civil disobedience. For example, Google is dependent on its advertising business, it would be trivial to "legally" damage this (for example, running bots that clicked on Google ads but did not purchase anything, inflating the cost of running ads without increasing revenue for those running them. Similar schemes would work for Facebook and others).
I'd hope it didn't come to that, but if companies can act without a moral compass, I don't see why the general population has to act any better.
I think you're sending the clear message to the wrong party. It's the politicians you should be lobbying to tax companies on their real global profits, ignoring offshore shenanigans. I'm sure some corporate lobbyists lobby the opposite so we the people need to counter that.
I don't think so. The important point is to get it discussed in the media. It's the media which acts as the main arbiter for public discourse. Politicians are more or less free to act as they wish so long as the media does not amplify the voice of dissenters. Actions which bring the voice of the people into the mainstream media are of use in bringing about change. Hopefully this public discourse can happen through debate alone, but if a legal but questionable method like a botnet that targets corporate greed is required to get the debate going (and/or provide impetus for change), then so be it.
For what it's worth, Penn Jillette would most likely disagree that giving more money to the government is the way towards "societally accretive goals for the future". I don't want to start a political debate on HN but let's say things are not as black and white as you paint them to be and that it is possible to hold an opinion different than yours without being already-wealthy.
> Just because something is legal doesn't mean that it's okay, from a values and ethics perspective.
Exactly. And taxation is a prime example of that. Just because a racket gang decides to spend some of their proceedings for the betterment of society (in their or your definition of it) doesn't make their activities morally justified and certainly doesn't make anyone (be it person or corporation) morally obliged to pay up.
It's a part of the social contract, and in most countries you can voice your opinion about the magnitude of the taxes.
But you can also look at it as a free market choice - after all, this is a voluntary transaction, you buy services from the government (like schools, medical care, internal and external security, water treatment, electricity, and many others) and you pay for them with taxes. You can always refuse the deal if you don't like it - by renouncing your citizenship. ;).
You're Polish, right? So obviously, having voiced your opinion, you are now going to make an honest best effort to abide, not just by the letter of the law as laid down by PiS, but by the full spirit of it too? Either that, or renouncing your citizenship?
Or do you feel there is room for subversion and disobedience in, say, social, law enforcement and immigration policies that just doesn't apply to tax policy?
What's the ratio of new roads to drone strikes that kill civilians? Cost of pervasive surveillance versus cost of quality schools? Etc, etc. My opinion is that, given the vast and expanding evil of an already huge and highly immoral government, advocating paying more taxes makes one also highly immoral.
The US is leading in child poverty, with 16 million kids (20%) on food stamps. Poverty alleviation requires government action. Raising taxes so money can be given to people who clearly need it isn't "big government" in any meaningful sense. Some of the money flows just get redirected and millions of people get lifted out of poverty. This doesn't contribute at all to the problems of unaccountable and unchecked power.
We should of course oppose Drone strikes (and all other forms of aggression). But don't use Drone strikes as a boogeyman to oppose all taxes. Without sufficient taxation government becomes underfunded and incapable of providing the services needed for the country to function. Where government falls short other groups will take over. When underfunded government institutions get replaced with unaccountable for-profit organizations the citizens are far worse off.
It's a permanent struggle to keep the powers that be in check. However when it comes to the government there are many checks and balances in place, and there is a lot of transparency so the citizenry can figure out what the government is doing if they care enough. All things considered, that's pretty good.
> Raising taxes so money can be given to people who clearly need it isn't "big government" in any meaningful sense
Huh, I know a lot of people who would disagree with you on that one - big time.
All civilised countries need a welfare state. But it's hard to argue that this is not "big government" because unless you have a basic income (which nowhere does), all welfare systems require enormous bureaucracies to manage the flow of money, find and fight fraudulent claims, try to get people who are on welfare back off it again, follow up individual cases, gather statistics on the systems performance and so on. They need this because "people who clearly need it" is an unusably vague standard.
In practice, the standard figures I've seen for overheads of welfare spending are about 5-20%. According to this article, the USA Medicaid program has overheads of about 5% and food stamps is closer to 17%:
> This doesn't contribute at all to the problems of unaccountable and unchecked power.
The welfare state is pretty much the embodiment of unaccountable and unchecked power! The only time you can ever hold it to account is during elections and then it's competing with many other issues. The rest of the time it's run by unelected and often rather opaque bureaucracies!
Look, I am not arguing that welfare is bad. All countries need a safety net (although I note that most welfare spending, in the UK at least, is actually on pensions and not the safety net).
But just because we may like having such a thing doesn't mean we should be blind to its costs.
Final comment:
> When underfunded government institutions get replaced with unaccountable for-profit organizations the citizens are far worse off.
The vast majority of organisations I deal with in my daily life are for-profit organisations held to account through market power. Most things in my life (food, home, water, energy, heat, furniture, internet, etc) are provided by such organisations. There have been countries that tried it the other way around - all such things were provided by the state. That was called communism and it collapsed.
I frequently donate directly to needy children. Other worthy causes as well. I don't have a choice when it comes to taxes - a large fraction of them are used for highly immoral purposes. As a moral person I do not support paying more taxes. In fact, I have made major life changes in order to minimize the amount of taxes the government can force me to pay. It's really the only way to bring such a huge out of control government under control - starve it.
There's a spectrum of how "big" government should be and what its proper function is. Not everyone agrees that redistribution of wealth, even for the purpose of poverty alleviation, is a function of the smallest feasible government.
NO! You are not morally obligated to pay one more penny in taxes than what you legally are required to! It's got nothing to do with morals. If the system is broken, then abuse it until the law makers are forced to fix it. Hate the game, not the player.
English authorities tried light touch regulation, and companies like Google and Vodaphone a used the fuck out of it.
Google's illegal (because that's what it was) scheme got shut down, and the light touch regulation means it's hard to fine them, or even take them through court.
Too many people in this thread are claiming that what Google was doing is legal - it wasn't, which is why they've stopped doing it and repaid (albeit a tiny amount of) tax.
If people think this is wrong the same people should ignore taking any deductions on their personal taxes. If we want companies to pay their "fair share" then governments should institute international tax reform and have a tax treaty where signatories abide by whatever they agree to.
Here companies are rationally choosing ways to pay as low a tax burden as the laws allow. As they say, hate the game, not the player.
Deductions on personal taxes are intentional provisions to encourage certain types of saving/investment/giving. Weaknesses in tax treaties are not designed to encourage people to repatriate their profits to artificial entities in tax shelters.
Google pretending that sales are made in Ireland (and not by the revenue-targeted local salesperson selling local ads to local eyeballs) in order to enable them to deduct fictitious license fees owed to a subsidiary in Bermuda is not even in the same ballpark.
It's the equivalent of me donating most of my salary to a "charity" created for the purpose of paying my mortgage. I don't think many people here do that, or would consider it if their accountant suggested it.
The problem is with the laws. Poorly written, lazy or "bought-for" laws are being used exactly as they are worded. If you want better laws, you need to write better laws - not just hope that people will follow what each law intended.
For the people that claim that the tax loopholes are something that the companies lobby for - again - it's interesting that people are upset with the companies who lobby for this, rather than the fact that politicians are receiving the actual money.
