
How Corporations and the Wealthy Avoid Taxes (and How to Stop Them) - Sujan
https://www.nytimes.com/interactive/2017/11/10/opinion/gabriel-zucman-paradise-papers-tax-evasion.html
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xupybd
I wish these sorts of things would come into focus more often in politics.
This should get bipartisan support, this should bring equality in a way that
every side should agree on.

I'm on the far right economically but really think tax law is not working, now
that companies can distribute operations internationally. As such many of the
benefits markets bring to the world are offset by global corporations skating
the tax system and get advantages that are only due to their scale and do not
add any efficiency. A country should have the ability to lower corporate rates
so they attract more business. But they gain nothing if they're just
attracting shell companies that simply stash money. They need business to move
in that offer jobs and wealth creation.

I doubt those on the left would agree with me on the finer points, but I'm
sure they want to see these companies paying their fair share. So why is this
not being dealt with?

~~~
marcoperaza
I posted this in another thread recently, but I think it’s worth repeating
here:

We’re really better off eliminating the corporate tax altogether. It’s a
pretty small portion of tax revenue and the only reason it exists is to be a
plank for politicians who want to tax the "greedy corporations." All corporate
income is either paid as dividends, paid as salaries, or reinvested. When it
is paid as dividends, it is taxed as capital gains. When it is paid as
salaries, it is taxed as income. When it is reinvested, it is either lost, or
eventually becomes income and capital gains. There is no need to have another
layer of taxation that just makes a giant accounting mess and creates all
sorts of ridiculous incentives to use tax shelters.

~~~
elango
Individuals also create corporates to spend money, i can create a single owner
entity and spend money like i am from my personal bank account

~~~
marcoperaza
People do it, but it’s not legal. The corporate funds are for the
corporation’s purposes. If you need the money for personal purposes, you’re
supposed to take a distribution or pay yourself a salary. If you get caught
doing otherwise, you’ll owe the IRS all of the back taxes and some hefty
penalties.

~~~
AstralStorm
What if you pay yourself a salary in Caimans? Here is the problem.

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seibelj
I work with and know a lot of left-wing people, and cutting the corporate tax
rate is anathema to them. But the only people who pay 35% corporate tax are
small and medium sized businesses! Once you get big enough, you can afford
professionals to optimize your business for tax planning. The smaller guys
don't have the time or the funds to do so.

So in reality, the 35% tax rate is yet another moat that keeps large companies
entrenched. By lowering to (say) 15%, the playing field would be drastically
more equal.

~~~
xupybd
While agree that lower rates would help and are fundamentally a better idea. I
also think that it should not be legal to avoid these taxes in the current
way. In order for the system to work these loopholes need to be closed. The
market is based on the survival of the fittest and taxes can really distort
things if not applied consistently. I think this is the key reason we need to
solve this problem. Not to collect more from the rich but to make sure large
international companies do not have an advantage based on their ability to
hide funds offshore.

~~~
Veratyr
> make sure large international companies do not have an advantage based on
> their ability to hide funds offshore

The problem with this is that most international companies I've seen with
funds offshore made that money offshore and ultimately, the cost of paying US
taxes is unlikely to be worth the negligible benefit of being a US company. If
the loopholes are closed I think it likely that companies will move. There are
plenty of places with free trade and low tax.

The US should limit taxation to US-sourced income. If there's no penalty for a
company to bring its revenues to the US, it will likely do so and use it to
drive local investment.

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dogruck
This op-ed conveniently ignores several important aspects of reality.

1\. Agency of sovereign nations. Ireland, and other countries, set low tax
rates to attract businesses. That’s their prerogative.

2\. Revisionist history. After a company moves to capitalize on the offered
low tax rates, people start screaming, “hey, look at all the taxes being
avoided because the company did exactly what the country wanted them to do!”

