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40% of multinational profits are shifted to tax havens each year (missingprofits.world)
270 points by Mopolo 16 days ago | hide | past | web | favorite | 153 comments



Wow.

Power, in all its forms -- economic, cultural, social, political -- is highly concentrated among impersonal giant corporations today.

For this kind of legal tax avoidance would be impossible without mutual understanding, collaboration, and coordination across national boundaries among many disparate groups of people, all serving their corporate masters in one way or another (as their employers, as their customers, as taxpaying entities, etc.).

Consider only how many people and organizations must be involved to make tax treaties and regulations around the world amenable to this kind of tax avoidance.

Whether this kind of concentration of power is good or bad for society, I'm not sure.

My best guess is no -- but I'm not certain. For there is also evidence that large-scale, concentrated business investment has been a force for good worldwide.[a]

--

[a] See, for example, Marc Benioff's book, "Trailblazer: The Power of Business as the Greatest Platform for Change" at https://www.amazon.com/Trailblazer-Business-Greatest-Platfor...


The corp. tax loss is 10%

Its becoming clearer that the world is shifting towards coordinated world-wide tax rates, similar to how central banks are coordinated. Modern trade is complex and almost always multinational. Clear and easy tax rates will actually allow anyone to enjoy fair taxation, instead of the current unequal situation in which megacorps can use complex schemes to drastically reduce their rates, while normal businesses can't.

Incidentally , the most unequal territory in terms of shifted profits is Europe. An EU-wide corporate tax of 20-25% would be good for business


What's the point in being a big multinational conglomerate if you can't use your size to leverage favorable tax terms over your competition?


It is weird that in Germany, you hit the highest bracket so quickly. It would be great if individuals were taxed like corps - pay after your expenses like rent etc. In this place there is nothing to save taxes on. Even if rent goes up, tax rate stays the same. Not counting the ridiculous system of Church tax which is just infuriating.


Tax rates are clear and easy. Corporations were taking advantage of loopholes that increasingly no longer exist.


They are really not. E.g. i have to use a US business to collect in-game payments because accounting for all the various taxes and VAT is a f’in nightmare.


I did not say tax compliance was easy. But figuring out the rates is a simple table lookup.

Also, using a US business to collect in-game payments no longer lets you avoid VAT compliance if you sell to EU customers. Which is why you can now use an EU VAT compliance "one-stop shop" which does it all for you.


Does that one stop shop have reasonable VAT minimums yet?


The one-stop shop will work with you whatever your VAT liability is.

If you mean do the EU countries have reasonable thresholds, then that's a country-by-country issue. As it should be...

In that respect, tax is no different than each platform or website having its own API and TOS. We don't make every Facebook and Google use the same API and TOS, so why should we force countries to use the same tax thresholds?


>If you mean do the EU countries have reasonable thresholds, then that's a country-by-country issue. As it should be...

When did they make this change? Because initially when the system started the mini-one-stop-shop did not allow you to use VAT thresholds. That was one of the big points of contention about it.


We're talking about 2 very different things.

It sounds like you're talking about a one-stop shop where you get to decide when you want to use it based on your own thresholds. You can certainly do that, it depends on the specific one-stop shop as to how much is manual vs done for you. Some are more technologically advanced than others.

I'm talking about the VAT thresholds at which you're required to collect VAT (and thus would consider using a VAT one-stop-shop). At the time the one-stop shops were introduced, there were no minimum thresholds.

Generally, beginning in 2019, EU members are supposed to have a EU 1000 threshold for requiring VAT compliance. But like all EU rules, this rule requires local implementation and it hasn't yet been implemented by all member states. So in some countries, you need to do at least EURO 1000 of business before needing to deal with VAT compliance...but in others, its still EURO 0.


1000 euros sounds so incredibly low that it might as well not exist. I'm actually amazed how poorly that's thought out.


There is a huge difference between 1000 euros and 0 if you're selling into a country from elsewhere.

The threshold is high enough to not impact incidental foreign sellers but low enough that it's not worth the costs of creating new sales entities to evade VAT compliance.


You're attributing this to malice, or even conspiracy. But it's just basic game theory: because international cooperation has not kept up with the mobility of capital flows, national governments succumb to the mechanics of a Prisoners' Dilemma, or race-to-the-bottom, or tax competition, or whatever you want to call it.

I'm pointing this out because when people draw the conclusion that "all politicians are corrupt" they tend to weaken the very institutions that could solve these and many other problems.

Of course there's also the fascinating tendency of the US public to empathise with corporations. That's why they can't even solve this entirely obvious dynamic within their own borders, and happily pay Amazon's taxes in an entirely zero-sum competition for HQ2.