The problem is not with the companies - it's with the politicians that allow money to influence themselves. It's laughable to me that politicians denounce "money in politics" with one hand and are busy recruiting, fundraising and accepting it on the other.
I agree it's pointless to blame companies. But it's also intellectually lazy to blame the tax code. What "paid for" "loopholes" are you talking about? Because tech company tax avoidance is based on taking advantage of straightforward principles of tax law. The double Irish, for example, takes advantage of the difference between the US view of corporate residency (country of incorporation) and the Irish view (country of control), along with the deductibility of licensing expenses. These aren't obscure loopholes written into tax codes by paid-for legislators. You can't have a tax code that taxes profits that doesn't allow deducting expenses, and there is no obviously right answer as to how you should define corporate residency for a transnational corporation.
If I operate in both countries, what's the process for me to tell the "other" country to "stick it, I'm using the other country's accounting and tax policies"?
* Politicians work for...us. They're also the one group that if they STOPPED their involvement in the "system" would cause lobbying to be pointless. Instead they fester an "us vs. them" attitude and hope
If I hired you to do a job and you took on a freelance job doing favors for your dinner buddy on work time and started ignoring your day job - you'd get fired so fast it's not even funny. Unfortunately, we don't treat congress members like that.
If I hired you to write code and never looked at a single line you wrote[1], but instead held performance reviews based on how well your personal marketing department tweeted...
1: quick, tell me the name of your representative, the name of the last bill they co-sponsored, and a few of the legal concepts that bill dealt with.
Yup, that's a pretty good point. Politicians don't work for us, they work for themselves. Our input is only to vote some of them in, and in aggregate, we vote based on the media impression they themselves orchestrate.
The deductions (or avoidance) is "legal" because it follows the letter of laws ... bought and paid for by companies which see 100:1, 1,000:1, or 1,000,000:1 returns on their lobbying "expenses" securing just this.
Until and unless money's influence is removed from politics, this will be the case.
You can't remove money from politics, the only reason politics exists is because government gets to decide who gets what money.
Not even the staunchest libertarian thinks the government would work with no revenue, or that politicians shouldn't be allowed to manage the money of the state.
The parent wasn't talking about the government allocating money, they were talking about government members being given money in exchange for influence. Sure, in both cases it's money, but you can remove one and still have the other.
I strongly suspect your first premise (that money cannot be removed from politics) is correct, though I disagree with your interpretation/rationale.
The point that financial wealth and political power are simply two (of several) dimensions of power means, though, that the influence of money on politics cannot be ignored.
Well, you said it yourself. The companies do lobby for loopholes, knowing they will be better off than other. As a results, the companies in question have at least the same share of blame as the politicians.
Blaming lobbyists for lobbying is like blaming ants for finding piles of sugar that are carelessly left around.
The government is supposed to consist of our better angels that act in a more ethical manner to a higher standard than the cogs just functioning in the system that the government creates.
If the government doesn't consist of these better angels, why do we give it such vast and sweeping powers to invade and control our lives?
As someone who is intensely interested in how regional differences in people's education affect their political outlook, I sincerely want to ask you where you went to high school.
I realize that response sounds condescending and I'm trying to think off a way to make it sound not condescending, but I am failing. Your statement so strongly contradicts what I learned growing up that blinked in surprise and had to take a step back and reconsider a belief that I didn't realize I'd never questioned.
I went to high school near Albany, New York and we were taught that the framers of the constitution started their design from the premise that humans are flawed and corruptible and that they needed to build a system to counter that. Hence, checks and balances. I guess all of the reading I've done since then on the founding of the country has agreed with this, but I suspect if there was some that disagreed with it, I would have missed that.
Tax dodging is also against the spirit of the law, which is a direct result of companies lobbying for loopholes they can use. Said companies are the initiators, not the corrupt/dumb politicians (who are, of course, also to blame).
It's not "tax dodging", it's "tax avoidance", since what they've done is not only legal, but it's the expected and allowed behavior under tax law adjudication in the USA.
You misunderstand how tax laws work to think that there is some "spirit of the law" that individuals or corporate entities should be attempting to follow. There are simply the rules that must be followed and some wiggle room in how those rules are interpreted.
A "spirit" implies that there is some sort of equality between parties and a mutual understanding of something not quite written down. That's not the way that a judge views tax law. If the IRS can't clearly show how rules have been broken, then the IRS has no claim. The government/IRS write the rules and they're expected to write rules in a watertight fashion, not some vague "spirit of the agreement" fashion. If the government or IRS fails to do so, it's not viewed as the tax avoider's problem.
At the end of the day, tax accountants and tax attorneys are trained and paid to ensure that you (or your company) don't pay a penny more of taxes than are explicitly required by the law and it would be unethical for them to do otherwise.
>1 - Avoid (someone or something) by a sudden quick movement:
...
I know the US judiciary system works with the laws by the letter. And I know that examples like this prove again and again that it's not always the optimal way to do things.
Sometimes I wonder why people think USA is that different from Russia. Ethics are non-existent in both countries.
Sometimes I wonder why people think USA is that different from Russia. Ethics are non-existent in both countries.
You're confused about the greater ethical question here. The ethical question of whether or not a company should pay its "fair share" of taxes is below the ethical question of "How should laws be enforced by a Government that can use deadly force and incarceration to achieve its aims?"
The Government writes the laws and has all the power. It is absolutely incumbent upon the Government to make the laws clear and not try to enforce their whims based upon flimsy unwritten "spirit of the law" arguments.
Yes, it can be illegal. But it also can be legal. Therefore it's exactly what's Google done. I'm talking in normal English, not in American lawyers' English.
But sure, keep being an apologist and call people who blame, among other things, the actual source of the problems "confused". Oh wait, you don't seem to consider that a problem. You just shift the entirety of the blame on some theoretical "Government" entity, because that entity didn't think of every imaginable and unimaginable way one could circumvent a law, while still keeping the laws clear.
Then I'm sorry, we have nothing more to talk about.
"that entity didn't think of every imaginable and unimaginable way one could circumvent a law"
That is factually untrue of the loopholes exploited. Many of these loopholes were put in place explicitly to benefit the cronyists. Others have been in place for some time, but the lawmakers and the IRS don't want to fix them. Government has the power. They write the laws. They even make the rules regarding legal lobbying.
Blaming the corporations that legally lobby and follow the tax laws is like blaming a child who acts like a brat because his parents are crappy parents. You blame the rule makers and those in power a great deal more than you blame those who are just following the rules.
I'm not sure what your agenda is, but the problem is definitely the companies.
If they just paid their fair share with a little bit of mild tax dodging no-one would give a fuck. But they're taking the fucking piss at the moment, generating billions in revenue and then not paying for any of the infrastructure which is supporting their business.
Suppose there are two companies with the same business model, operating in the same countries etc. One files taxes "fairly" and one minimizes its tax burden as far as the law will allow. Which one do you think is going to be in business for longer? Which one would you buy shares in?
You can get as angry as you like at the companies, or the legislators, but in the end it's the system you need to be scrutinizing.
This is clearly nonsense, what serious competition does Google have in Europe? Or Apple? Apple are making billions in profits, they have no competitive need for lower prices!
Also this is an advantage only massive multinationals have, so again, complete nonsense as they're already past that stage.
But what is their fair share? The governments of Ireland, the Netherlands and Bermuda say they are paying their fair share. Other countries obviously disagree.
