
Ballmer: Microsoft Will Move Jobs Offshore If Taxes Rise - Flemlord
http://www.bloomberg.com/apps/news?pid=20601087&sid=ah5YH8sw_VzI
======
mdasen
From what I know:

So, you have Microsoft, based in the US with operations in other countries as
well. Microsoft's Ireland branch sees profits of $1B and pays the Irish
government the tax on the profits it generated. Microsoft's US branch sees
profits of $5B and pays the US the tax on that $5B. Now, if Microsoft wants to
bring that $1B from Ireland back into the US, it must also pay the US
government tax on that $1B (it's already paid the Irish government there).
But, if they don't bring that money back and rather reinvest it overseas, they
don't have to pay tax on that $1B profit made by the Ireland branch. President
Obama wants to make them pay tax on that $1B no matter what - so that they
have to pay taxes to both the Irish and US governments.

No other country has a system like this. So, if you're a British company and
you have an American arm, and you make $5B in British profits and $1B in
American profits, you can bring that $1B back to Britain (after paying the US
government tax on that $1B) without having to pay the British government tax
on it. This is how the world works - as a company, you have to pay tax on the
profit you create within a country. Except in the US where you have to pay
taxes on the profits you make in the country _and_ any profits you bring back
from abroad, but you're allowed to defer the taxes as long as you don't bring
the money back.

One of the bad side-effects of this is that it means that American companies
would rather reinvest their money overseas than bring it back since they would
be doubly taxed if they brought it back. And it's important to note that
"socialist" countries in Europe don't see this as "tax dodging" and don't tax
companies on foreign profits (probably in the hopes that they bring the money
back and reinvest within the country).

So, for companies with overseas operations, this is essentially a 35% increase
in taxes on foreign profits (which are already taxed in the foreign
jurisdiction at whatever that country's rate is).

I really don't think this is an issue of being pro or anti socialism. I favor
better government services, but you can't just doubly tax companies on profits
which have already been taxed by another country on profits not created in
your country. It would make it impossible to run a multi-national firm from
the US.

Does that sound right?

EDIT: There is one caveat here. Right now, companies sometimes fudge where
they created the profits. As the article points out, Microsoft develops
Windows in the US and then has its Ireland branch sell it in Europe. The
Ireland branch shouldn't be getting those Windows copies for free and the
Ireland branch (from an accounting perspective) should be paying the American
branch a royalty. Microsoft's pre-tax profits would be the same in that case,
but where some were realized would be different with more realized in America.
And the IRS actually does prosecute cases (they recently settled with another
software firm that they accused of this). That's really the problem here is
that American firms are attempting to claim that some of their profits are
from foreign arms that were actually created in America (since America has one
of the highest corporate tax rates in the world - higher than socialist
Europe). Anyway, it's late and I should be asleep.

EDIT 2: Personal and Corporate Income Taxes of different countries -
[http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.sv...](http://en.wikipedia.org/wiki/File:Income_Taxes_By_Country.svg).
As you see, Ireland has very low corporate taxes and the US is second only to
Japan. So Microsoft would rather its Irish branch see much higher profits than
its American branch. Personal taxes might not be high in the US, but corporate
taxes are.

EDIT 3: Basically, I think it's unreasonable to expect a company to pay taxes
both to the country that they're operating in and to the country they're
headquartered in on the same profits. Taxes are good, but having to pay twice
just means that you can't have companies that cross borders. That said, we
should crack down on companies that are mis-categorizing where they profits
are being created.

FINAL EDIT: _But much of that complexity is caused by the divergence between
America’s system of taxing its firms (and citizens) on their worldwide income
and the territorial system used by most other countries._
[http://www.economist.com/world/unitedstates/displaystory.cfm...](http://www.economist.com/world/unitedstates/displaystory.cfm?story_id=13611669)
An Economist article on the issue.

~~~
graemep
Companies should pay tax in their home country on the profits of overseas
subsidiaries, but they should be allowed to offset the taxes paid in the
countries the subsidiaries are located in. So if your home country tax rate is
30% and you have a fully owned subsidiary in a country that has a 10% tax
rate, for every $100 in profits the subsidiary makes you pay $10 where it is
located, and $20 at home.

Remember the overseas subsidiary's profits are shown in the consolidated
accounts, which shows that they do belong (in part if there are minority
shareholders) belong to the parent company.

~~~
TriinT
_"Companies should pay tax in their home country on the profits of overseas
subsidiaries."_

That creates an incentive for companies to move their headquarters to the most
low-tax, business-friendly country. Moreover, companies already benefit
society by employing the majority of people. I don't see any moral reason why
they should pay taxes at all, and I don't see what companies owe to the
countries they're located in.