3\. Obligation to shareholders. Corporations are not philanthropic charities.
They are required, by law, to try to maximize returns. It would be illegal,
for example, for Apple’s executives to charitably repatriate their money and
pay taxes — they would get sued by the shareholders, and they’d lose.

4\. Side-effects of complicated tax laws. Every time a politician proposes a
new tax increase, other politicians scream, and they all seek a compromise.
They successfully compromise by inserting loopholes into the new tax. Then,
predictably, people take advantage of those loopholes.

~~~
karmajunkie
> 3\. Obligation to shareholders. Corporations are not philanthropic
> charities. They are required, by law, to try to maximize returns. It would
> be illegal, for example, for Apple’s executives to charitably repatriate
> their money and pay taxes — they would get sued by the shareholders, and
> they’d lose.

No, they wouldn't, because contrary to popular belief, that's not actually a
law. Please cite which US statute you're referring to if you'd like to refute
me.

~~~
antif
Sounds like an application of the `business judgement rule`:

[https://en.wikipedia.org/wiki/Business_judgment_rule](https://en.wikipedia.org/wiki/Business_judgment_rule)

~~~
karmajunkie
That rule grants wide latitude to the directors of a company. Barring self-
interested decisions and egregious waste, the directors are presumed to be
acting in the corporations best interests. Paying taxes due to the country and
state where the corporation is domiciled is not waste. Indeed, there is a case
to be made that failure to repatriate profits prevents payment of a dividend
to shareholders, which would form a better basis for a shareholder lawsuit
than NOT repatriating profits because of taxes.

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_red
The funny thing is, if the tax rate was much lower - say 15% - there would be
no incentive for "tax planning" described in article (which is legal, of
course). The expense for all those accountants, lawyers, lobbyist, and
inefficiencies caused by artificially shuffling money around would outweigh
just paying the 10-15% tax bill.

Semi-relatedly: Why do you think religions for eons have set the tithe rate to
be approx 10%? Seems like history has worked out a rate that most people are
comfortable paying.

~~~
karmajunkie
Ok, what you're basically saying here is that we should let companies decide
how much taxes they're going to pay. Why would 10% be the number? Why is it
not profitable to move money around at 5%, or 2.5%? Lawyers are only expensive
to normal-income people—the amount it costs to put all this kind of thing
together is an order of magnitude smaller than a rounding error on the sums in
question.

No. International conglomerates should have to follow the same rules as
everyone else, and that means that we as a country determine what their fair
share is, not them.

To be clear, I'm in favor of tax reform, though not the sleight-of-hand that's
currently on the table. I agree with the argument that small to medium sized
businesses are really the ones taking the brunt of a higher tax rate, because
they can't afford or otherwise don't have the means to avail themselves of the
kind of accounting tricks that multinationals do, and I'm in favor of closing
those and reducing the corporate tax rate.

But its not up to the company to decide what taxes they're going to pay or
not.

~~~
gbacon
It’s an interesting idea in principle, but how will you implement it in the
real world?

~~~
karmajunkie
If we can pass a law forbidding US companies from doing business with or in
nations like Cuba or Iran, we can certainly do so for countries that fail to
enforce their international reporting duties.

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aliasxneo
How do we know the money gained by these fixes is going to be used any better
than had the government not gained them?

~~~
eli_gottlieb
Who cares? Criminals should be made to stop dodging their taxes.

~~~
gbacon
Do you maximize the tax obligation on your personal return?

~~~
the_cat_kittles
this question often gets posed, but i think its misleading. probably no one
seeks a higher tax obligation, but people certainly differ on how far they are
willing to go to lower it. so, its really missing the point to try and excuse
people for avoiding paying taxes- the point is that some people are doing it
in a way that may conform to the letter of the law, but is clearly unethical
and bordering on fraudulent by a normal observer's standards. i see no reason
to excuse people for legal but reprehensible behavior in other arenas, why
here?