There is a theory saying that Brexit campaign was financed by the people afraid of the EU banking transparency laws, that would threaten many UK-based tax havens.


Then why did the financial sector campaign heavily against Brexit, and most of the employees in that sector vote against it? Brexit would make it much harder for Europeans to use British financial products.

> Britain’s financial services industry, the country’s biggest tax earner, risks being cut adrift from its main export market - the European Union - after Brexit.

https://www.reuters.com/article/us-britain-eu-finance/britai...


Because managing tax havens is a very small part of the sector in number of employees.


If you look at the data, there’s plenty of EU tax havens to use


Any one that is particularly employee friendly ?


And it still wasn't enough...


But they won't protect you from US taxes, they won't protect you from Putin's probes, from EU sanctions or from anti-terrorism laws.

Switzerland's haven status was shot down by the GWB administration, and Cyprus surprise taxation made a lot of shady billionaires weary of EU.


I’m glad you are questioning your views on taxation and concentration.

These things don’t happen in a vacuum and the non-participant’s view is highly distorted and intentionally manipulated.

Exhibit A is the IRS’ role. For most people the IRS is viewed as an adversary that retroactively attacks them and unilaterally decides how much that person will pay them. For perceptive people the IRS can preemptively approve your plan of how much you won’t pay them, and most of these multinational tax saving schemes are signed off by the IRS in advance.

This reality always escapes the populist furor that results in changing a tax rate or two, primarily because the people are not exposed to it and can only imagine some arbitrary loophole and an adversarial IRS that is limited by an interpretation of a passed law. When the reality is very different and not adversarial at all.


It would be interesting to see how these numbers have changed since 2016 with the new US corporate tax scheme. The promise was this avoidance would be greatly reduced. I wonder if it has been?


> Power ... is highly concentrated among impersonal giant corporations

That power ultimately belongs to the billionaires that own the relative majority of stocks. The faceless companies are just proxies.

This is where wealth inequality comes from.


I consider libertarianism to be contemporary monarchic support, due to exactly these issues. Corporations are run as monarchic or dictatorial structures, with some controls.

Ultimately, we have a choice: work hard to build the government that we want, or allow it to falter to the energies of the billionaire class. Or, even worse, allow the billionaire class choose the government that they want.


It's time for syndicalism to make a comeback.


_left libertarianism_ that applies the same logic that right-wing libertarians apply to governments to any large organisation is pretty interesting (and a lot more internally consistent).

Under that worldview you end with strongly progressive taxation funding something like a Universal Basic Income, which allows you reduce corporations' economic power without just moving it to the government.

That said, government is definitely the appropriate place for a lot of decisions to be made.


> Corporations

What you say is self-contradictory. Corporations are literally a creation of the state. Libertarians do not support the State's protection of corporations and do not support corporatism.


I am fairly certain 40% of all citizens would shift their income to a tax haven if possible.


This is a good point, actually. Attributing the blame to an extreme minority of people (billionaires) is counter-productive. The problem is not their individual moral failings (however numerous) but the system that permits them to exist and incentivizes their parasitic and exploitative practices.


That extreme minority of people have a lot more power to influence the system than the common man. It makes one wonder how the system got to be the way it is in the first place.


I don't mean to diminish their effect on the world. What I'm saying is that if we take down Epstein and lapidate Bezos and whatnot, some other unscrupulous person will take their place.


That's a bridge to cross when it's arrived at. As it is impossible to foresee every eventuality we can only deal with the problems at hand taking reasonable precautions in the process.


'The system that permits them' is far too passive a voice, because the rich have aggressively gamed the system and rigged it to their advantage. The IRS is badly outgunned by armies of accountants and lawyers playing shell games and at best exploiting quasi-legal loopholes, or committing outright fraud.


Don't forget that these people have tremendous amount of power and influence in politics and work hard to keep these loopholes open for themselves.


> parasitic and exploitative practices.

Like taxes.


Based on that premise:

Should we, as a society, permit a select few to shift their wealth to tax havens or should those folks also join in with everyone else? Are those sheltering their taxes more privileged that they deserve being able skirt the rules others can't, even if others would do so given the same circumstances?


Yes. We should allow free competition between tax jurisdictions. If another state is willing to provide better services in any regard, people should be free to decide what suits them best.

What is the meaning of private property if individuals can not move it abroad as they wish?

A more productive line of inquiry might be an examination of what tax authorities can do to make their schemes more palatable.