>The problem is definitely the companies. They're the ones exploiting the system.
Who implements the system? The politicians that you and I elect and the corporations buy off, right? So who's fault is it really, the people who exploit the system, the people in charge of that system, or the people who put faith in the system giving it power?
It's not that they're applying for an exemption or anything, they're doing crazy contortions to get this to work. It's an unintended consequence of the complexity of tax law that take a long time to fix.
If you could get away with murder because of a loophole, would you?
Say it would make a company more profitable, killing their rivals. Do they suddenly have a legal obligation to as a company to increase their profits?
Or do you behave ethically and within the spirit of the law, regardless of the law loophole?
So why is it ok to dodge the fiscal responsibility to contribute to the societies you are operating in?
> Google pretending that sales are made in Ireland (and not by the revenue-targeted local salesperson selling local ads to local eyeballs) in order to enable them to deduct fictitious license fees owed to a subsidiary in Bermuda is not even in the same ballpark.
The whole problem is that it isn't a tax on local sales. It isn't a tax on property or labor or consumption. It's a tax on income.
But income is revenue minus expenses. So the company in the US pays developers to make software which costs $99 and the company in Ireland pays $100 for the software. Then the company in Germany sells $1100 worth of advertising and pays $1099 to license the software from the company in Ireland. Which means the company in the US made $1, the company in Germany made $1 and the company in Ireland made $999.
The allocation of the income between the different subsidiaries is almost completely arbitrary so companies arrange to do it in the way that minimizes their taxes. If you don't want them to do this, tax something other than income.
> The allocation of the income between the different subsidiaries is almost completely arbitrary
Not quite. Each country has provisions in their tax code to assess the transfer pricing, and they tend to defend their tax intake quite aggressively. So much so, that e.g. in EU, the EU courts are often needed to reign in the tax collectors.
This is then headlined as "EU allows tax loopholes for Google" or whatever.
This of course only scratches the surface. A common keyword for the policies is "arm's length principle", which means that allocation of income is not determined by the company, but nor is it determined by the tax revenue activists which infuriates them. It is determined by a legal process - undoubtedly not always perfect, but certainly not arbitrarily decided by companies.
Too many people get their education about this from Internet memes.
> A common keyword for the policies is "arm's length principle", which means that allocation of income is not determined by the company, but nor is it determined by the tax revenue activists which infuriates them. It is determined by a legal process - undoubtedly not always perfect, but certainly not arbitrarily decided by companies.
It effectively is decided by companies though. Because arms length transactions have enough play in them.
It isn't a matter of saying "we license you all our intellectual property for $1 and then you license it to them over there for $1 Billion" because they don't actually need that. They only need the difference to wipe out their profits in jurisdictions with high taxes.
And they get to decide what transactions to engage in.
Here's a made up example which is probably about right. If you have capital and an idea you can pay a consultancy to write code implementing it, and the consultancy is going to pay out in salaries nearly as much as you pay them. Their profit margin is very small. On the other hand, once you have the copyright to some useful software and can then sell it to a billion people, the revenue is pretty much pure profit. If you then license that software through a reseller, the vast majority of the profit goes to the copyright owner, not the reseller. That's what everything legitimately looks like with arms length transactions. Because the person paying the consultancy and then licensing the software is the one risking their capital not knowing whether the enterprise will be a success, so they're the one who makes all the money.
So then they put the consultancy in the US, the copyright owner in Ireland and the resellers in the rest of the EU. The company in Ireland then makes all the money, just like arms length transactions say they should.
It's tax arbitrage. They say you have to pay a tax on profit, but capital generates profit. Money makes money. So the company puts their capital into a place with low taxes and then can legitimately say "we used that capital to make all this money."
It's literally an attempt to tax something that can be instantaneously moved anywhere in the world and then being shocked and amazed that as soon as the rate is lower somewhere else, that's where the money goes.
> Which means the company in the US made $1, the company in Germany made $1 and the company in Ireland made $999.
Any reasonable judge in their sound mind would find it to be a tax avoidance, because it is!
I'm very certain and can put my $100 on it, that US courts know thousands of cases where same scheme has been put in works and people in charge put behind bars.
Tax evasion is the thing where Al Capone makes a lot of money without reporting it to the IRS and goes to jail. Tax avoidance is the thing where Ford builds a plant in Chihuahua instead of Detroit in part because Mexico has lower taxes.
There is an obvious PR nightmare when the entity that makes all the profit is in a jurisdiction where they have hardly any operations, but seizing that as an opportunity to lambaste them in public does nothing to solve the actual problem.
The underlying problem is this: When Google buys something from Google, how do you determine when the seller should act like a monopoly or the buyer should act like a monopsony? If you can't answer that question in a way that can't be gamed then you can't in practice tax international corporate profit.
Exactly Google would be happy to ship the jobs overseas if they needed 'substantial' operations to take advantage of the tax code. Since workers pay most of the tax it's a double FU to the jurisdiction with high taxes
I would imagine that sort of thing falls under "transfer pricing" of which there are plenty of laws and regulations already.
If you have a company in the US, but parts are made in China, you can't have the US company pay $99 to their plant in China and claim only $1 in profit in the US. That issue was addressed a long time ago.
Yes, there are laws, they're completely ineffective. They need to end the fiction that subsidiaries of a multinational are in any way independent financially.
You see this claim, and at the same time you see the very same activists insist that there must be "country by country reporting" of independent financial country organisations.
Well, that pretty much exists already.
But the claim that the laws are "completely ineffective" is unsubstantianted.
What artificial arrangements? OECD countries in general and CJEC countries in particular have signed agreements that enforce tax rules such that the tax collecting authorities as a rule bypass any artificial arrangements.
To be lawful, national tax regulations must be proportionate and specifically aimed at preventing "purely artificial arrangements".
And there are very many kinds of tax avoidance. Apocryphically: at the time when Sweden's income taxes were on their most absurd levels [0], medical doctors would reduce their working hours because their marginal tax rate was well above 50 % and they got little in return for extra hours.
This was clearly tax avoidance, or course. Someone then noticed this and made a proposal to tackle it with a tax called "tax on income avoided by refusal to work".
That law didn't pass even in Sweden in 1970's. But clearly it was tax avoidance which thus was allowed to run rampant.
Tax avoidance is 100% legal. Tax evasion is what's illegal and they're not doing that here. Everything they're doing is by the book—there aren't any secrets to be found.
I don't know why you are convinced it is legal. Google and Apple are currently making settlements with pretty much every government in Europe. Apple may well have to pay Ireland several billion dollars in taxes because the deal they did is likely to be ruled illegal.
The difference is that tax avoidance is defined as legal and tax evasion defined as illegal (at least in the US). If it's a legal activity aimed at minimizing taxes, it's avoidance. Likewise, if it's avoidance, it's legal, and if it's not legal, it's not avoidance.
From the IRS manual, section 25.1.1.2.4 .1 & .2 [0] [1]
Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means. One who avoids tax does not conceal or misrepresent, but shapes and preplans events to reduce or eliminate tax liability within the parameters of the law.
Evasion involves some affirmative act to evade or defeat a tax, or payment of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.
If I move to Florida or Texas to escape paying state income tax on my earnings, that's avoidance. If I earned the money in Massachusetts and simply decide to not declare and pay tax on it, that's evasion.
