

Why would Google not pay as little tax as possible? - swombat
http://eu.techcrunch.com/2009/12/21/why-would-google-not-pay-as-little-tax-as-possible/

======
pbiggar
Well, if Google paid tax in the European country where they have the largest
presence, they would pay it in ... Ireland. Just like they do now.

------
hussong
_"And yet the UK press and politicians, yesterday and today, have been up in
arms that Google’s theoretical UK tax bill could have built hospitals and
purchased helicopters for troops in Afganistan."_

Theoretically, they could. But in the current economic situation they would
more likely be spent on cash infusions or EU transfer payments to keep the
Irish economy from collapsing. So, in the end, it doesn't make that much of a
difference.

~~~
anigbrowl
In some respects, the Irish economy is collapsing anyway. It would arguably be
worse without the presence of multinationals attracted by the low corporation
tax, but the sad fact is that having a multinational in your country doesn't
necessarily mean all the best jobs they have to offer are going to be
available to the workforce. In some cases they'll just up and go somewhere
else when it becomes more economically attractive, as Dell did.

Being Irish myself, I have very mixed feelings about the country's corporate
tax policy. It looked terribly smart a few years ago, but so did a lot of
other fiscal and economic policies that seem pretty foolish in hindsight. The
low-tax regime has come at the expense of higher and higher rates of personal
income tax coupled with crippling unemployment.

~~~
gaius
This is why Ireland has always voted against EU expansion. It doesn't want to
see all the money go to Eastern Europe.

It's funny, driving around Western Ireland, say Dingle, there are immaculate
roads with EU flags on the signposts, then the money runs out and it's
abruptly back to the crumbling ashphalt there was before (which is normal
considering how sparsely populated and lightly traficked the area is... It
just doesn't make economic sense to plough a lot of money into the roads
there).

------
lionhearted
When I learned of Nash Equilibriums, it changed the way I saw a variety of
fields - government, business, advertising, and so on.

<http://en.wikipedia.org/wiki/Nash_equilibrium>

> In game theory, Nash equilibrium (named after John Forbes Nash, who proposed
> it) is a solution concept of a game involving two or more players, in which
> each player is assumed to know the equilibrium strategies of the other
> players, and no player has anything to gain by changing only his or her own
> strategy unilaterally.

It's fascinating stuff. Nash equilibriums are regarded as "stable" - no one
will change what they do. Things tend to trend towards Nash Equilibriums and
settle there until there's new technology.

Government legislation, including higher taxes, frequently breaks equilibrium.
The new best solution for large players might be to divert earnings or leave
the area they were doing business. Frequently, this results in the legislators
getting angry and legislating more solutions.

One that immediately springs to mind is North Carolina and Amazon. North
Carolina legislators were annoyed that Amazon customers in NC didn't pay sales
tax because Amazon didn't have a presence there. They passed a law that made
it so Amazon having affiliates there would count as them having a business
presence, so Amazon would have to start charging their NC customers sales tax
and remitting it to the NC government.

Amazon responded by canceling NC affiliates. This was the start of that email:

> We regret to inform you that the North Carolina state legislature (the
> General Assembly) appears ready to enact an unconstitutional tax collection
> scheme that would leave Amazon.com little choice but to end its
> relationships with North Carolina-based Associates. You are receiving this
> e-mail because our records indicate that you are an Amazon Associate and
> resident of North Carolina.

Now, that obviously wasn't an NC legislator's intention. But it turned out to
be the new stable best solution for Amazon. They must've done some math and
decided that not charging sales tax in NC is important than letting affiliates
with a NC address continue to participate in earning referral fees.

Too often legislators think people will accept their legislation and things
will go according to their planned scenario. They don't stop and think, "How
does this change people's incentives? What nasty secondary effects could come
from this?" When the nasty secondary effects come, they either try to shame
the organization in line (which doesn't usually work), or they pass even
harsher legislation. You can see where this leads - it's not pleasant. Disrupt
Nash equilibriums if you must, but do it with your eyes open that there could
be some really nasty secondary effects to the process.

~~~
halo
Surely that works both ways? If the government isn't aware that companies are
using a loophole to avoid tax or more companies start using loopholes to avoid
tax then it isn't a Nash equilibrium either and the government will be
pressured to react by introducing new legislation to remove that loophole.

I think by ignoring this and focusing solely on the legislators, you are
exposing your biases.

~~~
lionhearted
> ...government will be pressured to react by introducing new legislation to
> remove that loophole.

That's the point right there - doing that would create more secondary effects.
Let's say England says that if you have employees there, and make large
profits, you have to pay high taxes.