Perhaps the experiment of liberalism (as suggested in the 18th century) has failed if government has reached the point where it is trying to optimize and maximize revenue. It seems that liberalism has arrived at the same place that inspired the guillotine and the Boston tea party.

https://en.wikipedia.org/wiki/Laffer_curve


> What is the meaning of private property if individuals can not move it abroad as they wish?

Move your money wherever you want, after you paid your taxes.


I think this theory has been discredited as Reaganism propaganda. The fact that its wikipedia page does not account for criticism makes it even more dubious.


Maybe you could flesh out the substance of your assertion?

I fail to see why individuals and corporations would not pay if it were cheaper to comply than to evade taxes. Part of the expense of compliance is the staffing of lawyers and accountants. On the other end perhaps increased value could be added in the form of incentives for tax-payers.

Resentment seems to be running high (rhetoric about the 1%) in regards to the guillotine observation. Similarly many are frustrated and looking for a way to escape tax obligations.

More and more individuals are choosing to go through the inconvenience of renouncing their US citizenship.

https://www.americanexpatfinance.com/news/item/131-u-s-final...

https://www.americanexpatfinance.com/images/Renunciations_20...


Yup, that’s what we need to make it impossible. Don’t rely on people to act good, build a system that prevents them from acting bad.


Might be interesting if you could use something like a pooled earnings fund secured and collateralized by some kind of smart contract, thereby achieving sufficient economies of scale to allow for the "non-hyperrich" to get some of these tax savings.

Someone should pitch this to the Mossack Fonseca guys.


Wish I could. I'm in no way rich (middle-class); don't own my flat or a car. I still pay ~42% taxes here in Germany.

Middle class is seriously squeezed and we're not getting much back from government "services".


More than 40% when you remove their stigmas around discussing money topics, as it only perpetuates ignorance

“Ah this person aware of the rules is playing by a more effective set of rules than we are, there are more of us so lets change the rules so our worse strategy is the only strategy, ah but we don't know which rules they are using!”


Case in point: New Yorkers moving to Florida and Californians moving to Nevada.


And more than 40% of all citizens would decline jail time if convicted of murder. You talk as if tragedy of the commons/prisoner's dilemma is something new and unknown.


In many cases it’s possible and people should be aware of their options. The US however is pretty draconian with its taxing of in international income


We do. If you have a trade just charge cash in hand and post believable losses every tax return.


Do I get that correctly and you're proposing tax evasion in all seriousness?


No, but its common knowledge that most tradesmen do this.

Same with tax deducting 5 seater commercial 4x4 pickups as work expenses and using mostly for family and recreation.


It's only a crime when you do it


That few?


[flagged]


I think paying taxes to the society you're profiting from is entirely reasonable. The problem is that corporations are free to profit in one country but declare those profits in another country. Corporations can do that but people can't.

(What's even worse, US citizens (US "persons" even, you don't have to be a citizen for this) that live and work abroad and have nothing to do with the US, still have to pay their taxes there. And also in the country where they actually work and live. People get treated the exact opposite of corporations in this way. Though the US is the only country in the world that does this. Perhaps they're the only one with the power to enforce this world wide; any bank that wants to do business with the US has to report on these "US persons" and play by US rules.)


Another big issue with US taxes is that tax dollars aren't well spent.

I'd be happy to pay the amount of taxes I'm currently paying in California if tax dollars were used well, but as it stands the public schools are underfunded, the highways are full of litter on the side, higher education isn't free, healthcare isn't universal, social security is underfunded, public transportation is dysfunctional, and so on.


When it comes to international corporate interest, American tax dollars are extremely well spent. The US State Department, Military, and to a degree, Intelligence Agencies do everything they can to compel favorable treatment for large American companies from every other country.

I guess it's possible that large companies have outgrown the need for US Government support internationally and figure its cheaper and more effective to lobby the leadership of countries directly. The problem is that this approach opens up Western nations to a new form of neo-colonialism. When Western "democracies" are controlled by large corporations, the door is open for the state-owned companies of China or Saudi Arabia to acquire these companies, and thus, their influence over Western nations.


> "When it comes to international corporate interest, American tax dollars are extremely well spent."

That just makes it worse: people pay taxes but don't get value for their money, while corporations pay no taxes but get lots of value for other people's money.


This is true, US isnt so bad at public spending management. Still, that doesn’t make taxes voluntary


It's a different issue, but yes, I can totally see how people would be less happy about paying taxes when those taxes are wasted on stupid crap and not used to improve the situation of them and their fellow citizens.


It's not totally separate. Paying taxes to fund orphanages, or to fund weapons of mass destruction, or actual wars that one considers to be intrinsically immoral, are radically different acts - and the moral act of payment is affected. To fund an orphanage might be considered an obligation by many, while to fund an immoral war might be considered a form of slavery and the funds taken under duress.

