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How Corporations and the Wealthy Avoid Taxes (and How to Stop Them) (nytimes.com)
60 points by Sujan on Nov 12, 2017 | hide | past | web | favorite | 71 comments

I wish these sorts of things would come into focus more often in politics. This should get bipartisan support, this should bring equality in a way that every side should agree on.

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

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

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

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

I have recently had a question about this. When a foreigner owns a fraction of a corporation, what taxes do they pay to the US government on their dividends and appreciation? It occurred to me that if the answer is, "none," That would represent a material, difficult-to-otherwise-arrange advantage of the corporate tax: levying taxes on foreigners. (I don't mean advantage here in the moral sense -- just in the practical one.)

That’s a really good point. According to https://www.investopedia.com/ask/answers/06/nonusresidenttax... , non-resident aliens are taxed on dividends from American companies, but not for capital gains.

Would we be changing any important incentives by leaving untaxed that portion of corporate income responsible for foreigners’ appreciation? Otherwise, it doesn’t seem like a very significant source of revenue.

You say in excess of 100 million USD is not a significant source of revenue. I hope this is due to ignorance. It is more than the budget of some rich countries.

Taxation on foreign individuals is a thing done all the time with duties.

Absolute amounts are not very useful for making tax policy. If it represents a tiny portion of federal receipts, and doesn’t serve to prevent some end-run around other parts of the tax law or other perverse incentives, there seems to be a weak case for maintaining a tax policy that causes all sorts of other undesirable outcomes.

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

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

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

expensing items that aren't actually for your business activities is tax fraud.

Which you cannot prosecute easily thanks to some of the loopholes mentioned in the post itself.

> So why is this not being dealt with?

I assume because people with money do not want to pay more taxes, and people with money find lobbying has an excellent ROI.

Not to mention actual politicians take advantage of these loopholes at time. In a bipartisan way.

We fund our political campaigns by selling policy concessions. The result is an unintended but highly effective "mandatory bribery policy."

Campaign finance reform is a prerequisite for any policy that goes against the interest of any concentrated pool of wealth.

> So why is this not being dealt with?

It's talked about and being dealt with constantly!

President Bush had a repatriation holiday for lowered taxes of repatriated capital.

President Obama tried to get assets repatriated.

President Trump's tax plan has a lower corporate tax rate in order to stop the movement of capital to lower tax jurisdictions. Also, this plan attempts to close this offshoring move, for multinationals, by requiring the repatriation of assets.

There are valid reasons that so many companies decide to offshore profits to a lower tax jurisdiction from what is onerous taxation by the US.

None of the above attempts to wage war (militarily if need be) on the actual tax havens. These only attempt to provide incentives that are not even close to comparable to 0 tax rate you can get.

> None of the above attempts to wage war (militarily if need be) on the actual tax havens.

Wage a military war against tax havens? Is that in an attempt to obtain other people's money?

I don't think you really understand the issue. Tax avoidance is, by definition, legal in the US. Tax evasion is the problem. If you don't know today who is engaging in tax evasion, how will military strikes on Ireland and Bermuda ferret those people out and make them pay? Do you have the particular law offices and bank locations mapped out on GPS to strike with tomahawks?

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

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

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

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

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

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

Yes but that's like "losing the war". Who's telling you the next goal isn't going to be 5%? now they'll know the government caves in if you do enough financial/fiscal engineering. I don't know that it won't be ultimately the only way but I think we can do better and hold those companies accountable. But its a global problem that needs a global solution.

Be specific. What is the problem? Whose money is it? What is your proposed solution?

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

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

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

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

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

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

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

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


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

You’re correct that my language is too loose there.

Here’s what would happen:

1. Apple would declare that they are repatriating the money.

2. The shareholders would disagree. They would sue, claiming that the company’s directors are obligated to do what’s best for the corporation. The shareholders would vote to replace the board, and the newly elected board would replace management.

The threat of #2 prevents #1.

You're making some pretty ridiculous presumptions there. All Apple would have to do is pay a sizable dividend as one of the purposes of repatriation and any shareholder angst would evaporate.

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

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

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

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

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

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

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

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

Tim Cook I believe stated he needed a single digit number to consider bringing back the money[1] which is different but certainly important to note. The 2013 Apple hearing further explains the tax number he believes would be needed to be competitive[2].

