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Paradise Papers: Dear Tim Cook (sueddeutsche.de)
1200 points by mpweiher on Nov 8, 2017 | hide | past | web | favorite | 791 comments

What annoys me the most is that, as a small company, I can't evade from my country tax system. I pay the taxes. All of them, at full rate.

But there are these big companies which can afford to create offshore companies/holding just to evade some tax system, and lower their tax rate.

So, what? The tax rate of a country is now "artificial", because it will never be applied to all revenues from all companies, because the higher profiles will be able to evade a part of it.

If governments want to reclaim more, they could raise up the tax rate, considering that the biggest players will only pay a fragment of it. But the small companies, the one that can only follow the rules? They are screwed.

All companies should be considered equals regarding the tax system. It is simply not the case when such schemes are used.

Edit: exactly the same point of view as jitbit: https://news.ycombinator.com/item?id=15651457

These companies evading taxes are responsible for increased hardship and suffering of a society as well, leeching off of the nations they exist in, and being able to outcompete the honest organizations and people in them. The damages are far greater than the tax avoided. "They are doing it too" isn't a valid excuse either.

They aren't, for the most part, doing anything illegal though. They are using the existing laws to their best advantage.

The fix for this can't be trying to appeal to their morals. It would have to be something else that just limits the legal choices.

Edit: If you disagree, are you saying that shaming them into not doing this solely on some moral compass is the right fix? Does that scale?

You're acting like laws are an unmoving fundamental property of the universe. In reality these very companies have reshaped the laws to their own advantage. Companies that lobby on tax policy demonstrably pay lower taxes; see e.g., https://sunlightfoundation.com/2012/04/16/lobby-more-pay-les...

Watch Chomsky's Requiem for an American Dream if you want a great analysis of the cyclical nature of corporate power being further and further entrenched as they gain more power to write the laws that benefit them.

Chomsky's solution? Moar state !

AKA Control of the society that is...

1) Openly documented 2) Viewable by all 3) Accountable to the people not the highest bidder

Exactly as the Founding Fathers wrote and spoke of it? They were pre-capitalist, saw the origins of capitalist philosophy beginning, and wrote of their fears about where that will lead a country of free people; straight into the back pockets of the elite (remember the crown was essentially the same way, owned/controlled all, required the masses to entertain them and provide value for THEM).

You seem convinced contributing to your government is a scam, and you should go shovel whatever for some rich wanker.

You got something else to add? Or are you going to just regurgitate the banal fear mongering of the last 200 years?

    Control of the society 
What does it even mean ?

How do you make the government accountable, transparent and openly documented ? Mystery to me

>How do you make the government accountable, transparent and openly documented ? Mystery to me

Sure but less of a mystery than how we can make corporations transparent, accountable and openly documented.

Producing information is costly. There is a market for it but no general magic solution (this applies to both govt and companies, but I guess it's easier to look into a bunch of small companies rather than one huge govt).

Corporations are accountable of the wrong they do to third parties. It's the whole point of having a judicial system.

How do you control a govt ? By rioting and voting every 4 years ? Here's how it can work for companies : http://www.econlib.org/library/Enc/MarketforCorporateControl...

If the founding fathers were concerned about government capture by the elite, why did they limit the right to vote to land owners? They basically decided that only the wealthy could vote.

At the time (e.g. 18th century), it was the best proxy for education. In the age of the internet, we have at least the prospect of learning at our own pace regardless of financial means. This requires an interest in knowledge while minimizing biases.

Sure, but restricting voting to the educated is still restricting voting to the elite. It still doesn't seem compatible with limiting the influence of the elites on the government, which 32hkwejr claimed was their goal.

>restricting voting to the educated is still restricting voting to the elite.

At that time...

Buuuut we now live in the age of the internet, and knowledge is a pure commodity. There are authoritarians looking to muddy the waters and make knowledge more difficult to acquire, but for those interested in learning (like the kids I've worked with), there are plenty of free options I couldn't dream of at the public library I went to as a kid.

We still have an issue of poor education, don't get me wrong, though it is not a result of elitism (quite the contrary).

(I haven't watched the doc or followed Chomsky much)

I think a lot of the contention is putting faith in the "the market" (but I would hope even staunchest libertarians realize at times that can be disproportionately large companies) or governments. I feel like the extremes on both sides put too much faith in one or the other. To keep each other in check one can't be too much larger, or wield too much power over the other.

When companies become multinational, things can get weird because they can evade single governments. I'm not saying it's always bad, but it is hard to keep them in check.

I put my faith in voluntarily actions, competitive entreprises, innovative ideas and good mechanisms of check and balances.

The first word that comes to my mind is 'free market', not 'huge government'..

I guess I know what side you put faith in.

"Free market" is just an illusionary goal--there's no such thing in practice. Every aspect of reality creates some bias to one party or another. Governments try to encourage competitive entreprises, innovative ideas and good mechanisms of check and balances by eliminating monopolies, reducing dynasties/incumbencies and other barriers of entry, in addition to other things like maintaining a fair legal system.

    Every aspect of reality creates some bias to one party or another

? And every government action steals resources from someone and prevents them to do it on their own.

Have youbever seen govt reducing barriers of entry ? I need examples

Only govt can create monopolies, unless you're talking about mafias.

I wholly admit the government can do those things (that was the point in my original reply).


The only example there that could be remotely tied to the government is cable companies (I think the last-mile expense barrier to entry is the main contributor to those monopolies). All of them prevent a "free market" and the idea is that governments break those things up or regulate them. Breaking up a monopoly reduces barrier to entry. After the breakup of at&t, long distance rates dropped due to the new competition.

A few things most governments do to reduce the barrier of entry when starting or running a business: maintain a legal system to facilitate agreements between parties, educate a workforce so there's a pool of citizens with basic skills you can hire or sell things to, maintain open access roadways for transport of workforce and goods, maintain a trusted currency for the exchange of goods and services. All of those would be huge hurdles if I wanted to open a lemonade stand.

> unless you're talking about mafias.

So they're the only fly in the ointment if governments didn't exist? What is the solution to mafias if the government just steals resources?

I'm earnestly curious, if governments only oppress a market, where your best or ideal example? Is there any free market that doesn't have a government? How come when governments fail (or countries without strong governments) a strong free market doesn't develop to overtake the EU or US?

    All of them prevent a "free market" and the idea is that governments break those things up or regulate them
What did govt do exactly to prevent, I quote the WP article, " food markets in cinemas, airports, and sports arenas, college textbooks, the Kosher food market in the United Kingdom, and phone calls and food in jails and prisons" ?

    maintain a legal system to facilitate agreements between parties
Yes !

    maintain a trusted currency for the exchange of goods and services
Yes but they also forbid some forms of private currencies and make mandatory to keep using their currency. If their currency was so great, why would it need force to make it mandatory ?

    if governments only oppress a market
I didn't say that. Maybe govt are the best solution we have right now for homeland security, police and basic justice. For the rest of its activites, I'm pretty sure it's useless

> What did govt do exactly to prevent,

Who said government is the solution to every single problem? I implied too much government intervention was also bad in my original post. I do think the phone call situation in US prisons are exploitative and I hope it does get addressed. Jail/prisons being the responsibility of the government, economic arguments don't apply and they shouldn't exploit prisoners (I'm also not a fan of the "slavery" exemption for prisoners). Just because a captive market exists, doesn't mean it's bad and it has to exploit them...capitalism just tends to push it in that direction. Teddy Roosevelt, who started the "trust busting" didn't have a problem with monopolies, only the monopolies that exploited their position. That still applies to today's anti-trust laws.

> If their currency was so great, why would it need force to make it mandatory ?

Because too many people cause shenanigans when they don't? I'm kind of surprised you were cool with a single legal system, but not with currencies.

> I didn't say that.

You said, "every government action steals resources from someone and prevents them to do it on their own." Maybe I should have been explicit and said "free market" but I figured it was implied. How is "every action steals resources" not oppressing the free market you describe?

Of course, because he's so find of power structures in general. *Queue eye rolling

You seem to be overly fond of data structures! ("Cue", rather than "queue")

Well, regulations work pretty damn well for the FCC's control of the wireless spectrum.

So some regulations definitely work.

You inevitably need more state to combat antitrust.

Quote him. Don't interact with your own straw man, face the man.

Yes you are right. I actually was a fund of him years ago. 'More state' is definitely the feeling I remember of him

This is absolutely the key point here.

The reason large corporations have more power is ... they have more power. They can afford to not only find loopholes, but also exploit ones with higher barrier-to-entry, AND lobby for additional ones.

Many corporations probably DON'T want loopholes that are "too easy" because then smaller businesses would be able to use them as well and become potential competitors. Kind of like how Comcast sues any potential competitor into oblivion using frivolous lawsuits. The cost to entry into the ISP market? The price of a good legal defense that can defeat Comcast. (Read: Nothing to do with the actual hardware/manpower)

I wonder how many of these comments are made by Apple's legal or PR team posing as normal people... Certainly they have the reach and resources for this kind of thing too. Rarely do we get to have a real public discussion on such topics without adulteration by these parties with personal motivations and associated power.

Your comment basically breaks HN guidelines by calling into question the motivations of all commenters that disagree with you. Some of us simply believe that taxing corporations makes little sense because companies set their pricing with applicable taxes in mind. Ultimately, only people pay taxes, so only people that have not fully considered the implications believe they are "sticking it to the man," when in reality the government is abstracting the cost of these taxes on the people.

It's simply a consumption tax that people do not realize they are paying because it is built into the products citizens are buying.

Your comment asserts that corporate tax has zero impact on corporate profit. If you don't fully agree with that statement, you may want to consider whether you fully agree with everything you wrote.

>Your comment asserts that corporate tax has zero impact on corporate profit.

I didn't intend to "assert" that, and I think it's fair to ask you to elaborate, as I believe there are assumptions embedded in your interpretation of what I wrote.

edit: Grammar.

edit1: Do you think Apple incorporates the cost of the tax burden into the price of an iPhone? I think it really comes down to whether you think Apple would reduce their unit price if it would ultimately result in gross profit increases. It's like taking VC financing, "Do you want to own 100% of a $500K/yr revenue company or 49% of a $3M/yr revenue company?"

Imagine a world where there is no corporate tax. Apple does a price analysis and decides the profix maximizing sales point of a phone is $1,000. They price the phone at $1,000.

Then, a 10% corporate income tax rate is put in place.

Does Apple raise the price of the phone to $1,100? Is that now the profit maximizing decision?

According to your claim "Ultimately, only people pay taxes," the answer is yes - Apple would immediately raise the price of the iPhone to offset the loss incurred by the new tax. Except that then, fewer people would buy iPhones. We already know that $1,100 is not the profit maximizing price point for a phone. So, the amount Apple would increase its price is a function of the price sensitivity of iPhone buyers.

This is a little tricky to explain, but khan academy has a video that explains it quite well.


> We already know that $1,100 is not the profit maximizing price point for a phone.

$1,000 is a profit maximizing price point with 0 % taxes. With 10 % taxes it would be different.

Correct. Was that not clear?

Be serious.

(1) You really think Apple cares about the discussions on one thread of Hacker News ?

(2) Even if they did how would it be an effective use of resources. It may shift a handful of people at most. When instead that time could be spent speaking with journalists or writing press releases that could actually shift a lot of people.

(3) It's a slippery slope to keep calling everyone you disagree with shills or employees of a company. Especially since on an anonymous forum they could never be able to defend themselves.

Oh, they definitely do keep tabs and actively participate in places like HN.

You must have missed seeing this a few years ago...

> Members of Apple PR seek tabloid photos of celebrities holding iPhones, while others read Apple-focused blogs actively, and keep tabs on prominent Apple beat writers using anonymized social media accounts. A former Apple PR employee notes that the team enjoys being an “overall watchdog,” monitoring what the media is saying about the company every day.


I've got numerous concerns about YC, but I really like HN. There is a certain decorum we must not violate or we risk becoming like the mess that is the rest of much of the web right now. We need to focus on the content of the arguments being made, not trying to determine what tribes the others belongs to.

That's exactly what an Apple employee would say!

The fix can certainly involve appealing to morals and human responsibility. A company is, after all, just a group of people. This should be a very strong tactic considering how liberal Silicon Valley is. The major players preach constantly about progressive ideals, yet fail to do more than the minimum when push comes to shove. My business partner and I purposefully pay normal taxes, avoiding accountants' crazy tax reduction schemes, because we think it's the right thing to do. We're a tiny speck compared to Apple, but the principle still applies. If the big players made it the norm, their investors would suck it up and deal with it.

>The fix can certainly involve appealing to morals and human responsibility...

Are you really suggesting the management and board of every major company in the world should meet to decide how much tax they should choose to pay each year? Even if they did, where should they choose to pay it? Should Apple Pay more tax in China where the phones are assembled? In America where they are designed? In the countries where they are sold? What criteria do they use to decide?

That might conceivably work for one company, on some tax issues, for a while. These are companies that operate simultaneously in multiple countries with different tax systems. They can’t be expected to choose to pay more tax here or there.

I do agree these companies pay too little tax, but expecting them to pay more voluntarily is never going to work.

My (ultra-simplistic) idea would to only tax land and VAT. Abolish all other taxes.

Unfortunately, governments like fine-grained taxes because it gives them the illusion of control.

That's not true. Here's just one example: fine-grained taxes are used to help influence behavior, improving public health. Mexico increased taxes on sugar [0], with the result being a fall in consumption. Raising this tax has caused a verifiable reduction in consumption, which has a direct impact on public health[1]. That's just one example, many more exist for all sorts of reasons. It's why cigarettes and alcohol are taxed differently than broccoli. Obviously not all taxes are in the public interest, but neither are they just to give some government official a feeling of empowerment.

[0] https://www.theguardian.com/society/2017/feb/22/mexico-sugar...

[1] http://journals.plos.org/plosone/article?id=10.1371/journal....

Many people believe this is an overstep on the government's part. These people believe it's not the government's job to be paternalistic and nudge people into the "right direction".

This is based on the complete abhorrence of "scope creep" mixed with near total surveillance and control over the use of force. Those with that much power should not be able to enforce social mores, even if they reflect the will of the people at the time.

What if we frame it as a financial problem, not a well-being problem. Argument: it is in everyone's best interest if fewer people smoke. Smoking overwhelmingly affects poorer citizens who are already more reliant on social services. And since effects are tied to age, older smokers will more heavily put a burden on both the healthcare system as well as the entire insurance market (including Medicare/ Medicaid). Ergo it is in everyones best interest to disincentivize as many people from smoking as possible. Raising a tax on cigarettes is a cheap, quick, and effective means to do so, while raising funds for the very same health services they are likely to be using in the future.

Give people social services, and now you own them and have the right to control their life.

Ah so that's why in the US you get health insurance from your employer!


However in a democracy those people are merely one constituency among the electorate, the rest of whom like to have things like police forces, emergency response services, shared infrastructure such as road networks, enforced assurances of the quality of consumer goods and services and many other things that a well funded government can provide. Unfortunately that funding has to come from somewhere and making choices about where the funds come from requires making judgements on such things.

>Those with that much power should not be able to enforce social mores, even if they reflect the will of the people at the time.

What else are laws for?

Sugar consumption isn't contagious. I would call that an improvement to private health.

Your ultra simplistic idea has been tried before to some extent. It doesn't work.

VAT is a trivial tax to avoid since it involves the business letting the tax department know how much tax they collected. So what happens is that they under report either (a) by flat out lying or (b) doing more business in cash or through a barter system.

Also it is incredibly regressive rewarding the rich (who are generally hoarding money not spending) and punishing the poor (who spend a larger portion of their wealth on consumable spending which is subject to VAT).

That's why many countries have a VAT but none of them solely rely on it.

Many countries have multiple VAT rates for different goods. Staple food and other basic goods, which constitute a larger part of a poor person's spending, are in lower rates.

And the rates used to be - by today's numbers - ridiculously low, but over time it became a nice and succulent teat to milk.

Given your comments, we seem to be similarly minded. What do you think about a wealth tax? To me, that would be the most appropriate given that incomes can vary year to year. Corporate taxes are a separate matter altogether, IMO, since corps just include their tax burden in the price of the products.

edit: What I'm thinking is some sort of total asset valuation placing one in a given bracket, rather than income level. While income tax is income tax, regardless of short-term/long-term capital gains (35%/15%, USA), or salary.

How well would that apply to assets that are hard to measure the value of? Ie a house, a business or a painting even. I think it would encourage a system where people somehow minimize what their assets appear to be worth - or how well they can be measured.

Given how Prop 13 was enacted to not push existing homeowners out of their homes if their property values increased significantly, would there be a similar push under such a system?

That would be a horrendously regressive taxation system.

"Fine-grain taxes" are what let a government tax people equivalently to their ability to pay. Income tax being one of the easiest ways to do that...

That’ll work great if every nation simultaneously agrees to it, but is potentially catastrophic if they don’t: all the tax-dodgers move to your country for tax purposes while continuing to make and sell everything else exactly as before.

And if every nation agreed to have identical tax laws, we wouldn’t have a problem with lawful multinational tax minimisation in the first place, because there would be no advantage to it.

Sounds good. It forces all countries to unify VAT.

It begs the question why it does not happen already?

It forces them to unify everything except VAT (and land tax). Or, and I only realised this just now, do something complicated with imports, customs, and how to handle cross-border sales of digital goods (the EU does this, but it is a mess).

If I had to guess, I’d suggest haven’t already done what you suggest for at least one of these reasons:

1) because it’s economic mutually assured destruction

2) because tax codes are long and complicated (and sometimes deliberately written as political favours), and they’re as afraid of touching it as PayPal are of touching whatever Musk wrote 20 years ago.

3) because businesses that have revenue (Apple, $229bn) comparable to the GDP of the nations whose tax systems they are exploiting (Ireland, $293bn; Luxembourg, $59bn) is novel and governments are slow to adapt.

I don't know for sure, but is it appropriate to use gross GDP numbers instead of GDP/capita? When one is choosing which metrics to use, bias is introduced.

Depends what you’re comparing. Gross economic force of two entities? Raw GDP; Quality of life? GDP-PPP/capita is better.

Private citizens don’t generally get to threaten governments by moving abroad to withold their taxes — and even when they do (I kinda am!) it’s so completely irrelevant it isn’t worth the government’s time to bother to check if it’s actually happening or just a loudmouth blowing off steam by saying they will.

To an extent it already has in the EU in which every country is required to impose a VAT compliant with EU rules, although they have some leeway on the rates and goods covered.

On the other hand, there are countries out there that do very well out of having tax codes that wouldn't work for big industrialized countries, or countries part of a big unified trading bloc. They have strong incentives to keep their tax codes the way they are.

I'm American, and thus not terribly familiar with the details of VAT. Is there anything about how it works that makes it less regressive than a simple sales tax? Sales tax as it exists in most US states is just about the most regressive tax scheme imaginable.

The only difference between sales tax and VAT is that VAT is applied at each stage of the production/sales chain, but only on the incremental value added at each stage, whereas sales tax is applied only at the very end of the chain on the entire value. The advantage of sales tax is that only the retail seller needs to worry about collecting it, and the advantage of VAT is that you don't need rules to figure out which stage along the chain is supposed to be the "final" one. (Consider small businesses buying product from a place like Costco. They either get double-taxed, or have to get some sort of exemption.)

In terms of the actual money collected, the two are the same. An X% tax rate results in the retail buyer paying X% more.

The basic answer is that the progressive European countries primarily funded through VAT are indeed using a regressive taxation system, but countering it with progressive spending.

The US system is a moderately progressive tax system but less progressive spending (not no progressive spending, but not nearly as much).

The argument is that you "buy off" the wealthy interests (both wealthy individuals and corporations) by using a regressive tax system, so they are happier to let you spend the money progressively, while in the US they are constantly fighting any progressive spending, because any tax cut will benefit them greatly.

VAT is also a regressive. It's comparable to sales tax.

"My business partner and I purposefully pay normal taxes, avoiding accountants' crazy tax reduction schemes, because we think it's the right thing to do. We're a tiny speck compared to Apple, but the principle still applies. If the big players made it the norm, their investors would suck it up and deal with it."

I suspect that you and your partner have significantly more control over your enterprise than the officer of a public company does though. If you didn't your investors wouldn't suck it up, they would do as they see fit, which may be agree with your position or may be replace you.

Public companies are controlled by their share price more than they like to admit. Even if you are like Zuck and maintain complete management control of your public company, if that share price takes a huge hit it becomes very hard to attract and maintain talent/future investment/etc. Everyone has some authority to answer to.

Which is why I think the current scheme of publicly traded companies at base is flawed. Earlier this week someone posted something along the lines of, once you become public your product is stock, not whatever you produce.

I think we ought to use the power of the executive to straight up revoke charters to businesses that are American that engage in these schemes. Something I learned about while reading about the British and Dutch east India companies.

> if that share price takes a huge hit it becomes very hard to attract and maintain talent/future investment/etc.

OTOH, by paying taxes you make sure there is a talent pool to recruit from in the future.

If all the air molecules in a box spontaneously moved to one side of it at the same time, you could defeat entropy. This is no more likely to happen than the big players making it the norm to avoid tax reduction schemes.

In a box filled with air, molecules moving to one side leave a gap which results in increased pressure for molecules to move the other way. The same is true of big companies and taxes. You might be able to find some companies who would do this, and investors who prefer money to vague morality (and there's a lot of them) would abandon those companies and put more money into companies who avoid taxes as much as legally possible.

If we want to stop this behavior, the solution must be to make it illegal. Appealing to morality isn't going to get it done.

Consider that many industries literally kill people by poisoning the air or water. Not killing people as a moral principle is a lot more universally held than the idea of paying more tax than you're legally required to, but moral pressure didn't work there. Laws did.

Literally anything you do at scale will kill people unless your factories are 100% in equilibrium with nature.

Why? Toxic emissions aren’t a given, they’re just cheaper than neutralizing or containing them.

That is where you are wrong. A cannot be thought of as a "group of people". A company is a legal entity, which can do absolutely ANYTHING within the law. It, the corporation, will by default do everything in its power to maximize shareholder value and that is it.

Beyond that, there's Corporate Social Responsibility, but of course that is downstream from the corporation's main objective, which is to maximize profits.

The corporation is to be understood as an "individual" and is legally so, but one which has limited legal liability.

Once upon a time, corporations were chartered, to better serve the public good. Our (USA) founding fathers suffered under the yoke of corporations (eg East India Company, Boston Tea Party) and were wise to limit their power.

Then some yahoo slipped in some legal precedent declaring corporations were legally natural persons, weaponizing the 14th amendment. And here we are today pretending that corporations are super persons, with more rights than actual people, but none of those profit sapping responsibilities.

~"Capitalism is the worst system ever devised except for all the others." ;)

Until we get to a Star Trek-like unlimited resources, it is the best way to allocate our resources to properly incentivize progress and innovation.

The rhetorical trap we’ve fallen into is conflating capitalism with corporatism.