What's happening to some of the multi-nationals is that their attempts at structuring their affairs are being judged on the wrong side of the line. While it may not be being called evasion legally in all cases, it's exceeded the bounds of avoidance, resulting in settlements.
The tax code is so complex, and prosecuting would be very expensive. That does not mean that the techniques being used are legal. Mostly people just get asked to pay the tax back with penalties rather than prosecute. But I would not assume it is all clearly legal.
That is a bit different. European rules forbid State help to corporations, and the EU ruled that some special tax agreements between states and Apple/Google were indistinguishable from State help.
This is neither tax avoidance (though it made tax avoidance more effective indeed) nor tax evasion, in other words.
>It's the equivalent of me donating most of my salary to a "charity" created for the purpose of paying my mortgage. I don't think many people here do that, or would consider it if their accountant suggested it.
Some tax planning is clearly legal, and is an expected use of the tax laws.
Some tax planning is clearly illegal. People are hiding money and evading tax.
There is a grey area in between. People use tax laws in unexpected ways. Their accountants and lawyers claim this new planning is legal. The tax authorities claim it isn't. To find out if it's actually illegal it gets tested in court, except no-one wants that. Companies don't want it because lawyers are expensive. Tax authorities don't want it because lawyers are even more expensive for them and it looks terrible if they fail in court. So some weird deal is made. The company repays a trivial amount of tax, some rule gets added or taken away to make it clearer that the tax plan is unlawful.
So, here, a big company can do it because spending many thousands on lawyers and tax accountants means they save hundreds of thousands, millions, billions, on the tax bill.
I can't afford the tax accountant, so those schemes usually are not available to me. And as soon as enough people start using them the laws change, sometimes leaving me in a tricky situation.
How could the double Irish arrangement possibly be considered a grey area? It's incredibly well know, and many of the richest companies use it. I'm pretty sure that if it were truly a legal grey area, there would be court cases testing it, which there aren't to my knowledge.
The double Irish was created by Apple's tax lawyers. It is well known because of that. It has been ruled illegal I think now and Apple is no longer using it. Apple are lobbying hard not to pay billions of back taxes in Ireland as their deals with the government to not pay tax are likely to be ruled illegal by the EU.
>> It's the equivalent of me donating most of my salary to a
>> "charity" created for the purpose of paying my mortgage. I
>> don't think many people here do that, or would consider it
>> if their accountant suggested it.
Not even close. But, actually people do that. Your example is off-base, because they pay tax on the fair market value of the rent they don't pay as if that missing rent were income.
What do you think the Bill & Melinda Gates Foundation is? The Clinton Foundation? Donations to purchase buildings at Universities? Donations to your favorite charity? Donations to get annuities?
This is something that many people and corporations do. It sounds like you enjoy it personally, but not when other people do it with greater amounts of money.
Ah, I see that my comment could be read that way. What I meant was the construct of donations for deductions and later benefit is what those foundations do.
Furthermore, given enough money involved, there are a variety of advantages to creating an entity like a foundation. No, it won't cover clearly personal expenses like a mortgage; that would be clearly illegal. But it can write off salaries, travel, entertainment, etc. related to the operation of the foundation in a way that would be difficult for an individual.
> Deductions on personal taxes are intentional provisions to encourage certain types of saving/investment/giving. Weaknesses in tax treaties are not designed to encourage people to repatriate their profits to artificial entities in tax shelters.
What you call "weaknesses in tax treaties" are very often exactly though up as intentional provisions to encourage certain types of saving/investment/giving
I agree 100%. A great analogy for you is the "backdoor Roth" contribution.
In the US, you can contribute up to $5.5K per year (post-tax) into a Roth IRA. You will never pay taxes on any gains made as long as you withdraw after a certain age (56? 65? I can't remember).
Now the gov't phases out the allowed contribution based on income. If you make more than $117K but less than $132K per year (individual, it's probably changed since I last remember), the allowable contribution is scaled back. Anything over $132K per year and you can't make a contribution.
Now, the interesting thing is that you can make an IRA contribution and convert it to a Roth IRA with no income limits. Hence the "backdoor". Plenty of people do this. It's 100% legal and the IRA will tell you can do it if you call them.
Is it wrong to take advantage of it? I would say no.
It's not the same thing at all, some things are exempt from tax this is a "smart" tax policy that is instituted to ensure that people save money, in the US you have an IRA in the UK it's called an ISA, most countries also give you tax credit for participating in a pension scheme.
If you want a good analogy on a "personal" level (even tho there isn't really one) is that if you would transfer all your property to an offshore trust and they pay yourself rent deducting the rental costs from your overall taxes under various schemes.
If a normal individual would play the same game they would be singled out for tax evasion, and while if you are wealthy enough you can hide behind off shore trusts and shell corporations you money is often tied down considerably more than the money of a multi-billion dollar corporation.
Google can't really move that money easily either if they want to move it into the US they'll have to pay taxes eventually but as long as they keep it offshore they can use that money for credit as well as actually pay out any debts they might have to presumably other multi-billion dollar corporations without having to pay taxes on it.
But what usually they do is either wait for a "bad" year or when they have enough carry over deductions to move their money back in without paying any taxes due to deductible or horde it until they'll get a good deal and only have to pay a fraction of the tax that they would've normally pay (and every couple of years you read that corp X has came to agreement with country Y to pay couple of billions in tax, what you often do not read is that amount is usually less than a quarter of what was actually due).
Now don't get me wrong Google isn't doing anything illegal, and unfortunately as a public company they are pretty much forced to do it because otherwise they open the selves to their investors because if a company "intentionally" waste a shitload of money it will have to answer to their investors and the board can kiss their positions and bonuses good bye.
The problem is that international taxation is complicated there isn't a single good international tax treaty and when you involve multiple jurisdictions you complicate things even further because even if the US will have a treaty to collect taxes from say an Irish subsidiary when it does not generate any taxable income in Ireland because it's in account debt to another subsidiary in Bermuda there's nothing you can do.
One of the "good" sides of the TTTP is that it actually gives (at least the US) quite substantial tax collecting provisions as well as limits the taxes that can be set on US goods, while this might help the US many of the other countries might get screwed over this because it doesn't necessarily works both ways.
It's not the same thing at all, some things are exempt from tax this is a "smart" tax policy that is instituted to ensure that people save money
Read the bottom part of my message again. Yes, the Roth IRA is meant as a savings vehicle, but not for high income earners (>$137K/yr).
However, the law is setup so that you can get around it by just putting your money into a regular IRA and converting it to a Roth. The gov't never intended for people to do that (since it gets around the income limit). However, it's completely legal.
I'm not convinced it's either bad for the government nor against the intent of the drafters. (It would be easy to claim "Oh, we never intended this to be a handout to rich fat cats; see, it's right here in the law. Ooops, we didn't think of this super-obvious workaround, but hey, we tried...")
When you do a Roth conversion, that income has already been taxed once (either at the moment of conversion for a previously pre-tax account, or by virtue of funding it with already-taxed money). On all the money that was previously pre-tax (traditional IRA for example), the government gets its tax income now at the moment of Roth conversion instead of much later.