In other words, the morality of paying taxes is directly dependent on the legitimacy of the government demanding payment. And that legitimacy in part derives from their very actions, for which in an ideal wold they would be held accountable.


California has high pension obligations that will only make the problem worse. The pension recipients refuse to discuss the matter. They wont even let grandfathered changes. Fees and taxes will continue to increase and services will be cut to pay pensions.


If you had a contract with the state to provide you money in retirement based on a career of working for the state, how much flexibility would you personally have on the state unilaterally changing the terms of your source of income?


> What's even worse, US citizens (US "persons" even, you don't have to be a citizen for this) that live and work abroad and have nothing to do with the US, still have to pay their taxes there.

That’s the price you pay to have the most powerful country in the world as a destination to which you can always retreat.


We are aware that is the price you have to pay. However "The United States is one of just two countries (the other being the African nation of Eritrea) that taxes individuals’ based on their citizenship".[1] That should at least give you pause to ask why, whether it is fair, and most importantly, if there is not a better solution to whatever problem this policy attempts to solve.

[1] https://taxfoundation.org/how-countries-define-their-income-...


If that was a justification then why aren't corporation's paying that price?


It is also worth noting that expats can exclude something like $100k from taxes with the Foreign Earned Income Exclusion. My understanding is that relatively few US expats actually pay anything.


From what I understand, they usually don't have to pay anything as long as they do pay some reasonable amount of taxes in the country where they live, but they still have to file taxes in the US, which, from what I understand, is quite a horrific process.


Doesn’t change the fact that US corporations aren’t so bound.


Please don't confuse income taxes with taxes on profit. Income tax is like a tax on revenue - you pay it where you get it, you can't deduct costs. You can tax corporations on revenue or you could tax consumption (by VAT or sells tax) and that wouldn't be evaded either. The problem is with taxing profits and elusive concept of "profits in specific market". The concept doesn't really makes much sense though.

It also isn't a just concept if you think about it. Why should France (for example) get more tax just because Ireland made it possible to produce things cheaper? If they feel you should pay for access to the market tax that. It's really is not your business how much I spend in my country to produce goods I sell in yours. Trying to police that across borders, varying accounting regulations, labor laws etc. is just insanity.


> "It's really is not your business how much I spend in my country to produce goods I sell in yours."

That's exactly my point: you tax the economic activity only in your country: the revenue minus the profits in your country. What the company does in a different country is irrelevant to this.

Note: this is my tax proposal. Not how I claim things currently work, but what I think they should be changed to.

Although on a different level, I think what happens across borders absolutely does matter: I think countries should not import products created through slavery, child labour or other forms of oppression. Companies and countries should take more responsibility for the entire supply chain and not just the bits inside their own border.


Honestly, I'm down for paying taxes. It pays for my lifestyle and is propostional to my lifestyle. If I own land, that land is only valuable due to the society that land exists in. It's protected, and safe, due to public services like roads, which law enforcement, fire control folks, postal service, and ambulances drive upon. I've earned my income from a lifetime of education, starting from my public school kindergarden all the way to me state university attendance, which in of itself is only useful to attend because there are bright minds teaching what they research via government grants.

All of that costs money, and paying taxes is more or less funding my lifestyle as it is now. If you want to not pay taxes, then stop paying taxes and give up everything you purchase with them. Go subsistence farm in the woods or something, or deal with bartering instead of money (which itself is only useful because there is some regulation to keep it useful).


I think most people would be down for paying taxes, however their main gripe, in my opinion, is that the quality of services (infrastructure, tax dollars being used for NSA spying on citizens, etc.) we're getting back for our tax dollars is dropping while taxes increase.


Yes, I agree. We should vote appropirately, organize appropriately, and fully fund the IRS to be able to go after people who aren't paying their fair share in society.


Taxes on regular people increases and the quality of services they provide decreases, precisely because of the tax-evading [0] behavior of the multinational corporations.

[0]: If you feel the need to point out the difference between tax-avoidance and tax-evasion then please watch this first: https://www.youtube.com/watch?v=m2q-Csk-ktc


I suspect few people here think they should pay no tax, however I’m quite sure that most would disagree about what the “right” amount would/should be. Furthermore, this is exacerbated by the quality and quantity of public goods different people use (e.g. there are plenty of people that have never set foot in any type of public school/university)


"however I’m quite sure that most would disagree about what the “right” amount would/should be."

I currently spend a little over 30% of my income as the sticker price to living in a first world country. Compared to the price of renting an apartment in my city, I think this is a steal.

