
U.S. Moves to Thwart Use of Foreign Acquisitions to Dodge Taxes - hvo
http://www.nytimes.com/2016/04/05/business/dealbook/us-acts-to-end-use-of-foreign-acquisitions-to-dodge-taxes.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0
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benjaminl
This is happening because unlike almost every other developed nation the US
has a worldwide tax system. Almost every other nation has a territorial tax
system. The rest of the world with their territorial system taxes income
earned within that country, the US rather taxes income worldwide, regardless
of where it is earned.

For example, if a British company earns income in Germany, its pays German
taxes on its German income. But if a US company earns income in Germany it
pays both German taxes and US taxes.

This is not about avoiding tax on profit earned in the US, after the inversion
companies continue to pay US taxes, they just don’t pay taxes on income earned
outside of the US.

~~~
sschueller
And the US double taxes their citizens living abroad the same way.

As an American making the same money as your non-american co-worker you are
left with a lot less just for having a US passport.

It is even possible you have never set foot in the US yet are required to pay
uncle sam's taxes.

Wanna get rid of your US passport? Not before you pay 10 years projected taxes
and pay an abhorrent fee. You will also be listed on a government website so
you can be shamed like a sex offender.

~~~
colechristensen
The fist $100,000 income isn't taxed this way[1].

And it's not abhorrent. If you earned enough money to think it's advantageous
to lose one of the most valuable passports in the world, you probably earned
that money in large parts due to the support of the people and infrastructure
of the United States. You don't get to drop your duties once you win big.

[1] $97,600 for 2013, $99,200 for 2014 and $100,800 for 2015

~~~
lowpro
American Imperialism at its finest. "Since we're the best country in the
world, you couldn't have possibly become rich without us, and therefore you
must pay to leave us!"

~~~
colechristensen
Greatness aside, you probably couldn't have become rich without roads,
national defense, clean water...

~~~
ionised
Those things aren't exclusive to the US.

~~~
colechristensen
Yes, but if you earned your billion on the backs of US peoples and
infrastructure, you have to pay a toll when you leave.

~~~
sushid
But what if you weren't even born in the US, much less have ever set foot in
the US. Do you think it's fair to "pay a toll" when you're working in a
foreign country?

~~~
cr1895
I don't think that's what he's saying. I think we are talking past each other,
myself included.

a) cole seems to specifically be talking about very wealthy people who did
work and earn money in the US but who renounced citizenship largely for tax
purposes (e.g. Eduardo Saverin)

b) cole talks about the foreign-earned income exclusion, which is misplaced
(for people like (a) this is very different from income earned on investments
and for wealth which is subject to the exit tax)

There's a smattering of outright incorrect things too like having to pay taxes
for 10 years after renouncing.

------
philiphodgen
For those of you starting companies that may one day be worth a lot of money,
there is a key insight to draw from this: it is better (from a tax point of
view) to be a foreign company than a US company.

This is especially true if you expect most of your future customers to be
outside the US.

In the long run this gives an operating advantage to foreign corporations --
again for tax efficiency only.

In the intermediate time frame all governments change their laws all the time,
and there are going to be changes in tax rules coming that will make cross-
border SaaS sales painful for tax load and administrative burdens, for
instance.

Your choice is when to flip your business from US to foreign status. You can
see the government attacking late-stage inversions because that is where the
revenue and political brownie points are.

This tells you that early-stage migrations are still possible and may be cost-
effective for you. At some level, for small companies, practical
considerations can be used to offset unfavorable tax rules. (Translation -
amounts are small enough to not matter, or be swamped by normal expenses so
that they don't matter).

The US tax system is King Canute.

Source: I am an international tax lawyer in my real life.

~~~
concernedctzn
> The US tax system is King Canute.

Interesting, I had never heard this phrase before. Are you referring to this?
[https://en.wikipedia.org/wiki/King_Canute_and_the_waves](https://en.wikipedia.org/wiki/King_Canute_and_the_waves)

~~~
philiphodgen
Yes that is what I meant.

The pointless arrogance of the powerful is the lesson.

This is expressed in various ways, from the HN chortling about ignorant
legislators attempting to define pi = 3, to the extremely correct observation
that the bond market holds far more power than any central bank.

Politicians are mortal and fallible.