What you may regard as tax cheat, I regard as acting on one's self interest.

~~~
m_eiman
It could be argued that the company depends on the society to provide people
to work for them, and so should pay their part of the money required to create
those workers (school, healthcare, pensions, etc).

~~~
TriinT
It could also be argued that people needing work are everywhere and, hence,
are an abundant resource. If people working at companies already pay tax, why
should companies pay tax too? Companies provide work, society provides
workers. If society fails to provide qualified workers, companies move to
where they can find qualified workers, thus creating an incentive for
societies to educate people.

~~~
m_eiman
Why should the workers pay tax, it's the company that's making the profit..?

~~~
Rod
It's the people who need education and health care, not the companies. Taxes
on companies should be used to pay for the costs of ensuring a business-
friendly environment, such as enforcing the letter of the law, property
rights, regulation, etc.

The rich could pay a higher sales tax instead of a higher income tax. You want
a Ferrari? 50% tax on it! You want an airplane? Pay tax again.

In the system we have there are so many loopholes that the rich will always
afford good lawyers and accountant and get away with it anyways, so we could
stop spending money on stupid IRS workers, reduce the size of government, and
streamline the taxation process.

Just my 0.02 USD...

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anigbrowl
I have mixed feelings, in that I'm Irish and I'm not so in favor of high
corporation taxes, but rather higher capital gains taxes on profits realized
through share ownership (trying to balance fiscal &social responsibility with
enabling business).

but taxes are ultimately a philosophical issue to which there is no correct
answer. Although This will likely not make a big difference to anything in the
long run, it shows Ballmer to have a political tin ear. This is not a good
time for a rich CEO of a rich company which accounts for a lot of H1-Bs to be
complaining about the pain of paying taxes. Average joe and Jane have little
interest in the niceties of economics or technology, and will read this as
'Evil megacorp blackmails government and hires only cheap foreigners, also
Vista sux'.

MS is the 800lb gorilla of the software world, but the US government is the
800lb gorilla of the, er, world. Playing standard Ballmer hardball at a time
of skyrocketing unemployment is a bit like the car bosses a few months ago
taking private jets to ask DC for more money to build cars nobody wants to or
can afford buy. Good reason or not, it's wildly insensitive to the political
mood.

~~~
dantheman
There is a correct answer - taxes are involuntary confiscated from people
hence they are evil; Unfortunately, they're the best solution to funding the
government so we have to make do, but never forget pointing a gun at someone
to make them do what you want is never a gray area.

~~~
iamelgringo
_taxes are involuntary confiscated from people hence they are evil_

I disagree. In a Democracy, taxes are part of the social contract that we as
citizens have with the government and fellow citizens of the country where we
hold our citizenship. We submit to a level of taxation that is agreed upon by
our representatives in government. We have also agreed upon as a nation that
people should be uniformly subjected to some taxation. We generally agree that
receiving all the government's goods and services and not paying taxes is
illegal. It's only extreme forms of this type of behavior that is generally
punishable by imprisonment.

We receive goods and services that the publicly elected government decides to
provide. You drive on roads that are paid for by taxes. You receive protection
from crime, recovery in times of disaster, and you interact with corporations
whose dealings are regulated by our taxes.

You use pieces of paper that has pictures of former statesmen printed on them
to trade for other goods and services. Commerce would not be possible without
that government backed paper. We would be reduced to barter without it. The
value of that paper is guaranteed by the government and the taxes that we pay.

If you are unhappy with the level of services that your taxation is providing,
you are free to live in a different country, where as an expatriate, the first
$80,000 of your income is not subject to income tax, because you receive less
services from your government.

You're also entitled to vote for representatives that align more carefully
with your values. That right to vote is supported by the taxes you pay.

Call that system evil if you will. I think it actually works pretty well.

~~~
dantheman
The social contract theory of democracy was I believe appropriately dispelled
in Nozick's Anarchy, State, and Utopia. This theory may have held up while
there was still the frontier, but since there isn't available land for people
who opt to settle it is really quite a weak argument.

We are forced by law to accept these pieces "green and gray ink" to settle all
debts regardless of what the debt is really in -- you cannot make contracts in
gold, and expect them to be enforced. Commerce is most definitely possible
without that paper, in fact in California in the early 1900s you were
blackballed if you used Dollars instead of gold.

"In California, as in other states, the paper was legal tender and was
receivable for public dues; nor was there any distrust or hostility toward the
federal government. But there was a strong feeling ... in favor of gold and
against paper ... Every debtor had the legal right to pay off his debts in
depreciated paper. But if he did so, he was a marked man (the creditor was
likely to post him publicly in the newspapers) and he was virtually boycotted.
Throughout this period paper was not used in California. The people of the
state conducted their transactions in gold, while all the rest of the United
States used convertible paper." [ref1]

I am unhappy with the level of services and taxes, but instead of leaving I
hope to change and improve it. Just because someone disagrees doesn't mean
they are forced to leave.

ref1: Frank W. Taussig, Principles of Economics, 2nd Ed. (New York: The
MacMillan Company, 1916) I, 312. Also see J.K. Upton, Money in Politics, 2nd
Ed. (Boston: Lothrop Publishing Company, 1895) pp. 69 ff.

