
The new tax havens - slackgentoo
http://www.cbsnews.com/video/watch/?id=7360932n
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DanielBMarkham
There is a lot of loaded language in that report, and I got the feeling that
the reporter should have taken an economics class before doing it. It was like
watching a ignorant economics student get lectured about reality and she not
wanting to accept any of it.

So, instead of pulling down a bunch of theory from the shelf and going over
it, I'll just point out the obvious flaw: she believes that the country "owns"
all the businesses inside of it and that by the companies acting in their own
best interest, somehow they are cheating the rest of us. Most folks who have
really thought about this realize that everybody acts in their own self
interest and that government's role is to set things up so they grow and that
a reasonable amount of money can be harvested to help fund things. At times it
sounded to me like she wanted the country to be a prison: set up shop here and
you can never go abroad. Paying a tax lawyer to make the best moves for your
company was cheating. Etc.

I am deeply troubled that people are using mental models of business that look
at businesses like the corner shopkeeper when business doesn't work like that
anymore. _Business is increasingly location-independent_. Ranting about how
unfair all of this is? It's not going to change that fact. It's 2011. I can
live in Aruba, have corporate offices in Switzerland, have officers scattered
around the world, make things in a dozen countries, market on the net, and
sell in a hundred countries. You're using a mental model that doesn't match up
to reality. You'll never make progress like that.

Never once did she mention that the United States double-taxes income where no
other country in the world does - a critical part of the entire discussion.
That omission alone should tell you how well-researched and thoughtful the
piece was.

~~~
Atropos
I agree with your view of what the realities are. But I don't see why should
applaud them: What happens if a country like Switzerland or Singapore has a
sustainable competitive advantage over the USA or Germany, that simply cannot
be overcome? They can achieve some efficiencies by "freeloading" that bigger
countries cannot match, for example Switzerland doesn't train enough doctors
at their own universities but relies heavily on hiring doctors from Germany.

If companies cannot compete, in the long term they goe bankrupt and disappear.
But how would a country disappear? It's not like every citizen could simply
move somewhere else.

Also the correlation/causality is not entirely clear to me. Possibly countries
are more succesful, because they have lower taxes. But at some point it could
also be true that only countries that are already succesful are able to lower
their rax rates so much.

~~~
yummyfajitas
_They can achieve some efficiencies by "freeloading" that bigger countries
cannot match, for example Switzerland doesn't train enough doctors at their
own universities but relies heavily on hiring doctors from Germany._

How is this "freeloading"? Medical schools located in Germany train doctors,
who then pay the medical school. People in Switzerland pay the doctors for
services.

Is Germany also freeloading on Switzerland if they purchase Swiss chocolates
or watches? Is the US freeloading off India because the US buys BPO services
from India?

~~~
Atropos
Not entirely comparable. Most universities don't have tuition fees in Germany,
the highest fees are 1000€/year, while it is estimated that the costs of
educating a medical student are at least 30,000€ / year. Basically the
education is heavily subsidized by the German taxpayer, so if a huge number of
doctors later work and pay taxes in Switzerland it is somewhat suboptimal.

~~~
yummyfajitas
Ok, so the real problem is that Germany is forcing it's citizens to subsidize
doctors and the Swiss, rather than that the Swiss are freeloading.

The obvious solution (for Germany's citizens, if not their politicians) would
be to charge market rates for medical education.

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jake_morrison
This is such US-centric thinking.

Foreign companies never even started in the US, so there is no question of
them "leaving" or "paying their fair share". If US companies are going to be
competitive, they have to get out. Otherwise, investors will just choose non-
US companies. It's better to set up overseas to begin with, and save the
trouble.

Same thing with the US taxing citizens living abroad (unlike other countries).
And so the IRS sticks its nose into every single financial transaction in the
world in order to get money it doesn't deserve.

The US government should just stop being so greedy and entitled.

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jacques_chester
Well there's a few things here.

1\. Company directors have a duty to maximise profits.

2\. Companies have no obligation to maximise, and every right to minimise,
their taxes.

3\. The USA has one of the highest corporate tax rates in the world, including
double taxation of repatriated earnings.

Is it any wonder companies are voting with their feet?

The more you rely on US exceptionalism, the more you place it at risk. If you
tie taxes to residency of officers, they'll start moving to the Bahamas,
Europe, Australia, Singapore and the like. You'll turn yourselves into a
branch office. Good luck with that.

~~~
dalke
Regarding 3: The US also has a bunch of tax breaks and loopholes which most
other countries do not have, leaving the _effective_ tax rate about the same
as other industrialized countries.

Which leads to US companies as being the best in how to avoid paying taxes.
That's how GE managed to pay no US corporate taxes last year on $5.1 billion
of US profit. (Rather, 7.4 percent but those are stored overseas and won't be
taxed until "repatriated." And odds are they are holding out for another tax
holiday where they can repatriate for free.)