That's a distinction I haven't thought much about because I'm not sure I've contemplated the pure definitions. Without knowing how you mean these words, I would say starting from first principles, we optimize for liberty (at least in the US, YMMV). Then we consider factionalism, and it's usual cause: inequality (or it's mis-perception).

Well, this was an unpopular comment. How do we properly incentivize progress and innovation? This is the safest, most prosperous time to be alive in the history of humanity, despite what you have been told.

> How do we properly incentivize progress and innovation?

There is no progress or innovation without qualifiers.

> safest, most prosperous

And most depressed, most suicidal, most alienated, most amok running, most hysterical, most sophistry laden, most marketing raped, most mass produced, most polluted times ever. Millionaires today are poorer than paupers, artists today are more cloned and out of touch with themselves and the world than random citizens of other times and places. The ones who aren't 100% market whores, anyway, who at least pretend to themselves they're artists. We went from turning our world into meaninglessness to turning our selves into meaningless, mass produced objects.

We can't even afford to make something for the sake of craftsmanship, or leave a blank space blank instead of smearing marketing. We went from everybody and their dog being a member of 20 and running 5 forums to everybody being on Facebook. We went from RSS to fucking Twitter, who "let users express themselves". Companies openly brag about wanting to create "compelling experiences", marketing people dog food their own idiotic slogans and are now honest when repeating them ad nauseam, because they're now actually this small and weak to actually believe actually all of it. We went from browser makers doing whatever to user agents and back to browser makers doing whatever and users just sitting there and hoping some of that will be fun for them, too. We went from metacrawlers to Google. We went from Apple, Atari, Amiga, IBM-PC to -- a few player essentially all doing the same user hostile, uninspired shit. How many newspapers are owned by how many conglomerates? And look at company names. Herply this, derply that. Look at people's names. Are you meaning to look me in the eye and tell me we're not approaching Idiocracy? 500 years was the science-fiction part about it. Give it 20.

But safety and prosperity? Heh. It's the safety of securely being born dead. The biggest threat used to be death, now there is less and less difference between existing for a while, to shove some franchises in the mental and physical orifices, and not having been born. What does it profit a man? What does a man lose? I can't tell you the answer, but I can tell you who you shouldn't ask for that answer; the man who did lose his soul to gain the dissolution of the world, like some Midas turning things to poop. Nietzsche was right about some things, Erich Fromm was right about others, Hannah Arendt was right about everything, Einstein was right about people and who gives two shits about physics anyway, Orwell and Huxley were on to it, and then there's the thousands of others who I don't know but who all said the same things in various ways. Safety and prosperity? Fuck that. Life isn't safe, the whole universe isn't. Only death wants safety, only fear wants more, life wants to live. And yes, life is more fun when it's not reckless, when it is intentional. Food and shelter and medicine are great. That we focus on power and alienation while pretending they have anything to do with safety and prosperity, that we killed the point of living in the first place, that's the problem.

Sorry for ranting, but you don't get to tell me what I've been told or how I judge things. If it's the safest and best in your opinion, fine. But if you simply state that as fact, you brought nothing to an everything fight.

>If it's the safest and best in your opinion,

While being a poor translation of what I wrote, based on facts you are completely incorrect.

Just tell me what you are for.

I am using statistics. Do I need to cite sources for you to believe that this is the safest and most prosperous time in the history of humanity?

In the history of that portion of humanity you "belong" to. There are several parts of the world where the last thing people feel before dying is the stink of their own diarrea; or the sound of rockets and drones about to tear them up; or the hopelessness of hunger...

Since you're mentioning statistics, I'll mention the "Polli di Trilussa", whereby if the average says everyone has a chicken to eat and you're not getting any, don't worry because there's someone gorging on two.

Safety of what? Of pure physical life? Wouldn't prospering life imply some kind of vitality?

Then how come we all just sit there and "hope" something will be done about climate change or nuclear proliferation? How come rising drug deaths? How come the need for a dedicated WP page about the suicide problem in Japan? How come the best we can hope for is for some to condemn war criminals - instead of their brothers and fathers and children disowning them as they rot in jail? How come Trump is president and Snowden can't go home? Prosperity? We cannot even afford same rights and laws applying to all period. We shine the boots of crazy sadists who get nothing out of it but a prolonging of their suffering and the damage they cause, and we just bite our lips and give a sympathetic shrug to those who should be in their place, or at least not get trampled in the dirt.

Not that I'm saying there was ever justice for all, but we know a lot these days, we can do a lot these days, we have a lot these days; we could technically afford a striving towards instead of away from justice, just like we could afford everybody on the planet having food and shelter. Just like there is no need to plunder and mutilate language and thought, but we still do it. Workers used to be proud of reading and educating themselves, now even so called intellectuals can't face weighty authors. We truncate at best, and usually ignore outright. Not because that's milk and we now have meat, but because that's meat and we no longer have teeth.

I hardly see anyone who can afford to just take in their surroundings and the people they are faced with. We now actually call movies franchises ourselves, as if the soulless way was the more advanced and correct one. Something "making sense" always has to take the backseat to "making business sense", and boo on anyone daring to more than shrug their shoulder and bite their lip. I see a lot of people who individually have and are nothing, who always have to refer to someone or something other than themselves. My main criticism isn't historical, it's that I see people getting weaker and lamer by the year, more and more without thoughts that are truly their own, everything is being handed off.

I remember that recent discussion about tech "taking Saudi money", and many pointing out that it's just money. We cannot afford to distinct between 10$ taken from the purse of an elderly woman, and 10$ earned by fixing a chair. That's the biggest destruction of information I can think of. Oh, and we no longer can afford to print things on paper, and what we print on paper today often doesn't last as long as older books, kind of like houses. Please download the manual from a website that will be gone in N time units. Please upload your "culture" to YouTube, and put all your means of contact into the hands of Gmail and Facebook, put your free time into the black holes of EA and Disney and stream your reactions [sic, it should be called facial expression plus mouth noises] on Twitch. Those who do can't afford to talk in the first person singular just because we can't afford anything too grounded, since that would attract other grounded things and before you know it someone is turning on the light in the insane asylum torture chamber, and we can't have that.

You cannot afford owning anything, and oh, we updated the terms of our license, you'll have to agree again to continue using our "services". We serve you. Just like in "the industry", we're being industrious.

We no longer can afford to be alone with our thoughts and creations, and judge their value freely. Yet if that goes for everybody else, with what authority do we outsource judgement? And if it doesn't, with what authority do we let our own ability to judge to rot?

> I am using statistics. Do I need to cite sources for you to believe that this is the safest and most prosperous time in the history of humanity?

No, you need to put forward your own definitions, and you haven't even attempted to make the argument why only countable things should count. That in itself is the poverty of thought I am also referring to. You might say you're making part of my point for me.

You make it sound like cooperatives are a form of an AI running wild.

I'd suggest "The three laws of Robotics" should also apply for them.

Can you seriously look at the state of politics and business and tax evasion in 2017 and really believe most executives, even in Silicon Valley, are susceptible to "moral persuasion"?

If they were, they would already be acting in the way you think they should.

True, but what then can stop this evil entity called Apple and all the rest of them?

Only children and the very slow still believe in "democracy", which is obviously just another name for the rule of those who own the media and/or are rich enough to bribe politicians.

What other recourse is left but the threat of violence to the physical individuals that in reality control the imaginary legal persons called corporations?

Too bad what passes for the "left" these days is busy fawning over Tim Cook's homosexuality while the sick become homeless and the globalists vacuum the earth for profits. It almost makes me long for the days when the left was Marxist and we had the Red Army Faction and the Red Brigades, instead of blue hair lesbians and postmodern identity politics.

>Only children and the very slow still believe in "democracy", which is obviously just another name for the rule of those who own the media and/or are rich enough to bribe politicians.

As a citizen of the USA, this is quite a scary thing to read. We may not have attained perfection (or even satisfaction), but it is a process. Each iteration has ultimately improved the world and the underlying principles are sound. It's all about optimization priorities, and I'd prefer to optimize for liberty, not authority.

Government has a monopoly on sanctioned violence, and the only reason it is justified is because of democracy. "We the people," are the first words in the US Constitution.

If you want to give up on democracy, move to a dictatorship. The earth does not have to have the same forms of government in every country/state.

edit: Tell me what you are for, instead of what you are against?

IANAL but it is my understanding that if those tax reduction schemes are legal many companies are legally bound by their stock holders to exploit them, or else be found negligent in their duties.

>... if those tax reduction schemes are legal many companies are legally bound by their stock holders to exploit them, or else be found negligent in their duties.

That's not the case. There is no way a company's management could be sued for "gross negligence in tax planning".

If shareholders are unhappy about this issue, their recourse is the same one that's always available to them: elect a new Board of Directors and hire new management that will follow the board's guidance on tax evasion schemes.

I admit to be completely out of my depth, but my understanding is that it is a fiduciary duty of the directors to act in the best interest of the shareholders. Tax planning is a huge part of profit and thus shareholder value, so wouldn't such "gross negligence" represent a breach of fiduciary duty?

Suing directors for negligence is not easy at all. It's hard to imagine a shareholder lawsuit that basically says: "As a director you didn't guide management to move operations to Jersey, so we want you to pay us $100 million"... It's even harder to imagine a US court being friendly to such a case.

The greatest example of board negligence in this industry (that I can think of) in recent years would be when Hewlett-Packard's board hired Léo Apotheker as CEO in 2010. The board members had never met the man and his career had been on a different continent, yet they didn't even interview him in person before giving him the job!

Apotheker spent $10.2 billion to buy a British company named Autonomy. Soon after he was fired. Only a year later, HP was forced to write down $8.8 billion of Autonomy's purchase price.

That enormous loss was directly the fault of HP's board for hiring such a terrible CEO and letting him do the terrible deal. But shareholders didn't have any recourse; the best they could do is vote on a new board.

Thank you for the insight. It is one thing what holds in theory, and quite another what happens in reality, as you point out.

It is actually quite common.

Here is a list of hundreds of such open lawsuits:


Yes, shareholder lawsuits are common. But it's the company that pays, not directors.

HP actually paid $100 million in such a lawsuit for the Apotheker/Autonomy flop:


The 2010 Board of Directors who created and permitted the $8.8 billion loss paid nothing. They kept their compensation, and most stayed on the board.

In Seinfeld v. Slager (2012) the Delaware Chancery Court rejected the notion that the directors have a fiduciary duty to minimize taxes.


What if they've done that already though.

What if the reason big companies avoid tax is that the shareholders ensure someone values fiscal results over supporting the country they earned the finance in is in the directors chair.

Yes, that's exactly why American corporations do the things they do.

It's not a legal obligation though. Shareholders could choose to have corporations managed differently. That kind of "pro-tax" activist shareholders don't exist, but it's not inconceivable that large public funds (pensions etc.) could become such.

Perhaps if governments started penalising corporate tax avoidance by confiscating a percentage of a company's shares the shareholders would be incentivised to make sure whoever is running the company will pay taxes fairly.

And how should the government define “tax avoidance”? With tax law? Oh wait, they already do it, and you get pentalized if you break it.

The problem isn’t Apple, the problem is the government can’t get its act together to pass tax reform.

If companies are duty-bound to act unethically (if legally) for the sake of share holder profits then I think that speaks to a flaw in the system driving these decisions.

But they aren't, not even in Delaware. That's a common misconception that greedy folks love to spread.

This is a common misperception, but it is incorrect. There is no fiduciary duty to avoid or minimize tax, and conversely no legal duty to maximize taxes either. It is up to each company to choose how aggressively they pursue these tax-avoiding strategies.

They're only thus bound if increasing stakeholder returns over time is an explicit condition of their contract (which I imagine is the case for executive contracts in many if not most public companies, though I don't know - can anyone confirm?)

But there's nothing in the (US, at least) legal definition of a fiduciary that proscribes increasing share holder profits by any means necessary. That's simply a convenient myth spread to normalize cutthroat, profit-seeking behavior at all levels of business.

This is going to be tough. I think a big advantage of something like a board or a committee is the diffusion of responsibility. I'm not going so far as to say these constructions are immoral, but they definitely make it easier for their members to distance themselves from their decisions.

What management wants is not what shareholders want.

What you’re saying is impossible and the law needs to fix this, not appeal to emotion.

Could shareholders sue if Apple “opted out” of their legal tax avoidance strategy? We are talking about some very material money here, not an executive bonus pool sized chunk of cash, but like national GDP sized money.

Shareholders can sue for any reason. They would not win.

It would be illegal and unethical for Apple to pay more taxes than it owes. That money doesn’t belong to Tim Cook, but to Apple shareholders.

Tim Cook has made statements in the past that they stick to the letter and the spirit of the law.

The least they could do is report these tax loopholes: post them publicly to make it easier for the government to close them. Instead, they are kept a secret. Why do you think that is?

Apple takes advantage of no loopholes. By law profits in international subsidiaries aren't taxed in the US until they are paid to the US company. Apple is simply keeping the already taxed profits overseas in the lowest tax jurisdiction until the US gives them a repatriation discount.

We clearly have different definitions of the word loophole. They are moving profits around "creatively" in order to pay less than the corporate tax rate. Why should the U.S. have to give a repatriation discount when they have already paid a much lower effective tax rate than many other corporations?

There is no "repatriation discount". It's tax deferral just like a 401k or not selling profitable stocks at the end of a year. And Apple pays higher tax rates than most multinational corporations.

Apple can't return their foreign profits into the US or they lose this deferral, so where should they keep those profits until they do? Germany? France? Why on earth would you keep your money in higher tax countries? Why wouldn't you keep it in Ireland or the Channel Islands instead? It's not illegal, it's not even unethical.

It would be the height of stupidity to leave those profits in a high tax country. And the taxes they save are relatively minor overall. It works like this.

Apple earns about two thirds of it's profits in foreign countries. Over the last decade or so that's been around $225 Billion. They've paid about $25B in income taxes on those amounts (we'll ignore the huge amounts of VAT and employee taxes they've paid), so there is about $200B left.

If they brought it all back to the US, they'd owe the state of CA around $20B in taxes, and the Federal government around $63B in taxes. If they paid the $117B remaining as dividends, their shareholders would pay over $20B more in state and federal dividend taxes.

Let's recap. They made $225B, bringing it all back would mean mean various governments would get $128B in taxes, and the owners of the company $97B, a tax rate of over 60%.

So instead they keep the $200B in the lowest tax rate location possible while they wait for a US repatriation holiday with lower tax rates. They might earn 5% on that money, or $10B a year. If they kept it in a high rate european country, they might pay another $2B a year in taxes on the interest, but instead they got a deal from Ireland where they paid less than 1%. So they save $2B a year, but they will eventually pay nearly $100B more in taxes when they repatriate it. That's trivial in the grand scheme.

And that was a screaming deal for Ireland, because they didn't have to pay anyones unemployment benefits, or build any roads, or give Apple any "incentives" to build something. Ireland just let them make huge bank deposits in Irish banks, which turned around and lent the money out again, mostly to Irish companies, which created a massive amount of jobs and more taxes.

Not only is Apple doing nothing wrong, but they are doing a great deal of good too.

You are mixing a lot of things together and it's making it confusing for me.

Dividends, income taxes are a separate matter. If you think the combined tax rate of corporate + dividend + income taxes is too high, then you should say that directly and have the discussion be about that.

This discussion has been about whether Apple is taking advantage of the tax code in order to not have to pay the 35% federal corporate tax rate. They could easily bring things back to Nevada (they do already to some extent is my understanding) and avoid the California corporate tax.

So all that being separated out your argument basically strikes me as: the corporate tax rate is too high so of course Apple is going to take advantage of tax shelters in order to avoid paying it.

I think this story is getting people upset because multinationals should not be free to leverage countries against one another in order to avoid paying corporate taxes. On paper Apple is a multinational corporation but both you and I know that it was American taxpayers who educated most of their employers. It was American taxpayers who provided a safe and prosperous environment for the corporation to flourish. And therefore, morally speaking, if the U.S. wants to tax Apple at a rate of 35%, then it should be able to. Unfortunately the world's tax codes have enough complexities still in them that all multinational corporations can avoid paying these taxes, while smaller corporations such as the one alluded to by the first comment in this thread do not have the capacity to avoid the taxes. This is what strikes me as against the "spirit" of the law. At the very least, multinationals should be more white-hat: sure, find and exploit complexity in the international tax code. But then you should report these things to the federal government. Maybe if there was a bounty :)

Okay, let's start there: pass a law to require companies to report these tax loopholes.

Please explain the difference between "tax loophole" and "tax law."

With a so-called "general anti-avoidance rule" (GAAR) https://www.gov.uk/government/publications/tax-avoidance-gen...

Effectively if your tax arrangements are weird enough they have to be submitted to a judicial-like body to determine whether they are for some sort of legitimate business purpose or purely for the purpose of tax avoidance. An example: https://www.gov.uk/government/uploads/system/uploads/attachm...

"Paragraph C5.6.7 of the Guid ance states “[the GAAR] rejects the proposition that taxpayers have unlimited freedom to use their ingenuity to reduce their tax bills by any lawful means"

"The reward was structured in the following way: a purchase of gold for the Employees was funded by the Company; that gold was immediately sold by the Employees ; the Company’s liability to pay the third party gold supplier was settled by the Employees in return for a director’s loan account credit in favour of the Employees; in connection with the purchase of the gold a long term obligation was created under which the Employees were required in the future to pay to the trustees of the EBT an amount at least equal to the purchase price of the gold (plus indexation)."

Obviously this arrangement is nonsense and is purely for tax avoidance, so the GAAR cuts through the complexity and rules it unacceptable.

How is this different than "we will make [legal thing] illegal if all it does is save you money"?

Nothing Apple does violates GAAR. It pays all the taxes it owes in every country it does business in, then it takes the remaining profits and moves them to a low tax location because repatriating them to the US would cost at least 40% in additional taxes.

Really cool thanks for the pointer! Has GAAR been effective in the UK at preventing tax havens?

Apple were apparently able to consider both Jersey and the Isle of Man (both British Crown Dependencies) for substantially reducing their tax exposure, so it's presumably questionable, but this is the first I've heard of GAAR. The UK Parliament has the ability to create primary legislation on any matter it wishes in these regions, even if by convention it rarely does, and Jersey and the Isle of Man have had arguably justified reputations as tax havens for a long time in the UK.

One only needs to look at the other leaks in this dump to see the attraction of these locations (Formula 1 driver Lewis Hamilton stashing his private jet on the Isle of Man to avoid a substantial VAT bill etc).

Exactly. Tax loopholes are like exploits. If they were all enumerated somewhere nicely then we could just patch them up.

If you're planning on using exploits, you keep try and them secret. Once they are common knowledge they get patched (hopefully).

What Apple does is exactly what the US Tax code wants them to do, nothing secret about it. If it were to repatriate it's foreign earnings every year, it's tax rate would skyrocket from it's current 24.6% to around 50% (leaving less than 30% for shareholders after dividend taxes).

"Nothing secret about it" This is false. From the NYTimes article https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey.... “For those of you who are not aware Apple are extremely sensitive concerning publicity,” wrote Cameron Adderley, global head of Appleby’s corporate department, in a March 20, 2014 email to other senior partners. “They also expect the work that is being done for them only to be discussed amongst personnel who need to know.”

Every accounting firm does all it's work under NDA. Apples public financials document everything you want to know.

1) They make huge foreign profits and pay substantial income taxes to those foreign countries. 2) They don't repatriate the remaining profits so they don't have to immediately pay the massive US taxes they'd owe if they did so. 3) They record a tax liability for the repatriation taxes they'll owe when they bring the money back. 4) They document they keep the money offshore in the lowest possible tax rate location, as is their legal right, so that they minimize the tax on the interest their funds earn, which is relatively trivial by comparison.

The Paradise Papers doesn't tell you anything other than the specific location. The only thing that would be unethical or immoral would be if they kept the money in London, Paris, or Bonn, because they'd be paying higher taxes on the interest (not the profits) for no reason at all. And since it's not their money, and belongs to shareholders, that would be very wrong.

I've been under various NDAs, and I don't hear anything about keeping things "need to know" within my own organization. This is clearly much more secretive.

Please point to a reference to the isle of jersey in Apple's public financials document. I want to know about evading corporate tax by rerouting profits to tax havens.

1) Most non multinational corporations produce both corporate and income tax revenues. Why shouldn't Apple? 2) Ditto 3) This is like apple writing "IOU" on a piece of paper. That money could be getting used to fund schools, to rebuild infrastructure and it has a time value. All of which Apple is capturing.

You seem to think that money which should be getting taxed by the corporate tax rate somehow "belongs" to the shareholders in some ethical (not legal) sense, and I think this is the root of our disagreement. Ethically, Apple is an American corporation and it was American taxpayers who allowed the company to flourish. Perhaps also some European countries played a role here. Therefore if they want to impose a corporate tax they should be able to, separate from the income and dividends tax.

The whole problem with all of this is that it's very hard (and maybe even intractable?) to define in advance what a "tax loophole" is. If it was easy to define then we could just write it out of the tax code.

I think the only way is for companies to make strong commitments to doing so, so in the case of future leaks like this or further investigative journalism, we would all have something to point to.

Why would it be either of those things?

A company is not just a group of people. At least, any publicly-traded company has a legal obligation to it's shareholders. The job of the Board of Directors is to ensure that the company is performing as optimally as possible to earn as much as possible for the shareholders. Morals aren't a part of the equation, it's all exploiting the confines of the law.

This is oft-stated, but not really true in a practical sense. If in 2018 parking lots are more profitable than manufacturing, will you see Apple go into the parking lot business?

There's a huge amount of wiggle room and discretion possible even within the obligations to share-holders.

While I understand your point, that is a massive overstatement. Apple doesn't go into the parking lot business because it isn't in their corporate charter[0], which outlines the companies' objectives, structure, and operations. If Apple decided they could benefit by building parking lots then they very well might as long as they could justify the expense.

[0] https://www.investopedia.com/terms/c/corporatecharter.asp

> They aren't, for the most part, doing anything illegal though.

OK, but that doesn't really matter. Legality and morality diverge further the higher up you go in scale.

There was a thread on here a month ago about how, at the size of the Moon, solids don't behave like solids anymore. They behave more like fluids. The Moon wouldn't shatter into bits if you "broke" it, it would just stick together. It is a good analogy for law: the bigger you go, the more malleable and "un-law like" it is. It becomes a fluid.

Multinationals can bend law. They can influence it. Law bends around their gravitational pull.

(edit: I think you meant your comment slightly differently to what I interpreted, I'll leave it up.)

I think they are often engaged in illegal activities but it is difficult to prove it. A company and its subsidiaries are different entities and when you do an IP transfer between them where a huge set of patent and trademark is exchanged for 1 euros and then used back for millions, one of the company has been wronged. Try to do the same shenanigan with a LTD and yourself and you will very fast see what the IRS (or equivalent) think of it.

A company is just a legal construction but we let people transgress the legal constrains that should rule its behavior.