The reason I focus on legislators is because they tend to be ignorant of
secondary effects. Let's say they want Google to pay more taxes and want
"close the loophole" as you say - how do they do that? There's law, they can't
just write a letter to Google demanding taxes. So what will the law read? "The
Fair Tax Burden in Cyberspace Act of 2010" - how would that theoretically
read?

Well, maybe the first draft says that if you have staff in England over a
certain amount, you have to claim corporate taxes there.

Well, maybe Google does the math, and decides it's not worth - and and lays
off or transfers its English staff.

So a legislator gets furious, and writes the, "Anti-Cyber Laundering
Protection Act of 2011", which mandates that if a website collects revenue
from a country, it has to pay taxes, or the website is banned.

Do you see how this goes downhill really fast? Legislators don't consider that
the actions they take won't always produce the results they want, and almost
always have secondary consequences. Maybe this is much ado about nothing, but
we could get another one of those scenarios here.

I will admit a bias though - I think Google does a better job providing for
humanity and the people of England than the English government. And I say that
despite the fact that I think the English government is one of the more sane
and better run governments in the world - Google just does an absolutely
incredibly job, they've produced far more amazing stuff in a shorter period of
time than just about any government organization.

So yes, I have a bit of a bias in favor of great companies keeping their
revenues instead of giving them over to bureaucracies, but that's not even the
crux of this here. The crux is that by legislating, you create secondary
effects, many of which are not positive, and the world would be better if
legislators paid attention to that and thought things through more clearly.

~~~
halo
I understand you completely, but you're trying to abuse game theory combined
with a bunch of conjecture of what would happen to justify your pre-existing
opinion where it's simply not applicable. This has nothing to do with Nash's
Equilibrium at all.

Let's say a legislator writes a tax law, Google use a loophole to pay very
little tax and enter the market, so the legislators amend the law to close the
loophole, and Google leave the market.

Now, the way you tell the story, it's the legislators' fault for the secondary
effect of amending the law causing Google to leave.

But equally, you could take the view that Google should have never entered the
market relying on a tax loophole which was never supposed to be there in the
first place that lawmakers were unaware of. This is especially so if
legislators have external pressures since they are losing tax income from
other businesses through this loophole, and that it's unfair on those
businesses who aren't using it. It was Google who changed any equilibrium by
using the loophole.

You can espouse the benefits of low taxation and the evils of legislators and
bureaucracies and the laws of unintended consequences therein, but I don't see
how game theory works in your favour in that argument.

For what it's worth, personally. I think taxation is a careful balance between
maximising revenue and encouraging business and work, but this is increasingly
difficult to balance with the existence of free trade agreements and the
existence a global market. But whatever you think about tax policy, we should
be able to agree that tax loopholes have no place in that equation, and that
tax policy shouldn't be implemented via the backdoor with the benefits only
available to large corporations with sufficiently clever accountants.

N.B. England doesn't have a government - it's the UK Government.

~~~
lionhearted
I'm thoroughly enjoying this discussion, because it's forcing me to challenge
my assumptions and think things through. Before I respond, let me clarify -
there's general game theory which I'll mention, and there's my opinions on
governance, and I try to keep them largely separate. Your comment mixes your
thoughts on both a little bit, but I'm happy to weigh in on both topics. I'll
try to note which I'm weighing in on - I mention this because game theory type
analysis is less subjective than figuring out what "good governance" is, which
is a lot more open to opinion and interpretation. But I enjoy both topics and
am happy to weigh in on both.

> Now, the way you tell the story, it's the legislators' fault for the
> secondary effect of amending the law causing Google to leave.

I try not to make moral judgments when pointing out consequences - I wouldn't
call it "fault", so much as simply saying it happens. I find words like
fault/blame, fair/unfair, good/bad, good/evil, and so on cloud a discussion.
I'm more interested in finding out what's going to happen in a given scenario
first, and then once we have all the data, then come to a decision. So I
wouldn't say it's a legislator's "fault", I would simply say it's an
unintended consequence of their actions.

> But equally, you could take the view that Google should have never entered
> the market relying on a tax loophole which was never supposed to be there in
> the first place that lawmakers were unaware of.

Whoa, whoa, whoa - reread and think that through. You want private citizens
and organizations to guess what the laws are supposed to read like and act
accordingly? You want them to guess what lawmakers were aware of in the laws
they wrote? Wow.

> It was Google who changed any equilibrium by using the loophole.

What if they had no operations in Europe? They certainly don't need operations
on the ground in Europe. So if they had no ops and no business presence,
there's no basis for taxation. What next? Block them at the ISP level China-
style unless they pay taxes? And so on.

> You can espouse the benefits of low taxation and the evils of legislators
> and bureaucracies and the laws of unintended consequences therein, but I
> don't see how game theory works in your favour in that argument.

I'm a huge devotee to the "Never ascribe to malice what can be explained by
incompetence" school of thought. I don't think legislators and bureaucracies
are evil, trying to drive business out of their countries and hurt people. No,
I think they're well-meaning but clumsy.