~~~
jacques_chester
Mate, let me tell you, the USA does not have a monopoly on rent-seeking
behaviour.

That said, you have weak party discipline in Congress, which makes horse-
trading inevitable. That and the separation of powers means that there is no
incentive to run a sensible budget and every incentive to pork-barrel.

I don't blame Americans. The US Constitution was state of the art when it was
written. Australia has been lucky in that we got to see how it worked in
practice before we wrote ours.

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rmc
_"Almost everybody is in Ireland," Sullivan said. "All the pharmaceutical
companies, all the high tech companies. You're stupid if you're not in
Ireland," he replied._

And this is why it doesn't change These big companies are telling everyone,
the US public, the Irish public, the Irish government that the low tax rate
_works_. The goal of the low Irish corportion tax is exactly this. Create job
in Ireland, bring companies to Ireland.

(Ireland is currently almost bankrupt and needs an IMF/ECB loan. Everything is
on the budgetry chopping board, income tax, vat, new property taxes,
reductions in capital spending, reducing number of teachers per student,
delaying the age at which children start school. Everything. Except the 12.5%
corporate tax rate, the government parties (a centre left and centre right)
view it as that important.)

~~~
yummyfajitas
It sounds like the Irish government is behaving quite responsibly.

Many other governments would be tempted to try to take a bigger piece of the
pie from their corporations in order to get reelected, not realizing that they
might be killing the goose that laid the golden egg. It sounds like the Irish
have their collective heads on straight.

~~~
arethuza
I would strongly suggest learning more about the Irish financial crisis:

[http://en.wikipedia.org/wiki/2008%E2%80%932011_Irish_financi...](http://en.wikipedia.org/wiki/2008%E2%80%932011_Irish_financial_crisis)

[http://www.amazon.com/Ship-Fools-Stupidity-Corruption-
Celtic...](http://www.amazon.com/Ship-Fools-Stupidity-Corruption-
Celtic/dp/1586488813)

There were staggering levels of corruption and mismanagement both in the Irish
government and within the Irish financial industry.

I don't think you can look at the corporate tax rate independently from all of
the other utterly crazy things that were going on there.

~~~
rmc
_There were staggering levels of corruption and mismanagement both in the
Irish government and within the Irish financial industry._

Agreed. There was clearly very little banking regulation, and many private
banks were let run wild, combine that with a massive property bubble (prices
have falled nationwide by 50% since 2007), and a strong societal urge to get
on the property market, and Ireland is in massive financial trouble.

~~~
rmc
And to give you an idea of how massive the property bubble group think was,
here's a video of the Taoiseach (Prime Minister/leader of government) saying
in July 2007 that people who talk down the economy are so stupid that they
should commit suicide <http://www.youtube.com/watch?v=hfjGSfuSQpA>

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bengtan
Accompanying text: <http://www.cbsnews.com/2102-18560_162-20046867.html>

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etherael
Serious question; What's the difference between price fixing and tax
harmonisation?

~~~
DennisP
Since governments make the laws, lots of things prohibited to private entities
turn out to be legal when governments do them.

~~~
etherael
So, one is legal and one is not. Is that really the extent of it? This sounds
like a pretty clear example of something that should probably be closed to all
parties, gov included.

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justincormack
Of course Google, Microsoft et al were telling Ireland the other month that
they couldnt raise their rates or they would leave. There is too much power
here. Aligning tax rates globally will be necessary, like the EU did in
Europe.

On the other hand if GE is paying 3.6% then some loopholes need closing.
Remove the ways to avoid tax and you can cut the basic rate. That was the plan
for the abortive Reagan tax simplification.

Governments are too weak for all the pork barrelling loophole generation and
then get screwed by this type of evasion. Drastic tax simplification should be
back on the agenda, but is as unlikely as ever.

~~~
jacques_chester
> Aligning tax rates globally will be necessary

Yes. The US should lower its rates, not the other way around. The US can only
get away with 35% because it's the largest economy in the world.

edit: to downvoters, I'd prefer you gave a reply than just metaphorically
shaking your head.

~~~
Luyt
I wonder why the government needs to impose 35% tax on companies. Could it
have something to do with inefficiency?

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yalimgerger
Speaking of low taxes, I think US companies are overlooking Turkey and the
advantages it offers to tech companies.

1) no corporate tax 2) no income tax for employees

All that is required is for the project to be approved as an R&D project.
There is an incredible talent pool, solid infrastructre and a beautiful city
waiting...I am just saying...:-)

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s1rech
I think this 'tax amnesty' borders on extortion. So all these companies used
every loophole they could find to pay lower taxes, and now they want to bring
the booty back, and it has to be for free. Assuming this happens, what
prevents them from doing the same thing again?