Maybe the problem is in trying at all to tax something you can't pin down, like this IP transfer between (say) Apple Germany and Apple US. I mean what should its value be? Clearly Apple Germany is nothing at all like an independent company importing phones from China to sell. Much of what they sell is the software, the image, the brand... these things don't have open-market prices. So who gets to decide what their price is? Apple's accountant? Some bureaucrat?

The much simpler solution is not to bother taxing these things you can't see. Why don't we set the corporate profit tax to zero, and then this whole argument goes away.

Tax is collected every time they sell a computer in Germany. Tax is collected every time they employ someone. Tax is collected every time someone sells shares and profits. These seem like good things to tax, as they involve actual people and take place unambiguously in particular countries. If you'd like to collect more tax, then by all means adjust the rates.

Here's a solution: if you sell your IP to someone else, that other person has to be independent.

This is done a lot in anti-trust settlements. You can sell your IP to Apple Germany, but then Apple Germany is independent and could go sell that/licence that however they see fit. Including selling to competitors of Apple US.

If you're transferring IP but the receiving organisation is basically under your control.... are you really transferring anything?

This would mean that immaterial things won't have a worth in the book keeping way and can't be billed. In simple terms what happens is that Apple Europe, Inc. has to pay a lot for the license to use the Apple logo and trademark to Apple Paradise, Inc. Thus Apple Europe, Inc. doesn't have profits, while Apple Paradise, Inc. has all the profits. Now the value of the logo and trademark are artificial ...

What's needed are international agreements how to handle those licenses, that you can't simply push them to tax heavens, but tax has to be paid where they are created or used or whatever.

But this is exactly what happens now. And this is what the letter is upset about. He thinks Apple Europe Gmbh. made profit, and Apple's accountants say Apple Paradise Inc. made the profit, and we all think Apple Cupertino made the profit. And I don't see a good way to settle the argument, thus I suggest not having it.

"tax has to be paid where they are created or used"

Yes exactly. When they sell a cool computer for E2000, they have used their brand to sell it, and there tax is collected. The sale took place in an apple store in Berlin. Angela can adjust the tax rate to anything she pleases.

And to create that brand, they had to pay some guy $200K to write jingles, and this transaction is also taxed. This guy works in a spaceship which has landed in San Francisco. Donald can adjust this rate to anything he pleases.

Neither of these ends can easily move to a tax haven. Everything in between happens in the financial equivalent of the cloud. It seems to me a fool's errand to argue about which bits of that cloud were in whose territory.

Anyway I will shut up now!

> Apple's accountants say Apple Paradise Inc. made the profit

... because they offset all local profits to expenses incurred in licensing the brand.

> When they sell a cool computer for E2000, they have used their brand to sell it, and there tax is collected.

But tax is supposed to be collected there and it's not, because Apple accountants immediately declare all profits as debits towards AParadise, so there is $0 profit. That $2000 laptop is now sold at cost, so there is nothing to tax - unless you start taxing expenses, and good luck with that (you'll kill half the economy overnight). All profit goes to AParadise, and the European economy is now at net negative: it pays for the roads that Apple trucks use to deliver their China-made wares, it pays for the social security that frees disposable income for Euro citizens to buy laptops, and in exchange it gets a big fat $0.

The solution is to do away with the "IP licensing" regime altogether, or tax it at absurd rates to discourage these moves. Otherwise you might as well give up and turn into Somalia.

Of the E2000 the customer paid, about E400 is tax right away. That's far from nothing.

You could argue it should be higher, or lower. It's frequently adjusted.

My point is that this transaction is what certainly happened in Germany. Taxing this is very clear, transparent, and fair.

Whether or not the global empire turned a profit that quarter (maybe you bought a Samsung!), and which bits of the global empire were losing money or making money... and which bits are independent or not really independent... these are much harder to pin down, perhaps impossible. And attempting to do so (as we do now) encourages all sorts of strange behaviour, which requires lots of fancy lawyers, and can't be copied by smaller competitors. I don't know why we do this.

I'm very much not arguing for zero taxes, I do not want to live in Somalia.

I'm arguing for a tax system which doesn't reward stupid tricks --- the financial equivalent of moving your email server 100m across some border. Instead of ever stricter rules about where your server is located, we just have to get used to the idea that the cloud exists, and if the cloud is in Somalia or on the moon who cares? It's where the human beings are that matters.

That 400 is a consumption tax that consumers pay, not the company. The company pays a fraction of that, depending on what in their expenses was also carrying VAT. So you just maximize your vat expenses and voilà, no real tax for the company.

> I don't know why we do this.

We do this because we know that global companies are sociopathic, and left to their own devices would never contribute to the societies they benefit from. So we try to drag them kicking and screaming back into human decency; and they try to escape in more and more creative ways. It's like asking why we pursue burglars.

> I'm very much not arguing for zero taxes

But you are; you are arguing for zero taxes for international companies, leaving only individuals and geo-restricted entities to deal with the task of paying for the cost of living in a civilized society. That's increasingly what happens in practice already, and it's a huge part of the problem. The best case in point is VAT, a regressive tax that is paid almost entirely by consumers - the same people who are also paying income tax, which is still the primary source of funds for any government. So individuals get hammered twice, while wealthy corporations stash away piles of money. That isn't right.

> tax that consumers pay

No, you should think of the tax man standing between the customer and the seller. Whether he takes the bank notes from the customer's hand just before, or from the seller's hand just afterwards, really doesn't matter.

The legal incidence of the tax is that the shop writes a check to the taxman, but this is not very interesting. The economic incidence is fuzzier and more interesting, and depends on the elasticities -- if the tax were made 500 euros, would the customer fork out more or would Apple collect less? This obviously depends on lots of things. It seems bizarre to me that when we discuss VAT as a consumption tax we follow neither of these things, and instead assign it to the purchaser -- but this is just some convention.

(I'm imagining sales tax not VAT for simplicity. Or that the company made the goods entirely from scratch. I think VAT will be collected on the wholesale price when the computer crosses the border from China, and then on the retail mark-up when it's sold... but no change to the moral of the story.)

By "sociopathic" you mean amoral. Like plants in your garden. The weeds will take over if you let them. Personifying them doesn't help with understanding this. But whether you pay the gardener by handing him the cash, or by pinning it to the thorn bush for him to collect, really really doesn't matter.

> No, you should think of the tax man standing between the customer and the seller.

The issue is that VAT, in practice, ends up being a game where the purchaser hands money to the company, they hand part of it to the taxman, then immediately get most of it back anyway (by maximizing their tax claim). That's why it's assigned to the purchaser: in the end, it's the only subject that is actually out of pocket for the full amount, the company having reclaimed most of it back from the taxman. This is why governments love VAT: because it's a tax on people, not on companies. I understand why somebody arguing for flat or nonexistent taxes might like it, but it certainly is not part of the solution from the perspective of making businesses pay their fair share - the opposite, in fact. In that sense, it's pointless to use it to model anything beyond price pressure on consumers; and that is not what the problem is about.

> Or that the company made the goods entirely from scratch.

That's one of the problems of economic theory (or rather Econ 101, as we discussed earlier): everything is so simplified that it ends up bearing to resemblance with reality. Nobody makes anything from scratch anymore, and the mess that is IP law (or other rules around "services") makes it so that a company can basically decide how much of this or that tax they actually want to pay by moving entities around the world and making up enough input vat to offset most of their output vat. And of course, they want to pay barely enough to avoid jail, so in the end, the high-tax societies from which they extract most profit are actually the ones that end up out of pocket.

> The weeds will take over if you let them.

Weeds is a good parallel except it isn't, since I cannot extract money for the gardener from weeds - whereas I absolutely can extract money from companies to shore up the impact they have on the societies they benefit from. That's the problem.

I admire the patience with which you've responded in succession to two different commenters that didn't bother to read your comment, to which they were replying.

Yes, those countries with low corporation tax are so much like Somalia ... I think you lost the argument at that point. If Germany stops trying to tax companies that aren't German it won't turn into anarchy.

You don't even need an international agreement - each country should just tax the shit out of any outgoing capital movement if based on any sort of licensing.

This would likely have the positive side-effect of protecting smaller national brands from foreign competition, but might make the country less appealing to foreign investors, so it can't be done willy-nilly - but it's the only way. This is not unlike what China does - money goes in but it's not allowed to go out.

This is just downright false. There is an entire field inside the tax world called transfer pricing. You cannot just transfer significant IP to a foreign entity for $1 and expect that you will only need to pay tax on that $1. The IRS will come up with its own determination of what the value of the transferred asset is if it disagrees with your valuation and assess taxes based upon that. Now companies and the IRS frequently disagree on what the value should be and do end up in court. Law firms have teams of in-house economists to build defensible models of what the value of the transferred asset should be. Additionally the OECD has issued significant guidance on the topic.

If we had a way to have a realistic transfer pricing we wouldn't have the result that we have now where systematically groups make the biggest profits in countries with low taxation. If we look Apple group, their most productive employee are all based in small island nations. So on an Iphone, conceived in the US, made in china, sold in EU the biggest share of the profits is made in Bermuda or tax heaven?

I don't see what is not realistic about it. We are talking about things which are incredibly difficult to value because there is no market for them to set a competitive price. In your Apple example the most productive employees are all in the US not island nations. If the money is being held by on overseas subsidiary then Apple can't use the money as it otherwise would if it could freely cross borders.

There was an article exlaining how they get that money back in U.S. tax-free. Something along the lines of geting a loan from the bank against deposit by their pardise subsidiary. Also, the money owned by the subsidiary is allegedly in NY bansk, not some small paradise banks.

Where money is domiciled is orthogonal to what currency or bank the money is held in.

Similarly, the ability to borrow against assets which are domiciled in a different country is pretty much how international banking works, not a loophole.

The US created this quagmire by choosing (unlike all other modern countries) to tax profits in all territories. Then they combined this with only taxing the profits when they're repatriated.

This legislative own-goal is the root of the problem, it seems to me.

I do not see how that would work. Do you imply loan is getting foreclosed at some point and bank takes collateral from the offshore bank? In that case US subsidiary will pay full-rate income tax on the foreclosed amount..

Unfortunately, I cannot find that article. IIRC, the loan never gets foreclosed. It's like the bank is receiving an interest as a fee for the service of tax-free repatriation. If I had time to analyze this further, I would take top 5 tech companies I compare their long term debts with their off-shore holdings (or estimates if not available).

This is the key point that is so often missed. Getting angry at Apple et al for following their incentives rationally is silly.

I'd love to see journalists doing a better job of explaining the failures of the tax system rather than peddling pointless outrage, but I suppose that they too are following their incentives rationally; outrage gets more clicks.

It's not silly. It's the first step in a long chain of events that hopefully will end up with a better tax code. Giving companies that do this bad PR incentivizes companies towards reporting loopholes instead of exploiting them.

Journalists already do try and explain the failures of the tax system. For example, check out this graphic: http://www.nytimes.com/interactive/2012/04/28/business/Doubl...

The tax code is complicated and boring and people would much rather read articles with outrage directed specifically at companies.

Should I say that you're silly for getting angry at journalists for following their incentives rationally?

I agree that I'm being a little silly, it's what my last line hinted at! I do think outrage is better directed at our legislators than at corporations though, but I don't hold out hope for substantive change either way.

I don't think outrage is better directed at legislators until there is some consensus on what would be changes to the tax code that would help alleviate this problem. I think we're a couple of steps from that and I see no reason why we shouldn't get angry at the large companies until they help us with that step. After all: they are the experts on loopholes and tax evasion!

Being angry at Apple can turn it into a value to behave "nice" If consumers decide to buy products of companies which don't play such tricks then we get the free market way of changing the behavior of those companies (... while it's unlikely to really have impact as along as everybody does it and consumers want cheap products)

>Getting angry at Apple et al for following their incentives rationally is silly.

That logic doesn't work because people do get mad at things they view as wrong even if they are currently legal (or were legal when they happened). In this case, people thing Apple has done wrong regardless of the legality of the action.

Agreed, the only sane solution to this is a massive overhaul of international tax law. Shaming companies just isn't a scalable solution in any way. There's a massive opposition against this both from multinationals and tax haven countries though - this article is a good way to start making it obvious to normal citizens that this issue should be on the ballot.

The tax haven countries should be subjected to overwhelming, crushing sanctions. They deserve to be international pariahs.

What is a "tax haven" country? You realise that the USA has states that act as significant tax havens in some situations, do you? Is Ireland a "tax haven" because it has low corp tax rates? The EU certainly thinks so but the Irish disagree.

It's tough when the "only sane solution" also happens to be a enormous task to even begin talking about. I agree with you, but I also struggling to imagine a time when that overhaul could take place.

I agree, it's a massive undertaking and getting support for something like that is really, really hard. The way I see it, all of that anti-globalism rage that is currently being directed toward foreigners really ought to be directed toward fixing this, since this would actually help (e.g. have more money for a wellfare system to handle unemployment from outsourcing and automation). But unfortunately it's much easier directing rage toward 'weird people with other skin tones and religion' than something abstract like a broken international tax system.

That simply won't work if there's even one country (like the known tax haven islands) that don't abide by it. Unless international tax laws start charging taxes for every penny that crosses a border, things like that will keep happening. There's a huge financial incentive for small countries to become tax havens, they take a relatively tiny amount of money, which for them multiplies their GDP.

But will people travel to this tax haven to buy their computers? Will Apple's employees all move there to write software? Nope.

What we mean by Apple operating in (say) Germany is these things: they make sales there, and they have employees there.

Where the letterhead says they're incorporated... isn't this just an implementation detail? It's like asking where their datacenter is located. It's in the cloud, who cares? It seems to me that making the tax laws care about this is crazy... why do we this?

Why not simply tax the things which cannot move, transactions involving real people who live in particular places?

> Why not simply tax the things which cannot move, transactions involving real people who live in particular places?

that's already happening. Unless you're implying increasing consumption tax (VATS, GST etc), or higher income tax for individuals (payroll tax, capital gains tax etc).

The tax that's "missing" (read: dodged) is corporate income tax - which is a tax on the profits a corporation makes. But if you don't make any profits (read: hide profits using legal schemes), then what _do_ you tax?

To prevent tax-havens, you'd need to impose sanctions against doing business with any entity that is incorporated in said tax haven. But that's a nuclear option, which can cause damage beyond just stopping tax dodge (like harming the citizen of the tax-haven country, since they now cannot import food, for example).

Yes that's exactly what I'm implying.

We tax the money going from a human being into the corporation (VAT etc). And we tax the money coming out (Payroll etc).

The idea that we must tax the company's profits too (if they made any) is what seems strange to me. Because it depends then on defining which bit of a multinational made the profit, and there's no good way to do this. All it seems to do is encourage complicated schemes which the little guys can't afford. And I don't see the advantage over just taxing both ends of the pipe.

I know there are economists who disagree with me, and I don't understand their reasons. But all I'm seeing in the letter (and this thread) is personification, saying "the pipe must pay his share!" but the pipe isn't a person.

apple already pays huge amounts of taxes to germany. It just doesn’t pay large amounts of a specific tax called “income tax” because it isn’t based in Germany.

But "income tax" is a misleading name for this. It's a tax on corporate profits.

The letter wants you to compare this rate to _your_ rate of income tax and be shocked. But this is stupid, the corporation is not a human being.

For those profits to be enjoyed by anyone, they have to be paid out again as salary, or dividend, or recovered by selling shares... and these transactions are all taxed. And, of course, all of this money which is now profit was taxed when whoever bought the computer was charged VAT.

(Who signs the check to the tax man on each of these transactions is irrelevant, but another common way to mislead people for outrage. The tax man stands between you and Apple and demands VAT... and between Apple and their employee and demands income tax... how this is collected is, again, an implementation detail.)

Eliminating corporate income taxes would be the best way to start, given it would benefit society immensely.

How would it benefit society? Reduced state income that could be used to invest in infrastructure and people? Will the companies invest that money with society's interest at best better than the govt would? I don't think so. What do Apple do with their money? They horde it, waiting for a windfall to bring it back to the States and pay low/no corporate tax on the repatriated profits.

You tax things you want less of, not more if. Taxing corporate profits is a tax on investment. Apples actual income tax rate is in excess of 60% if they repatriate.

First, they have to pay corporate income taxes in all their foreign countries. Then, they owe 9% to state of California on what’s left. Then they owe 35% to the US treasury on what’s left. Then they pay the remainder as dividends, and shareholders owe up to 10% to their stars, and then 15-20% to the federal government.

We could likely generate as much or more in tax revenues by eliminating the corporate income tax and treating individual dividend payments as regular income (taxed at 28-38% normally).

This way reinvested profits aren’t taxed, leading to more investment, which leads to more profits and more dividends. And the return on investing for individuals increases, leading to more investment. More investment means more jobs, higher productivity and higher pay.

And hundreds of thousands of corporate tax accountants can now actually be switched to work that benefits society.

Taxes are not a punitive fee. Apple is paying for the public infrastructure and services used in the US. Military, police, fire protection. Health services. Roads. Foreign diplomacy. Legislative access. Executive function. Judicial expertise. All of which they reap a disproportionate reward from.

You could just as well argue that anything Apple sells should be free on account of them wanting more sales, not less. And the goal of government is not to maximize corporate income. For that matter, companies don't really have a right to make more money, only to participate in a fair economy.

This is not accurate. Currently they are paying between 1 and 7% on income, as the Paradise Papers document. If they re-patriated every bit of income to the U.S., they would owe an additional 35%. That brings the tax rate to 36-42% (actually slightly less since the 35% would be on the 99-93% remaining), and that's that.

What they then choose to do with the money after that, and what taxes individuals pay on their own investments, are not part of Apple's tax rate.

Also, good luck getting dividends taxed as normal income rather than capital gains!

Nope, Apple pays a world-wide rate of 24.6%.


And the real rate is actually higher because it doesn't count the deferred taxes they owe and will pay when they repatriate.

The statement from Apple includes "Apple’s effective tax rate on foreign earnings is 21 percent" but that is not the rate they've actually paid. They state elsewhere that they believe the majority of taxes should be paid in the U.S., but they're not actually paying them here, either. Instead they're holding the income off-shore to avoid paying the taxes where they say they should be paid, and waiting for the rate to be lowered or even eliminated in a one-time holiday.

IOW, that 24.6% absolutely does include the money they say they expect to owe when they eventually repatriate those earnings.

In the meantime, they earn returns on the money they've set aside that they "owe" for taxes they aren't actually paying, so deferring the payments is very profitable for them. They've even taken out large loans in the U.S. to pay dividends, because it was cheaper for them to borrow money and pay it back with interest than repatriate this money.

It's fair to say I love Apple, and I've been described as too ardent a defender of their, but they're being ridiculously disingenuous here, and it's clearly working, as you took that sentence from their statement at face value.

I don't know if everything you say is accurate, but grant for a moment that it is. I still don't understand what you think is disingenuous.

There is no law that requires US corporations to repatriate their profits; not choosing to do so means they're deferring a tax liability. What's disingenuous about that?

"What they then choose to do with the money after that, and what taxes individuals pay on their own investments, are not part of Apple's tax rate."

It's not part of Apple's rate, it's part of the rate at which the entire investment is taxed. The US taxes profits on corporate investments in the range of 35-70%, do you really think that's realistic? A business owner has a large number of countries they can just re-incorporate in to be able to keep 3/4s of their profits instead of less than half.

But you know that even if you eliminated corporate tax, companies would not pay out profits as dividends, if there was a loophole around it. And there are loads, of course. Share buybacks, for example.

Yes, you'd have to also tax capital gains at ordinary rates to capture this. I think capital gains should only have inflation adjustments to their basis, they don't need their own special rates.

From the perspective of an investor, there's really not all that much difference between a buyback and dividends.

It would benefit society because we could all spend our outrage on things more productive than pushing on a rope.

The profits were taxed as VAT or something on the way into Apple. They will be taxed again as income tax or something on their way out again. We are free to adjust these rates as we wish.

But trying to tax intermediate steps which seem to be largely accounting fictions (like exactly which puzzle piece of the global empire actually made that profit) seems like a fool's errand.

But overhaul can't happen like "now". It need some initial impulse, an outrage bigger than average etc. Apple case may help this.

That's a good point. I'm not dismissing the PR and awareness value of raging about Apple.

Just hoping that the fix isn't perceived as "going after apple". Going after existing law, tax havens, etc, is more productive.

You mean unproductive and counterproductive.

"They aren't, for the most part, doing anything illegal though. They are using the existing laws to their best advantage."

They and their cronies write the laws.

Where governments aren't amazingly corrupt and can just bribed outright, corporations spend millions of dollars on lobbyists to get favorable legislation, and corporate exec and government official positions are revolving doors where the one goes to work for the other all the time and the one serves the interests of the other.

When government officials retire they regularly get cushy, high paying jobs at the very companies they favored while in office. They also regularly invest in the very companies their laws and policies favor.

Not to mention that high government positions and corporate executive positions are both staffed by the wealthy who look after the interests of the wealthy: to stay wealthy and become even wealthier.

As Alan Moore observed recently, "while in the West after many years of arduous struggle we are now allowed to elect women, non-white people and even, surely at least in theory, people of openly alternative sexualities, I am relatively certain that we will never be allowed to elect a man or woman of any race or persuasion who is poor."[1]

[1] - https://slovobooks.wordpress.com/2014/01/09/last-alan-moore-...

Furthermore, the nature of competition means "moral" companies, moral defined loosely here as those who pay more taxes than legally required, are at a disadvantage to "immoral" companies who pay the legal minimum. It's a prisoner's dilemma for executives that really do want to do right by their communities.

The solution is to fix the tax code problem. If the moral "rules" don't apply to _everyone_ then they are worthless.

it’s immoral for corporations to pay extra taxes. Those profits aren’t theirs, they belong to shareholders.

There are large companies which do take a moral stance on this and pay taxes as normal, so it is certainly a valid strategy. An example is bet365 in the UK who (according to the little knowledge I have, I used to work there) don't engage in tax avoidance schemes. The irony is that a gambling company takes a moral stance on tax whereas these big Silicon Valley companies who try to portray a liberal image are the most aggressive tax dodgers.

Corporations aren't people (dumb legal decisions to the contrary). "Shaming" doesn't really work for corporations. The solution would have to be tighter tax codes.

But our congress is highly dependent on campaign contributions, and corporations (and the individuals they make rich) can contribute. The result is that the tax code tends to be skewed in various ways.

If we don't solve campaign financing, other problems are probably hopeless.

> Edit: If you disagree, are you saying that shaming them into not doing this solely on some moral compass is the right fix? Does that scale?

Legislation doesn't do anything if actors don't see a moral responsibility to abide by it. Case in point: There are laws against murder but murder still happens.

Does that mean we need better laws in regards to murder? Imho it rather means that some parts of society still have a "moral debt" in recognizing the value of human life.

Same pretty much applies to paying taxes. For some people it's something they do out of a sense of responsibility to the society they live in, to others it's an unfair burden they need to evade at all costs.

And because the latter behavior isn't even that criminalized, there are large sectors of society where nobody feels a moral responsibility to pay taxes. Heck in many of these circles people actually boast about how much taxes they evaded/how much money they got out of the government. In that regard, there might be quite a cultural angle to this whole issue.