People who never set foot in any type of public school or university benefit from everyone else being educated, because everyone else designs their clothes, their cars, their planes, their buildings, roads, computing devices, etc.

No one is self sufficient in the society I live in. It's totally possible to go and be self sufficient. This reduces your income so you don't pay taxes, since you're not interacting with government-protected, government-manipulated currency. Seems reasonable to me.


I'm glad you feel like you are a net beneficiary - but my comment really boils down to "reasonable people can disagree" and "not everyone has the same experience"


A consumption tax (a tax on sales) is proportional to your lifestyle. If someone chooses to buy a gas guzzler v8, they should pay taxes on the gallons they burn to pay for roads and emissions.

Consumption tax is also easier to be set to a geographic location, and harder to shift to different tax jurisdiction.

Harder to play games in comparison to an income tax.

But nobody wants it. Very unpopular in a vote because, people rather have someone else pay such as rich people and corporations.


Consumption taxes are also regressive in that in the lower your income, the harder those taxes become to pay. I would prefer a tax scheme in which you're ability to pay the tax is proportional to the taxes you owe.


It's not regressive. It's a flat tax, everyone pays the flat rate. Feels like spin when you say regressive.


The reason people call a flat consumption tax regressive is that poorer people, even though they're often buying cheaper things, generally spend a much larger proportion of their income on "consumption."


Consumption taxes are regressive, serving to further exacerbate income inequality.


It's not regressive. It's flat.


Rich people rarely buy stuff in proportion to their greater income (earning 100x more but not buying cars worth 100x more, etc). This would mainly affect the not-so-rich people, who, given fixed purchase budgets, would probably respond by consuming less, which is likely to hurt businesses with lower demand for just about any product.


> This would mainly affect the not-so-rich people, who, given fixed purchase budgets,

Certain items can be excempt from sales tax, such as groceries.

> Likely to hurt businesses

Since when is the HN crowd worried about hurting businesses. Most people here want higher taxes for corporations.


That's fine if you want to pay them. But you should not and cannot ethically force others to consent to pay them.


[flagged]


What's hypocritical about this? I suppose if you honestly believed SolaceQuantum was wrong[0], you might indeed believe they were either deluded or a liar, but even then, what's hypocritical about it?

[0] They're not wrong of course; everything claimed in that comment is entirely (or 'mostly', at least) correct. I'd love to see you try to refute any of it.


I've benefited greatly from the system, as did my siblings and parents, so I'm more than happy to pay taxes. Taxes:

- Make sure the area I live in is clean, safe, accessible - Paid for my college, allowing me and my siblings to end up with a higher education and (in my case) earning more than my parents did. Social mobility, something my parents could not have afforded on their own. - Paid my dad when he lost his job - Paid my brother who never managed to land a job

And of course if it wasn't for taxes / a functioning government, half my country would be underwater.


I don’t think you using roads or any public service is honorable if you don’t want to contribute. Markets and wealth don’t exist without governments to enforce them.


You are benefiting from the fruits of society and in some way should give back. Taxes are maybe not the best system, but not paying them is not 'honorable'


I don't necessarily disagree with your statement, but I also don't feel particularly honorable funding invasions of foreign countries, killing civilians with drone strikes, developing and producing massive amounts of weaponry, spying on American citizens, and other unsavory business the US is involved with


I'm a little stunned by the HN comments.

Taxes are non-consensual. I think that is all that needs to be said. If you want to pay them, that's your perogative but forcing anyone to do something under threat of jail or death cannot be justified.


Surely you have an alternative method of funding government then?


There are historic (and present) examples of governments that do not tax their citizens and residents. The government should be engaging in business/trade/stock market/etc. and not steal from its citizens.


Just an honest question: How do you think should we finance our society?


I think the correct answer is whomever will willingly pay for it. If we look at taxes through a framework of consent, I don't see another option.


Corporations being able to book their profits wherever they find it most convenient to book them, is utterly unreasonable. They make their profits in specific markets, and should be paying their taxes there. Profits made from selling in the US should be paid in the US, profits made from selling in Germany should be paid there.

The problem is, profits are the end result of a lot of complex corporate operations across many countries. Who's to say which bit of which revenue was used to pay for which costs, while other bits are pure profit?

There is another corporate tax that is entirely linked to the market they're selling to, though: VAT. The problem is: it's only over revenue made from selling to consumers, not to other businesses, and it's always completely offloaded to those consumers, and therefore not really a corporate tax but a consumption tax.

So how about treating profits that way? In every market, you count the revenue made from selling in that market, and subtract the costs made by buying, hiring, etc in that market. The difference is the profit you made in that market, and you've got to pay your corporate tax over that amount to the tax authority in that market.

