There are two dimensions here, one is the tax liability and the second is regulatory compliance.
Yes, the tax liability is significantly reduced when using offshore structures and I don't necessarily see this as a bad thing especially since an ultra-low corporate tax rate makes it possible to offer our customers services at a lower price than otherwise - I see this as a good thing.
The second is that regulatory compliance is much, much, much easier especially when working in industries like finance, insurance, or crypto. The flexibility and clarity of the regulatory climate in offshore jurisdictions is a huge advantage as it makes it possible for us to focus on doing business rather than narrowly tiptoeing an arbitrary and complex regulatory line as is the case in "home" jurisdictions like the US or the EU. This is further compounded when you have a distributed workforce located in various jurisdictions (which sometimes changes on a week-to-week basis).
> an ultra-low corporate tax rate makes it possible to offer our customers services at a lower price than otherwise - I see this as a good thing.
The claim that you’re transparently passing the savings of tax avoidance onto consumers rather than charging market-rate and pocketing the difference is both unlikely and unprovable. And even if you were charging less, this would essentially amount to an unfair, extra-legal competitive advantage.
It is not unfair, and it is not extra-legal. Anyone can offshore their company and in some cases it can take less than an day (incorporating an LLP in the UK takes a couple of hours) with virtually zero barriers of entry, all fully compliant with the relevant legislation.
If legal regulatory arbitrage (through tax havens) is unfair, then the corollary is that any kind of business profit arising from utilising uncommon knowledge is unfair. I think this position is untenable.
I thought most OECD countries have rules for companies being tax liable at their "effective place of management" and "arms length" etc principles to prevent funneling money to tax havens. Or is it just the correct loopholes you need to know about to ignore all of this?
It's very much a big proxy war between big economies. Currently the countries benefit from tax havens where growth is the highest (because these investment/offshore vehicles/vessels are low tax and the yields are reinvested, and the tax is reaped by the country where it gets invested; even if the profit was originally from a different country - but it's transferred to the tax haven via various schemes, like the intellectual property royalty payments and so on.)
> If legal regulatory arbitrage (through tax havens) is unfair, then the corollary is that any kind of business profit arising from utilising uncommon knowledge is unfair.
This syllogism is so unsound that I’m not sure how to respond. I don’t think I’m arguing that, and I don’t think that using corporate tax havens is merely “using uncommon knowledge.”
"If you have nothing to hide, then you have nothing to fear" isn't a reasonable position to hold, and your statement basically amounts to it. There's plenty of reasons to want to stay anonymous when talking about business such as this.
To clarify, I don't necessarily agree with his position, but I disagree with your proposition that he is using a pseudonym for that reason.
If such a scheme were the only thing allowing you to make a profit, would you appreciate this guy drawing attention to it? In fact, you could protect your operation by submitting numerous tips to tax agencies across the world, causing his business to fail due to the immense cost of litigating such complex cases, even though he would be cleared if he could afford the defense. Everyone gets the right message: the public hears that tax havens "don't work", whistleblowers learn to keep quiet, regulators notch up another win, and the truly powerful get to continue dodging taxes.
> makes it possible for us to focus on doing business rather than narrowly tiptoeing an arbitrary and complex regulatory line
This can be solved by simply operating well within the legal line. If you’re operating so close to the border of what’s illegal that you’re “tiptoeing the line” then maybe that is the root problem.
I’ve been in several businesses and not once ever had to stop and ask myself “is what I’m doing technically legal?”
I think the true moral crime here is preventing sovereign nations (using bullying tactics no less) who lack natural resources and other income-generating resources from offering convenient and flexible regulatory climates to business who need it. Singapore and Hong Kong were two countries that did this for decades and look where they are now - why shouldn't Vanuatu or Seychelles be offered the same opportunity?
SG is strategically located in Asia and has taken advantage of that.
HK was/is an entreport to China. Before 1949, it was not as important as Shanghai. After 1949, it was where a lot of southern Chinese escaped and became a manufacturing/cheap labor hub, while also taking advantage of British civil service practices.
Post China's economic changes, HK became the bridge between the world and China's economy, plus the place for China's new rich to park their money "safely".
Today, it is losing/has lost that advantage, because China's corruption has taken hold of the government, and as a result, the "rule of law".
Sure OK, but I want my "moral right" to a social democracy of the Nordic style. How come the Swedes and Norwegians can have a functioning socially responsible government but the UK gets a bunch of incompetent capitalists?
Ethics isn't a black and white thing and people feel differently globally about whats ethical.
Take copyright. That's a western thing, but personally I think we can do without. I like China's ethics on copyright even though most westerners would disagree.
What ethics? China has nominally had standard, WTO-compatible copyright protections for decades. The problem is inconsistent and often corrupt enforcement.