~~~
gbacon
This is a losing battle for would-be tax reformers. The flip side of a large
tax bill is an equally large incentive to minimize the legally required, or at
least defensible, liability. As revenue grows, finding the denizens of Hacker
News for Tax Attorneys and paying them larger and larger fees makes more and
more sense. On one side are slovenly political committees and the other elite
tax code hackers.

When proponents of “fair share” and “ethical tax planning” resist giving exact
definitions of these terms, they cannot be implemented but are instead red
meat talking points to toss out to fellow partisans. In his book _The
Millionaire Next Door_ , Tom Stanley characterizes American millionaires, some
80% of whom received inheritances no larger than $10k, as being good at
playing defense, that is keeping unnecessary outflow down. With this mindset,
tax bills are only another expense to drive down, and they’re skilled and
determined at doing so.

What it comes down to is it’s always easy to spend someone else’s money.
Everyone thinks _he_ is paying _his_ fair share of taxes, but the guy down the
street is another matter.

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topmonk
I'm surprised the article didn't mention CRUTs (Charitable Remainder
UniTrusts). The idea here is that you "donate" an asset that has immense
unrealized capital gains taxes attached to it. The donation sits in a trust,
that pays you back a certain percentage every year until you die. Once that
happens the remainder goes to a charity of your choosing.

The benefit of it is the following:

1\. You aren't taxed on any of the unrealized gains the asset had when you
donated it.

2\. The trust receives tax free growth.

3\. You are taxed on the percentage you get back using something called the
four tier rules of CRUT taxation (explained further here:
[http://floridadomicilehandbook.com/2009/12/11/the-four-
tier-...](http://floridadomicilehandbook.com/2009/12/11/the-four-tier-rules-
of-crut-taxation/)). Basically, any money you take from the interest is
taxable, but the principle is not.

4\. You get a tax deduction for the full amount (which can be spread over 5
years. For each year, up to 30% or 50% of your AGI can be deducted, depending
on whether the original investment was long term or not)

It sounds fair, but in reality it's easily gamed. You just take out the
highest percentage you are allowed each year, and invest in the safest low-
earning investments possible. In this way, most of what you pull out is
principle, which isn't taxed at all. Given that and the fact that you can
deduct the donation from your other income, you can, in effect, pay negative
taxes on it.

More info can be found here:
[https://en.wikipedia.org/wiki/Charitable_trust#United_States](https://en.wikipedia.org/wiki/Charitable_trust#United_States)

It's a lot better than it used to be. In 1997, congress cracked down on it,
([http://www.mclaughlinstern.com/docs/publications/pub_kosakow...](http://www.mclaughlinstern.com/docs/publications/pub_kosakow_16_new_proposed_regulations_challenge_accerlerated_charitable_remainder_trusts.pdf))
but it's still a mighty windfall if you're looking to store some of your
wealth in safe investments.

------
cletus
I've given this a lot of thought and I'm increasingly concerned that this is
an existential threat to society as we know it.

Being able to legally avoid tax by allocating it to zero or low tax states is
obviously one problem. The fact that US politics is bought and paid for by a
small number of very rich interests is actually a bigger problem (since that
diminishes the chance of the first problem being fixed).

But the biggest problem is the increasingly ultra-wealthy who feel no
obligation to pay any tax whatsoever to contribute to maintaining the
infrastructure, stability and government services that made their wealth
possible. Extreme wealth simply isn't possibly in anarchy.

I favour a number of reforms here:

1\. Allocates profits by sales in each country. Now this isn't as easy as it
sounds as the obvious next step is to create holding companies to mark up
sales (ie transfer pricing).

2\. Every $1 borrowed in the US repatriates $1 of profit held overseas. This
should include borrowing money overseas and repatriating it to the US.

3\. Companies that are substantially present in the US should be treated the
same as citizens: you report worldwide income and pay US taxes on it all with
credits for any taxes paid overseas. Such things like a "substantial presence
test" are common and well-travelled ground in the law.