That way you can't book your profits in a country where you didn't make any revenue. And if somehow you do make your revenue in a country where you didn't make incur costs, you pay tax over the entire amount. If you don't make revenue, then tough. You could have made some tax-free revenue there.

I'm no international tax lawyer, though, so there are probably problems with this idea. I like the principle, though: they've got to pay back to the market they're profiting from, and not to a completely unrelated country that offers them tax breaks for coming there.


The problem with that is the expenses are already arbitrary with international businesses. It is Hollywood accounting of making movies "never turn a profit" writ large and arguably more honest. If say Amazon UK "rents" their branding, storefront, and similiar from Amazon US the value.

Essentially unfixed value goods + deductions = massive loophole. Unfixed fuzzy values are also very valuable to money launderers.

It is nastily entangled with other issues where a fix would carry major side effects. It is a metaphorical lodged bullet against the heart wall - its current existence is problematic but just yanking it out would do way worse damage.

Removing all deductions wouldn't be viable from many other business models.

For simpler amateur closes I can see a simple close being an explicit "your own external owned subcorporations never count as expenses" or "if you sell these exploitable things they must be open market bid and are transaction taxed" which would lead to lots of weirdness.


That's why I think you need to tie it in a non-transferable way to a market. So if Amazon UK pays Amazon US for a license, either it pays that license in the US, which means they can't deduct it from their UK profits, or they pay the license in the UK, which means Amazon US has to pay taxes on it in the UK. Either way, someone is going to pay tax over that revenue in the UK, and it'd be the most profitable for Amazon if it was done by the company that also spends the most on costs (labour, services, whatever) in the UK.

I still think that would actually close these loopholes. It would erect some barriers to international trade, though, because companies making their costs and revenue in the same market have an advantage over companies coming from other markets. I don't think that's necessarily bad, though, and it can be mitigated by trade deals by which countries decide to treat their markets as a single market for these purposes as long as their tax rates are similar enough. Of course then they shouldn't make those deals with tax havens, and they'd be stupid to do so, because they'd be inviting a loss in tax revenue if they did that.


Expenses aren’t arbitrary. Look up transfer pricing. There has been a ton of policy developed that severely limits what one subsidiary can charge another.

Are there still areas that need further tightening? Sure, but the prices charged within a company are not arbitrary.


That's why I think corporation tax should be applied to UK Sales - UK Costs.

- Buy in the branding from the US? That can't be deducted.

- Import from China? Can't be deducted.

- Employ more people. Deductible

- Buy more from UK suppliers. Deductible. Now go on and export more with that. Those export sales won't affect your tax.


Unfortunately, that would make some entire categories of business non-viable. Any business that relies on importing raw materials would be hit with punishing taxes—unless their margins were huge, or their local & labour costs were orders of magnitude higher than their import raw material costs, they would likely not be able to operate.

Effectively, you would be taxing them on revenue, rather than profit.


For those businesses that import raw materials, and sell on in the UK for a small margin then yes they would be unviable. They would have to increase that margin.

If they are exporting, then this would not affect them.

If they are selling on for a large margin, then they would be able to absorb at least some of the tax.


They wouldn't get to deduct the costs of importing those raw materials, but they would get to deduct the costs (labour, probably) of refining them and making something out of those raw materials. And if they sell back to the country they imported raw materials from, they get to deduct the raw material costs from those profits (assuming that country uses a similar scheme).

But you're right, for a company that makes their revenue in a different country than where they make their costs, it's effectively a tax on revenue. So it would encourage countries to make their costs in the same countries where they sell. It might stop companies from moving all their jobs to low-wage countries.

I admit raw materials would be an issue; those are not equally available everywhere. But at the same time, it would effect every company in that industry equally, so I don't think the end result would be that much of a problem. I guess it'd discourage extracting raw materials from poor countries. Would that reduce their exploitation by western companies, or would that deny them the exports they need to grow their economy? I don't really know.


That's totally unworkable. That banana you buy in the supermarket is imported and sold with a gross margin in the low single-digits. Taxes the revenue at income tax levels would effectively raise prices by the tax rate, i. e. 30% or so.

If the supermarket doesn't buy the banana directly from the plantation, that tax would accrue at every step of the chain. You'd effectively be prohibiting trade and people would switch to monthly drives to local farms and an entirely potato-based diet.


Many products already have a VAT tax of 20%, and that doesn't seem to stop them. True, bananas would probably get more expensive, but again, countries could mitigate this through trade deals with countries they believe have a fair tax system.

But it's true, local products would have a significant fiscal advantage over products from other countries, especially products with complicated supply chains across many different countries, some of which countries are tax havens that the target country doesn't consider having a fair tax system.