The sine qua non of any legal system is consistent application of the law: https://en.wikipedia.org/wiki/Rule_of_law If you don't have the Rule of Law, you don't have much of anything.
Western companies would have you think that China systematically ignores copyright, patent, and trademark protections, sort of like that there's a quasi-legal norm of simply ignoring those protections. But that's a strategically misleading characterization designed for Western audiences.
The US did exactly the same thing to the UK back in the early 20th century. All developing economies do. Protecting "Intellectual Property Rights" are only relevant to a nation's economy when those rights have value in that economy.
Nations that are in the "developing" state are generally the destination of outsourced manufacturing from developed states. They are arbitraging their lower costs of labor, less developed regulatory environment ("light touch", "economic development zones") and lower standards for environmental and other protections.
China is starting to enforce IPR because it now has the developed capacity to create IP.
Perhaps you're referring to the 19th century? The U.S. didn't recognize foreign copyrights until 1891: https://en.wikipedia.org/wiki/International_Copyright_Act_of... But when it did happen the enforcement apparatus (rule of law) executed the protections quickly and efficiently, AFAIU.
The difference with China is that China does recognize foreign copyrights. Why does the difference matter? Because consistent recognition in China can't happen with a simple passage of a law--that law exists. Any promises they make can't be upheld as their entire administrative apparatus is intertwined with communist party politics, and deficiencies in the political machine are what make enforcement so costly. Excepting espionage and trade secrets, I've never seen any evidence of an official or even unofficial policy of looking the other way for IPR violations; what I have seen is plenty of evidence that the processes for enforcement are byzantine, regardless of whether you're a domestic or foreign owned company, and too slow to catch violators such that it remains profitable. Have you been to developing countries? The black and grey markets are huge. You can't suppress these by fiat; you can only replace them, organically, with legal alternatives. (Same as digital piracy in the U.S.) The leadership can move mountains but they can't move a million mole hills nearly as easily.
The situation can and likely will improve without any major legal or political reforms. What you need, if you wish to accelerate this, is to incentivize the monied interests in China. How to do that? Maybe tie their foreign IP protections, particularly patents[1], on their domestic enforcement of copyright? That way corporations have an independent, self-serving interest in regularizing and normalizing copyright enforcement up and down the value chain, such as by building out their own value chain to replace the black and grey markets. Foreign trademarks are readily enforced in China, within the limits of what the bureaucracy can achieve, precisely because domestic companies have an interest in enforcement of their own trademarks domestically. And I'd bet big money that many of Disney's problems have already been solved by multiplexes owned by corporate conglomerates, which help to displace pirate DVD shops. Omnibus trade deals aren't going to get that done, and there's ample proof of this because there have been many.
You can't address a situation without understanding why it's happening. You can't ascribe simple motivations to such complex systems.[2] Whether you're Xi Jinping, Donald Trump, Vladimir Putin, Fidel Castro, or Hugo Chávez, you can't simply decree that some complex reform happen; things are more likely to go sideways or backwards. (OTOH, if you control the media--and even if you don't--you can simply declare that it happened, and more often than not enough people will believe you, or at least be satisfied.)
[1] Because language and cultural barriers means they're unlikely to have major export markets in copyrightable materials any time soon.
[2] I mean, you can. People do all the time, obviously. Simple narratives are an easy sell. But political reforms built on simple narratives don't have great track records.
In most cases, setting up your business there saves you no tax. It only saves you tax if you are a resident or if you don't tell the govt where you are a tax resident that you have a business there (not telling your govt is tremendously risky given that most of this information is now reported).
The main reason businesses are set up there is the legal benefits. Not just a stable legal environment but also because it is far easier to deal with international investors (most countries withhold tax from foreign investors at source, you can claim it back but that hits your ROI).
Depends on the country. Some countries have treaties letting your home corporation receive dividends from its foreign affiliate tax-free. Canada allows this kind of thing.
Then there's how to wash your Canadian income into this foreign operation...
There was a big case of a uranium mining company in Canada that sold options that effectively forced it to forever sell its product to its recently setup Swiss subsidiary at the "glut" price. If the price went up, all the profit would go to the Swiss subsidiary. If the price stayed low, they'd just liquidate the subsidiary.
> Simply curious, how do you feel about the ethics of this?
This seems like standard practice for many companies who operate offices in foreign countries. It is easier (compliance) and cheaper (compliance and taxes) to have foreign subsidiaries.
If you want to talk ethics you should probably start at the government. Ethics should start with the higher level. The average business owner/s trying to LEGALLY minimize their tax is hardly unethical comparatively to the sovereign that allows it in a first place. If we are talking guys like Google then yes. Those just buy governments.
Simply curious, how do you feel about the ethics of this? Is it to reduce the tax burden in your company's home country?