

Ask HN: Do you want a pre-made tax avoidance structure (ie Apple's Double Irish) - husein10

Balaji Srinivasan&#x27;s comments at this year&#x27;s Startup School rekindled my interest in pre-made corporate structures that would help people minimize tax bills.  I&#x27;m interested in gauging interest in this sort of thing among the HN crowd.  A tax lawyer indicated that while making this pre-made structure was certainly possible, he couldn&#x27;t see a lot of demand for it.  I didn&#x27;t feel like wasting time using deductive reasoning based on questionable assumptions when I could just get data to help answer the question. Would love to hear your thoughts on this.&lt;p&gt;See also: http:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Double_Irish_arrangement
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philiphodgen
In order to gauge interest on HN you will need to tell them the price -- setup
and annual maintenance.

Then compute the estimated tax savings. "Savings" means the present value of a
deferred tax liability. Until the tax deferral is large this value is not
worth chasing. Especially since the true cost is not in the money. It is the
distraction to management.

It's a good idea. But compute the cost/benefit.

Disclaimer. I am an international tax lawyer. I fix these things when people
fuck 'em up because they don't spend money on the maintenance.

Further. I really like the idea though. Much of the bespoke international tax
stuff can be standardized and product-ized. If you pursue this idea do your
analysis assuming setup costs are zero. They won't be but try it out. Assign
all of the costs to annual maintenance. Assign a price to the penalty risks if
the maintenance fails. See where your break even is. My guess is you won't
bother until the foreign income generates US net (of foreign tax credit) tax
liabilities of a couple of million a year.

Another idea -- offshore structures in a box for holding IP, especially IP
under development.

Hold on. I'm at Chipolte. Must run to register
internationaltaxlawyerinabox.com. :-)

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husein10
Thanks for the input.

Re: Price - This was just a quick and dirty attempt to gauge interest before
investing a ton of time figuring out exactly how much it would cost. Didn't
see much of a point in figuring out the exact cost if nobody expressed any
interest. I suspect that many HN readers understand that setting up this type
of structure is likely a plus expected value play (assuming you have
sufficient income to protect) given the fact that many major companies (apple,
google, fb, twitter) have successfully implemented the Double Irish
Arrangement.

Also, I'll shoot you an email about this later today. Interested in hearing
more of your thoughts on this matter.

~~~
philiphodgen
Price is always relevant. I heard Nolan Bushnell talk at a VC lunch 20 years
ago and he said (approximately) that all marketing research is bullshit until
you say "What's your VISA card number?" This was the mid-90s and he was
espousing lean startup philosophy then. But I digress.

The idea ("international tax structures in a box") can only be intelligently
pitched as a money question.

E.g., "Your income tax liability this year is $2,000,000. You can postpone
payment and use that money as working capital for one year, and you pay zero
interest on that working capital "loan" from the IRS. At your gross profit
margin of 40%, at the end of the year you will have $800,000 in profit that
you would not have otherwise achieved. What's that worth to you, Dear CFO?"

Take what the CFO would pay for that result. This is the value you have
delivered to the customer. Now you assign a price to that. Tell the CFO you
will deliver a black box of magic that delivers $800,000 of pre-tax profit in
exchange for $X.

This is how a CFO should look at these complex structures. And this, by the
way, is how you do value pricing.

I look forward to your email.

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qsymmachus
Why do Balaji Srinivasan and his admirers seem to share so much in common with
Tea Partiers? At least the small government crowd (seems) to stand on
principle, rather than just angle for new ways to make money. Don't try to
weasel your way out of paying taxes.

~~~
husein10
It's interesting how your framing of the strategy by the use of the weasel
metaphor seems to result in the conclusion that this is somehow inappropriate.
I wonder if you would reach the same conclusion if you framed it as simply a
smart way of legally reducing your tax burden by using a deep understanding of
the tax code, which itself is a product of the same government that you're
paying your taxes to.

~~~
qsymmachus
That's why we draw a distinction between following the letter of the law and
the spirit of the law. Or, as the dude put it, "you're not wrong Walter,
you're just an asshole."

Apple's tax structure rightly prompted outrage, and Ireland was shamed into
closing the loophole:
[http://www.bbc.co.uk/news/business-24542794](http://www.bbc.co.uk/news/business-24542794)

~~~
husein10
Let's not forget that US corporations are also obligated to maximize
shareholder value. Reconciling these oftentimes conflicting edicts is hardly a
trivial matter and this illustrates how black and white simplifications do not
capture the underlying complexity of the issue.

~~~
qsymmachus
"Maximizing shareholder value" is as pernicious an idea now as the day
Friedman uttered it. At least post-2009 it's universally recognized as such:

[http://articles.washingtonpost.com/2013-09-06/business/41816...](http://articles.washingtonpost.com/2013-09-06/business/41816395_1_shareholder-
value-directors-executives)

[http://www.forbes.com/sites/stevedenning/2011/11/28/maximizi...](http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-
shareholder-value-the-dumbest-idea-in-the-world/)

You have responsibilities other than making money. Paying your dues as a
citizen is one of them.

~~~
husein10
Don't necessarily disagree with you about the usefulness (or lack thereof) of
this idea. Check out
[http://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company](http://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company)
for an illustration. But, however you want to characterize the idea, it is
still an unavoidable constraint on US corporations. I only bring it up to
illustrate the doctrinal ambiguity that is seen in almost every part of the
law.

~~~
qsymmachus
I take your point. But what may seem ambiguous to a corporation is not at all
ambiguous to most citizens – myself included – who tend to see such tax
structures as an underhanded way to game the system.

To frame it in more pragmatic terms, deploying these tax structures may hurt a
company more than it helps due to the opprobrium they attract. Of course it's
difficult to quantify the effects of bad press. But not all decisions should
boil down to a cost-benefit analysis – what's wrong is wrong.

