

Why Google has so much cash on its balance sheet - klochner
http://www.people.hbs.edu/ffoley/Cash.pdf

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protomyth
I really wish we could just simplify the corporate tax code down to: x% of
revenue - total salary payed to US(1) citizens. I figure the citizens are
paying taxes on their salaries and it would encourage local hiring. Flat rate
tax on revenue solves all this shell wackiness. Actually makes shells kinda
nasty since you wouldn't be able to deduct salary.

If the government still wants to encourage / discourage behavior then do
grants / fines instead. Stop using the tax system for political purposes.

1) substitute your country of taxation here

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lsc
I'm all for simplification, but I think your plan would have some unintended
consequences. It's essentially a subsidy of vertical integration.

This would make it hard for any b2b company. you can hire an accountant in
house, as an employee (deductible, under your plan) or you can pay an external
firm (say, a firm next door. small business accounting is usually done
locally.) to do your taxes (not deductible under your plan, even though the
accountant salaries are deductible to the accounting firm, the accounting firm
fees you paid would not be deductible for you.)

This would make it doubly hard for those of us who spend most of their revenue
on non-salary expenses and who are primarily b2b businesses. The thing is, I
pay more for power/rackspace/bandwidth than I pay for salary, and that
disparity will only increase as I scale up. For me, it'd be a double whammy,
as not only would I get taxed on what I pay for power, (so I'd have to raise
my rates) but my customers would have to pay those higher rates out of post-
tax money.

This would probably be incentive enough to move my corporation abroad or shut
down... I mean, a bunch of my customers are already outside the country, and
while it wouldn't help my US customers pay me out of pre-tax dollars, it would
mean that I could lower my rates by 35%.

Really, I think only taxing profits is great for growing companies. Right now,
I live in California, an area with ridiculous taxes. but you know what? I
don't really care, because I only have to pay taxes on profit, so worrying
about my taxes being high is one of those "good problems to have" that I
really only have to worry about once I start making a lot of money.

~~~
lionheart
If we just changed % of profit in his plan, wouldn't that solve it?

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protomyth
profits are way too easy to hide - see Monster Cable and Toyota America
(license fee to mother company = low profits)

~~~
fragmede
Another example of revenue hiding is Hollywood movies -
<http://en.wikipedia.org/wiki/Hollywood_accounting>

~~~
lionheart
Well, yes and no. That's why there are accounting standards like the FASB that
the government makes companies use to pay taxes.

In fact, almost all large corporations keep one set of books using their
internal accounting standards and another set of books using the federally-
mandated standard in order to pay taxes.

Hollywood revenue hiding was done using their particularly-unfair internal
accounting rules. However, those same companies then did, in fact, recognize
that revenue correctly using the FASB when they had to pay takes to the IRS.

As long as all taxes have to be paid using a standard accounting system, there
really isn't any way to hide profits except to ship them off to another
country, like in this example.

~~~
fragmede
How does an accounting standard like the FASB prevent cheating?

My understanding of the most egregious creative accounting tricks was via
shell/dummy corporations. Even if each of those corporations individually
follows an accounting standard, the graft comes via many companies acting in
concert. It would take someone investigating from the outside to matching all
the involved companies together before the ploy was exposed.

(If Hollywood revenue hiding never got that advanced, then I blame Hollywood
movies, and their fictional depictions of accounting practices.) (I'm _not_ an
accountant and this is out of curiosity.)

~~~
lsc
now, I'm not an accountant either, but the whole idea behind the accounting
standards is to prevent cheating, right? so if you can get around that by
using a shell corporation, the accounting standard is broken.

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klochner
tl;dr:

Multinational corporations hold cash in foreign subsidiaries to avoid paying
taxes on profits, and would get taxed on those profits if they bring them back
into the U.S. (repatriate the profits).

This study shows the following:

\- Firms that face higher repatriation tax burdens hold higher levels of cash,
hold this cash abroad, and hold this cash in affiliates that trigger high tax
costs when repatriating earnings.

\- Estimates indicate that a one standard deviation increase in the tax burden
from repatriating foreign income is associated with a 7.9% increase in the
ratio of cash to net assets.

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Ben_Dean
its

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bhiggins
See also:
[http://www.ft.com/cms/s/0/57f8d7e0-daf4-11df-a5bb-00144feabd...](http://www.ft.com/cms/s/0/57f8d7e0-daf4-11df-a5bb-00144feabdc0.html)

~~~
pasbesoin
As the article mentions briefly at the end, we already went through this once.
Now, five years later, multi-nationals are back at the trough again.

Last time, it was sold as a "one time" deal. Of course, nothing was done to
address the underlying systemic conditions.

I also wonder, a bit, what effect all that lowly taxed cash had on the broader
economy. It sure didn't seem to go into any worthwhile domestic investments.
(I'm being a bit flippant in this last comment, I concede.)