~~~
iamelgringo
_The social contract theory of democracy was I believe appropriately dispelled
in Nozick's Anarchy, State, and Utopia._

I'm sure if you have libertarian, minimalist government leanings, then
Nozick's work dispelled the social contract theory of democracy quite nicely.
I don't find citing an unknown authority to "disprove" my arguments very
helpful. It's a corollary argument to "proof by grad student".

I'm certainly not interested in arguing the benefits of alternate currencies,
gold standards or fiat money here. I'm simply pointing out that we all recieve
a lot of benifits from the taxes you pay, despite your unhappiness with the
system.

And, I wasn't suggesting that you leave the country, I was pointing out that
if you are unhappy with the system, you have options. Another option, is that
you are free to participate in our tax supported democracy to change it by
voting of participating politically.

Either way, you're not going to be forced to do either of those options at
gunpoint. You do have that freedom. I grew up in Central America in the 80's.
The term "being forced to do something at gunpoint" has different connotations
for me than it must for you.

We'll have to agree to disagree.

~~~
anamax
> I grew up in Central America in the 80's. The term "being forced to do
> something at gunpoint" has different connotations for me than it must for
> you.

Try not paying your taxes and see how different it actually is. (Granted, our
jails may be slightly better and the police are less likely to simply shoot
you if you obey their orders.)

Yes, getting to vote is different from not getting to vote. We're talking
about what happens to folks who disagree with the result, regardless of how it
came about.

~~~
iamelgringo
_Granted, our jails may be slightly better and the police are less likely to
simply shoot you if you obey their orders._

Or, being held at gunpoint to be sure that your paper work is in order (has
happened to me).

Being held at gunpoint to be robbed by "freedom fighters" that the US gave
weapons to while transporting a van load of elementary school supplies .
(Happened to my brother)

Being help at gunpoint in the middle of a church service in rural/lawless
countryside by an intoxicated gentleman who was upset by the religious tracts
that were handed out by people in our group. (Happened to my father and I)

And, I can guarantee you that our jails are much, much better than what you
would find in most countries of Central America and our police are much, much
more honest.

My chances of getting arrested by police officers here might be pretty good if
I willfully refused to pay taxes for years. But, that would be my choice, and
I certainly know the risks that would entail. And, worst case scenario, I
might spend some time in a minimum security prison.

It seems that your opinion of our government is rather low, and that's
understandable, but these are dramatically different scenarios.

~~~
anamax
The question was whether taxes are taken at the point of a gun and whether one
can opt out of the "social contract" without govt threatening and using force.

Yes, different places have different "social contracts", which results in
police using force in different situations. Those differences don't mean that
"social contracts" are voluntary in some places and not in others - they're
all imposed by force.

Yes, the circumstances in which police will point guns at you vary.

That doesn't address

------
irrelative
That's fairly vague statement for a group of people that thrive on facts. What
kind of jobs? Programming jobs? New jobs?

How much would taxes have to rise? 0.0001%? Or is there some room for
negotiations? What if the US raised taxes more on companies that offshored
jobs?

This seems like basic politicing at its best. Big companies are going to start
playing taxes chicken with big government. By making blanket, vague statements
like these, they hope to shape the conversation amongst politicians. There's a
real conflict of interest when these guys start telling the government what's
good for business.

~~~
DenisM
I think it's quite reasonable for businessmen to tell politicain about
consequnece of their plans.

The alternaitve is to stay silent and let ineffective ideas strangle business
(and impoverish society) and/or act on it, moving their business elsewhere.

------
grandalf
Of course all taxes go to help the poor and needy and to make the world a
better place, and not toward things like wars, corporate welfare, pork, etc.

------
daeken
Raise your hand if you didn't see this coming. I mean, really, it's not
difficult to see that when you raise taxes (by closing loopholes or
otherwise), people simply shift resources away from your country to
compensate.

~~~
ardit33
yeah, I'd like MS to move in China permanently. let see how many copy of
windows they will sell there.