------
imh
>Yet even by the Treasury Department’s own admission, the latest rules will
not be enough to completely halt the flow of companies seeking to renounce
their American citizenship, just as the two previous rule changes did not.
Such a move would be possible only with an overhaul of the tax rules by
Congress, which few believe will happen soon.

I would have loved to have more info about that. What other loopholes didn't
this fix? What are they proposing Congress do in this overhaul?

------
alanwatts
In this global economy, as long as nation states exist and are
inhabited/colonized by supranational corporations the tax loophole will always
exist. That is the root of the problem: the incompatibility issues of the old
nationalism with the new globalism.

------
tdaltonc
Can someone explain the history of the US worldwide tax regime? Why is the US
so out of step with the rest of the world on this?

~~~
adventured
Here:

[http://blogs.wsj.com/washwire/2012/05/18/tax-history-why-
u-s...](http://blogs.wsj.com/washwire/2012/05/18/tax-history-why-u-s-pursues-
citizens-overseas/)

And [pdf file]:

[http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=...](http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1001&context=dlj)

tldr; it's a century old patch-work remnant from the Civil War to WW1 era. The
US Government at this point does not want to give it up, because it means
giving up tax revenue (and thus has implications for how much they can spend),
and there's nothing they hate more.

~~~
sliverstorm
It's not clear why it would really _need_ to change.

People who have left the United States and will never return, chose to
renounce their citizenship because of it. ... Ok, so?

------
merpnderp
Another attempt to close the loop holes in the US's byzantine corporate tax
system doomed to failure. The Treasury Department says as much in the article.

A flat corporate rate on income earned, in the US, minus income lost, in the
US, equals taxable income, done and fair. If a corporation can't compete in
the US without support of its international shell games, then it probably
wasn't competitive enough to matter anyways.

~~~
ghaff
For that matter, there are good arguments to be made to simply eliminate
corporate income taxes entirely. After all, any profits ultimately flow to
individuals and their individual tax returns. Of course, good luck ever
getting that passed politically.

------
X86BSD
To quote Peter Schiff on this "Tax avoidance isn't the problem. It's a
solution to the problem. The problem is taxes!"

------
RA_Fisher
Capital is mobile.

~~~
vinceguidry
It's only as mobile as laws will allow it to be. Sure, it's a leaky bucket,
but you don't need to patch all the leaks.

~~~
malchow
Capital is fully mobile because people are fully mobile.

~~~
fapjacks
Ever try to take twenty thousand in cash through airport security? Here's a
secret: Those millimeter wave body scanners are only incidentally for drugs
and weapons.

~~~
malchow
Yeah -- you're right. I was making a different point involving how wealth is
built. It takes creative capital. It isn't just money. So stick with an
uncompetitive tax system, and eventually the brightest won't end up on your
shores, and they'll live, create, and bank elsewhere.

~~~
vinceguidry
Generally when people say capital they're referring to large amounts of money,
sufficient to fully-capitalize a business venture. Somewhere in the
neighborhood of $10 million and up. A "capital-intensive" industry is one in
which you need a lot more than this to enter the market.

Also it's not exactly easy to emigrate. People may be mobile, but they're not
liquid.

------
awt
The solution is not to force us companies to pay tax with yet another layer of
positive law, but not to tax them at all, anywhere, unless they wish to
voluntarily pay taxes.

~~~
burkaman
How would that solve the problem?

~~~
jonathankoren
It solves the problem of illegal tax evasion, by making it legal. See? Problem
solved!

~~~
awt
Exactly. Taxes are morally wrong.

~~~
jonathankoren
No. They're not. It's the way how we as a society pay for common things.

~~~
awt
But how do we agree to pay for them?

------
zavi
About time the greedy corporations pay their fair share. #FeelTheBern

~~~
dang
Please don't do this here. Not because of your particular view, but because
garden-variety politics are off topic on HN.

------
arrty88
as long as politicians keep spending like they do, the US can't afford to lose
any tax revenue

~~~
ams6110
True but higher taxes do not always correlate to higher revenue, as the make
(legal) tax avoidance more valuable.

------
themartorana
About time, nothing to see here?

~~~
jessaustin
There would be something to see, if we could come up with a "solution" to this
problem that actually had a chance of working. So, no.

