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
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?
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
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.
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...
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 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.
The first word that comes to my mind is 'free market', not 'huge government'..
"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
Have youbever seen govt reducing barriers of entry ? I need examples
Only govt can create monopolies, unless you're talking about mafias.
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
maintain a legal system to facilitate agreements between parties
maintain a trusted currency for the exchange of goods and services
if governments only oppress a market
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?
So some regulations definitely work.
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)
It's simply a consumption tax that people do not realize they are paying because it is built into the products citizens are buying.
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.
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?"
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.
$1,000 is a profit maximizing price point with 0 % taxes. With 10 % taxes it would be different.
(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.
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.
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.
Unfortunately, governments like fine-grained taxes because it gives them the illusion of control.
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 else are laws for?
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.
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.
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?
"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...
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.
It begs the question why it does not happen already?
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.
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.
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.
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 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.
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.
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.
OTOH, by paying taxes you make sure there is a talent pool to recruit from in the future.
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.
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.
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.
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.
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.
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?
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.
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.
I'd suggest "The three laws of Robotics" should also apply for them.
If they were, they would already be acting in the way you think they should.
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.
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?
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.
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.
Here is a list of hundreds of such open lawsuits:
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.
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.
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.
The problem isn’t Apple, the problem is the government can’t get its act together to pass tax reform.
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.
What you’re saying is impossible and the law needs to fix this, not appeal to emotion.
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 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.
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 :)
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.
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).
If you're planning on using exploits, you keep try and them secret. Once they are common knowledge they get patched (hopefully).
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.
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?
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.
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.
There's a huge amount of wiggle room and discretion possible even within the obligations to share-holders.
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.)
A company is just a legal construction but we let people transgress the legal constrains that should rule its behavior.
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.
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?
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.
"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!
... 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.
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.
> 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.
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.
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.
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.
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'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.
Journalists already do try and explain the failures of the tax system. For example, check out this graphic:
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?
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.
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?
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).
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.
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.)
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.
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.
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!
And the real rate is actually higher because it doesn't count the deferred taxes they owe and will pay when they repatriate.
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.
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?
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.
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.
Just hoping that the fix isn't perceived as "going after apple". Going after existing law, tax havens, etc, is more productive.
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."
 - https://slovobooks.wordpress.com/2014/01/09/last-alan-moore-...
The solution is to fix the tax code problem. If the moral "rules" don't apply to _everyone_ then they are worthless.
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.
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.
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.
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".
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.
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.
And by trying to do this we'll see creatures come out of the woodwork and previously virtue signaling personalities going strangely MIA.
Actually that makes me wonder when we'll see the first companies starting their own countries.
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 only way froward is to cut regulation - to be understandable and as equally applied as possible.
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.
Shaming worked pushing dolphin safe fishing practices, for example.
Laws just codify society's morals. Sometimes by leading, mostly by lagging behind social norms.
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.
If the company position is that the right fix is to plug the loopholes then by all means be consistent about it.
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.
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.
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.
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.)
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.
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).
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.
Uh, this is demonstrably, extraordinarily untrue.
50 years ago the law said I could beat you with a mtop handle, didn't make it right.
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).
There are many cases where legal != moral, an that's the very point of the article.
Legality != Morality
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?
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
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 , 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.
Source: tax lawyer.
You're throwing demagogic, populist accusations without a single shred of support. Is emotional discourse an acceptable replacement for the rational one?
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.
How agressive tax planning works:
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.
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.
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.
The correct term would be "tax avoidance", which is legal (albeit ethically questionable).
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.
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.
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.
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.
So they keep the remaining profits in the lowest tax country/location they can find while it earns interest. They owe Germany nothing more.
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.
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)?
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.
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.
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
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?
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...
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 , for example. There's no amount of Invisible Hand that offsets pollution that kills people. The Porter Hypothesis  is the name of the invisible hand inside the debate on environmental policy.
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...
No "invisible hand" there, more like someone yelling loudly at them.
You know what worked? Some good, old fashioned competition. And that raised up naturally, through free market.
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.
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.
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.
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.
Or are you campaigning for the abolition of patents as a concept?
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.
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.
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. :)
By which you mean that time is a price you think we ought to pay. I mean, we do actually have options.
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.
As to how natural monopolies arise, Wikipedia has a good article: https://en.m.wikipedia.org/wiki/Natural_monopoly
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.
- 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.
So, in your mind what caused AT&T to become a monopoly for so long?
I’m pretty sure you’ve got it wrong.
Firstly, AT&T was already a monopoly by 1913. The Kingsbury Commitment, 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.
 UNNATURAL MONOPOLY: CRITICAL MOMENTS IN THE DEVELOPMENT OF THE BELL SYSTEM MONOPOLY
Please provide proof that markets never fail and indeed that the ideal Free Market exists. Take the time, I'll wait...
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.
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.
My best absolute best experiences are with people and involve no markets nor governments: family, friends and professional peers.
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..
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.
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.
We have for profit hospitals and they are a terrible thing overall! We also have for profit prisons which are also a terrible thing.
We're a long way from there. And free market brought us all the way here.
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...
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.
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?
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.
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.
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.
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.
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.
Found article : "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 :
"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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
> 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.
It's a pretty terrible systems.
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
"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."
Slaves in antiquity could commonly buy their freedom, too.
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.
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.
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.
The US has very strong lock-in with regard to taxes, and they don't hesitate to exploit it.
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.
The only possible downside is the implied bureaucracy. Not all countries are good at minimizing that.
<sarcasm/> (as an EU-citizen)
I think you're missing the part where anyone (well, most) who live abroad is actually paying anything.
(I'm not from USA or currently living abroad but i think that is "fair")
British, Dutch, and German citizens were evacuated by their governments.
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.
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.
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?
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.
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.
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.
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.
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.)
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.
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?
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...
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.
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.
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)
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.
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.
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.
"... 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..."
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.
The whole point is they skip the U.S. tax code entirely.
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.
2. So you're proposing that Apple pay the U.S. taxes on sales in Germany? Also that every country should do this?
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.
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.
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
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%.
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.
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.)
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.”
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.
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.
Land value tax works even better: it's physically impossible to move or hide land.
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.
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.
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.)
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).
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.
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.
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.
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).
> 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.
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
Most startups I know do not, and they benefit (in the future, or via transfer to shareholders) from the inverse taxation on losses.
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.
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.
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%."
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.
They don't have a spare $1500.
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.
If companies want access to the best market in the world, they need to pay to be there.
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.
You can however use different tactics to minimize your tax burden which is exactly what Apple is doing.
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.
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.
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?
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.
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.
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.
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.
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.
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>
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.
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 :)
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).
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.
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.
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:
-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.
- 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 :)
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.
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 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.
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)
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.
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 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.