If the government or the individual would make the same investments, get the same return, and the tax rates would be the same, the government would get the same money either way. The problem is the government is running deficits and so isn't investing the money like a wealthy individual would and so isn't getting the same long-run tax income from it. This part is a spending problem, not a tax policy problem, IMO.
The only reason I'm not doing Roth conversions is that I don't trust our government to stay solvent enough long enough to keep the deal that Roth withdrawals will be tax-free later. Instead, I keep my post-tax money in traditional brokerage accounts or other non-tax-advantaged vehicles where I'm more sure that the gains will only be taxed one more time, but where I keep the flexibility to invest and use the money.
If Google makes more profit it means my grandma who haw invested her life's saving in stocks makes more money, it means self driving cars will be reality sooner and it means poor people on Indian railway stations can access internet now.
If that money ends up in government coffers it means some American is getting harassed somewhere, Mexican drug lord getting assault rifles, our phones being spied and wars on the other side of the globe. Less money in the hand of government under any pretext is a good thing.
Exactly what I was thinking. How many salaries and how much research can be funded with $2.4B? On the flip side, if it were received as tax revenue how much government bloat and inefficiency would it have to cut through to produce something useful?
There's a way for the U.S. to fix this and that is to cut the corporate tax rate in half. Watch the money come flowing back home.
I know better than to debate the merits of public spending with Americans, who for some reason see reducing funding as the only way to improve their government...
But why should Google benefit from tax evasion at the expense of most smaller businesses, who pay the normal rate of tax?
If Google paid their share, that's $2.4 bn less everyone else would have to pay to maintain the same level of service.
Or you could use the money to fund an American CERN, for example. (Because no private company funds such long term research.)
> But why should Google benefit from tax evasion at the expense of most smaller businesses, who pay the normal rate of tax?
You're assuming that because Google is being strategic in their tax planning that other people are getting hurt. This is similar to you having a good accountant who saves you money and thus are "cheating" the system because other people don't have as good of accountants.
Not to mention that it's easier than ever for small companies to operate multi-nationally.
I'd love for the people who want to lower taxes as a way to strangle the beast to push for something simple: remove all deductions from personal income tax. Nobody gets ANY deduction for anything. All income is taxed the same regardless of the source.
If we want less government spending, we should directly reduce government spending. This roundabout way of reducing income to reduce spending does not work. This is why I cannot trust anyone who says they think Ronald Reagan was a good POTUS. They are clearly either stupid or they have a huge ax to grind.
As far as the current situation goes, the only reason we have this situation is because of our overreach. If we limit our taxation to transactions here in the US, we'd not have this problem. Who gave us the right to tax worldwide income anyway? Does any other country tax worldwide income?
"All income is taxed the same regardless of the source."
That statement seems simple but isn't. For example, are you using the US definition of income (which specifically allows the deduction of certain expenses related to income-seeking activities)? Or are you using the plain English sense of "money coming in" (in accounting, the revenue number)?
If it's the former, you've already allowed lots of deductions in (raw materials, rent, utilities, salaries, sub-contracted labor, travel, etc), and for a sole proprietor or sub-S corporation, those are taken on the personal income tax return, schedule C.
Concretely, as an individual landlord, can I deduct the mortgage interest on my rental property, or the labor I paid to repaint and replace the carpets from normal wear and tear? Can I deduct the depreciation on the building, reflecting the fact that it "wears out over some characteristic useful life"? If not, why can the C-corp landlord right next to me do that and I can't?
If it's the latter (taxing all receipts), how do you treat businesses with low profit margins if you intend to tax them on revenue and disallow deductions for expenses?
Imagine an airline with massive fixed costs, large variable costs, and slim profit margins. If I pay $1500 to fly round-trip to/from Europe and they make a $50 real-world profit on that, at what rate should they be taxed on the $1500 of revenue?
How much more expensive will groceries become when grocers are taxed at double figure percentages against current gross profits in low single-digit percentages? (And not only the end grocer is taxed thusly, but every step along the chain that isn't vertically integrated will also be taxed that way.) How much will we help the poor and middle class if grocery prices double or triple? Will we now see a bunch of complaints of how Walmart is cheating because they bought up a bunch of farms and other elements in the grocery supply chain or if Coke or General Mills open up supermarket chains (thus minimizing the number of times the revenue is taxed)?
Most people who support lower taxes also support lower government spending. These are not republicans or democrats but people who mostly do simple math.
40% tax essentially means people are working for government from January to May and get to keep only what they earn from June to December. I think that is not the way a free society should look like.
I am all for paying taxes to build roads and police and courts. But heck I am not sure why I should pay for other people's food stamps, medicare and wars in Iraq.
If the system is complex enough to allow that then the system is unfair and should be simplified. Whilst it's unfair then the losers are absolutely hurt.
I doubt your local plumbing company has an HQ in Bermuda. Does the local convenience store license their IP through their subsidiary in Ireland? Has the taxi company a front office in Luxembourg?
Big players will always pay less irrespective of what people like Bernie Sanders might say. They have more resources to navigate the tax code. Plug one hole they will find ten others.
America is honestly not hurting for tax revenue; it's hurting for the will to pass laws that pull taxes from domestic wealth sources.
The U.S. isn't failing to fund an American CERN for lack of money; it's failing to do so because it keeps electing Congresses on the promise of lower taxes.
I really hope this is a satirical post but if not....
Allot, the US spends about $100B on scientific research per year as far as Federal Funding goes (about 2/3rd's of it goes to "defense"), if you add up Google, Facebook, Apple, Intel, Starbucks and ever other corporation that is "evading" taxes by parking their profits off shore you can fund allot of research.
Just to put into perspective in 2015 NASA's budget was set to $18B(which was a spike of 7-8B over 2014 to develop Orion) so $2.4B is almost 15% of NASA's yearly budget, imagine what you could do if you only got 10 of the "big players" to play ball, heck $2.4B is about half the yearly budget of the National Science Foundation.
I think Milton Friedman's matrix of spending is useful here.
Google's research investment has huge returns (and benefits) for society. Government's spending is extremely dubious. I guess a good chunk of technology spending might be going on figuring out better ways to spy on us.
The ROI on Government research is orders of magnitude over what ever you think Google is getting in return.
The US government funds more research than all of SV put together even if at much smaller funding, the USG also funds the research that no corporation would fund them selves as there is literally no way to capitalize it.
I know that smack talking the government is fun but unless you want to go back to the dark ages never say that Google can fund research better.
That's actually part of the problem. The U.S. government has granted tax holidays in the past, where they radically cut the repatriation tax rate for a short period of time. On the one hand, that has encouraged companies to move money back into the U.S. from foreign subsidiaries, which can give the tax base a shot in the arm.
Unfortunately, much as people wait to buy from a department store until there's a sale, the fact that the U.S. government has cut repatriation taxes in the past means corporations wait until it happens again. Nobody wants to be the sucker who doesn't buy on sale.
If the player is able to rewrite the rules of the game (or prevent such rewriting) in order to benefit themselves, they gain culpability. Yes, we should focus on fighting them, but that was never in question.
I'm not opposed to countries capturing whatever they feel is just to tax corporations, however, crying foul when they allow this by their own laws is their problem. Pass the laws, make everyone abide by them and we'd be good.
I simply don't agree when they allow a loophole and them complain about companies using the loophole. Same with corporate inversions. If we don't think it should happen then get some tax treaties in place and enforce it.
