
Companies Flee U.S. Tax System by Reincorporating Abroad - iamchmod
http://www.bloomberg.com/infographics/2014-01-27/companies-flee-u-s-tax-system-by-reincorporating-abroad.html
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naterator
Is there a reason (honest question) why we have corporate taxes in the first
place? Why not tax the money when it passes from the corporation to a physical
person? Wouldn't that simplify things in many respects, and make evasion more
difficult? And be good for American business?

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cperciva
_why we have corporate taxes in the first place_

Someone asked this question last week on a similar thread; the answer I gave
there is still relevant so I'm just going to copy and paste it here:

Compounding investment returns. If I loan you $1000 at 5% interest, I have to
report $50/year of interest income on my tax return. Since I pay approximately
40% income tax (federal + provincial), I have an after-tax return of 3%
compounding annually. If you abolish corporate income taxes, then I could have
my company loan you the $1000 and receive the interest; it would then compound
at 5% per year, and I would only pay income tax when the money is paid out to
me as a dividend. In effect, you would be turning corporations into tax
shelters.

Now, this isn't absolutely insurmountable; in fact, Canada already has
different tax rates for "active business income" vs. investment income, and
theoretically you could have a 0% rate on "active business income" and a 40%
corporate tax rate on investment income (which would then create non-taxable
dividends when finally paid out to individuals). But you'd still have the
complication that "retain profits" produces a different taxation result than
"pay out profits as dividends, then raise more funding a few years later".

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blah32497
"If you abolish corporate income taxes, then I could have my company loan you
the $1000 and receive the interest; it would then compound at 5% per year, and
I would only pay income tax when the money is paid out to me as a dividend. In
effect, you would be turning corporations into tax shelters."

Can you explain what the problem is? I mean you use the term "tax-shelter" and
we associate that with something bad. But what's wrong with only taxing when
you actually get access to the money you made?

You can't even sell the company without having to pay taxes. The money seems
100% unusable till you pay taxes on it. I guess you can reinvest it into
something else without cashing out, but that hardly seems like a bad thing

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cperciva
_Can you explain what the problem is?_

Well, the most obvious problem is that rich people (who can afford to leave
their money invested for longer) pay less tax.

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blah32497
Well they aren't really rich if they can't spend the money haha

But I see your point: Though it would seem that the way people currently get
paid with stock options - where you pay tax when you "cash out" \- is
effectively equivalent (except it's even more regressive because the capital
gains tax is a joke).

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jstalin
As an example, Apple has $100 billion parked in offshore subsidiaries that it
refuses to repatriate to the US because the full 35% tax rate would apply. If
the US were more tax competitive, this sort of thing wouldn't be happening.

[http://www.huffingtonpost.com/2013/04/24/apple-debt-
offshore...](http://www.huffingtonpost.com/2013/04/24/apple-debt-offshore-
cash_n_3142063.html)

[EDIT: fixed to read $100 billion, not million]

~~~
Nursie
Of course. Tax competition is obviously the answer, not companies paying fair
taxes in the countries where profits are generated. How silly of me...

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forrestthewoods
Use/VAT taxes are considered regressive and therefore hurtful, bad, and evil
with respect towards lower classes. The great irony is that by avoiding such
taxes it hurts the poor and enriches the rich. Tragic.

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tsaoutourpants
This is what happens when you raise taxes to absurd levels. People leave --
especially the rich. If you have a company that provides products or services
globally (instead of a business that requires a physical presence such as
WalMart or a gas station), what incentive do you have to be based in America?

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pavel_lishin
Are tax levels absurd?

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socalnate1
US Corporate tax rates are. So big companies with options do all sorts of
insane dancing to avoid/reduce them, which leads to lower actual collections
rates.

~~~
midas007
40% US official vs 24% effective worldwide.

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codereflection
As an American, this looks like a short list of companies to boycott. I don't
want anything to do with companies trying to get out of paying their fair
share of taxes in the US.

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joelrunyon
I never understood this. They're trying to pay less tax - they're doing it
legally & as far as we know not "evading" anything.