The change would probably be a shock to many companies, but it'd also make it impossible for companies to shift their profits to tax havens.


Only if every step of the chain is in your country. This tax would only affect the sale of goods in your own country, not those that you then go on and export.

Yes, it would increase the price of bananas in the UK as we currently don't tax food. But, it might make an apple relatively cheaper. That would then help to keep money in the UK as it could be grown here; employing people in the UK who then pay tax here.


> But at the same time, it would effect every company in that industry equally, so I don't think the end result would be that much of a problem.

It would be a problem if it meant that an entire category of product suddenly became completely impossible to profitably produce in the country—particularly if it was one that had been produced in significant quantity there for some time.


> "Now go on and export more with that. Those export sales won't affect your tax."

Not in the UK, but of course they will be taxable in the country you're exporting to. Assuming that country uses similar tax rules.


VAT works approximately like that (except for the fact that salaries are not deductible)


It does work approximately like this, but this way it would be taxing the value added from imports and profits. Value added by paying someone for labour wouldn't be included as the government will get money for that through income tax.


That's pretty much my inspiration for this. Except I've been wondering if VAT wouldn't be fairer if salaries and other local costs would be deductible.


>So how about treating profits that way? In every market, you count the revenue made from selling in that market, and subtract the costs made by buying, hiring, etc in that market. The difference is the profit you made in that market, and you've got to pay your corporate tax over that amount to the tax authority in that market.

>That way you can't book your profits in a country where you didn't make any revenue. And if somehow you do make your revenue in a country where you didn't make incur costs, you pay tax over the entire amount. If you don't make revenue, then tough. You could have made some tax-free revenue there.

This is already what is happening. Company A sells something for 100 in Country X. But the product is manufactured in Country Y, and the brand is "rented" by a company that owns it and set up in country Z. These costs that get passed to Country Y and Z are the local revenues in these countries. It happens that Y and Z are countries with lower tax rates, so the comapny tries to maximise the Transfer Price it pays to its legal entities located there.


I can't upvote this enough, you've just described the actual solution to this problem recommended by economists (which of course no one is interested in). It's a bit depressing to have it be almost totally absent from the conversation even on HN.

It's called a border adjustment tax, you tax at point of sale and deduct domestic factors of production. So the tax is on what's remaining (profits and foreign production costs).

For the foreign part apparently the currency exchange rate appreciates to cancel out the tax so it doesn't actually have a protectionist effect, although that's certainly not obvious to non-economists.

It was actually floated as part of tax reform a while back, and got interest from economists on the left and the right, but corporate lobbying killed it.

Of course redoing the tax code isn't simple, but this appears to actually be a totally solvable problem that doesn't require the cooperation of every country in the world or legal battles with every company about where their profits are from.


> "For the foreign part apparently the currency exchange rate appreciates to cancel out the tax so it doesn't actually have a protectionist effect, although that's certainly not obvious to non-economists."

I'm particularly interested in this part, because this does seem to be the weakest part of my idea. Do you have any links with more information?


Yeah that part isn't very intuitive (at least to me). This was actually proposed as part of a Republican tax reform attempt back in 2017 [1] but the idea was taken from Alan Auerbach who's the director of the tax policy center at UC Berkeley.

A lot of high profile economists on both sides of the aisle seemed to think the general idea checked out including Krugman who specializes in trade and is not known to be a cheerleader for Republicans generally [2]. Of course there was probably disagreement over the absolute rates but the general idea of it being a way to fix the tax haven problem while also being trade neutral seemed to be pretty widely accepted (although some people weren't sure if the currency adjustment would be immediate).

Unfortunately the Koch brothers and some other corporate groups were against it so it got killed, and what got passed was a bill that paid for a corporate tax cut by just borrowing money and didn't address the tax haven problem.

[1] https://en.wikipedia.org/wiki/Destination-based_cash_flow_ta...

[2] https://krugman.blogs.nytimes.com/2017/01/27/border-tax-two-...


If the money wasn’t fake it would bother me more but all this is doing is hiding inflation or delaying it perhaps until the money repatriates at a later time.

I might even go as far as saying that to a certain extent fiat money disappearing is better for the economy than the government allocating it towards something that is a net loss in terms of actual productivity (compared to something else the same people/resources could be doing instead).


Remember when the Panama Papers came out and absolutely nothing happened?

On the plus side, exploitation of the system by the richest has been going on for millennia, the only difference is that today more people are aware of it.


That's not quite true - a lot of stuff happened see:

https://en.wikipedia.org/wiki/Panama_Papers

Also, Mossack Fonseca was shut down.