Except Google, Apple etc did not write these tax laws. Actually, the EU and Ireland did. The companies came later to take advantage of them ... in Ireland's case, it was done quite knowingly for that exact reason. They prefer having the companies and employment than having the corporation tax.
I don't think there is anything "wrong", but I appreciate the irony that Eric Schmidt and his ilk have spent a lot of time and money getting cozy with politicians that want to tax me into the ground.
Actually, shareholders should be the first ones to make sure the company plays by the rules. Creative accountancy has led to very nasty outcomes in the past - I wouldn't like my accountants to be too creative with my taxes.
i would suggest voters vote based on something other than ads... However if people wish to vote based on ads that's their prerogative.
They could vote based on something else but they are usually so concerned about a democrat/republican getting in that they'd rather vote for a republican/democrat.
Unless you personally know the people you vote for, or spend a lot of time researching their history, their programs and the relation of those to political, economic and social issues, you are voting based on ads. Believing something else is deluding oneself.
Most of the time I don't vote. When I do I vote libertarian, I've never seen an ad for the libertarian party in my country.
When I buy ads (donate) I buy ads I buy for the Green Party in areas where they are splitting the left wing vote.
The best way I know of to influence government is to have professionals prepare my taxes, and to ensure the government follows the law to the letter. Voting is designed to limit the influence of the individual on politics while appearing to give people choice.
If we wanted government representative of the views of the people we'd just draw 500 names of citizens out of a hat.
Since outside Switzerland direct democracy does not exist, we get the representative version. Sure enough, companies can't vote, but technically neither can citizens. Not on individual matters.
What happens is that companies pay their congress-critters to vote for them. This has the added benefit that representatives can (and do!) propose legislation that not-quite-coincidentally would benefit the companies who already pay them in various forms.
I've said it before - we are currently pretty close to the original meaning of democracy. Democracy, as practiced by the city state of Athena, gave vote to free men, who made up 10-15% of their population[0]. In order to qualify a free man, you had to be an adult non-slave male who owned land. Or to put it another way: you had to have a vested interest in keeping the system suitably exclusive.
After all, if you are going to have a say in how the state is run and you have established business interests, you certainly wouldn't let any riff-raff in the decision-making process. Their interests would interfere with yours. And if given the vote, they could outnumber your faction.
Change the quite strong word "hate" to something less extreme and polarizing and then let's discus why it is OK, acceptable and not out right destructive to setup and use and actually benefit from those tax avoidance schemes?
Blame the game? The corporation?
Well, how about the small (or not soo small in case of CFOs) particles making up a corporation, the CFOs and their teams actually seeking and personally benefiting from those actions.
How comes these people are not to blame? Rules of Law ARE NOT the final instance of morality or of constructive social conduct... or are they? Only for the "rational agents", i guess.
The game is to blame, the gov/civil-organizations on almost all sides are to blame, the corporations are to blame, the individuals driving this are to blame, too.
ps: how "rational" is it for a corporation to avoid its share pay back to the society? It due time to close these morality-loopholes. Actually that's the only way, i think, to tackle these problems: a change in socially acceptable behavior because there is no way we can close all loopholes in all the laws. Those people (yes, people and not abstract 'corporations') in the end "should not want to" circumvent the tax-obligations.
Of course they are rationally choosing that. But they are irrationally not paying their debt back to the same society that made it possible for them to build the business to begin with.
This is not a company who came out of nothing and created the TCP/IP protocols, the Internet, WWW, the billions of pages and information out there.
It's a company who is building on top of something society invested in. And is now trying to avoid paying that back to same said society.
Legally they have no obligations but morally from a company who used to claim "don't be evil" they do.
Given that the government they owe those taxes to has consistently minimized funding on infrastructure, has yet to build a national broadband policy that is competitive with the world, and consistently underfunds the NSF year over year while continuing to approve the NSA's black-box budget, perhaps the optimal approach for "Don't be evil" is to do everything within the law to keep their cash in-house, where it can be put to better use?
Right now Google is one of the leading companies in making work obsolete leaving a growing number of people without any chance of participating in the society because digitalization and automation two areas google is one of the key drivers of taking a lot of jobs out of the market.
So not only didn't Google create their company in isolation from society but on top of what society established they are also transforming how society works affecting a lot of people negatively.
This is not true with all companies but it's certainly true for Google.
No because the US government didn't invest in the infrastructure in each country. The countries themselves did.
No one is saying the obligation is one to one. But the argument that no matter what its always ok for a company to avoid paying taxes as if they created everything completely isolated from government is weak and have always been.
You are right, but its still wrong. Even if the legislation around the subject matter doesn't work, it doesn't mean the companies aren't paying their "fair share". They aren't. Just because something is legal, does not make it morally acceptable.
At the very least it should show the fan boys that companies like Google, Microsoft, and Apple really do not give a shit about you. Its about profit, they are a corporation, stop idolizing corporations.
So you think there is some tax rate or tax system what is the morally correct one? That's a pretty bizarre implication, even for people who entertain the notion of moral realism.
Taxes are inherently the result of a specific government passing specific laws. I cant conceive any argument for some natural law prescribing a particular tax rate.
Why? The said company made much more than that in profit. There is a social contract and companies avoiding taxes are not holding up their end of the bargain.
The social contract is formalized in law. They are paying what is required by law. In Singapore that rate is 17%, is that the right rate for the rest of the world? Why or why not? The only right rate from a company's point of view is the legal minimum.
It is not in the spirit of the law. I don't see why Singapore is relevant. According to wikipedia, Google and its parent company are headquartered in Mountain View, California, United States
Why? The US is clearly in desperate need of tax dollars. Look at how much we spend a year for the military alone, which accounts for around half of the USA's total budget.
Whats also shocking is that the tech companies have billions of dollars sitting around doing nothing.
Sounds like a spending problem. When the US is so inefficient with the vast amounts it already has, things aren't going to magically get better by giving them marginally more.
The money tech cos have 'sitting around' isn't actually idle. You can see what it's used for elsewhere in the thread.
How does this play against a companies fiduciary duty to shareholders? If your competitors can use these legal techniques, aren't you also obligated to stay competitive?
> It's the responsible thing to do for their shareholders
And not just shareholders, but for employees, suppliers and everyone else the company deals with. Companies usually do not sit on the money, they invest it trying to make more money. Usually this investment is on salaries, but can also be on R&D, acquiring other companies, etc...
It always ends up on the fundamental question of who is better to determine how to spend money - the public or private sector.
In fact, it may be considered fiscally irresponsible not to do this. A CFO who wants to pay taxes is a liability, and if you have shares you should want them fired.
If the US changed the law so it could collect that tax money, couldn't you equally say that it's the US's short term greed that hurts everyone in the long run? Afterall, it would hurt Google's profits and perhaps how much they can invest in useful new technologies. How do you decided that it's only greedy for Google to get money but not the government? What's the government going to do with it? Fight more wars? House more prison inmates? Pay more social welfare? Are you sure it's going to do something better with the money than Google is?
Something recently occurred to me. The fundamental problem here is that as companies have grown multinational, something that used to be mostly a one-to-many relationship (country contains many taxable entities) has become a many-to-many relationship.