You do the same thing on your tax returns to pay as little tax as possible (or
get as big a refund as possible). Why is it worse when a corporation does it?

~~~
_delirium
I don't evade taxes by setting up shell persons in various companies. I would
look down on someone who did.

Actually I do know someone who maintains a fake residence for tax purposes,
and I do look down on her (a wealthy heiress who didn't want to pay
inheritance taxes).

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joelrunyon
"Evading" taxes is disingenuous as these are completely legal methods. You're
implying they're doing something illegal.

Would you rather not have the ability to incorporate your business wherever
you like and only be locked down to one country with no other choices?

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_delirium
No, I'm not implying they're doing something illegal, merely slimy. I would
rather people didn't try to avoid paying their fair share to the society they
live in. And I won't give such people my business, if I know about it and can
help it. They can play the game, and suffering opprobrium for their actions is
a valid rule of the game. If you're talking about only what's _legal_ , it's
_legal_ for me to blacklist them, blacklist their employees socially, and to
encourage others to blacklist them too.

~~~
maxerickson
In the context of U.S. taxes, 'evasion' and related words have a loaded
meaning, where evasion is the word for illegal activities and avoidance is the
word for legal activities.

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_delirium
"Avoidance" is not the word used by normal people. That's a word only used by
tax-evasion consultants (and their clients) to euphemistically refer to what
they're doing, which is gaming loopholes (many of which they have themselves
lobbied to have added to the laws).

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maxerickson
Your tone here is frustrating, pointing out that a word has a strong implied
meaning doesn't really invite a lecture.

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_delirium
Sure, it implies they're scum! That was intended. I'm not going to correct it
by using some newspeak bullshit that no regular humans use, like "tax
avoidance". This isn't a corporate prospectus! I have never heard a regular
person use the term "tax avoidance strategies", only consultants who are
trying to differentiate their brand of tax-evasion (technically legal!) from
the other brand of tax-evasion.

~~~
maxerickson
It also implies illegal activity. I didn't mean to ask you to correct your
usage, I just meant to point out a potential interpretation of it.

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jstalin
For comparison - global corporate tax rates:

[http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-
res...](http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-
resources/Pages/corporate-tax-rates-table.aspx)

~~~
joelrunyon
Quick scan shows that the US is 2nd only to UAE in tax rates. Did I miss
something?

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SeanLuke
These are official tax rates, not effective tax rates, which makes the whole
thing disingenuous. AFAIK, the effective tax rate for the US puts it near the
very bottom, just above tax havens.

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tanzam75
In addition, most of those other countries charge VAT.

The whole point of VAT is to reduce tax evasion by charging tax at every step
of the production chain. Thus, countries with VAT tend to have lower corporate
tax rates, because they have replaced part of the corporate tax with VAT.

American corporate + sales tax rates are substantially lower than the
equivalent corporate + VAT rates in most developed countries.

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nieksand
As of a few years ago, the USA is the only G20 nation that taxes corporations
on their overseas earnings. (Japan was the last other holdout).

~~~
joelrunyon
I think it's also the only other country in the world besides Eritrea that
still forces citizens to pay tax based on citizenship rather than residence.

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joelrunyon
As it gets easier & easier for smaller companies & individuals to setup
international businesses, I think this is going to happen on a major scale
outside of mega-corporations.

~~~
benjohnson
About 10K of my income is from resold web hosting - the numbers actually pan
out for me to open a business in Ireland and keep it open for about $1500 per
year + $1000 in IE taxes to duck about $3500 in US taxes. If I only spend the
profits outside of the US (in the form of vacations), it would work.

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sokoloff
Assuming you are a US citizen, you're taxed on your worldwide income. So, you
have to figure a way to make that trip abroad not a vacation (personally
taxable fringe benefit).

It would be perfectly legal for your Irish company to hold a board meeting in
Ireland and compensate the ordinary and reasonable expenses for attending.
Clearly, that would not be a vacation. ;)

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twic
Of the sixteen companies in the table, four have moved to the UK, and three to
UK overseas territories. Doesn't say much for our tax regime, does it?