~~~
anamax
Balmer's point is that MS can make more money by making Windows in China and
selling it in the US and other places than he can by making it in Seattle and
selling it in the US and other places.

------
dbul
Taken from the TG-119 which Bloomberg referenced:

 _In other words, companies would only be able to take a deduction on their
U.S. taxes for foreign expenses when they also pay taxes on their foreign
profits in the United States._

This makes sense. The proposal isn't forcing a company to pay extra taxes. It
simply places tax incentives on layaway until the company pays its foreign
taxes.

The question is: do foreign taxes count as expenses? They ought to.

<http://www.treas.gov/press/releases/tg119.htm>

~~~
DenisM
Expences are deductibe form income, whereas typcial foreign tax credit is
substracted from the domsectic tax itself. I bet it's the latest, as is the
case for the personal income tax.

------
olefoo
It's hard to read this as anything but "Touch my money and the workers get it
in the neck."

Ballmer never was the subtle one. Getting into a public pissing match with a
president who has shown a certain willingness to take decisive action in
matters relating to ensuring that the money keeps moving, may not be the
wisest move.

~~~
TriinT
What will Obama do? Kill Microsoft in response? Ballmer has to serve the
Microsoft shareholders, not the American people. Obama has to serve the
American people, not the shareholders.

Let us face it, the president and other members of government are, in many
ways, a bunch of puppets. They shape the policies and create the incentives,
but they can't force business to do what they want. Unless we turn into a
totalitarian state.

~~~
olefoo
How much money does the federal government drive to Microsoft?

If they really got into it Obama could make a very public push for "Greater
Opennness and transparency in government through the use of Open Source
Software", it wouldn't have to be aimed at Microsoft, but it would kind of
suck to be concerned about Microsoft's share price that week.

And if Microsoft whined about it he could just point to the fact that they've
decided not to be an American company anymore.

Not that it's going to get that far, Ballmer is just bluffing.

~~~
TriinT
_"How much money does the federal government drive to Microsoft?" If they
really got into it Obama could make a very public push for "Greater Opennness
and transparency in government through the use of Open Source Software"._

Good point. The government does have a lot of leverage on that. But,
seriously, why doesn't the government go open-source, thus saving billions to
the taxpayers, and why doesn't MS move a lot of its developers overseas?
Taxpayers would win, MS would probably save tons of money and partially
compensate for the lost revenue.

I have never worked at Microsoft, but I have a bunch of friends working there.
None of them are U.S. citizens. Many of them are Indian, and half of what they
make at MS in the U.S. would buy them an upper middle class lifestyle in
Bangalore, allow them to be closer to family, to enjoy a high social status
(developers have no status in the U.S.), and they could even hire maids to
take care of their children and cook for them.

From an economic point of view, it would make sense to move towards greater
efficiency, wouldn't it?

------
patrickg-zill
My suggestion: the US should create a class of corporate trusts similar to the
"canroys" that Canada has.

Under this setup, as long as a certain high percentage of the profits are
distributed to the shareholders each year, the corporate taxes are non-
existent or very low.

In this case, Microsoft would not pay much US taxes, but the individual
investors would be the ones paying tax on the dividends received. End of
problem.

------
dtap
Basic Economic theory tells us that increasing taxes will hinder business
development. The question is just would you rather give up the business (and
its quantifiable value) for the increase in tax revenue.

The Ireland issue is really interesting to me. Many companies (Accenture,
Warner Chilcott) are moving their incorporation from Bermuda to Ireland. The
U.S. can bully around the little island states, but Ireland is much more of a
bargaining force.

In my view, this is in the same vain as Delaware Corporations, just to the
extreme.

~~~
graemep
Economic theory says no such thing. It is true that investment might reduce if
taxes are raised if ceteris paribus, but as tax rises either increase revenue
or reduce national debt, they are never ceteris paribus.

Imagine we had very low taxes, but the state did not build roads (so transport
costs went up), provided only minimal policing (so companies would have to
spend more on their own security people) etc., it is far from obvious that it
would be good for business in general.

Ireland is increasingly annoying not just the US, but other EU countries, and
many others. It is also subject to EU law, and its economy us currently very
weak, making more dependent on the rest of the EU.

Incidentally, Warner Chillcot was originally a Northern Irish business (Galen)
that changed its name to that of an American company it bought.

~~~
eds
Here in California, we have very high taxes, and the state does not build
roads, and provides only minimal policing.

------
jwr
Poor Steve.