It wouldn't be fair or logical to tax any multi-national as if it existed 100% in each country where it does business. So the question is how to write the rules such that a business's overall operation is taxed by each sovereign state in a way that is "fair" compared to the amount of operation / amount of benefit it is getting in each.
This might be obvious to most people but it was a new way of thinking about it for me.
What you're suggesting is a territorial tax system, versus the a worldwide tax system such as the one the US currently has. Using a worldwide system is actually very rare--only six OECD countries implement worldwide taxation rather than territorial. Part of the reason America-based companies seem to be trying so hard to avoid American taxes is because they are, compared to the other nations they operate in, much worse.
Making the US tax system more competitive worldwide is very rarely brought up.
Corporate taxes aside, I think the US is one of just 2 countries (the other being Eritrea) where you're taxes personally on the money you make based on your citizenship (not residency) no matter where you live. Stuff like that is why you're starting to see people give theirs up in favor of more favorable tax codes.
The way Google gets away by paying little corporate tax in USA is by loading up their US entity with tax-deductible expenses.
What is stopping IRS to say.... "Hold on. These tax-deductible expenses are bullshit, we don't accept them. Here is new tax assessment the way we see it"
We could say there are no deductions, ever. Every dollar earned is taxable. Every dollar spent is taxable. Nothing and no one is exempt from taxes. No expenditure is deductible. General Electrics pays the same income tax (hopefully a progressive tax so as to be realistic) as Podunk College. This would be ideal.
Side rant: The government shall keep public policy and tax policy separate. While we are at it, we shall prohibit state and local governments from doing these things as well. No, Maryland may not give a tax break to House of Cards. No, AnyTown USA may not give tax break to Walmart. If there is a reduction in tax, it should apply to everyone. Oh and yes, no special excise or stamp taxes either.
Yes, our tools in public policy will get blunt and there will be a very rough transition period. However, I think the end result will be worth it. It is definitely better than having these neo-cons in power while bitching and moaning about not being in power.
> We could say there are no deductions, ever. Every dollar earned is taxable.
That's a brilliant way to create a recession and also to destroy competition.
It would create a giant, massive subsidy to large corporations and heavily incentivize vertical integration. By taxing revenue at every stage, every company would scramble to move transactions out of the market (via mergers and acquisitions).
You'd also likely drive every small business in America out of business.
It also doesn't make any sense. Why should they local grocery store which made $10k profit on $10M in gross revenue pay way more taxes than a software company which made $450k profit on $1m in revenue?
I don't see any other way to simplify the tax code. If it isn't this way, we are further patching our tax codes as we go.
Perhaps trying to simplify the tax code is fools gold just like rewriting production software from scratch. Sure it looks enticing but the devil is in the details.
What if we scale back my ambitions and limit the idea of no incentives, no deductions to individual income tax? Surely people would welcome a simplification that gets rid of all deductions and exclusions?
There are ways to simplify tax systems, although "tax only revenues" is too simple.
You can look at the Hong Kong tax system to see what simple looks like in this context (it's still not all that simple).
The basic problem here is not actually the details of the tax codes in different countries. The root problem is entirely political. Companies like Google, Facebook and Apple have lots of money and their products are sold in every country. Lots of governments very much want to spend more money without raising taxes on their own citizens, which means they need to raise taxes on foreigners instead. Thus it turns into a game where countries try to either find creative readings of their own tax laws, or try to publicly shame big companies into giving up more money. But played to its conclusion this game is zero sum: for one country to win, another must lose by an equal amount (once all the profits are being taxed).
I think the poor would suffer the most under a revenue tax regime, unless the increased tax take were thrown into welfare or basic income.
The compound effect of a revenue tax along a supply chain would result in huge inflation in products with long supply chains (food and consumer goods) and relatively little effect on things like services and high margin businesses.
>We could say there are no deductions, ever. Every dollar earned is taxable.
No, you couldn't. The very point of deductions is that deducted costs are not earned dollars.
If you can't deduct cost of doing business, all taxation reverts to taxing sales, and the economy is really very, very different from now. No one has ever got that to work, anywhere.
Forgive me. It was definitely not my intention. I especially do not want it to somehow replace income tax. I think we need a very progressive income tax to the point where it is essentially an income cap (my proposal is a 90% tax on income that is over 2000 * 100 x the minimum wage per hour or 100x the basic income payment per year in case we get there).
My idea for no deductions and no exclusions was mostly directed at individuals.
Each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability).
It has nothing to do with fairness. The way it works is a company can decide "I don't have to be here" and shut down operations there, while a country can decide "You have to pay X tax because I said so". The end result is a compromise between different extremes.
Yes that is a very accurate way of looking at the actual power structure involved. Though I think the abstract idea of "fairness" is usually the way that the country justifies its levying of taxes in public discourse.
We have this for income, why does it not apply for corporations. Then countries make treaties with each other as to who gets what so corporations are not double taxes. The corporations have to declare all their income to all the countries that they operate in and then those countries have to work out a logic on how that is to be taxed.
Why does Google get to decide this? I mean what's the logic for this. For people it's wherever you spent most of your time. For a corporation it should be where and how and from whom you derived most of your revenue.
Usually the tricky part is when you have to decide licensing. Eg for Amazon, most of (all?) the site is developed in the US, so every local subsidiary has to license it.
How much this license is worth is the whole question. Some gov would like to say 0, so they can get a higher share of the tax, companies might say it is worth all their local income (so they pay 0 tax locally). The truth is probably in between.
Other issue might be that this IP often ends up being owned in a tax heaven, instead of the US which would be the logical owner.
Exactly. To put it even more explicitly, imagine that Google adwords system is solely created in the US. Now, Google wants to start selling ads in Spain. Should google.es pay anything for the IP underlying adwords? (I think they should; otherwise, there's a massive distortion in profitability and the US would cry foul that all the expenses are being borne in the US subsidiary and google.es is artificially highly profitable.)
Now, in order to manage that licensing activity (which can be very lucrative, but also requires specialized expertise and some risk), Google decides to set up a licensing division to manage all this.
In researching this, suppose they hypothesize that that IP labor and expertise is available in Ireland and decide to setup the IP licensing activity in Ireland. Google's Irish licensing division could negotiate a sub-licensable license from Google in US, then turn around and license it to Google (and perhaps other) companies around the world. Every player in that chain is creating value and it is perfectly proper for Google to create IP, to create a subsidiary to license that IP, and to license and deploy that IP in Spain; the question is "how much value did each entity contribute?"
Basically everyone in Corporate America is doing this. Its not just Google. If the EU (or us, or whoever) doesn't like this, then we need to change the laws.
We do, no other country makes companies pay taxes on income earned outside their domicile. It's supposed to be taxed by the country where it's earned. That said, this double dutch or whatever is taking things to an extreme.
Interestingly the U.S. does make natural persons pay tax on income earned outside their domicile. U.S. residents (of any citizenship) have to pay U.S. tax on their worldwide income, and U.S. citizens do even if nonresident. Foreign taxes paid can be taken as a tax credit, to avoid double-taxation, but you can't escape U.S. taxation by booking your income in a lower-tax jurisdiction.
It's unusual to tax non-resident citizens (the U.S. is almost unique there), but it's common to tax foreign income of residents. For example, the UK also taxes residents on their worldwide income: https://www.gov.uk/tax-foreign-income/overview
To be fair, in no other civilized country can you exploit people like you can in the US (no paid leave, right-to-work laws), or have the government enforce your profits (TPP). Why shouldn't corporations be required to pay more for the privilege of being in a corporate-friendly state?