4\. Charge withholding taxes on any money being transferred to any entity in
any jurisdiction that doesn't report or disclose ownership. Being able to hide
ownership behind CAyman Islands corporations, Panama foundations, Panama
bearer corporations, Swiss holding companies and the like is a cancer. Make
the entity transferring to such an entity responsible for the withholding tax.
This can be simplified by creating what's essentially a Schengen area for
money. Create a zone of countries that all abide by rules on ownership
disclosure and reporting that you can transfer easily between. Leaving that
incurs a cost.

As the article notes, banks can and do violate their reporting
responsibilities here. Fine. Just remove that country from the zone and
suddenly all transactions to that country incur a withholding tax.

I personally applaud the leakers and whistleblowers who have brought much of
this information to light.

~~~
gbacon
Perhaps you should consider that you are not paying _your_ fair share. You
need to make more money so more can be taken from you in order to meet what is
in your own words an existential threat.

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ivan_ah
Interesting picture showing corporate tax income relative to other sources in
federal budget:
[https://upload.wikimedia.org/wikipedia/commons/f/fa/Share_of...](https://upload.wikimedia.org/wikipedia/commons/f/fa/Share_of_Federal_Revenue_from_Different_Tax_Sources_%28Individual%2C_Payroll%2C_and_Corporate%29_1950_-_2010.gif)

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thisisit
As much as the morality of tax avoidance has to be discussed, this article is
confusing at best. The 2nd paragraph says (emphasis mine):

> Meanwhile, an estimated $8.7 trillion, 11.5 percent of the entire world’s
> G.D.P., is held offshore by ultrawealthy households in a handful of tax
> shelters, and most of it isn’t being reported to the relevant tax
> authorities. _This is… not so legal._

Then later after the Google example:

> _In doing this, Google didn’t break the law._

~~~
discoursism
Presumably the "this is not so legal" refers to the "most of it isn't being
reported to the relevant tax authorities," not the "is held offshore."

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u801e
If we were to move away from an income based tax system to a sales or VAT
based tax system, would it address some of the issues noted in the article?

Edit: s/\\./?/

~~~
EddieRingle
IMO a solution that people rarely discuss is a land value tax, typically also
supplemented by pigovian taxes on things like alcohol, carbon emissions, etc.

I personally think income taxes have proven to be a beauracratic and political
nightmare with high economic overhead. I don't see a VAT being much better.
And as others will mention, just switching to a general sales tax is highly
regressive.

~~~
the_cat_kittles
why is a land value tax good? just curious

~~~
bufordsharkley
1) It can fund revenue for public goods with little to no deadweight loss 2)
It targets "unearned wealth" instead of earned income 3) It grows with the
growth of a municipal area, allowing for public finance that scales with the
demands of a growing city 4) It can efficiently be used to pay for declining
cost industries within a municipality (natural monopolies such as public
transit) 5) It naturally is compatible with a UBI, insofar as you're merely
distributing value which is considered to be commonly owned to all

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md224
> A potential fix would be to allocate the taxable profits made by
> multinationals proportionally to the amount of sales they make in each
> country.

> A system similar to this already governs state corporate taxes in America.

Really? I thought Delaware was still a tax haven...

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CryptoPunk
Eventually high income producers are going to have to emigrate to countries
that are more respectful of their privacy and private property rights.

Western democracies are going to get increasingly authoritarian, as voters,
the majority of whom favour social democratic policies, call for increasingly
harsher laws against privacy and tax avoidance, in reaction to the inevitable
stories of individuals and corporations attempting to avoid the tax burden
placed on them.

We've gone from a tax rate of less than 10% on the top income tax bracket,
with the first income tax passed in 1799 to support Great Britain's war
against France, to today, where in many countries 50% of people's income is
taxed during peacetime.

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elango
Are publicly traded companies not obligated to disclose profits and expenses,
doesn't auditing help cover theses irregularities