[1] https://www.theverge.com/2013/5/21/4351978/tim-cook-defends-...

[2] https://www.youtube.com/watch?v=s7H1Y6Nr3c4

15% is still more than 0%+overhead depending on the total amount we're talking about.

Should only the very biggest player, to whom the overhead is inconsequential, be allowed to avoid taxes?

Your assumption is that the overhead is only a "one-time cost", but its never going to be that simple.

Most of the time there are a multiplicity of overlapping cost; Opportunity cost (you have your money safely in a tax-haven, but now to move it out for legitimate production use has another cost and associated accountant / lawyer overhead). Or simply ongoing inefficiencies - You've opened an office in Country Z because doing so allows you to save on taxes in your main area of Country A, but the truth is you have no real need for an office in Country Z - its simply an ongoing and perhaps ever growing cost subject to a whole new need for budget forecasting, currency fluctuations, etc.

I have no idea what the number is, but currency fluctuations alone could make a corporation decide to simply pay their 15% and escape headaches and split brainpower, trim staff of lawyers, consolidate offices, etc.

Now, if the corporate tax rate is 36+% well, thats a different story.

>The expense for all those accountants, lawyers, lobbyist, and inefficiencies caused by artificially shuffling money around would outweigh just paying the 10-15% tax bill.

That will certainly raise the bar to which paying for those services is worth it, assuming none of them change their prices, find a loophole or scheme, or don't develop new technology to reduce their operating costs.

In fact, establishing a 10-15% tax and then getting the public to wring their hands while saying "thank god that's taken care of" is asking to continue to lose tax money to these schemes.

Corporate tax rate would be far better for society if it was set to zero.

Options for negating the effect of corporate tax are: reduce dividends (for pension fund holders among others), pay employees less / get rid of them or increase the price of their products. Someone pays. They could increase productivity of course. Any data on this?

You cannot compete with 0% tax rate. In the past it was not available because global markets didn't work efficiently and there were strong prohibitions on such attempts.

I have no simpathy for these ultrarich dipshits and their companies that think that they are better than the rest of us. They'll probably get what they deserve eventually.

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

How do we know that it's going to be used any worse?

I really wish that we, as a nation, started thinking in terms of what good works we could accomplish with our tax dollars instead of what stupid waste we could remove by not collecting them.

Good question. I assume it would be proportionally spent as documented here: https://usafacts.org/

Are you against having TSA at train stations and mall entrances? Also against more bailouts for ultra-rich financial companies? tsk tsk.


You can believe in good uses of tax money and still question whether the government has too much money or routinely mishandles it. Am I missing your point?

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

Tax planning/tax avoidance as described in this article is completely legal.

Do you maximize the tax obligation on your personal return?

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

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

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

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

The activity discussed in the article is far from criminal.

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

The benefit of it is the following:

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

2. The trust receives tax free growth.

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

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

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

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

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

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

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

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

I favour a number of reforms here:

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

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

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

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

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

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

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

Interesting picture showing corporate tax income relative to other sources in federal budget: https://upload.wikimedia.org/wikipedia/commons/f/fa/Share_of...

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

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

Then later after the Google example:

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

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

The law isn't that offshore corporations are illegal but that offshore corporations controlled by US citizens are required to be reported to the IRS.

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

Edit: s/\./?/

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

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

why is a land value tax good? just curious

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

I think property taxes (and not necessarily limited to land) are considered more ideal because it taxes wealth as opposed to income.

Sales tax results in the poor and middle class paying vastly higher tax rates as a percentage of their income compared to the rich.

If we were to exempt things like food and rent from the tax, then that may address that issue to some extent. Regardless, the rich do tend to spend a lot more money compared to the middle class or poor.

If you’re going to make arguments like that though it’d be easier to just keep things the same. Yes, the rich pay way more taxes in absolute terms but equal or less in relative terms.

> If you’re going to make arguments like that though it’d be easier to just keep things the same.

For the government and businesses, that may be true, but if taxes were sales/VAT based instead of income based, then it would remove a significant burden from individuals (since they would no longer have to file taxes every year).

True, never thought of that!

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

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

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

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

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

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

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

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