That analogy is hard for me to follow. Again, for the most part, no laws are being broken.

One that's probably more relatable is itemized deductions for US taxpayers. I can deduct the property taxes and mortgage interest for my house from my Federal income tax. Do people take advantage of that and deduct the costs for ridiculous mansions? Sure. Shaming them for it is silly. If that exemption isn't fair, then put a cap on it.

> That analogy is hard for me to follow. Again, for the most part, no laws are being broken.

The analogy was more to demonstrate that harsher regulation ain't always the only solution. And with something as abstract as "taxation" I think it's usually a rather bad approach because new regulations will only result in new loopholes being created, it's an endless cat&mouse game wasting a lot of resources for everybody involved.

That's why I mentioned that "moral debt". Across the whole world there exists lots of behavior that's technically not "illegal", but still frowned upon by large parts of societies, tax evasion rates among them.

Imho if you want people to follow the "rules of society", and not use every chance they get to circumvent financial legislation (which is what a lot of tax evasion effectively boils down to), then you first need to convince them that paying taxes isn't just a burden to them but also of use to them.

> I can deduct the property taxes and mortgage interest for my house from my Federal income tax.

If that's an easy and obvious process, open and evident to everybody who'd it be relevant to, then that's a-okay. Sadly that often ain't the case which is in large parts the result of the above-mentioned cat&mouse game.

I realize that my whole point might come across naive in a kinda "if people were just good we wouldn't need laws" way, but that's not at all my intention. I just think there's a real cultural rift here in terms of how seriously some people take their responsibilities towards the society they are living in, historically that's never been something you could fix through "legislation".

Ahh, that helps me understand better. Hard to be completely clear in a global context though.

Nike, for example, has a company in a tax haven that owns the intellectual IP for "the swoosh". It receives payments from other Nike companies for the "right to use".

That loophole has to exist, as any company, in any country, could be an IP holder.

> That loophole has to exist, as any company, in any country, could be an IP holder.

Exactly, that's why it's probably more useful to appeal to conscience then trying to enforce compliance through regulation.

In the case of multinational corporations that might be a lost cause, but these corporations are also just made up of real people, so there's still a very slim chance.

The other alternative would be a straightforward global taxation system, eliminating a lot of the "multinational" loopholes.

But that sounds awfully a lot like a "World Government" and people who don't like paying taxes usually ain't exactly keen on NWO sounding ideas either.

Laws are written by people ( sadly by lawyers paid by these companies in this case ), just change the laws.

And by trying to do this we'll see creatures come out of the woodwork and previously virtue signaling personalities going strangely MIA.

One does not simply change the laws, just like you're indicating. You need a majority vote in a government or international thing to change laws, and those are easily influenced if you have more money than the GDP of many countries.

Actually that makes me wonder when we'll see the first companies starting their own countries.

Corporate income taxes are already too high, it’s better for society if they were zero.

> The fix for this can't be trying to appeal to their morals.

A public corporation doesn't have morals. It isn't a thing that thinks and feels, it's a social construct designed single-mindedly around the creation and accumulation of wealth.

You cannot shame one of these companies. You can enforce the law against them, or you can expose them to such bad PR that they change their ways.

The only "morals" internal to a corporation are their fiduciary duty to shareholders. We either need to fundamentally change the nature of corporations, or accept this and adjust our laws to compensate for immoral agents.

The more laws available - the easier it is to find a loophole or create a scheme for evasion. Look at tons of tax lawyers and firms thriving on difficult and ever growing laws. Full tax rate is only for loosers who can't hire tax evasion lawyers.

The only way froward is to cut regulation - to be understandable and as equally applied as possible.

I don’t necessarily believe it will work to beg them to show fairer behavior.

But then, the issue that many businesses and corporations don’t consider fairness and moral as factor in their decisions and behavior is an urgent one.

I think it’s a big problem that leaders of a company might even be sued by shareholders for taking a morally good decision (as long as the other option is just bad in terms if moral, but still legal) that leads to even a slight loss in financial gain for the company and shareholders.

This goes for such tax avoiding schemes but also for any other decision with effects on society and nature. Being fair and sustainable in society, social and environmental aspects simply is not a goal for any company that way.

Legal and yet unfair.

Shaming worked pushing dolphin safe fishing practices, for example.

Laws just codify society's morals. Sometimes by leading, mostly by lagging behind social norms.

Its not an accident that these loop holes exist. And companies like Deloitte and Pricewaterhouse are happy to consult companies and help them save taxes.

Some of these accounting and financial advisory companies are also large campaign contributers with revolving doors with relevant government departments.

There is an inevitability about it, but many are either on koolaid or demonstrate an intentional naivete.

We can certainly blame companies for using loopholes secretly, rather than doing it openly, pointing out the problem, and working to get the loopholes fixed.

If the company position is that the right fix is to plug the loopholes then by all means be consistent about it.

They don't break a letter of the law (probably), but they break spirit of the law. Laws do not exist like a puzzle challenge to be beaten by clever lawyers with a reward being factual exemption from the law. They are usually intended for everyone.

Most of the criticism (of Nike and Apple, for instance) isn't for breaking even the spirit of the law.

Most often the companies are acting precisely as the law is intended to work, and criticism is based on a misunderstanding of what is turnover and what is profit, and how taxes should be calculated. Very commonly the complaint is that Nike (for instance) pays no corporate income tax to a country even though it sells a lot of goods there. This is a misunderstanding: the vehicle for collecting sales-based taxes is VAT, not corporate income tax. Corporate income tax is paid where the company operates.

A major thing people don't seem to understand is that within EU, it is perfectly OK for a company operating in one EU country to sell goods and services to another country. Free movement of goods and capital.

The very foundation of EU which infuriates people.

I have to disagree here : based in France, I sometimes do business in Belgium and I have to declare and pay VAT to Belgium for sales made there, while deducing the taxes paid locally to Belgium counterparts. That's the spirit of the law. But when you build an artificial business construct whose sole aim is to move earnings from a country to another while creating an artificial debt within an entity in a business group, just not to pay taxes, I don't see how it can be described by anything other than "Breaking the spirit of the law". I do know this is legal, but that only respects the letter of the law, not the spirit of it. The spirit of the free movements of items and people in Europe is made to promote trade and sales, not to promote the movement of money in order to evade taxes (that's actually the spirit of the tax heaven territories).

In my view, the real problem when you do not respect the spirit of the law is that you do not respect the people themselves, even if you're not doing anything illegal. And I fear that some of those people, when they learn of another case like this one in 6 months, one year or two years, could consider using violence. In the past, several terrorist groups had targeted economic or corporate symbols (the Baader group for example), so we shouldn't forget histoire. These affairs will feed those enclined to follow that path again, but against what are now documented possibilities. That is why the states across the world need to act: it is not only about getting countries' money back, it is also to avoid future violence.

It's perfectly OK if that company actually operates in that country. It is not OK if the only presence they have is a mailbox and the actual act of operation is done somewhere else.

A taxation race to the bottom is not what the fundamental principles of the EU are about. At best they are an unwanted side-effect.

No you are missing the point of the EU. No company should be forced to base in a country to sell there. Apple pays huge amounts of taxes in Germany despite not being based there. It just doesn’t pay much “income tax” because it’s not based there.

No, I understand the purpose just fine. It isn't about taxes at all. All EU tax rules were just bolted on to fix the most obvious unfair results of other regulation.

For example, I am customer of a German branch of a French bank. The company is based in Paris and all contracts clearly state that. The actual service is provided from a German office building. That's where almost all employees responsible for the German customers are located and where you sent letters to. That company pays "income" tax according to German rules to the German government for all services provided from that building even though it's based in France. (Surely they do some tax avoidance as well but this doesn't change the point.) Thanks to the EU freedoms they could just open up an office in Germany, employ people there, and provide services.

I am also a customer at a Dutch bank based in Amsterdam and that's where the service is provided from. They don't have a presence in Germany and don't pay German taxes. Thanks to the EU freedoms they can provide services to me across the border.

(For the record: Apple does have legal entities in Germany. For every transaction they just happen to use the most tax-efficient entity of theirs without much consideration of the real-life transaction.)

Apple doesn't build phones or computers or software in germany. It sells stuff built elsewhere. Why isn't Porsche paying US Income taxes on stuff it builds in Germany?

Which would be fine if there were EU regulations about taxation. Now it's just multinationals playing out different EU members against each other to get the best deal, look at Ireland and Luxembourg. I can imagine a EU fiscal policy would be heavily lobbied against by the companies that use these back doors, as it would shift power back to the politicians/people: either you have access to the EU market and pay taxes according to these rules, or you can't sell your product here.

> It is not OK if the only presence they have is a mailbox and the actual act of operation is done somewhere else.

As I said, the very point of EU (free movement of goods and capital) is that it is perfectly OK to have just a mailbox presence (e.g. to handle warranty claims and such, a service which is sold to the actual operating company in another EU country) and have the actual operation done somewhere else.

I take benefit of this all the time; for instance, I buy things from amazon.de which has much lower prices than domestic companies. They just pay VAT, based on sales, to my country, on my country's tax rate, but they don't operate here.

Sorry, I didn't make my point clear enough. Amazon does provide services from Luxembourg which would be fine if that's where they are actually based at. As far as I know they have some lawyers there but that's about their presence (which is what I meant with "mailbox only"). The actual service is peovided somewhere else. Making it possible to exploit that is definitely not the point of EU freedoms. I provided an example that illustrates EU freedoms working how they are supposed to be in a cousin comment.

And yes, Amazon operates in Germany. They have engineering offices, customer service, and warehouses all located in Germany. Every company from Luxembourg should be able to. But taxing income derived from that is still possible under EU rules (and actually done).

The EU corporate tax regime was specifically set up (by Fritz Bolkerstein) to tax companies where they are registered, not where they nebulously "provide services", something you can't define and nor can the EU. That's exactly because the EU was meant to encourage businesses to move around the continent and set up wherever was more convenient for them.

Of course in recent years the EU got cold feet on the whole "four freedoms". Services never really happened. Capital is a joke - France and Germany ban foreign investments all the time and Greece had capital controls within recent memory. It's only migration the EU is really, really keen on, probably because that's the one that suits their political objectives the best.

> Laws do not exist like a puzzle challenge to be beaten by clever lawyers

Uh, this is demonstrably, extraordinarily untrue.

It's obviously comedy but the sentiment remains valid, Bill Burr's response to "That's what the law says"

50 years ago the law said I could beat you with a mtop handle, didn't make it right.

I think this issue is hard to fix without a United Human Government. This is an incentive and coordination problem and global companies take advantage of it.

To really fix you'd have to have all countries coordinate on tax law which makes this a really hard problem to solve in our current world especially when a lot of companies with a lot of money are able to push for legislation that's in their best short-term interest, but not necessarily the best interest of the group.

Outside of that you get what we have currently which is a stable equilibrium of governments trying to write laws to create the incentives they want and companies hiring armies of accountants to avoid paying taxes (as well as pushing for legislation changes that benefit themselves).


> They aren't, for the most part, doing anything illegal though.

There are many cases where legal != moral, an that's the very point of the article.

It's too bad we can't legislate morality. As long as politics is in bed with corporate interests the bigger bank roll wins.

Legality != Morality

And if the laws aren't favorable enough, they can have the laws changed.

The more interesting fact is that if Tim Cook were to pay more taxes, he'd be fired by his shareholders. CEO's of public companies are supposed to increase profitability, not decrease it.

I bet you're one of them.

Small business owner. Less than 7 figures of revenue.

“They are doing it too” is legally a valid excuse. The way legal disputes get settled usually is based on the outcome of precedent legal cases and how they relate to the current case. Your moral outrage (and the outrage caused by paradise papers type reports) is just a failure to see the world for what it is. An ant can complain all day about the size of the mammoth, complain that it’s unfair that it’s got a fur coat or that it’s one step is equivalent to hundreds of ant steps, but this won’t change reality. This is how success works: if you do it for so long and in such a way comparable to Apple, you are able to have more leg room than other ants. My only criticism of Apple is that do portray themselves as very humble engineers that love designing beautiful products. Engineers who have any experience designing software and hardware products have a deep admiration for Apple as an organization, specifically because we know exactly how much work goes into a working product, moreso because Apple’s products, even though they are not perfect, show a high level of resiliency both in the market and in our day to day lives.

Admitting thus that at least some of the people and companies that hide their money in tax havens made their money in a legitimite way (we’ll get into this later), don’t you think they are entitled to try to save as much of it as they can? The author of the piece makes reference to the mostly public educational system which implies Apple has some social reaponsibility to give back to it’s country. How about the high salaries that Apple pays to its engineers? Isn’t this enough to show that they value craftmanship?

Oh well, guess we should stop all attempts at improving society guys. Apple can do it, so they should do it, and we should stop discussing the matter.

Like goddammit man, the moral outrage is not there because people fail to see the world the way it is. It's there precisely _because_ people can see the way it is now and it's fucked up.

And paying it's engineers a high salary is enough of a payback to society? Did that cover the roads they ship their goods on? The international Navy that protects their supply lines from overseas factories? The education system which produced their engineers? All the other inputs they rely on and externalities they offload?

No it didn't, because once you get rich you get your own set of rules. Paying back what you owe is for the proles

There's no failure on my part to see how the world is. Legally speaking, law is to be interpreted. In these cases of tax evasion, it's fairly obvious they're breaking the spirit of the law. Your entitlement argument is bizarre to me. They are entitled to save as much as they can, after they've paid their dues back to the society who helped support a more stable environment. In Canada for example, many health care costs are covered for every citizen - so businesses don't have to necessarily pay as high of wages to workers - they of course are partially paying for these health costs through taxes. Same with public transit and road systems their employees will use. Apple paying high salaries is an apples and oranges argument - likewise, they couldn't "afford" as high of salaries if they were paying proper taxes; of course they still could afford such high salaries because of their profits. Imagine how good Apple would look right now if they were one of the few massive companies who didn't avoid paying fair taxes? Especially since they can afford it.

But that's not how legal systems works. If you're caught running a red light, you can't argue that "many other people are doing it, too". Similarly, if a dozen cars run a red light at the same time, and only you are stopped, the best you can do is argue discrimination; you still broke the law, and you're still culpable, and it's the police's prerogative to catch whomever they can.

That's also not how legal precedent works. Legal precedents in the US are derived from court decisions, not whether something is occurring en masse. I'm not even sure why precedents work, given that there's no "case" here.

Your misplaced cynicism about moral outrage becomes more obvious if you replace tax evasion with something much worse, e.g. child labour or human trafficking, something which is in fact prevalent, though probably not within Apple's sphere. But the moral outrage exists because these papers expose something so blatantly immoral that people are genuinely surprised and dismayed at the sheer scale at which rich companies and people are stockpiling money in secret. We know human trafficking occurs every day, all over the world; if someone uncovers a big network of, say, politicans involved in this trafficking, aren't we right to be outraged? Is it a "failure to see the world for what it is" just because it's accepted that evil things happen? How blasé can one get?

Re "don't you think they are entitled to try to save as much of it as they can?", this confuses morality with legality. As David Mitchell eloquently points out [1], the current systems are effectively a tax on conscience. Taxes are traditionally designed to incentivize good behaviour (e.g. tax breaks on saved pensions, because that benefits both you and society), but the system currently incentivizes bad behaviour among the select few who have the means and lack of scruples to do it, penalizing those who lack the means and are conscientious about their taxes.

[1] https://www.youtube.com/watch?v=xc8epam4NyY

Other people are doing it too is NOT legally a valid excuse for anything.

Source: tax lawyer.

Precedent legal cases is the common law system in the former commonwealth countries and the US. The Napoleanic system is in-place in Germany and much of Europe.

How exactly are they inflicting all that harm, hardship and suffering? In my eyes, they are creating tremendous value every day while following every single law nations impose on them. They would risk everything otherwise.

You're throwing demagogic, populist accusations without a single shred of support. Is emotional discourse an acceptable replacement for the rational one?

And I suppose I could say you present no evidence or support of my being demagogic? These companies are breaking the spirit of the law. You know how it's common in agreements/contracts that it states both parties are acting in good faith? That's the same idea..

Maybe this video from the HMRC.gov.uk helps you to understand why evading tax is bad and it is better for all to pay the full tax ;)


Apple pays the full tax. It pays huge amounts of taxes in Germany.

... apple clearly evades tax in all markets in europe


Apple needs to keep it's international after tax profits out of the US or it will be forced to pay another 40%+ in taxes on them. So it puts them in Ireland, because Ireland gave it a great tax rate, less than 1%.

What should the tax rate be on the interest from billions in savings? Apple isn't' forcing Ireland to build roads or spend any government moneys to allow it to make Irish bank deposits. it's a completely legal arrangement for both Ireland and Apple.

It's crap like this that forced the UK out of the EU. Nothing the EU does is going to force Apple to move it's savings to Germany or France so they can impose high taxes on their interest. That cash will go to Asia first.

The only purpose of Aggressive tax planning is the reduction of tax liabilities. To make a long story short - it is about exploiting and overstrain one system or more systems by outplaying one against the other.


How agressive tax planning works:



Apples tax planning is no more “aggressive” than a person not taking money out of a retirement account. The US allows taxes to be deferred (not avoided, deferred) on foreign earnings until they are brought back in the US. That’s all Apple is doing, parking their after tax foreign profits in the cheapest location possible until the US fixes its awful tax code.

Sorry, but we are talking about evading tax in europe and that apple and many other big corps are doing this with aggressive tax planning is an undeniable and occupied fact.

No offense, but you just try to "wash out" the discussion in the "whole tread" with the same generalized arguments over and over again - by simply deny the fact.

Talking any further make no sense.

Explain then how they are "evading" tax? Every explanation attempted ends up back at "well what they are doing is legal, but they should voluntarily pay more". Just like the linked editorial.

Apple actually has a large reserve for taxes it owes when it repatriates it's foreign profits. It's choosing to legally defer that tax by waiting, just like a private citizen defers taxes by not selling profitable stocks before the end of the year, or by keeping money in their 401K instead of withdrawing it.

Deferral isn't evasion. It's an important legal part of the tax system to incentivize savings.

That article is clearly wrong. Apple isn't headquartered in Germany, it's not building phones or computers or software in Germany. It only owes Germany minimal income taxes, while it pays huge amounts of VAT, and employment taxes for store employees.

It's like saying Porsche should pay US income taxes on cars it builds in Germany because it sells them in the US. Porsche pays sales taxes, import duties, etc, etc, everything it requires. It's profits on it's U.S. marketing and distribution operations are minimal, so it should pay minimal US corporate income tax.

Just a nitpick but they are not "evading" taxes, which would be illegal.

The correct term would be "tax avoidance", which is legal (albeit ethically questionable).

So... Basically Apple is increasing the suffering by creating all those laptops and iphones? That is very difficult for me to grasp. Apple creates computers and phones which make peoples lives a lot better, and people are willing to pay for those. Why is the suffering increasing? I guess world would be a better place if apple would pay more taxes, but I'm pretty sure that world would be worse place without Apple, whether it pays taxes or not.

Apple cannot exist outside of the "ecosystem" of infrastructure and institutions maintained by the State, i.e. ordinary taxpayers. Good luck getting your iPhone without roads, or keeping it without a police force. Tax evading companies like Apple and Google justify it by claiming that they create value in a vacuum, so should keep all of it.

Or, maybe more directly to the point in this case, a communications regulator to control radio spectrum usage, in order to ensure that slices of spectrum are carved out for specific uses, and protected from excessive interference resulting from other uses.

Y'know, the regulation that makes the ubiquitous and reliable microwave, cellular, Wi-Fi, and Bluetooth communications that these companies' products rely on to be useful possible in the first place.

Police and roads aren't services provided to Apple. They're services provided to you. I've never once seen a corporation travelling down a road - has anyone else?

The only government services corporations specifically use re legal services like courts and patent offices. Those have fees attached and in the USA the PTO is actually a profit center, so tax is irrelevant.

There's no moral argument for taxing artificial social constructs like corporations.

Tee hee, do iPhones teleport all the way from China into your hand then?

They fly here. On privately built and owned planes.

They are then moved a short distance by trucks that pay for their own road costs via fuel taxes and tolls. Finally, I drive to the shop, paying my own taxes along the way to pick one up.

At no point is corporation tax paying any part in the transport of goods like iPhones.

They are shipped here over sea lanes made safe by the trillions the US and other countries pay to make them safe; to fly in airspace made safe and regulated by those same countries; to be shipped to individual stores over roads built and maintained by taxpayer dollars that allow such wide open shipping lanes; allowed to move from truck to store and stay in said store before the point of sale to me and other buyers safely by a police force also paid for by taxpayers.

Think about it this way, if I had an objectively better phone than the iPhone I would go out of business because Apple keeps more of their money in dishonest tax schemes. They hurt innovation. And that money is supposed to go to governments to use, which it doesn't, hampering the ability for others to thrive. Now there's is less competition

> I had an objectively better phone than the iPhone I would go out of business because Apple keeps more of their money in dishonest tax schemes.

why would that happen? unless apple uses their tax dodged profits to directly prevent you from operating, which would be illegal to do in the first place.

It wouldn't have to be direct to have an effect. If their reduced taxes causes education to be underfunded, I cannot hire enough talented engineers, for example.

Apple is the biggest taxpayer in the world. It pays every bit of tax it owes. It should be taxed less, not more. Corporate income taxes are corrosive to maintaining our society.

I'm not going to argue whether or not it pays all the taxes it owes. I'm pointing out that if they have access to offshore accounts that most businesses can't, they gain an unfair advantage over those other businesses. If you want to remove corporate income taxes, it should happen at the same time, not selectively to larger corporations.

They don't "have access to offshore accounts that most businesses don't". They naturally earn most of their profits internationally, and pay taxes to the countries they earn those profits in. If they return those international profits to the US, they'll lose another 40%+ to taxes (closer to 60% if you count individual dividend taxes).

So they keep the remaining profits in the lowest tax country/location they can find while it earns interest. They owe Germany nothing more.

Wow, "Let them eat cake" is the first thing that sprang into my mind upon reading your comment. Yes, having good phones and laptops surely is something great.

But we're talking here about a vast and growing gap between the rich and the poor, and if you're slaving away in your shit-town on your minimum wage job you don't give a damn about how awesome your life is now thanks to the iPhone.

> slaving away in your shit-town on your minimum wage job

but does that have anything to do with coporate tax dodge? Or is that really a failure in education (which may be due to tax dodges in-so-far as the lack of education funding)?

Hmm, Apple should probably stop paying any wages to any factory workers and force them to sleep in the factory and work 18hrs a day. As long as they keep making those nice phones and laptops...

I mean I guess it would be better if they didn't do that, but then again have you seen the next competetors laptop? The world would be a worse place if we had to use that.

I use normal computers and they work just fine. I see some colleagues using Apple computers and it doesn't always work for them. The world would be as normal as it is without apple products please.