I think the way the sandwich works is the US entity pays huge royalties to the foreign entity for the use of their intellectual property.
I might be wrong, but I think that's how it works, and if it is, that means a lot of the money is not "earned outside their domicile" quite as much as you'd think.
As a Bermuda company, I could invest in sub-contract software engineers who create IP as a work made for hire (and that the Bermuda company would own). In that case, was the IP created in Bermuda or where the software engineers were pressing keys?
In a case where the IP was created in country X and later sold to a company in country Y, is country X owed a continuing taxation revenue stream after the sale closes (and any taxes due related to the sale are paid/accounted for)?
> This tells me more about how dysfunctional the EU is ...
Exactly, the European Union was originally conceived as a 'common market' but individual countries can set their own corporate tax levels.
Google have had a lot of bad press here although most of it is badly misinformed. The bar for accuracy of reporting is generally set quite low for American companies operating in the UK.
I'd like someone to explain to me how this is not tax evasion. This is a US incorporated company that developed its IP in the US. It has its headquarters in the US and it trades on a US stock exchange. Moreover, a good portion of its revenue comes from the US. This business of paying some sort of technology license to a subsidiary you own in Bermuda to avoid taxes seems like outright tax evasion. Whether that is US tax evasion or European tax evasion where the earning were made. If Google is reporting billions of dollars in earnings to Wall Street and they get the benefit of that from the market, then Google should be paying taxes on that and not funneling it to a jurisdiction where they have no actual or tangible business.
The root cause is still the rules that allow the abuse. It's lazy on all our part to blame Google et al when it is really the rules that force them to do this.
Nothing I said disagrees with that. But if you are on the side of "don't hate the player" you have to feel that way about all abuses of the system. You don't get to pick and choose when you take that stance.
Then contest that they didn't pay fair value for the transfer.
IMO, the strongest possible evidence that you could find is that someone else was willing to pay more at that time. You won't find that, so you'll be making a necessarily weaker argument about what the fair price "ought to have been".
I don't think those issues will be solved politically speaking, between countries.
Voters are consumers, and I don't think politicians have a lot of leverage against those corporations. If they hit corporations, consumers will complain. Even in a global economy, I don't think nations are enough organized to fight multinationals, since they might defend the corporation or their home country. Maybe the goal of the TPP is to fix exactly just that, to lay some ground rules about taxes, but if it fails, it will show how nations are unable to collect taxes.
That's my greatest fear, that people become dependent on corporations, so much that they would side with them. Today I'm sure people prefer their iPhone and internet than firemen, police, an administration, etc.
Its interesting how many of these companies do business with the US government, yet continue to dodge taxes. (Any) Government in theory could choose a vendor using any arbitrary criteria, for e.g. manufacturing the product in the US, not funneling profits outside the country and many others. Unfortunately, its all about - Privatize the gains, subsidize the losses - these days.
It's interesting how some of these companies are sitting on piles of cash but are still so tax avoidant. Many companies aren't doing anything with the money they're saving on taxes. I don't understand it.
The cash is factored into the stock price. Stockholders figure that sooner or later there will be a tax holiday or equivalent which will let companies bring this money into the US for free, or at least cheaply, and pay it out as dividends or share buybacks.
Also, lots of US companies use this overseas cash as collateral to take out low-interest debt from inside the US to fund US expansion (again, because those issuing the cheap debt know that Google etc * could * pay it off if necessary, it's just dumb to pay the 35% if you don't have to).
+ they can use it do fund big acquisitions outside the US. Luxembourg based Skype, for example, for which Microsoft (probably, maybe) overpaid significantly was acquired with foreign reserves. Overpaying on a deal isn't nearly as bad if the alternative is to lose 35% of said money.
The money isn't really lost though. It would go towards services and infrastructure for everyone. Are those alternatives considered in the corporation's accountings?
Absolutely, and they are completely irrelevant to a corporation. For example: a canadian pension fund doesn’t care one bit about paying taxes in France; they care about hitting their targets and achieving a certain annual yield on their (tens of) billions of dollars under management for their beneficiaries.
If I’m said fund and a shareholder in a company, if I notice management paying excessive taxes somewhere, I will intervene and force them to reduce taxes as much as legally possible.
>Absolutely, and they are completely irrelevant to a corporation.
Why would a corporation account for irrelevancies?
A pension fund isn't really a typical corporation; it's more of a holding facility. If a Canadian pension corporation thinks that common services and infrastructure are irrelevant, they probably aren't going to be around vey long, as their civilization crumbles.
Pension funds hold controlling stakes in various companies (private and public) globally. It’s not uncommon for a US or Canadian pension fund to hold a controlling stake in a private European business. Meaning they often have indirect influence over the actions of corporations. The same applies to hedge funds or investment vehicles controlled by activist investors.
Why would a US pension fund care about paying tax in France? I could understand why it matters if they paid tax in the US (even though a CA based fund probably wouldn’t care about contributing in NY), but what do they have to gain by overpaying tax in France?
the IRS is on record as telling people that they should practice tax avoidance.
Tax evasion is about lying to the government so you don't have to pay the taxes you should. Tax avoidance is about changing your behavior in order to reduce your tax burden based on what the government has chosen to incentivize.
That money will keep the lights on (or pivot) when hard times come, which they will (because of economic cycle, landscape changes etc etc). Unlike nation-states, corporations have little incentive to distribute their wealth as soon as they accumulate it.
I wonder if Google will soon use its Deep Mind AI to optimize for where to pay the lowest possible taxes in the world for every single service they offer (and I hope I didn't just give them this idea).
Well, if Google keeps dodging taxes, I'll keep dodging any advertising and snooping they might employ. Not that tax-dodging was the only reason for that, but it could be a sole reason for it.
This makes me fucking sick. Google is a beautocratic monolith and doesn't deserve to be subsidized by the people. They should pay the government in full so we can finally get back to making progress.
I don't want to suggest Google would spend all that money on hammers(as this was largely a myth) but they certainly won't be spending it protecting the american people. Google should do the right thing here and pay up.
Almost 3400[0] people die from terrorism, if you include people in the middle east directly interacting with terrorists as well as domestic terrorism and also actual instances of terrorism. Does google really think 463billion is enough to protect America?
Leave the decision making to the people who are qualified cyber security is a big deal and I need a group with a success record to protect me.
</satire>
Edit: Made it clear this was in jest. While I regularly state we incur risk using google for everything pretty obvious it is a net good and even from a non-financial return on value, i would invest my taxes in google.
While I don't love google, I thought I made the claim rediculous enough that everyone would be able to realize it os satire and google could probably do 10x of what any govt could with the money.
I feel comfortable in my position because corporations benefit directly and indirectly from infrastructure provided by all three levels of government; everything from roads to schools for their employees kids. A smart player would put money back into the public coffers so that people could be taken care of, not hoard it for the already-wealthy. Why? Because there needs to be a functioning middle class to buy your products (and click on your ads).
I'm reminded of Penn Jillette talking about how he rapes and murders exactly as much as he wants (eg. not at all) without needing a divine entity to tell him not to do those horrible things.