As for game theory, it handles situations of competition and cooperation - it
covers government/business interactions decently. John Forbes Nash actually
won the Nobel Prize for economics by using these ideas in market economics. So
I'm both not slinging mud at governments using game theory, yet noting that
game theory is very applicable for slinging mud at governments if you so
choose ;)

> I think taxation is a careful balance between maximising revenue and
> encouraging business and work, but this is increasingly difficult to balance
> with the existence of free trade agreements and the existence a global
> market. But whatever you think about tax policy, we should be able to agree
> that tax loopholes have no place in that equation, and that tax policy
> shouldn't be implemented via the backdoor with the benefits only available
> to large corporations with sufficiently clever accountants.

I _completely_ disagree. I think it's _awesome_ that governments are being
forced to compete with each other for citizens and industry. I think a lot of
old world government assumptions are going to fall apart when governments are
forced to compete, and we're going to be left with a much better world. But
now we're totally straying from game theory and getting into governance.

> N.B. England doesn't have a government - it's the UK Government.

Cheers for that - Clumsy American that I am, I slightly tweaked a few
Englishmen by calling them "British" instead of "English" when I spent time in
London, so I probably go a little too far in calling everything "English" now
just to be on the safe side. For anyone that knows, what's the appropriate
adjective for the UK government? British government? Or would you just say UK
government every time? Cheers for pointing that out, and thanks for the
discussion.

~~~
crc32
> Whoa, whoa, whoa - reread and think that through. You want private citizens
> and organizations to guess what the laws are supposed to read like and act
> accordingly? You want them to guess what lawmakers were aware of in the laws
> they wrote? Wow.

This is commonly referred to as the "spirit" of the law and would seem to me
to be an integral part of "Common Law" systems where the "spirit" may often be
clarified by the building up of case law.
<http://en.wikipedia.org/wiki/Letter_and_spirit_of_the_law>

------
teralaser
The Economist is up in arms with the new Britain "let's tax the rich too" ,
for instance -out of many articles-
[http://www.economist.com/opinion/displaystory.cfm?story_id=1...](http://www.economist.com/opinion/displaystory.cfm?story_id=15127107)

~~~
electromagnetic
The rich should be taxed. After all, when the top 20% are taking over 80% of
the money, they should be paying 80% of any nation's taxes too. If they're
not, the system is unfairly biased to keeping the rich rich.

If you can pay $1 million in income tax in a single year, I figure you're
doing fucking amazing out of life and it's where any entrepreneur should want
to be in life.

~~~
chwolfe
"when the top 20% are taking over 80% of the money" Who exactly are the rich
"taking" money from in general? Creating wealth is not a zero-sum game. If you
insert the word "earning" in the above phrase, the argument you present loses
some luster.

~~~
jmillikin
If I "earn" a dollar, where did that dollar come from?

If my company paid me, they are poorer by $1.

If the government paid me, the aggregate citizenry is poorer by $1.

If the government printed it, the total value of US dollars in circulation has
decreased by $1.

Technically, activities like mining precious metals or gems could count as
creating wealth, but obviously basing an economy on an arbitrarily-priced
material as silver or gold is a bad idea. Anybody who believes gold isn't a
fiat currency is mad.

The most successful way that governments seem to have found to tax the wealthy
is inflation, which is a "tax" on liquid currency. But there's ways for the
wealthy to avoid inflation which aren't available to the working class, such
as buying various foreign currencies. A direct tax, rather than "stealth"
taxes, is a healthier and more sustainable choice.

~~~
ewanmcteagle
I'm sorry but this is terribly thoughtless. When you are given something the
giver may be impoverished (ignoring any pleasure they get from giving) but
when you provide a service or sell something both sides are happy. One
receives the money they want more than the good/service and the other receives
the good/service they want more than the money. Both are enriched. Without
understanding this miracle you cannot understand many things about the world.
This is why we don't still live in caves and spend all our time gathering
food.

Gold is not wealth. It is only because it can be exchanged for a good or
service that can be consumed that it has any value.

------
messel
International tax law begs to be hacked. It doesn't feel very rational due to
the conflict of national interests.

~~~
jmtulloss
I don't understand what you mean by this. There is no "international tax law",
just national tax law. Britain's tax law happens to allow exactly what Google
is doing.

The EU does have something that might be described as international tax law,
but it's really EU tax law, where the EU is something very similar to a
federalist nation.

~~~
crc32
It was clear to me. He means laws regarding tax issues that cross national
boundaries, for example "transfer pricing". He is saying that it is easy to
exploit such laws. (Whether it is intentionally easy or not)

~~~
messel
Thanks for the clarification crc32 while I was away