Apple isn't increasing suffering by creating laptops. They are increasing suffering by not paying taxes. It is possible to enrich lives of some people, and increase suffering if others at the same time.

They are the biggest taxpayer in the world. By all rights they should pay less taxes, the current tax rate on Apple profits is over 60%.

I think he is talking about the big impact large companies have on climate change (due to products and product parts transportation), for example. Also the fact that a lot of phone's components are made from minerals that fuel conflicts in third world countries. A small company like FairPhone, which tries to combat that, can't evade taxes like Apple do...

By default, big companies always get preferential treatment from governments. Open a mega-factory? They get tax cuts, cheap real estate, free utilities. Why? Those shiny new jobs look great on a politician's resume for the next election...

What does the little business guy get? A letter of "don't forget to pay your taxes in full or else"

It's time to accept the fact that governments are NOT a fair and impartial warden of the economy. Therein lies the problem. Reducing their power of meddling in the economy is the solution.

Those with wealth will always try to capture the system - whether its formal or informal. The natural state of any business is to try and become a monopoly because that maximizes rent taking ability - NOT competition.

Practically the ONLY power able to stop monopolies from forming is the government. In absence of the government's ability to "meddle", businesses can and will cut deals with big competitors and squelch smaller ones through anti competitive practices to dominate

There used to be a lot of natural factors which worked against monopolies.

Every new market you introduced your product in brought along with it a layer of bureaucracy and middle management, which left you more bloated and unwieldy.

This allowed smaller,local companies to have an agility and responsiveness advantage even if they offered the same service at a higher fee.

Computers and the internet have made the process of expanding a lot smoother with instant inventory management, communication etc.

Not sure what government can do to stop this. The more power you give to the government, the more lobbyists and corruption it will result in. And even if they do manage to sign some legislation, there will be workarounds and loopholes.

I am struggling to even think of rules that would efficiently limit the growth of Amazon,Google etc. Cap their market share somehow? Tax companies which have more than x% of market share at an exorbitant rate?

You raise some good points. But I strongly believe in the innovative solutions brought forth by the free markets. It's not called "the invisible hand" for nothing.

I am old enough to remember when whole IT industry used to be in the shadow of Microsoft (and IBM before that). Nobody could see a solution out of it! The government even tried to fix the problem and failed.

Ten years later, Microsoft is becoming a nice player in the industry, not even mentioned when in "largest sharks in IT" lists. The invisible hand of the free market at work...

The "Invisible Hand" was a phrase coined by a Scottish economist who lived in the 1700's, Adam Smith. Do you think he had any concept of US based global computer corporations the size of IBM, MS, or Apple?

Free markets are not the only source of Invisible Hand. There's a growing mountain of actual evidence that regulations also often come with Invisible Hands that are larger than the hands of free markets. Take the environment [1], for example. There's no amount of Invisible Hand that offsets pollution that kills people. The Porter Hypothesis [2] is the name of the invisible hand inside the debate on environmental policy.

[1] https://www.epa.gov/sites/production/files/2017-08/documents...

[2] https://en.m.wikipedia.org/wiki/Porter_hypothesis

So now we're in the shadow of Google/Apple instead of Microsoft. Whoop-de-fricken-doo. The larger problem of corporate feudalism remains unaddressed by the "invisible hand". Lords come and go but in the end we all remain serfs.

In the end we all win.

We win as consumers because of all the tremendous value and products those damn corporations keep creating. Like smaller, faster and cheaper computers and whatnot.

We also win as citizens because those corporations buy stuff, create jobs and pay taxes (as much as asked from them and not more!).

And we can also win as Lords by simply buying some shares and owning those evil corporations...

I really can't understand if you're being ironic or not, but I hope you are because Microsoft has been under fire for a long time for their behaviour and even fined for it in the past.

No "invisible hand" there, more like someone yelling loudly at them.

Do you really believe the fines Microsoft was ordered to pay had any effect on the direction of the company? It was on a level of mosquito bite for them. What really forced them to change in last few years is the changing landscape of the whole IT ecosystem. Their market shares dropping, because there are viable alternatives, new kinds and classes of products, the whole opensource movement etc etc. So yes, the invisible hand of market, rather then some silly fines by government.

the IE monopoly did stifle web development for yonks! If they weren't forced to drop IE from being pre-installed, i'd say web development would've still be lagging behind today.

No irony here. All that yelling and fines had zero result in changing Microsoft's behavior. They just paid up.

You know what worked? Some good, old fashioned competition. And that raised up naturally, through free market.

You're joking right? It didn't happen in a vacuum, the whole of society is not free. First off, in this case, didn't Microsoft help support apple through it's bad years specifically so they could point to them and try to avoid antitrust litigation?

Secondly, these competitors could only exist due to government internvention. What do you do when the government no longer "meddles" and the big guys start sending in Pinkertons?


They had to change some things in the European market, them not doing anything at all is completely bogus.

I'm not delusional enough to think the fines were high impact though.

The problem is that you just traded one large shark for another. Small companies still get quashed just by another behemoth.

The proof that that's not true is that whose second-generation sharks DO appear. Not all small companies get squashed, and some of them grow large enough to grow into sharks themselves, thus breaking the monopoly.

For most small businesses it doesn't really matter whether IBM, Google or Microsoft are dominating the market and when this changes. It's still a huge company lording over the smaller ones. I think we would be much better off if growth beyond a certain size would be disadvantageous for a company and it would become less efficient. But with today's progress in automation and communication you can run a large company world wide in a very efficient manner so it's even harder for small competitors to keep up.

Monopolies are granted by governments. The free market has a natural solution to monopolies, it's called competition - startups.

Big Cos will always lobby governments to add rules and regulation to raise the barrier of entry on their market and thus reduce competition.

They, in fact, buy their monopoly from the government.

Solution? Take away the government's ability to grant monopolies.

In any free market, the giant incumbent will either buy out or copy and squelch startups that threaten them unless restricted by anti trust. Witness how Facebook treats competition in the social space. Or how Oracle treats the database space. Or how Microsoft funded Apple's survival and Intel ensured AMDs.

If there are sufficiently few rules and an lack of power in the government to enforce (Korea, Japan, Italy), giants may use corruption or organised crime to achieve this.

Less powerful governments are rarely a good solution to protect the small man. The right solution is to build checks and balances between the different wings of the government that make it difficult to "capture" all wings.

I think the companies you cited are not very good examples of monopolies or monopolistic behaviors: I've always viewed FaceBook as a fad, just like MySpace that once dominated the social space. Or is there any particular behavior that you find out of ordinary? As for Oracle, while their product has dominated the database (and niche CRM) market, FaceBook, Microsoft use their own or other non-Oracle products. In fact, I have seen more companies using noSQL, Postgresql/MySQL (and its variants) in recent years. Having worked in the wall street tech since late 1990's, I remember how everyone moved from Sybase to Oracle and MS SQL, and now to distributed DBs like Cassandra, etc. Apple faltered because of many bad decisions the company made in the 90's and Apple's revival was Steve Jobs's doing, not Microsoft's funding -- though Gates's decision to support MS Office certainly helped.

Not sure about Italy, but the economies of Korea and Japan were orchestrated by (or in very overt collaboration with) their gov't. In case of Korea, they instituted import-substitute-industry model that prevented foreign competitions (by policies of gov't) so their domestic industry had chance to grow and compete and a few chosen companies were given favorable contracts/loans/grants; likewise in Japan their model was better known as "Japan Inc." to describe their alliance between business and gov't interests. It wasn't an "lack of power" that resulted in the structure that we now see in both countries -- they are the intended products of explicit gov't policies.

This is a reductionist view that ignores economies of scale, real barriers to entry, the actual requirement for regulation for most markets to function, not to mention basic safety.

Or are you campaigning for the abolition of patents as a concept?

I am, in fact, skeptical on the ability of patents to stimulate innovation. I think that in a free market the prospective profits should be enough.

See software, where patents are mostly used to destroy competition.

However in heavily regulated markets, with huge barriers of entry, like pharma, they may be necessary. But again, that's the result of government intervention, so more intervention is the solution.

At the least, I am in favor of gradually reducing patent terms while measuring the effect on the innovation in that market.

Monopolies are granted by governments

Sometimes, sure. But far from exclusively. Monopolies arise naturally in unregulated markets.

The free market has a natural solution to monopolies, it's called competition - startups.

That’s like saying that natural selection is the solution to hereditary diseases. Not so comforting for those suffering now.

You're right there, free markets take while to break monopolies. Time is a price we have to pay.

Because the alternative, govt intervention, in the long term is much more expensive: it corrupts the market and impedes the natural mechanisms from working. Interventions beget interventions.

This leads to heavily regulated markets, where the biggest players buy themselves monopolies. Exactly what we were running away from. :)

Time is a price we have to pay.

By which you mean that time is a price you think we ought to pay. I mean, we do actually have options.

Because the alternative, govt intervention, in the long term is much more expensive: it corrupts the market and impedes the natural mechanisms from working. Interventions beget interventions.

I struggle to come up with any example anywhere, where this is true.

This leads to heavily regulated markets, where the biggest players buy themselves monopolies

I don’t see how that follows from your previous paragraph. But never mind, I get what you are trying to say, and I agree that there are plenty of examples all over the world of regulation that has the effect you describe. Sometimes simply because it’s bad regulation. But other times because it’s a worthwhile trade off. I bet you don’t mind the pharmaceutical industry being regulated. Or how about the aircraft industry. Even taxi medallions serve(d) a purpose.

Do you have any examples of monopolies arise naturally in unregulated market?

I’m hesitant to answer you, because the internet has made me jaded, and I foresee getting into a long discussion about what constitutes an unregulated market and what constitutes a monopoly.

As to how natural monopolies arise, Wikipedia has a good article: https://en.m.wikipedia.org/wiki/Natural_monopoly

Sure, that's what I thought -- because I don't know of any monopoly that didn't benefit from gov't subsidies or explicit protectionist policies.

Sure, that's what I thought

Wow, that sure make me think we can have a fruitful discussion.

because I don't know of any monopoly that didn't benefit from gov't subsidies or explicit protectionist policies.

Two points:

- What you don't know, is a lot. The inclination to believe that since you don't know of it, it must not exist or – to put it differently – that what you know is all there is to know, is called the Dunning-Kruger effect. It's a sign that you actually don't know much at all.

- Just because a monopoly benefits from certain regulations, it doesn't necessarily mean that those benefits was what helped create the monopoly. All companies benefit from regulation at times. They don't all become monopolies.

But you tell me: What in your mind caused At&T to become a monopoly?


First: I'm pretty sure what you meant to say was I employed a logical fallacy called appeal to ignorance to make my case, not the DK effect -- which is more about lack of self-awareness. Having studied econ and math in college, I kinda know what I don't know. I don't go around making boldly, unsubstantiated claims hoping others won't notice it, like your comments have shown.

Second: if you have to cite a Wiki article to demonstrate your knowledge of economic history in general, you probably don't know jack squat about monopolies, much less AT&T's corporate history. There are actually few good borderline cases that could at least help start an intelligent debate on your unsubstantiated claims about monopolies in unregulated space, but you have clearly no idea what they are. And I highly suspect that you are competent enough to have such a debate. AT&T is probably the worst case study to demonstrate (or destroy) your point.

thx for playing, but it's never advisable to wrestle with pigs. we both get dirty, the pigz like it.

wasn't AT&T a regulated monopoly -- at least since 1913? FCC effectively barred competition and AT&T's pricing and policies required approval from gov't. It wasn't until late 50's and 60's when a relentless third party device maker, Thomas Carter, challenged AT&T's (and gov't sanctioned) monopoly that subsequently weakened AT&T's grip on all things communication. The rest is history.

So, in your mind what caused AT&T to become a monopoly for so long?

wasn't AT&T a regulated monopoly -- at least since 1913? FCC effectively barred competition and AT&T's pricing and policies required approval from gov'

I’m pretty sure you’ve got it wrong.

Firstly, AT&T was already a monopoly by 1913. The Kingsbury Commitment[1], which is what I’m guessing you’re referring to, was in essence an agreement between AT&T and the government by which the government would tolerate the monopolistic status of the company in exchange for some minor concessions. While this didn’t hinder AT&T much, it also didn’t help them.

The way AT&T became a monopoly to begin with is quite simple, and basically a textbook example of how a natural monopoly arises: Early and continued investment in a business which has large fixed cost requirements (that is the cost to build out infrastructure), but tiny marginal cost (the cost of serving one more customer). Unchecked, this eventually builds up to an insurmountable barrier of entry for new players. At the same time incumbent players are highly incentivized to merge or acquire each other, because the value of their combined networks is greater than the sum of them.

Without government intervention, AT&T would have stayed a monopoly for as long as its infrastructure remained relevant. Which it still largely is.

[1] https://en.m.wikipedia.org/wiki/Kingsbury_Commitment

AT&T initially had a monopoly, but when their patents expired in early 1890's, they quickly began to lose their dominance to competitors. Between 1890's and 1913, AT&T lost telephone market share by about 40%, from 95% to 55%. After the Kingsbury Commitment and, more importantly, the nationalization of the entire telecommunication industry during WW1, however, their competitors were effectively eliminated.

[1] UNNATURAL MONOPOLY: CRITICAL MOMENTS IN THE DEVELOPMENT OF THE BELL SYSTEM MONOPOLY https://object.cato.org/sites/cato.org/files/serials/files/c...

"The free market has a natural solution to monopolies, it's called competition - startups."

Please provide proof that markets never fail and indeed that the ideal Free Market exists. Take the time, I'll wait...

Sorry, I can't. I am a working man, not a philosopher.

But please look around you. Every great thing around me was created by a free(-ish) market: this PC, my car, my job, the materials in my home, the heating engine, the food I get in the restaurant, the entertainment on my TV, everything.

Then every crappy experience in my existence has something to do with the government: state hospitals, infrastructure, the DMV and other bureaucratic institutions, my and my children's schools.

I tend to judge systems by their results and so far the free market seems to produce much better results.

I don't think anybody can argue for a world without governments, but not to the point at which they stifle the free market. And I am afraid that is the direction we are generally taking.

I find it a bit disturbing that you value entertainment on TV as "great" and "state hospitals" and "schools" as crappy.

In fact, overall, it seems like you value as "great" everything around you that don't implies interacting directly with other humans, and as "crappy" about everything that does.

So if the free market purpose is to value antisocial products while making every social bonds look crappy, well, I'm not so sure I love it.

You're misinterpreting my quick examples. I am talking about the whole product (or my experience of it) rather than about the people involved. The people are often great, including in those schools and hospitals I disliked so much.

My best absolute best experiences are with people and involve no markets nor governments: family, friends and professional peers.

Look at the innovation pace of products delivered by free market vs those by government. If government made computers, they would still be big as room and only the rich could afford them. Meanwhile free market delivered computers into your pocket with power and capabilities that just 10 years ago no one would believe.

Our education system preparing our kids for future is still basically the same as our grand-grand-parents was.

Just imagine where our hospitals and schools could be if not crippled by government..

If not "crippled by government", schools and hospitals would be Darwinian shitshows that absolutely guaranteed rising health and income inequality.

I agree that things like fast computers are nice side effects of allowing capitalism to go to work in some arenas, but, in others, you definitely need government to reduce the pernicious effect of unadulterated profit motive.

It's appealing to think to yourself "hey, I make pretty good money, why shouldn't I be able to use that to buy a higher-than average education for my kid?" This is fine--hire a tutor. But taking your tax dollars to a for-profit selective academy that most don't have the option of using contributes to the degradation of public schools that you helplessly claim to be an unavoidable consequence of their being government-run.

Institutions meant to serve all only work when everyone contributes to them. Private, unregulated healthcare and education, by design, only serves those with money. Since health and education are, in the long run, how we generate personal wealth, this scheme is sure to accelerate the widening of inequality.

private schools and hospitals would be Darwinian shitshows that absolutely guaranteed rising health and income inequality

Reality disagrees. Pretty much everywhere where private schools and hospitals are allowed at least to some degree, they provide better value and results for everyone, including the very poor: https://www.economist.com/news/briefing/21660063-where-gover...

Hospitals the same. In my country (eastern Europe) the difference between state hospital and private hospital is like difference between two centuries. The beauty of free market is that it lowers the costs for everyone. So the poor will always have "less luxury" at given time period, but in absolute terms will be much better of with free market then with state services. In eastern post-communist Europe, this is evident on every step.

Government funded R&D has led to many great "free market" products.

We have for profit hospitals and they are a terrible thing overall! We also have for profit prisons which are also a terrible thing.

You really think the PC is a good example of something "created by a free market" not the result of the govt pouring millions into R&D in the decades previous?

Nobody's denying the contribution of the govt $$$ to the creation of the PC. But I've seen computers build by governments. They were slow, huge, power hungry, expensive behemoths. They sucked.

We're a long way from there. And free market brought us all the way here.

Are you aware of the fact that Sillicon Valley was created by the US Government?

Are you referring to the fact that SV was initially founded by the defense industry -- which was in turn all funded by the gov't -- in its early days?


Ever heard of NASA?

What about the internet? The highway system?

Same thing with the internet. Government spending got us super expensive connections between a handful of universities. Free markets took that and brought it as what we know as the fast, cheap internet to our doors. Although regulations in the telecom/cable/ISP markets are working hard to impede that.

Yes, govt made the highways. Did not really repair them afterwards (at least around here) but it was definitely a good thing.

However, when judging by the bottom line, the number of good products created by govts is incredibly small compared to the amazing breadth and diversity coming from the open markets.

That logically makes me trust the market system overall and to prefer a small, limited government role.

But I am afraid we are moving into quite the opposite direction...

What kind of role do you think the government should play? Should we continue to privatize things like prisons? Seems it would be difficult to incentive rehabilitation when prisons are paid per bed filled. On the other side, should we privatize the military? the fire department? the courts? the police? why not?

A role as small as possible, but not smaller. Specifics depends of the domain, and there you need a domain expert, which I am not.

I just believe that as a general strategy, we should be continuously attempting to reduce govt power and involvement while allowing the free markets to work.

I am worried that we are doing the opposite, where our current response to pretty much any issue is more govt regulation/intervention instead. A middle way would be great.

> I just believe that as a general strategy, we should be continuously attempting to reduce govt power and involvement while allowing the free markets to work.

Sure, I can agree with that. But what if the lack of government power is what is preventing free markets from working? Things like anti-monopoly legislation. I mean, I'll give you that the reason these things exist is because private companies use the government to enforce their monopoly. But how do you plan on opposing that without using some sort of anti-trust action?

They both were built in the name of defense and national security during the cold war. You are not suggesting that we be in a permanent state of wars to promote gov't funding of R&D?

LOL. The PC was nearly entirely a free market phenomenon. It’s like sayming cars wouldn’t exist without governments switching warships to oil, most developments are inevitable regardless of government actions.

PC "free market" only took off when someone found a means to legally screw with IBM's monopoly on the BIOS. You also seem to have forgotten why quips such as "Wintel", "Chipzilla", "M$", "Adopt Extend Extinguish" were created. And that's just limited to ICT...

Well, the flip side of this is that the society we build and paid for with income tax has become a huge risk because of automation.

We’re wealthier than ever, but we can’t use the wealth to society, because we’ve moved it from the masses to the few.

Now this probably isn’t a popular thing to say in American contexts because it sounds like socialism, but historically the levels of inequality we’re seeing now have lead to only one violent outcome.

We’re not in danger yet, the middle class isn’t starving after all, but if we don’t radically change taxation to match modern society then we’re going to be fucked in 25-50 years. Because we’ll desperately need a model for society where not everyone has to work.

The way I view it is in terms of an idealized society. What is the ideal society? One where everyone must work their entire life? Or one where people are free to choose what they do with their time, even if they don't want to work at all? I would argue the latter.

Automation offers a unique ability to deliver the idealized society, but first we have to get rid of the notion that full employment is the goal. If anything, modern governments should be trying to lower employment, not raise it (or rather provide more choice to not work). You can't do that without a taxation strategy shift form income to capital gains.

I'm pretty clueless about what would actually work. I'm from Scandinavia where we have a welfare system that could allow you not to work. It wouldn't be a nice life because you wouldn't be allowed to own any fortune worth more than a cheap laptop at any point in your life, so no bricks and mortar or car or nice vacations or anything like that, but you could.

Typically people who end up without jobs tend to waste away though. They start drinking, doing drugs and committing crime, largely because they are bored.

You see something similar in young people who drop out of the educational system. These are people with all the options open too, yet they struggle to fit in.

If we create a society without jobs for everyone we also need to give everyone something to do, and I don't think we can expect them to do things on their own.

That's not what worries me in the now though, I'm only worriered about the inequality of wealth because you can't have a stable and free society if the inequality grows too large.

There is a lot of double think today around issues of fairness and justice, most of it lends towards enabling ideas consistent with movements towards centralizing powers, and authoritarianism. Small business enthusiasm--consistent with individual determination, responsibility, democracy, and consumer rights & choice--is just passe. No one is tweet storming about "small business rights."

Or, let's just go trip over all the homeless on the way to work in the Bay Area while tweet storming about the imminent dangers of mansplaining to society.

Not only do they get tax cuts and cheap real estate from governments, they also get direct money.

When google decided to create a data center in Sweden, the Swedish government gifted them $20 million in "establishment support". Money sent from the tax payer directly to the bank account of Google. Reason? So that google would pick Sweden. The politicians argument is that Sweden grain prestige if google has their data center here so its worth spending those millions. Its a bribe in all the sense of the word except that its a game between nations.

Ireland has the same problem. Attracting large amount of data centres which don't really create all that many jobs. It also then shifts the costs because the electricity demand is so huge and it strains infrastructure.

Taxpayer incentives to build datacenters are a good example of poor decision making by governments, and poor allocation of tax money. Seems like an argument to drop corporation taxes rather than increase them.

Wouldn't that increase the number of highly skilled individuals working in Sweden, who pay more tax/increase the jobs available? Which is a good thing?

how many employees are hired in such data centers?

Found article [1]: "Now, news outlet DT cites sources which have told the publication that Google was in fact the international web player readying to set bases at the Horndal campus and generate up to 300 permanent jobs."

So $20mm to create 300 jobs? I wouldn't say that ROI is very good in this case. Of course, there were some one-time employment such as contract for building data center and so on, but still I don't see it as a good investment.

Another data center example [2]: "Facebook will build a $750 million data center in the tony northeast Columbus suburb." ... "Peterson expects to employ about 100 workers at the data center."

And for that , government gave Facebook this: "Facebook has a 30-year property tax break on its land, 345 acres on Ohio 161, New Albany Mayor Sloan Spalding said. From the state, Facebook scored a 2-percent, 10-year Job Creation Tax Credit and a 100-percent and a 15-year data center sales tax exemption."

I don't see it as a fair deal for 100 new job positions.

[1]: https://data-economy.com/google-set-follow-facebooks-footste...

[2]: http://www.cleveland.com/open/index.ssf/2017/08/facebook_to_...

Lets imagine we made a general law and applied this.

Any company who moved X number of highly skilled individuals to Sweden that's equal to the number of those working in that data center get $20 millions.

Personally I doubt that would work. Such action can only exist as a special deal between the Swedish government and companies which politicians believe brings enough prestige to be worth it.

The charitable interpretation is that large companies create demand for services in the community where they are located, thus functioning as an economic stimulus. The demand may entice smaller companies to co-locate in the same neighborhood.

With this interpretation it would make sense to entice large corporate entities to arrive and/or stay put.

Of course, the path from economically motivated kick backs to pure cronyism is not too long, so cynicism is always warranted.

There is an amount that the gov loses by allowing tax breaks and other perks to such businesses. Is this amount recovered (by some measure) through the assumed economic stimulus?

I'm certain that someone has looked at these numbers in case studies, but I don't have the time to wade through literature currently.

You need a globally cohesive solution in order for this to happen. Countries part of the solution will need to play by the decided upon rules or not be able to participate in the economies of those in the agreement. It's as simple as that - of course the status quo exists being of bullies.

Yes, it is like wholesellers vs. retailers. Governments don't like to spend time talking with zillion of companies when they can talk with the few ones.

Apples not getting any direct government subsidies. It’s paying more taxes than anyone else in the world, and doing it legally.

Sounds like we need an 'uber for tax avoidance' where the start up creates a holding company in a low tax environment and then you sign up and for a 3% going down to say 1% of your "normal" tax obligation they will slosh all your revenue through the tax haven.

This is not a joke, it is a serious suggestion. The issue here is governments and regulatory capture where the wealthy have insured these tax avoidance schemes can work and the governments allow it because they can still get enough taxes from people who aren't wealthy enough to play the game. If we can create a startup that lets everyone avoid taxes the system will be threatened and it will force the governments of the world to fix this or to run out of money.

Well as you can see with the poor OPSEC, the offshore incorporation industry is ripe for disruption.

Although I've never had any of my entities "leaked", as if they were secret anyway, these leaks are mana from heaven as these are client lists you can POACH and offer better services for cheaper.

I've been using OTONOMOS for some time for incorporation and offshore entity management, which stores some client signatures on a blockchain, but behind the scenes they still defer to more antiquated registrars.

The costs of forming offshore entities are perpetuated by the expensive lawyers, registered agents and incompetent government representatives in these tiny jurisdictions. (For what its worth, even most United States are pretty incompetent at these administrative processes. Really only a few financial centers and a few exceptions have it all streamlined.)

These are scale problems primarily.

Also, American citizens should note that it isn't as simple as making a HOLDING company to avoid US taxes, unless you were just going to try to be NON-compliant and not tell anyone which will be a losing battle. There is a way, but it isn't simple.

For American citizens, offshore company's primary benefit are:

- protect trade secrets or initiate transactions without showing your hand to the market

- to deter creditors (as long as they aren't the US Government) as it raises the bar for them to find those assets and sue it and get a judgement and collect on that judgement

- segregated assets. Some jurisdictions offer entity structures which are very immature in the United States or haven't caught on yet. The Series LLC exists in a handful of US states but may lack case law, Segregated Portfolio Companies exist in other places like the British Virgin Islands and may have more case law or better statutory conditions.

- deal with more international clientele. Many times there are parallel US laws specifically for offshore clientele. For investors its the difference between Reg D and Reg S, I had one other example but I forgot it.

I think tax avoidance as a service could be a thing. If I could get someone to hire me as an 'individual supplier of engineering services' and they could pay my holding company in the Cayman islands directly. Places like Apple already hire janitorial services so that they don't have to hire janitors directly, they could hire my engineering service. Pay the agreed upon rate and leave tax/medical/retirement to my service, which would work through another holding company to set up regional medical providers who could service my medical needs in the US but any costs would go back through the Caymans. Similarly I could arrange to purchase things through their service where they buy for shipment out of state and then cross ship items back to my location instantaneously avoiding any sales taxes. No doubt with a clever legal team such a startup could develop a number of "perfectly legal" arrangements such that one's lifestyle could avoid most of the inconvenient taxes that currently are plied upon us poor working folk.

So I foreshadowed this already but Americans can't have passive holding companies and expect to avoid US tax. (Holding company implies passive property ownership.)

1960s era Congress already created CFC, PFIC, FBSCI, FBHCI laws which ensures that compliant Americans can't have passive offshore companies to defer taxes indefinitely. You looked like you were on to an original idea but your grandparents already thought of it. What you suggested still requires your non-compliance and the opposite of perfectly legal.

Those laws put your offshore earnings from US connected entities right back on your US personal income tax.

Most of these regulations are undermined by not having a passive holding company but an offshore company with additional business operations.

I didn't say it would be easy :-) Which is good in that it creates a nice moat around others entering the space. The question I would throw out to a tax lawyer that was operating at the level of Appleby would be this, "What set of relationships, companies, and structure would be necessary for a US person to shield all of their US tax exposure while living in the US?" Then I would ask my MBA friend, can we create such a structure so that the marginal cost of adding an additional US person to the structure would be significantly less than 3 - 10% of their shielded tax.

The theory being that the company would be funded on that margin and by knowing the cost to set it up and the rate of return from the marginal cost, you could put together a plan to build it and grow it.

yeah that could be interesting, it just requires trust which could be undermined with no recourse. there are also so many on-shore methods for US citizens that it is less worth it.

A non-US citizen could set up a corporation in a zero tax jurisdiction and allow partners to come in and keep diluting their share as long as it remains over 50% .... or a few other stipulations when it got over a certain number of members. but then adding additional property to this gets murky, and the non-US majority beneficiary has claims on the direction of all the property.

If you are functionally able to control it then then US courts will undermine it anyway and levy a big tax bill on you.

Same goes for US individuals living abroad not having any business relations or even holdings in the US. Yet they are required to file and pay US taxes in addition to local taxes.

The US is the only major country in the world that has such a ridiculous and distorting rule for corporate taxation as the repatriation rules. This single rule drives a very large portion of the global tax avoidance industry. It drives economic behaviour which results in misallocation of resources via situations like companies borrowing onshore US against their overseas cash horde and using the proceeds to return to shareholders.

They should abolish this silly rule and go with what everyone else does: either tax US corporates on global earnings and allow deductions for foreign taxes paid, or tax territorial earnings only.

Eritrea has an expat tax as well. FATCA and CBT are a poison to overseas Americans.

Moving abroad, I now fully understand the feeling behind "Taxation without representation is tyranny".

You are welcome to give up your American citizenship if that income tax becomes too burdensome for you.

There are actually things like the expatriation tax and "name and shame" provisions which discourage people from renouncing for tax purposes.

Also (note that I am not an accountant or lawyer and this is not advice), most ordinary people won't see any problem with taxation while abroad beyond the actual inconvenience of filing a 1040 because the foreign earned income exclusion (https://www.irs.gov/individuals/international-taxpayers/fore...) allows you to exclude foreign earned income up to $100,000 from US taxation. Since ordinary people pretty much all earn less than this, they only have to pay taxes to whatever country they are actually in. Only people who are rich enough to hire accountants have to worry about double taxation, and they can probably avoid it by other means that are well-studied among rich peoples' accountants.

I guess it depends on your definition of "ordinary people", but if you're going abroad for long-term work in any "middle class" industry, you're eventually going to have extremely complicated taxes.

Retirement savings, stock options, real estate, and any sort of investment account makes your U.S. tax return go from "a 1040" to a towering mountain of special forms. A lot of them also lose you the right to e-file, for some reason. And many aren't supported by tax software, or are handled incorrectly.

A lot of "foreign" banks – i.e. your _local_ banks – won't even talk to you. They tell you to make your investments in the U.S. instead, so you get to pay international wire transfer fees and foreign currency exchange fees on every investment. And if you want to move it back, you get to pay them again.

You won't necessarily owe any tax in the U.S., but you sure pay for it in either filing time (10s to 100s of hours) or expat tax accountant fees.

> They tell you to make your investments in the U.S.

And, extra maddeningly, a number of American institutions won't even talk to you, either.

Try calling up Vanguard or Charles Schwab if you're just a normal person who lives abroad and see how quickly they'll tell you "sorry! we don't want your business"

Even if you still have a permanent US address (i.e., not just some post box).

WBK (https://www.bzwbk.pl/) seemed more than willing to open me a bank account quite recently. There were a few more forms due to my being a US citizen, but it seemed like actually fewer than my wife (a Polish citizen with a US Green Card) needed to do the same thing. Maybe things are stricter in the West than in Poland?

It depends on the bank. Essentially it boils down to whether the "foreign" bank is willing to go through the compliance and data-sharing that is impressed upon them by working with Americans. Some do, many understandably can't be bothered.

Right, so why all the fuss over whether some of them don't bother? How many banks do you need? As long as there's one that will take your business, why should you care that the one down the block won't? I guess it could be an issue if you're in a rural area with limited banking competition? Even then, most banking is done online now and a couple of trips a year to the "big city" to get some business taken care of (see the consulate, visit a specialist doctor, sign for a loan, whatever) is just part of life if you're in a smaller town, no matter where in the world that is.

"All of the fuss" is not so much that the choices of banking available to an American abroad are reduced (though they are, and not necessarily due to the laws and regulations of the host country; and of course it depends how difficult it is based on the country) but that FINCEN/FBAR compliance which is in principle aimed at those evading taxes actually results in real pain for typical Americans who are living and working abroad, who only want to do right tax-wise.

> most ordinary people won't see any problem with taxation while abroad beyond the actual inconvenience of filing a 1040 because the foreign earned income exclusion

Well that and most banks refusing American customers because they don't want to deal with FBAR/FINCEN reporting.

My American friends here in Europe have a really difficult time opening a bank account due to this rule.

It's not only foreign banks refusing American customers. American companies such as Fidelity, Vanguard, Charles Schwab and so on won't open investment accounts for Americans abroad and will freeze accounts if they discover you are abroad.

You don't know what you're talking about. Social Security isn't earned income for example, so expat retirees get to pay taxes on that in the US AND their country of residence. You also don't seem to understand how FATCA works and taxation from stuff such as rental properties or retirement account income or even ordinary capital gains such as selling a house.

> Since ordinary people pretty much all earn less than this..

Ever lived in Switzerland? Or London?

> I am not an accountant or lawyer and this is not advice..

It's worse than that, it's just ignorant of the tax and financial reality of being an overseas American.

Sorry, I'm not ignorant of that stuff, it just doesn't apply to me in any meaningful degree. I'm not retired, or close to it, and I don't have any investment income, and I've never owned a home. I just work for a living. Perhaps I oversimplified when I said "ordinary people," but I meant regular working stiffs. I guess I should have remembered the audience on this site is mainly not in that category.

There are lots of complicated interactions with things like pension funds and mortgages that can easily push your "income" over $100k/yr even if your salary is nowhere near that level, which is at any rate, not all that much these days especially for people in the Hacker News industries.

It's a pretty terrible systems.

So making $110k now makes me a rich person with an army of accountants. Got it. Thanks.

All other things aside, the American taxation-by-citizehship instead of residence has some nasty and unfortunate consequences that your comment suggests you've never considered.

Some Dutch people in the Netherlands who were incidentally born in the US (ergo, also US citizens) but have never lived or worked in the US are now presented with the absurd scenario of actually having to do what you suggest. Of course this is just one country; in principle it applies to anyone who returned home to another country after being born in the US.

Here is the case of a woman, who was taken by her parents back to the NL as a baby, now has to establish herself first in a country in which she's never worked or lived in order to renounce an unwanted citizenship. She must get a social security number, file six years of previous taxes to a foreign country, and only then can she seek renouncing of her US citizenship. In case you were unaware, simply renouncing also costs several thousand dollars.



So yeah, just give it up! Piece of cake! /s

Amazing levels of ignorance here. Even this has become difficult and awkward thanks to an effort to close the door after Eduardo Saverin et al bolted. Hacker News seems to be a reliable place for people to holding forth on situations that they don't understand; it's no wonder that the brains trust here gets regularly crucified on n-gate.

Good luck with that, fee has increased significantly and you may be required to pay an exit tax:

"The Exit Tax is computed as if you sold all your assets on the day before you expatriated, and had to report the gain. Currently, net capital gains can be taxed as high as 23.8%, including the net investment income tax."

This doesn't actually prevent you from leaving though, and is probably seen by many (most?) people as entirely fair.

It prevents you from leaving if you can't afford to pay the tax. And lol, how is an exit tax even remotely fair? Would you have described the USSR's exit visas as fair too? The US acts like it owns its citizens as property. The tax regime around citizenship is dangerously close to crossing the line to slavery.

Indeed. Almost a quarter of my net worth? The income from the remainder would still be taxed in the new jurisdiction.

Slaves in antiquity could commonly buy their freedom, too.

Presumably you have to pay the tax due to capital gains on assets you own, so the solution is pretty simple: sell a fraction of those assets to cover the tax. This really isn't rocket science.

That's an incredibly ignorant comment.

When you give up your US citizenship and the process is complete, as far as the US is concerned, you might as well never have been a citizen at all. This means that when you want/need to visit the country (such as to visit a sick or dying family member), you can be denied entrance - the claim they'll use is that you don't have enough "ties" to your new country for them to be certain that you won't try to stay illegally.

While not everyone goes through that, it can and does happen.

> as far as the US is concerned, you might as well never have been a citizen at all

I guess that's better than the alternative: being treated worse because you're deemed a "traitor" or "deserter" for giving up US citizenship.

> This means that when you want/need to visit the country, you can be denied entrance

This I can understand. You aren't a citizen anymore and thus have the same rights as any other foreigner visiting the US.

If there is no further discrimination against you for being a ex-citizen, I personally don't see why ex-citizens shouldn't have the same requirements as non-citizens for entry.

> the claim they'll use is that you don't have enough "ties" to your new country for them to be certain that you won't try to stay illegally.

Yeah, that's extra shitty.

You aren’t allowed to give up your US citizenship without paying at least 10 more years of US taxes. Even if your citizenship was inherited and you haven’t lived in the s since you were a toddler.

Only if you have another citizenship to turn to. Being stateless isn't an option.

> Being stateless isn't an option.

That is unless you're a rich company - then you can create shell entities with effectively no domicile that earn income, but aren't taxed in any country.

Corporations are people, my friend. People with extraordinary abilities.

They shouldn’t be people, and shouldn’t pay income tax.

It's quite difficult and time-consuming to acquire an alternate passport, absent family ties or similar.

The US has very strong lock-in with regard to taxes, and they don't hesitate to exploit it.

I actually have a hypothesis that US citizens are actually less likely to even consider going abroad to work because of this filing requirement. There are many other reasons too (the US is a large market in its own right and has been for many years now), but it'd be interesting to compare and contrast the local population count of other developed countries with their expatriate population count.

A follow on hypothesis would be that a country having a larger percentage expatriate population compared to another all other things equal would have more global outlook e.g. the local population is more favorable towards immigration and free trade, and has a more accurate knowledge of the details behind world events.

You can apply for the foreign earned income tax exemption. I work abroad, and I reclaimed all my US taxes for my income earned abroad.

But you still have to file. No other western nation requires their citizens to file if they are living and working overseas for the full year.

While I agree, and have done the same in the past - You still have to file, and it's only the first $100k that is exempt.


That would indeed be fair. I think what many people here may be forgetting is that this doesn't result in double taxation in practice, because you can deduct the taxes paid in your country of residence from the taxes due in your country of citizenship.

The only possible downside is the implied bureaucracy. Not all countries are good at minimizing that.

When it hits the fan, and you want to come back to the US for safety, unmolested, you'll be able to. Should that be free?

It is in Canada, Europe...

But don't forget that those are third-rate (more like fourth-rate) countries, almost undeveloped brutes...

<sarcasm/> (as an EU-citizen)

We don't even pay for our health bills in Germany when leaving a doctor's office ;-)

Hold on! You have to pay 10 euros or so every year or no? I remember there was an outcry many years ago!

We got rid of that some time ago.

How barbaric!

>Should that be free?

I think you're missing the part where anyone (well, most) who live abroad is actually paying anything.

But as an US citizen you still use some US benefits like the army and international protection, right?

(I'm not from USA or currently living abroad but i think that is "fair")

This is incredibly stupid. A US citizen abroad gets very little additional protection from the "army and international protection" that the other citizens of the country in which they are generally resident get; i.e. a US citizen in Germany or Japan gets a lot and a US citizen resident in, say, China or Indonesia gets nothing. This is one of the dumbest arguments I have ever heard for this kind of wacky double taxation and I wonder at the persistence of its appearance.

This and "US healthcare subsidizes cheap healthcare for the rest of the world" are 2 of the stupidest, jingoistic statements that people make for paying too much for so little.

How else would you sell global taxation to people? People try and find all sorts of reasons why they're paying taxes to their home country when living abroad, while others aren't.

And you've got to pay for all your citizen services anyway (renewing passports, etc).

Tell that to the US citizens and NGO workers in Yemen. You think the US military or State department did anything for them? [0]

British, Dutch, and German citizens were evacuated by their governments.

[0] https://travel.state.gov/content/travel/en/YemenCrisis.html

The USA charges people for evacuation at military rates. There are cases of people being bankrupted by this and wishing they'd not been "rescued".

Tax is really just skimming the surface of the advantages that result from being big and powerful. Yes it means that they get subsidized in a way by the public tax payers but their employees pay for it even worse. The inequality between executive pay and ordinary workers is more than ever over the last few decades and those workers are paying for it by living a two hour commute away in crappy property, saving pennies at the grocery store etc. all of these are sacrifices and subsidies for the big company, the tax savings are just half of it.

What you are describing is a perfect storm of two economic fallacies -- the theory of marginal productivity and regressive taxation. The former describes how increasing pay will correspondingly increase productivity and the latter describes gradually decreasing tax rates as the amount being taxed increases.

Executive productivity is notoriously difficult to quantitatively measure and it is generally determined by compensation committees, whom are staffed by executives themselves and/or those with a vested interest in voting to raise executive pay. Such incestuous planning structures are almost always subject to graft and corruption.

Regressive taxation (including generous deductions hidden to those unable to afford the best tax planners) may be touted as necessary to reduce capital flight but the naked and bald-faced wealth inequality is simply unconscionable. Relatedly, Trump's tax plan is most definitely a bone throw to the rich as it includes repealing the estate tax. Democracy and progressive taxation have gone hand-in-hand since the end of WWII and it must go hand-in-hand in the twenty-first century.

We need a service that makes it easy to setup whatever structures are necessary to pay the same taxes as Apple et al. Hear me out. Let's call it "Double Irish as a Service", referring to the famous Double Irish tax strategy[0]. Similar to Stripe Atlas, you sign up, and it sets up whatever structures and accounts are necessary to get the tax advantages. Then, once every company can do this (and not just the big companies), then the laws may change.

0. https://en.wikipedia.org/wiki/Double_Irish_arrangement

Rich people and corporations will never pay full taxes. The only way to make it fair is to lower taxes for everyone.

EDIT: downvote me all you like, but the facts and all human history are on my side. Taxes are and always have been paid mostly by poor + middle class. Rich people used to collect them and now have a ways to negotiate a better deals or to avoid them. Look at Trump and his loans schemese. Look at multinational corporations. Look at our local oligarchs in eastern Europe. If you are in middle class, your only hope is to fight for more fair society where tax hells dont exists, and taxes are low for everyone. Because high taxes will never be paid by everyone.

If governments want to effectively tax the largest players, they would need to take up arms against those companies and spill some blood. Or at least grab a few top level executives and put a gun to their head and lock them in a cage. Do you see that happening? Of course not, it sounds entirely insane. And the executives know that. For them, however, the true sociopaths who rise to the top because they are willing to do literally any thing short of slitting their own throat in order to be at the top, a gun in the face is the sole thing they will listen to. When they accept that as their standard of having their behavior changed in a room full of people not bankrupt enough to pull a trigger? They don't have a single thing to worry about.

Those who fail to learn from history will be doomed to repeat it. All the things you really wish to cry out "but no one would DO that"... can you really not think of any examples from history where it already has been done? And on smaller scales even? Why would someone now not be willing to do it for much higher stakes?

> What annoys me the most is that, as a small company, I can't evade from my country tax system. I pay the taxes. All of them, at full rate.

I am not even annoyed by that. I am an immigrant into Canada. We sort of made a deal: you let me into a place where I can live a safe and free life and I will pay my taxes leading to that. I stand by that deal. I had a company in Gibraltar (which, by the way, was completely legal, I am a citizen of the EU and I exercised my right to establish a company wherever I in the EU pleased) which I closed down and moved my affairs into Canada and I am a proud Canadian taxpayer (and now even a citizen but that came much later).

But gosh. I am a very small fish here. I only make a few hundred thousands a year. Could we please implement a system where I report my earnings (not my profits), slap a flat tax on it and that's it? No bookkeepers. No complexity. No exceptions. Just a friendly, flat small business tax.

A tax on earnings? Do you mean revenue?

I think that's a bit insane and lot's of business wouldn't be able to survive. If I buy something for $100 and sell it for $110 I now have to pay tax on the $110 amount rather then the $10 amount, increasing my tax tremendously.

For businesses with lot's of inventory that would be murder.

I think it would be the only solution, because it will always be easier to manipulate your benefits than earnings.

Although we could imagine something more complex: pay taxes on (revenue - expenses to compagnies that also pay taxes).

So now if you buy a product $100 to a company paying 25% taxes and sell it $110, you pay taxes on the $10, but if you buy your product to a company in some island, you pay taxes on the $110.

Smarter: if you buy to a company that pays a 20% tax while in your country you should pay a 30% tax, then you pay taxes on ($110 - $100*(30%-20%) = $20).

Everything get more complex but it's just a bit more CPU time.

Wherever this is implemented it's an option. It's never mandatory. There are tons of knowledge based operations where expenses are way too few. Obviously if you are a traditional buy stuff, add value, sell stuff business then you want to bother with bookkeeping sure.

These companies will follow the law. When Ireland changed theirs, Apple moved.

This problem can be fixed with laws. What's difficult is changing those laws, because the rich pay off those that write them.

Think sales tax. Apple can't avoid sales tax. But they don't care, because it's not them being taxed.

But then again, Amazon did avoid sales tax, and used the internet loophole to compete with local smaller businesses using their "no sales tax" discount. And they kept pushing for special treatment in ways no small businesses could. Now the laws have been adjusted, and they collect sales tax.

If profit had to be taxed within the country or even district of sale, it's over.

There is no "if laws are changed we will be screwed" mechanism. The laws are designed to screw and unscrew. Attention should be directed to those writing them, because they know exactly what they're doing, because they are succeeding.

This. I run a small company as well, and taxes are a damn maze.

I just checked the tax authorities website in this country, and there are no less than 121 different tax-exempt health activities – things my company can pay for me, without having to also pay taxes. For most other things, there's sales tax (possibly other kinds of tax too, but let's limit it ourselves for brevity) that comes in at no less than three different levels, depending on what you're paying for. Many things, most things, my company can't legally pay for directly, but must pay me income, which I then pay for, as well as paying the taxes. This probably makes sense, except of course now I'm being taxed twice: once on the income itself, and then again on the expense. Oh unless of course it's a deductible expense, in which case I might be able to deduct it from my year end declaration. Also this depends on what it is I'm paying for, some services are subsidized and the subsidy is applied immediately, so I'm only paying half the taxes – unless I've used up my subsidy limit (which I can't check.)

I don't mind paying taxes, I really don't, because I can clearly see what I get for them for the most part. The streets are clean, health care is paid for and mostly seems to work for me, the garbage truck shows up on time, the water flows freely from my taps, and the electric grid never seems to have any issues. My friends with children get to take a lot of time off to care for their kids, and when they are old enough for day care that works too. I had the privilege of attending great public schools, and higher education is paid for. The list goes on.

I really don't mind paying a reasonable amount of taxes, and I'm not even that upset about companies and people investing their money wisely. But when there are legal ways of "optimizing" your tax foot print, if you can afford the expertise to do so, it becomes really demoralizing to pay your taxes as asked.

Corporations and individuals aren't going to change their ways, so government has to step in and fix these things. It's probably real hard to do, but it needs to be done.

Either that or provide tax optimization services for free, so we can all enjoy these same incredibly low tax rates. (At which point tax reform probably has to happen anyway.)

Governments have no interest in fixing it. Usually law makers and legislators benefits from those loopholes, directly (with their own money) or indirectly (with campain supporters). Not only in corrupt contries but also in well stablished democracies.

Those loopholes are used even by people who claims doing a lot of charity, as Paradise paper is showing.

I'm very pessimist about this going away anytime soon.

Yes, this is probably the sad truth. You hear officials lament the immoral actions of corporations one day, then sign loopholes designed by BigCo and friends into law the next.

Which is exactly why I think the tax office should provide a free service to anyone looking to optimize their tax footprint. If it's legal, why not?

an alternative (which i m not sure is better, but...) is to have absolutely zero tax across the board. Then every possible service any entity requires is paid for in a user pays system.

I personally don’t believe this works, and that there are plenty of things history can teach us of what can work in a decentralized and presumably privatized sector, and what must remain in a public (albeit not necessarily centralized) sector. I don’t think taxes are inherently bad, but I think there’s something to be said for reducing the distance between paying the money and seeing (even if not necessarily receiving) the benefits of doing so. I think there’s a balance to be had, but I don’t think we get there with the kind of complex tax systems we have in most(?) countries today.

I don’t know what such a system would look like. I just know that when Netflix came around and made streaming easier than piracy, for a reasonable amount of money, I jumped on board and never looked back. It’s a flawed analogy I know, but there’s something to be said for just making things dead pan simple and reasonable. There’ll still be people and companies trying their best to avoid taxes, but if we can reduce them juicy margins enough, maybe at some point it just isn’t worth the hassle...

I feel the other solutions is obvious in that we need to align tax law to meet the global mobility of money, in the same way we aligned trading laws. Something like;

1) A group like the WTO/G12 get together and agree to minimum tax rate for any corporate/country/individual that wants to do business and or have access to these economies/nations. Any company/individual that earns income in lower tax rate countries is fine to do so but must tax equalise to the minimum or they can not do business or visit these countries.

2) Citizens of the above group of tax aligned countries must declare overseas assets and incomes and equalise tax payments if below a set minimum. Should undeclared assets/income be found the assets are forfeit and the person gets 1 year jail per $1mil. And anyone who provide information to create asset forfeit or additional tax owned gets 25% of that.

This, plus sanctions on tax havens.

We cannot expect companies to voluntarily pay more taxes than the minimum, while there are legal loopholes at their disposal.

The solution may mean reducing the tax rate for all companies, closing the loopholes, and then enforcing the law.

But that would require elected government leaders to put their jobs on the line (lowering corporate taxes sounds bad to many voters since corporations have been vilified, even though it has bipartisan support among economists). So it’s unlikely to happen any time soon.

Can you give a citation on "bipartisan support among economists"? All I have read seems to indicate economists are all in support for the other direction - that lowering corporate taxes at this moment is bad economics.

[1] http://larrysummers.com/2017/10/22/one-last-time-on-who-bene...

[2] https://www.cbpp.org/research/federal-tax/corporate-rate-cut...

[3] http://microeconomicinsights.org/benefits-corporate-tax-cuts...

I heard it only on an NPR podcast, where they claimed the measure had support from "economists of all stripes." And actually, the proposed policy was much more drastic: complete elimination of corporate taxes. But clearly there are arguments on both sides of the issue.

[1] https://www.npr.org/sections/money/2012/07/19/157047211/six-...

I don't understand why you have to lower corporate tax rates first before closing all loop holes...

This is the problem with a complex and byzantine tax code: entities that can manage and manipulate the complexity profit by it. Entities that don't have those kinds of resources are stuck.

It would be good if folks from all political walks of life could come together for some kind of tax simplification. I highly doubt this will ever happen, though, as tax law is used as just another club by big businesses to beat down the small. They have the money, and they're willing to pay-off the political class to make various arguments about how simplifying things would be bad for the little guys. That's not changing. (This has nothing to do with current politics, by the way. I am not following the U.S. tax discussion and it's not relevant to my point. My point is that whether it's business, tech, or government, complexity itself is an enemy)

I'm really waiting for someone who makes the tax evasion system scale for small companies and regular people.

Tax evasion is and always will be, illegal. Tax avoidance is legal and undertaken by every single sane tax-payer who pays the minimum tax but computes that amount in accordance with the tax rules. The courts are available for redress if the tax authorities think the rules are being bent. Judgement is a legal matter and not one for debate by armchair moralists.

Those who don't like the way some tax laws operate in the realm of complex company operations should lobby the law-makers not those tax-payers working in compliance with the law.

Yes. People who disapprove "tax avoidance" or "tax optimization" should reflect on the idea a few years back:

High-earning professionals like medical doctors in a North European country had a very high marginal tax rate (well over 50 %). They also had long working hours. Thus, many opted to reduce their work amount; it's better to take unpaid leave and mend your house, rather than to work in a responsible job, get close to zero net compensation, and have a leaking roof in your house.

This is called tax optimization or tax avoidance.

Now, the government notices this and proposes a "tax on work that was not done with the purpose of avoiding tax". Will you approve?

This kind of mechanisms are what we talk about in tax avoidance and tax optimization.

Would you not make use of a tax break even if you taking it harmed your neighbour? Everyone's response would be "It may suck for you that you can't leverage that loophole, but that person is not breaking the law." It's like the difference between claiming mileage vs. claiming vehicle rental/gas for work trips. You're not breaking the law by claiming one over the other, you're leveraging the framework to greater effect than some others are able.

It doesn't make it morally right, but at the end of the day, everyone leverages the opportunities they have. You can't blame someone for that. They are working within the confines of the framework defined for their circumstance. If that framework had loopholes that could be leveraged by that individual, they would take them.

J.K Rowling, author of the Harry Potter books and who is fairly wealthy has an interesting moral stance on paying tax:

"... I am indebted to the British welfare state; the very one that Mr. Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism..."


Another reason I think she's an amazing woman to look up to and aspire to be like... but I'm not making 7 figure royalty cheques. I'm paying the same taxes (give or take) as everyone else that can't afford to leverage West Indies tax shelters. In the meantime, I'm stuck utilizing tax loopholes that save me tens of dollars a year.

I think was I was probably reacting to "everyone leverages the opportunities they have." and I was pointing out that there are some people, like Rowling, who avoid paying very large amounts of tax (tens or hundreds of millions in her case) for largely moral reasons. I'm just happy that people like that exist.... :-)

I don't begrudge those that have made it, in fact, the opposite is true, I'm happy they managed to cross the chasm. Unfortunately many of us that still have to work hard to afford a relative life of comfort vs. struggling at the poverty line can't afford to not leverage every tax loophole we can in order to give our kids every possible opportunity for success that we've fought tooth and nail for.

That’s why the opportunity shouldnt be there. It’s unfair and leads to further concentration of power. In other words it’s anti competitive.

I do agree with this. Opportunities shouldn't be there unfairly. If one person should be able to leverage an opportunity, in my mind, so should everyone. In that sense, I'm currently in favour of the basic income strategy being piloted in Sweden right now. I would like to see everyone on an equal playing field. But that said, in the meantime I'm going to leverage every tool I have access to, just as you should and everyone else should.

Most of the taxes a company actually pays are factored in with their workers' salaries. For example, if your company's average salary is lower to that of Apple for a comparable employee profile, you are effectively paying less taxes than Apple.

Or, if you company does not have profits, you are paying less taxes than a company that reports profits.

I do not think a company has to wear any nation flag. Companies have to care for their customers, employees and shareholders (in that order), wherever these are based.

Lawmakers need to care for their citizens, and need to legislate in a way that optimizes their tax collection in a sustainable way (i.e. lawmakers do not want companies or people fleeing to other countries or regions).

The resulting scenario is an optimal equilibrium of forces.

All they are doing is arbitraging loopholes in the tax systems. Politicians have been trying to solve way too many problems by taxes (taxing differently x and y) or giving tax gifts to donors and various organised interests. As a result it creates an arbitrage-able tax system. I wouldn't point your annoyance to those who are optimising their taxes (after all this is merely their fiduciary duties to their share holders) but to the designers of this tax system. Create a flat tax and pretty much all tax avoidance schemes disappear.

I think you are fundamentally missing the nature of the loopholes being exploited. They have less to do with the complexity of the taxes in one country but rather the complexity that emerges naturally from different countries having different tax codes. How would a flat tax help avoid this scheme for example?: http://www.nytimes.com/interactive/2012/04/28/business/Doubl...

The whole point is they skip the U.S. tax code entirely.

If you don't have control over foreign loopholes, you eliminate them by applying to companies what you apply to individuals in the US. I.e. that US companies may not pay less taxes than they would pay if their activity was all in the US.

It would of course increase the effective tax rate in for US large companies a lot, but the US corporate tax rate is very high vs other countries. If it becomes efficient you can afford to reduce it.

I don't think getting rid of these foreign loopholes is as simple as you think it is. 1. What counts as a "US Company"?

2. So you're proposing that Apple pay the U.S. taxes on sales in Germany? Also that every country should do this?

1. Companies which parent owner is based in the US. Companies are already paying taxes based on consolidated regime, it is just that they consolidate all entities within a tax jurisdiction. So the concept exists, it could just be extended.

2. You wouldn't have a double taxation. You would apply to companies what the US applies to US individuals. If you have a subsidiary in Germany and paying local taxes of 10, but that would be paying 15 if you had the same income in the US, then you owe 5 to the US taxman in addition to the 10 you owe to the German taxman.

Alright here are my new loopholes to evade your amendments: I'll set it up so that my other company in the other country is sharing profits with my main company. Maybe I'll have a family member or someone I trust actually own that company. Perhaps this doesn't work for some reason that already exists in the tax code, but I've already met the letter of the law that you spelled out here. Obviously that would be easy to fix with some further amendments but the problem is that this back and forth we are having is happening at a larger scale through the years. And in real life I have 10-1000 times as much money to figure out how to defeat or get around your tax codes.

I think what you are describing is a company not based in the US not having to pay this tax. Effectively companies fleeing the US. Agree that this would likely be a consequence. But that's the price to pay to maintaining high tax rates. Countries don't like competition but the reality is that this competition exists among them.

I don't think Apple and Google can flee to Bermuda or Ireland and that's not what I was talking about. The employees aren't going to move.

I was just pointing out a simple loophole in the specific rules the you proposed as a rhetorical tool: it's very, very hard to write a loophole free tax code in light of the inherent complexity of having many nation states and multinational corporations. At the very least, it should become a cultural norm for companies like Facebook, Apple and Google to report tax loopholes even as they exploit them.

You still have double taxation because of dividend taxes. The US has one of the highest corporate tax rates already, as a country we’d be far better off making it zero.

> You still have double taxation because of dividend taxes.

Corporations are distinct from their owners, that's the whole point of a corporation. That's not double taxation, it's single taxation of two separate entities, one of which acts as a liability shield for the other.

> The US has one of the highest corporate tax rates already,

Nominally, but one of the lowest effective corporate tax rates

Whether it’s two seperate entities or not, the disincentive is still the same. Investors who want to start a business in the US have to pay > 50% of their profits to taxes before they receive them.

And the high US Corp tax rate isn’t nominal, it’s real. Apple appears to pay a lower rate, but that’s only because of most of it’s profits are earned overseas.

If it paid 10% on two thirds of its earnings earned overseas, and 40% (state and federal income tax) on the one third earned in the US, it looks like only an 19% total income tax rate.

But when it returns the foreign earnings it pays another 40% state/federal on them, for a blended rate of 43%. And shareholders owe dividend and state taxes on top of that.

Tax deferral isn’t avoidance. Even if Apple gets a 10% repatriation holiday, their blended rate is still over 30% and total for shareholders over 40%.

Money is taxed every time it changes hands or moves around. When I get my paycheck, I pay taxes on it. Then, when I buy a ham sandwich, the shop owner pays taxes on it. Is that unfair "double taxation?"

We aren't talking about taxes on "money", we are talking about taxes on investment.

Investments are made to return profits, the more of the profits society takes, the less incentive investors will have to start and grow companies. So you should think about what tax rate you think we should have on investment.

Right now if you and friends start a business in the US, for every dollar in profit you'll first owe state income taxes, and federal corporate income taxes, which is anything from 35-45% depending upon your state. That's even if you re-invest every penny of profit into the business, into new jobs and higher productivity improvements. Why as a society are we reducing earned capital by more than a third every time it's reinvested?

Then, if you ever want to pay a share of those profits to your investors as dividends, now there is another 15-35% tax, based on state/income tax brackets. That's the double layer that means US companies lose at least 50% of profits and up to 70% to taxes before their owners get any.

Do you really think business owners should pay 50-70% of their profits in taxes? Then don't mind if some decide starting their business in a lower tax country makes sense.

There are taxes that are harder to skip than others. (At the risk of sounding like a broken record, land value taxation is basically impossible to avoid if you are using land.)

Would that really be effective? A lot of very large companies may just own very little land.

You'd pay for land by value, not amount.

So Google owning an block in Manhattan to put their office on would probably garner a higher bill than a farmer with a bunch of fields.

But yes, you can side-step the tax by using less land and eg more capital. (But that's fine, somebody else will use that land you are not using, and pay the tax for it. And if everyone is doing that substitution, it'll make land more expensive in the end.)

Apple doesn’t skip the US tax code, they pay huge amounts of US taxes. They don’t repatriate foreign earnings because it would cost shareholders over a 50% tax rate.

It is not believable to me that such a high fraction of Apple's profits are happening in Ireland. Clearly something is being distorted or manipulated to avoid either the U.S. or some other country's tax code.

If this was all so above board and not a loophole or gray area, why do they want to be so secretive about it? "“For those of you who are not aware Apple are extremely sensitive concerning publicity,” wrote Cameron Adderley, global head of Appleby’s corporate department, in a March 20, 2014 email to other senior partners. “They also expect the work that is being done for them only to be discussed amongst personnel who need to know.”


Virtually none of Apples profits are made in Ireland and Apple doesn’t claim they are. Ireland is where they’ve invested the profits, after paying taxes on them to the countries they were earned in.

The controversy is only on how much tax they should pay on the interest on their profits. Ireland gave them a sweet deal because it cost them nothing to let Apple deposit $100B+ in Irish banks.

And all corporate decisions have basic levels of privacy attached. No accountant, tax or otherwise, should talk about their clients tax and business decisions.

>All they are doing is arbitraging loopholes in the tax systems. Politicians have been trying to solve way too many problems by taxes (taxing differently x and y) or giving tax gifts to donors and various organised interests. As a result it creates an arbitrage-able tax system.

The loopholes themselves are gifts to friends, lobbyists and donors.

>I wouldn't point your annoyance to those who are optimising their taxes (after all this is merely their fiduciary duties to their share holders) but to the designers of this tax system.

Why are you pretending that those optimizing their taxes are not furiously lobbying to keep them "optimized"?

>Create a flat tax and pretty much all tax avoidance schemes disappear.

The flat tax is possibly the most regressive tax system ever conceived. If you want to reward owning for a living and punish working for a living then it's almost the perfect tax.

A flat tax on income would help, but it's still a tax on income, and so you can move that around with clever transfer pricing etc.

Land value tax works even better: it's physically impossible to move or hide land.

Somehow I doubt the person making $20k/year paying the government 20% would see it the same way as the person making $100k/year.

What do you mean?

A few points, but I am not sure which one you are referring to:

- interesting enough actual taxation in the US seems to be mostly flat in practice (after a certain threshold): rich people get more deductions and can hire lawyers to use all the loopholes

- you can have a mostly fixed marginal rate of taxation on income, but still have progression in average rates. Eg give everyone $10k/year as an allowance, and tax at a fixed 20%.

- for taxes on income there's a trade-off between equality, ability to pay, but also blunting incentives and raising revenue. Luckily, if you tax land value instead, you can tax away essentially the whole of land rent without blunting any incentives to work or invest. (So the whole conundrum about the right way to tax income can be mostly side-stepped.)

I'm about to move to Singapore. They have a progressive income tax system with almost no deductions, but the maximum marginal rate is 22%. (VAT is 7%.) Since there system is so simple and rates are low, it's usually easier to just pay instead of trying to find loopholes.

I mean that flat-tax rates punish the poor. One may have to miss a meal to pay their taxes. The other will have a few less bottles of champagne to purchase.

Even in your follow up post as soon as we make provisions for the reality we live in the flat tax goes back to being a progressive tax, again.

So what we really need is a simpler progressive tax rather than a gradually complex flat tax.

The main argument for a flat tax is to simplify the system and make it harder to game. What really punishes the poor are complicated taxes--the kind that people who can afford lawyers and accounts don't pay.

Singapore and Hong Kong seem to do the right thing in terms of taxation: their systems are simple and the income tax is progressive, but the top marginal rates are pretty low by European standards (around 20%).

To help the poor, universal basic income seems like a good idea. It pairs well with my favourite kind of taxation: land value tax. See https://medium.com/basic-income/why-land-value-tax-and-unive... for a pretty insightful rant.

If an income tax is necessary at all, giving everybody a flat allowance per head plus a pretty flat rate should be good enough on the poor? (Otherwise, do whatever Singapore or Hong Kong or Estonia are doing.)

Flat tax is not just about removing thresholds, but also using the same tax rate across the board. If you tax in the same way income, capital gains or corporate profits, don't give a tax exemption for debt, don't charge a stamp duty on property (or charge the same rate on the purchase of all assets, property or not), etc, then you kill all these tax schemes.

Isn't that usually called a broad based tax or so? I mean I mostly agree with what you are saying, just noting that I'm used to different terminology.

Yes, it's a good idea to put eg debt and equity on the same level; don't tax transactions that improve economic efficiency (tax consumption instead for example).

Land value tax is still a great idea for these and other reasons. Eg you can jack the lvt really high and basically tax away all land rent without negatively impacting the economy. So even in an otherwise 'flat tax world' like you describe, it might be a good idea to get the majority of revenue from taxing land rent (and in the wider sense, resource extraction and commons like pollution carrying capacity).

LVT sounds good in theory, but a large number of rich people _are_ acting as rent seekers (they own property, and extract value via rents on people who work/produce actual value on it). It would not be politically feasible, unless the gov't is prepared to fight against those powerful land owners.

Yes, the political feasibility is one big problem. (The other challenge is to figure out how much revenue you could raise---there are some good theoretical arguments that elimination a tax on something else like labour income should increase the local land value and thus land value tax by enough to offset that loss, but I don't know whether that works out in practice.)

There is some hope for the political feasibility: some countries already have land value taxes with various imperfections like Estonia, and some Australian states, and some counties in the US.

> They are screwed.

That's true if you think the solution has to come from more legislation and/or more taxation. Those approaches will simply encourage companies to move more of their operations to other more favorable jurisdictions.

If there's a way to save money, and companies have a responsibility to shareholders to be as profitable as (legally) possible, they'll do what they need to in order to save the money. We need to stop expecting some kind of moral accountability above what the law demands. There are plenty of natural incentives for companies to be morally responsible above what the law requires, but anything less isn't illegal unless it's illegal.

You can continue to play cat and mouse with laws and loopholes, or take a different approach...

Instead, if you consider the option of lowering taxes (on all companies) to compete with those other countries, you'll actually provide an incentive for more large companies to keep their businesses - and their taxable profits - in the US. It may be a lower tax as a percentage, but it would actually increase tax revenue in the long run, in addition to boosting the economy.

The music industry can provide a fairly good analogy: when (the original) Napster became popular along with other file sharing networks, the music industry wanted to solve the growing piracy problem by throwing people in jail and pushing for stricter laws. In the end, that did nothing to help the problem. What did help? When iTunes actually provided a decent, legal alternative to piracy, it took off and hoards of people who had been pirating music actually spent money obtaining music legally because it was reasonable and competitive (in terms of convenience) with networks like Napster. The lesson: you don't fight widespread behavior with legislation; you steer it with aligned incentives.

Even better than bringing all corporate taxes down to the lowest rate; force tax havens to bring the lowest rate up to something reasonable. A global economy demands global rule of law. Then, yes, market forces can be used to direct corporate citizenship (and therefore employment+tax revenue) to where it is needed (assuming sufficiently far-sighted governance to realize the global equivalent of Ohio needing more federal assistance than California, and also robustness to regulatory capture).

Your race to the bottom would only ensure that governments eventually cede all power to multinational corporations. Then, we're back to feudalism, only global this time.

> force tax havens to bring the lowest rate up to something reasonable

Easier said than done. Not going to happen any time soon (or ever, in my opinion).

> Your race to the bottom would only ensure that governments eventually cede all power to multinational corporations.

If corporate taxes are the only thing standing between where we are now and the downfall of governments or the rise of global feudalism, we're already screwed. The corporate tax rate could be 0, and it really wouldn't make that big of a difference in terms of total tax revenue or government power (individual taxes still make up the vast majority of tax revenue).

Playing devils advocate here:

> What annoys me the most is that, as a small company, I can't evade from my country tax system. I pay the taxes. All of them, at full rate.

How about a startup providing "tax-optimization" for the masses? Keep a cut of the money saved: win-win. Or win-win-lose, if you include the state.


However, most of these techniques have a high fixed cost. For Apple paying $1m fixed cost to reduce the percentage tax to zero is economical, for a corner shop it isn't.

How would this possibly work? Just throwing out the word 'startup' doesn't solve anything. The only way to reasonably take this comment seriously is as subtle sarcasm.

Similar services exist. If you're a foreign short-term contractor in the UK it's common to use a services company to setup a company in Jersey for you, setup the bank account and then run payroll for you.

I could see something like Stripe Atlas but in an offshore jurisdiction - they set you up with a company, bank account and merchant account which you can then process international credit card transactions out of (ie. transactions that originate from countries other than the one you're based in)

The other application is for entrepreneurs in developing nations where there are regular occurrences of businesses being shaken down (or outright taken over) by corrupt officials. Using local banks can often tip off the wrong type of people as to who is wealthy enough to go after

You do have to make a profit and pay corporation tax in order to be able to "optimize" it...

Most startups I know do not, and they benefit (in the future, or via transfer to shareholders) from the inverse taxation on losses.

I felt the same when I ran my business. A lot of rules are designed so that only the big guys can afford to take advantage of them. We also had a situation where the county lured a big company with monstrous tax cuts while the small guys got nothing despite being "job creators" too.

We have a global economy but not a global tax system or a global set of rules. That's the essence of the issue here I think. What also happens is countries upping one another with lower taxes and exceptions to attract big companies hoping to get some (small) benefit from it.

So much of this. This happens everywhere even when it's not in the form of a multi-national tax avoidance scheme. You can tell all you want that it's the fault of the law which it is but that doesn't change the fact the system is like this because these companies and people have over the years have done everything they can to make sure these loopholes exists and these loophole remains including outright bribing where they can get away with it. And for the most part no one individually did it and so you can't event point it out properly.

At least in my country individuals are often in even worst position in terms of taxes. The less capital you have the more you will be taxed seem to be the norm of the world these days.

> But there are these big companies which can afford to create offshore companies/holding just to evade some tax system, and lower their tax rate.

I wonder if there's actually a correlation between how ruthlessly a company evades taxes/cuts other corners and how quickly such a company becomes big enough to enable even more tax evasion/corner-cutting?

Or to put the question simpler: Was the tax evasion there first or did that only start happening after reaching a certain size enabled tax evasion?

Imho there's always opportunities to cheat, not all of them are big but many small ones can still add up to a lead. Most of us just chose not to cheat thus don't even notice these opportunities for what they are.

There's a terrific opportunity here for a financial company that specializes in tax havens for small business. Bundle together ten thousand mom and pop shops, and you have enough resources to do this kind of financial wizardry.

That sounds a bit like the plot from the show Ozark, but there they do it to launder drug money.

Countries do try to compensate for this by introducing specific small business tax rates and special benefits for being locally owned or controlled.

The Canadian example:

"After the general tax reduction, the net tax rate is 15%.

For Canadian-controlled private corporations claiming the small business deduction, the net tax rate is 10.5%."


"afford to create offshore companies"

You can setup an offshore "shell" company in the virgin islands for $1500. It's not something you have to be a big super rich company to afford.

Think about the people who live paycheck to paycheck, without any savings whatsoever (i.e., most people).

They don't have a spare $1500.

> What annoys me the most is that, as a small company, I can't evade from my country tax system. I pay the taxes. All of them, at full rate.

This is a real problem in the US, too. The corporate tax rate is very high, but there's so many exemptions and deductions that few end up paying the headline rate. There's a lot of variation between businesses in what they pay.

Lowering the tax rate and simplifying the tax code could make it more fair in a revenue-neutral way.

It used to be much higher: https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...

If companies want access to the best market in the world, they need to pay to be there.

I don't follow. I didn't suggest changing the average effective rate. There would be no change to the amount paid. I just suggested splitting it more fairly.

Why do you think you can’t? Have you tried? If you have a business that looks somewhat like Apple’s does (producing goods in China and selling internationally). I don’t think it would be very hard to keep revenue out of the US tax system.

I would guess you could setup an offshore company in a region with zero corporation tax and conduct the majority of international business via this? Moving funds back to the US is trickier, but then it is for Apple too.

While they don't violate the letter of the law, they certainly violate the spirit of it. Minimally, I'd like to see them recognize their unfairly gotten gains and use some order-of-magnitude more of it for philanthropic ends or tax reform lobbying. That would be the classy move. It really bothers me how high regular business and personal effective tax rates are compared to these jokers'.

> I can't evade from my country tax system.

You can however use different tactics to minimize your tax burden which is exactly what Apple is doing.

We need a progressive tax on corporations: if your company has more than X in profit, it is taxed in a higher bracket.

Ideally, should be multiple brackets, with a tax increase on the biggest companies offsetting a tax break on the smaller ones.

Would incentivize companies to break into smaller functional sub-organizations which can compete against each other for the benefit of consumers.

That's why being rich is so amazing - you get to play by a different set of rules. Or, once you're "3rd level rich" - write the rules of the game.

Apple aren't breaking any laws. They, and other of their size, can just ~bribe~ lobby politicians to make special little loopholes for them, loopholes you can't take advantage of, but you can't pay an army of accountants. But, honestly, I can't blame Apple too much here.

We are at a place of our history where giant, global corporations operate outside of any national/political boundary. They have offices everywhere, employees everywhere - it's a nightmare to figure out whom they should even pay taxes to, and how much.

I'm not even close to being Apple-level, but even lowly plebs like myself face similar issues.

I have two passports, but it's a major pain for me to live in place A for more than X months and pay taxes to country C which has an office in D but I'm technically an employee only in office G in region Z - even though it's all the same damn company - again - who gets to tax me? Both countries? One country? No country? Why can't I live in Spain and work for a US company that has European HQ without incredible hassles? And if I could - the US would still like their share of my pie in the form of taxes.

I think a lot of this stems from the simple truth that we are in a new kind of economy, where money and information can flow instantaneously, yet our laws are still bound to archaic nation-state concepts of "physical presence". Which made total sense pre 1950, not so much anymore.

100% agree with the article. When an iPhone is sold in Germany, there is a VAT on that product that definitely goes to the government, right?

So the main question is the corporate tax and not the per unit? Perhaps it would make sense to capture the true tax for in-country sales by adjusting the per unit tax?

It's the customers who pay the VAT, not Apple. That's why electronics bought in US where the sales taxes are generally much lower than VAT rates seem cheaper from the European perspective. A higher VAT also hits more the less privileged and effectively crowds them out of the market. For goods like these you can think of the VAT is 'the price to be able to buy' and corporate tax as 'the price to be able to sell'.

No corporation pays taxes, in reality it’s either customers or shareholders who pay them. The point being Apple still generates maeve taxes for Germany and shouldn’t pay it squat in income tax.

Well, it's more about familiarity with the system than work required to game them. I've met one-man operations paying effectively the same rate as Apple, they just know the legalese well enough to do it on their own.

All companies are supposed to be equals regarding taxes. If a part of them can trick this rule, then it is not fair and must be fixed.

I agree that there is a part of entrepreneurship which include being able to understand the rules and laws and use them efficiently, but all these familiarities used to game the system are only valid if only a minority of the people use them. One people finding this trick is ok, but big companies being able to buy these tricks is another scale.

> One people finding this trick is ok, but big companies being able to buy these tricks is another scale.

Maybe using these tricks was what actually enabled these "one people" to grow into big companies? I don't think it's as simple as "Small companies all pay their taxes, only big companies cheat because the system is unfair".

Imho there's plenty of opportunities to cheat without ever being discovered as a cheater, the vast majority of people simply don't notice them as such or when they do refuse to abuse them, out of a moral obligation to society.

That last part isn't the same for everybody. I dunno which election it was, but I think it was the GOP who ran on this whole "Maker" theme where they pretended people are all living in isolation and nobody uses public infrastructure for any of their success. That pretty much summed up the whole mindset behind "not paying taxes" pretty aptly.

Oh, sorry, I'm not saying it's _good_ that this is the case, just that you'd be surprised by the number of small companies pulling this kind of shit too.

Yes, we were also tempted (suggested) to do the same at some point in our history. Perhaps as suggested elsewhere in this thread, some startup will be able to create an offer to easily outsource some revenues. That will certainly declare the end of the game.

All companies are supposedly equal in doing business, but some manage to compete better than others. Taxes are just another area of competition.

Competition in business is beneficial to society as a whole, by providing better products and services. Competition in tax avoidance has no plausible benefit. It's spending resources to solve an entirely artificial problem. If the problem was removed then the resources could instead be spent on something useful to everybody.

So what you're saying is as a small business owner you'd like to evade taxes too? Seems like a great startup idea- "offshore accounts for everyone!"

> What annoys me the most is that, as a small company, I can't evade from my country tax system. I pay the taxes. All of them, at full rate.

You're like the farmer whose cow has died and is upset that his neighbor's cow has not died. Direct your annoyance at the government that is oppressing you rather than at other people who are not being oppressed as much.

Is this really that difficult for a small company to evade tax? I think you can do it

One day people will realize it. All taxation is theft.

What taxes does Apple, an American company, owe Germany? Are you paying taxes half way across the world from your place of business?

I don't pay taxes half way across the world because I don't do business there. Apple does. They have employees in Germany and sell their products (including in their own stores). Of course the vast majority of value is not created there but in the US. However, it's not like they pay their full share of taxes there because on paper the value is largely created in a place that conveniently doesn't tax that.

They pay huge amounts of taxes to Germany in VAT and employment taxes. Their income taxes should be paid where they are based, Germany is trying to double dip here. Apples accounting for where profits are located has to be approved by tax authorities.

The point is that they don't pay those taxes where they are based either.

Additionally, they create some value in Germany (a small share but still large on Apple scales). Taxing income derived from that is not double-dipping.

They are the largest US taxpayer. They are the worlds largest taxpayer. They absolutely pay taxes where they are based, and where they aren't based. Their worldwide tax rate is 24.6%, one of the highest in the world.

A summary:

Small Business -> Small government tax breaks and benefits

Medium Business -> Token government tax breaks and benefits

Large Business -> Vast government tax breaks and benefits


Poor people -> Small government tax breaks and benefits

Middle class -> Token government tax breaks and benefits

The Rich -> Vast government tax breaks and benefits


It is quite astonishing that in 2017 that we are still astonished by this.

Apple do pay their taxes just like you for everything they sell in the US. It's what they sell outside of the US that they don't pay, but they do pay in those other countries. The biggest unfair advantage they have against you is if you sell to overseas markets (you're paying US tax, not them) but if your market is US only then Apple isn't paying less than you are.

While I appreciate the sentiment it is time to start taking a more global look at these antics of companies.

I run my own company in the UK and I know for a fact that apple makes a massive amount of money selling in this country.

Now as a small business owner I am taxed at 20% on corporate profit. (19% going forward now due to a tax cut in corporate rates introduced during the last financial year). You then also get taxed on any dividends you pay out to yourself as the owner of that company according to normal income tax rates, (Sure you get a £5000 dividend tax free allowance but after that you are on normal income tax bracket rates).

There is simply NO way for me to change this. I pay my taxes each year diligently, otherwise I end up in jail.

However massive companies that make billion in revenue from countries get to play the tax game and effective pay percentage wise a LOT less than small businesses in the UK while benefiting from the infrastructure provided and paid for by public funds that they contribute very little to. That infrastructure includes the Healthcare and Education system. Both which are under constant stress due to under funding.

I am not for high taxation but I surely am for everyone paying their fare share. The employees working for these companies pay many times more tax on their salaries compared to what the corporation pays on its profits. At some point this vampire squid behaviour of extracting out of a country without helping fund the infrastructure that helped make it be a successful market cannot continue. This behaviour also gives me VERY little hope that AI and Automation will ever lead to the benefit of but a select few. /<rant>

That's an interesting case to bring up. In the UK, it is very common (I'd go as far as to say it's the norm) for software contractors to start a single-person limited company and pay themselves through a mixture of salary and dividend in order to optimise their taxes. I wonder how many of these people consider that they are committing "tax avoidance" and "exploiting legal loopholes" too.

Maybe 15 years ago. IR35 has made that approach tax-neutral, at best.

I am new to the contracting game in the UK, but I haven't met a software contractor yet who isn't using this approach. My accountant even recommended it to me when I set up. It is definitely a non-trivial tax saving.

Do you pay yourself dividends from your company? Or do you use your profits to increase your director salary so that you pay tax at the same rate as a full-time PAYE employee?

Not meaning to call you out personally on this, but I want to highlight that "tax avoidance" is a weasel word. Most people can and do optimise their taxes if the law allows it and don't consider themselves to be "avoiding tax" or acting immorally.

I didn't say anything about avoidance, so I'm not sure your questions about dividends etc were directed at me.

At the turn of the century, it was common for software developers in the UK to leave their job on a Friday and then show up to do the same role at the same desk on the following Monday but suddenly they were a LTD company acting as an independent contractor. IR35 sought to put an end to that. It didn't apply to genuine freelancers, although there were risks.

And, I'm not sure I understand what you mean about not meeting a software contractor who isn't taking that approach ... as that approach is the very definition of software contracting :)

Ah, my apologies. I got you mixed up with the parent comment poster.

To explain anyway: As a contractor with a limited company, I have two options when it comes to moving money from my company to my personal account.

1) Set my salary to be the same amount as the money I've earned from contracting, thus paying the same amount of tax as a "regular" PAYE employee who works full time

2) Set my salary to be minimum wage and pay everything left in my company account as a dividend, resulting in paying less tax.

My point is that option number 2 is "tax avoidance exploiting legal loophole" or "sensible tax practice" depending on how you want to frame it. Businesses will use whatever legal options they have to pay the least amount of tax, including small businesses (although small businesses might not even consider that they're already doing it).

But have you done the calculation on option 2 to see what you will end up paying in tax (Both corporate as well as personal income tax) when you do pay out those dividends?

You will realise that you have not "avoided" any tax really compared to a normal salaried employee due to not being able to reduce your corporation tax in the way other big organisations do.

Accountants make it sound really good but when you get down to the actual tax being paid you are not saving much, if any given the new rules implemented in the last couple of years.

Have a look at the example that I have shown as a reply to your parent comment. I would be very interested to hear your take on this.

Accountants keep on recommending this method for some reason but honestly if you do the tax calculations yourself you realise that you are not much better off.

It used to be the case that you were better off but the last 5 years the options for UK limited Company contractors have been reduced to a point where the running costs of the company combined with the taxes bring you to effectively the same amount of tax paid as a permanent employee.

That is a common misconception due to tax law changes in recent years. It used to be the case that a UK contractor paying themselves through this structure was significantly better off due to the large amount of dividend tax credits that were available.

So let me outline how this works these days as I run up against this argument a lot.

1) Any income that comes into the UK Ltd company is taxed at the corporate tax rate which as of this year is 19%. 1.1) This tax is paid on profit so if you pay yourself a normal salary out of this you will deduct this from the profits. Take note that dividends are NOT deductible from company profits before tax and as such is not a way for you to reduce your tax liability as a UK company. Dividends are only payable from after taxed money in your UK Ltd company. 1.2) Any expenses your company has in providing its services are deducted from profits. There is a misconception that you can write off A LOT of expenses but in actual fact that is not true. There are strict guide lines. Most of these expenses are also only valid if you are truly outside of IR35. Once you fall inside of it your allowed expenses decrease even more.

The above leaves you with your taxable company profit on which you pay your 19% corporation tax. (This is the tax that are being circumvented in the article by big companies.)

So now you as a UK Freelancer you now get the opportunity to pay yourself money from your UK Ltd company. You are then subjected to the following personal income tax: 1) Your tax free allowance as an individual is applied so you pay no tax on the first £11500 of income. 2) The first £5000 of dividends are also tax free. (remember this money has already been taxed at 19% in your corporation tax so is hardly free) 3) All other dividends that you then pay out to yourself are taxed as per the different tax brackets set out for personal income tax on dividends. (Again remember that 19% tax has already been paid on the this money before you can distribute it to yourself.)

So lets look at an example: - Lets say that as a contractor you work for 10 months (42 weeks) out of the year at £500 per day. We also assume you have no problem in getting your clients to pay (a real risk in certain industries). That leaves you with 210 days that you bill at £500 per day. 210 * 500 = £105000 which is your income coming into the company before deducting allowed expenses. - Lets now say you are not inside IR35 and you can claim travel and subsistence against this amount. That normally works out at around £500 per month of expenses you can deduct. (We assume you have already bought your equipment that you use on site etc.) - You also need to pay your accountant, which does not work for free, the going rate in London is around £130 per month - You now pay yourself a small salary up to the allowed personal allowance for the year of £11500

Your total corporate taxable income is now as follows: 105,000 -1,560 (Accountancy fees £130 x 12 months) -5,000 (£500 expenses for the 10 months of billable work) -11,500 (salary of around £958 per month for the 12 months of the financial year) =86,940 (This is the amount you pay corporation tax on) -16,518.60 (The amount of corporation tax you pay at 19% on the above £86940) =70,421.40 (This is the amount you can now distribute to yourself in dividends)

So now your personal income tax looks as follows: 11,500 (Salary received up to tax free allowance and tax of 0%) 5,000 (Dividends with 0% tax allowance) 65,421.40 (Remaining dividends that you are taxed) -14,136 (Tax levied on the 65,421.40 dividends that are taxable, combination of the different tax bracket rates on HMRC website.) =67,785.40 (Income you receive after tax)

So on £105,000.00 of earned income as a freelancer you end up paying £30,654.60 of income taxation (Corporation and Personal tax).

If you were a normal salaried employee you would pay £31,696.40 on £105,000 salary. (www.listentotaxman.com)

So I would argue it is hardly tax avoidance and if I take into account the risk I take as a freelancer then I am hardly working through a UK Ltd company to avoid tax. Most people still believe that the same rules of the 90's apply to UK ltd companies and freelancing but it is simply not the case.

Please do check the above with your accountant to confirm as this is not financial advise and I am not an accountant. However there are really not many options for avoiding paying tax as a UK freelancer. Keep in mind that the £5k dividend tax free allowance is also being reduced to only £2k from 2018 onward.

Two things to add:

- A £500 daily rate is very attainable when you work as a contractor in London. a £105k salary for the same type of work - not so much... I would argue that most people don't really have a choice and they HAVE to become contractors to get that kind of money.

- Nobody is forcing you to take ALL the money on your company account and pay it to yourself as a dividend. You can leave most of it there, or even invest it on the company's behalf. You have the power to decide when you want to pay the taxes on this money, and this can be very valuable. And there are other (perfectly legal) practices that can keep you in the lower tax bracket. If your accountant did not explain these to you then it's probably time to look for a better one :)

You are correct on both of the points you raise.

The example was simplistic by taking all of the dividends out to make it a straightforward comparison with a salaried employee who also has to take all of their and thus do not get to defer their tax.

Being able to choose when you pay tax is one of the biggest advantages of working through a UK Ltd company. But by choosing when you pay you hardly avoid paying tax. The bill will be due sooner or later.

As for legal ways to reduce the corporation tax you pay, I would love to hear more as the options I know of would be to setup pension contributions or doing a voluntary liquidation. (which is only an option for the day you decide to stop contracting as you are not allowed to be a director of a UK limited company for 2 years after completing the liquidation)

Every contractor accountant I have spoken with has given the same advice. So if what you are doing is legal I would be interested to hear who your accountant is.

Always remember that your accountant won't be the one that HMRC comes after if you followed dodgy advice.

Thanks for your very thorough reply! I will definitely run the numbers when I get back home.

One thing I noticed from a first reading: You didn't include the expenses payments as income (intentionally or not), which is an extra £5000 a year that goes in to your personal bank account.

You are most welcome. You are correct, I did not include them in the personal income you receive as I have created the example in the way you would do your tax return calculation. So the expenses are deducted from your company profit before tax as it is your company that is incurring the expenses.

You do get reimbursed for those expenses if you make them via your own credit or debit card, otherwise if you use a company card for them you will never have that money touch your own bank account. I do agree that you benefit from being able to use "before tax" money to pay for some of your expenses.

The tricky thing about expenses is that not everything is allowed to be deducted as an expense. If for example you take your client out for a meal and a few drinks and you account for that as Business Entertaining, that amount is not eligible for tax relief and thus you cannot deduct that from your profits to reduce your company's taxable income. It will then get taxed at the company level.

What I am trying to show is that the argument that Freelancers in the UK "avoid" paying tax compared to permanent employees is not true anymore. Yes we do have the ability to plan our tax better. However there seems to be this idea from permanent employees that freelancers are paying only 10% income tax when that really is not the case. There is a slight benefit, and from the above example a little more than £1000. Obviously there are other options and scenarios with spouses being made directors of the company etc. But it is hardly reducing your tax to the 7% achieved by Apple.

One also takes a lot bigger risk since personal injury, illness and non-paying clients do have the ability to derail your earnings in a really big way. If you get the flu and are out for a week that hurts. Or heaven forbid you have an accident and are unable to work for a few months while recovering.

Most of the freelancers I know do it because of the freedom and flexibility they get out of it, not because there are substantial tax advantages.

I would be very interested to hear your thoughts after you have run the numbers yourself.

I have been having the exact same argument with a friend on Facebook (I know, I know)... There is something about this whole thing that people seem to rationalize. My friend's ultimate argument was "well they pay more tax than I will in my lifetime anyway so what's the big deal". I had to give up in the end.

It is honestly a really tough point to argue with people. It becomes even worse when the person you are arguing with is in the fortunate position of having a good income and no current true worries. I used to be one of those people that believed that tax is theft until I have seen how quickly your situation can change due to unforeseen circumstance. A close family member got a terminal medical diagnosis and was the main source of income for the family. The person lived an exceptionally healthy life and got diagnosed with a condition for which they exhibited none of the normal risk factors.

At that point where your survivor biased gets challenged by real hard hitting life events your illusions are shattered. I never wish anyone to experience the same, but I do wish more people can be made to realise that paying tax to look after those services that look after us all when life goes horribly wrong is actually worth it! (And that includes the corporations that benefit from having a fit and healthy workforce and consumer base)

>but they do pay in those other countries

No, they do not. That is, they have optimized their rates so well as to pay next to nothing.

Incidentally, this is the problem with repatriating those profits to the US: the IRS actually does recognize taxes that have already been paid and will "deduct" (don't know the exact technical mechanism, but that's the gist) the taxes that have already been paid to foreign tax authorities from the taxes due to the US. However, due to the tax "optimization" that's been happening, the actual tax paid is minuscule, and so the tax due on repatriation is substantial.

So what Apple and other US multinationals would prefer is for the "tax already paid" to be a boolean rather than an amount. As in "we already paid 0.00004% tax on this, therefore it is already taxed and the IRS gets nothing", whereas the IRS says "well you paid 0.00004%, so we get (US rate - 0.00004%)".

Of course, the corps call this "double taxation" and rail against it, but in fact double taxation is not happening, or only in that very warped sense.

> It's what they sell outside of the US that they don't pay, but they do pay in those other countries.

Except they don't. The open letter says "What these filings also show is that since 2010, Apple’s foreign-earned income has been taxed at a rate of between 1 and 7 percent" however in Europe most countries have a corporate tax rate around 20% (cf https://en.wikipedia.org/wiki/Tax_rates_in_Europe).

For Germany it looks like Apple is paying at least ten times less taxes than it should.

I am speaking for the tax rate in EU countries, what is quoted in the related article. Regarding revenues in EU countries and moving expenses/royalties between countries to benefit from the lower rates.

I think that the same cases exists in the US, between states themselves (Delaware ?). Where you create companies in multiple states depending on your activity to split your revenues. Again, a small company can't afford such tricks.

Not true. Apple pays on the profits made in the US. The trick is to move the patents overseas and charge a lot to use those patents. Thus the US profits are small but the overseas patent royalties are huge.

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