Mind you - nothing happened to the basic approach of offshore shell companies - which is the real problem.


Oh my gosh, this is AMAZING! I was wrong, and thank you for this correction.

Hope in humanity restored, a little bit.


I can strongly recommend the Panama Papers book:

https://www.amazon.co.uk/Panama-Papers-Breaking-Story-Powerf...


Not true; 1.2 billion has already been recovered, and there's still investigations ongoing - and likely will be for years to come still. Just because it's not on HN doesn't mean it's not happening.


No, scriptural money and globalization are big differences too. Not too long ago it would have been easy to physically steal rich people, now it requires far more organization.


> This shifting reduces corporate income tax revenue by nearly $200 billion, or 10% of global corporate tax receipts.

To put that into perspective, the OECD has $50 trillion in GDP, and raises over $17 trillion in tax revenue. So we are talking about 1.2% of total tax revenue. Even taxing all multinational corporate profits at 50% with no tax havens would only add up to less than 5% of all tax revenue.

I wonder what the agenda is when we spend so much time and political bandwidth talking about rounding errors.


Because a yearly tax rate isn't a flat fee and yearly rates compound.

For example, from the widely shared article from business insider the other week.

If there was a 3% tax on money past $1B Jeff Bezos wouldn't have beat $86B in fortune, but he's at $160B today.

That's a 100% increase caused by what you call a 'rounding error'. Over not-even-that-many-years.


The vast bulk of taxes in the OECD are payroll and income taxes, which do not compound yearly. Taxes on property account for just 2% of tax revenue in the OECD: https://www.oecd.org/tax/tax-policy/revenue-statistics-highl....

As to Jeff Bezos--what is the point of taxes? Raising money to pay for public services, or trying to make Jeff Bezos have less money? I'm in the former camp. I don't care how much money Jeff Bezos has, I care about raising revenue to pay for public services.

Estimates are that an 8% wealth tax would raise between $60 billion and $430 billion annually: https://www.manhattan-institute.org/issues-2020-taxing-the-r.... Total U.S. government spending (at all levels) is somewhere between 12 and 86 times as much as what an 8% wealth tax would raise. (Of course, an 8% wealth tax would be completely insane and we would never do it. Sweden and France topped out at 1.5% before they realized it was a stupid idea and ditched it.)

I don't see the point of doing battle with billionaires (and potentially driving them all to Canada, or Sweden, or France) to maybe optimistically collect 8% more tax revenue, and realistically more like 1-3%. We could raise $500 billion+ (an extra 10% of revenue) by adopting a Canadian style VAT. Which has the major advantage that it's not insane and everybody else in the OECD has one.


Corporate income taxes are not annual taxes on wealth. They do not compound.


Tax heavens have MUCH lower taxes, but they also have other benefits like very little bureaucracy, better privacy and better protection from lawsuits.

You will also have a lot of freedom managing your company. For example, if you try to move a German company to another country and that country has lower tax rate, then Germans will put additional punishing taxes on your company for the next 10 years, despite you are not living there anymore. You will never have that issue with offshore corporations.


If you need an offshore corporation, it can be opened for a few hundred $, but if you need to do the same for example in Germany, then you have to pay 25000 EURO to found a GmbH.


You don't pay 25000€, you invest them in the company. And from what I can tell, there's a "mini-GmbH" model that avoids even that requirement.


FYI this isn’t new info; this research was published approximately 1.5 years ago.

Personally I’m not certain that a government would put this extra money to good use. Gabriel Zucman (advisor behind Warren’s wealth tax, whose doctoral advisor was Thomas Piketty) is one of the people behind this website, and seemingly has an ideological problem with personal and corporate wealth accumulation. But I haven’t seen cogent arguments (from him or Piketty or Emmanuel Saez) as to why accumulation of having a tax strategy is wrong. Everyone would avoid taxes if they could, and governments aren’t exactly known for putting capital to efficient use. Furthermore theee corporations have to pay taxes when money is repatriated so this is more of a tax rearrangement strategy. See https://www.investors.com/politics/editorials/overseas-profi...


> "Everyone would avoid taxes if they could, and governments aren’t exactly known for putting capital to efficient use."

Those are different issues, though. Firstly, of course governments should put their tax revenue to good use. When they don't, it's a failure of democracy to hold the government accountable. Of course in a non-democratic country or a severely compromised democracy, it's hard to impossible to hold the government accountable. Either way, the thing to complain about is the way taxes are used or misused, not their existence at all, as governments won't be able to function without them. If you don't want governments or countries at all, then argue for that directly, and I will sympathise. But you don't get any sympathy from me if you want to live in a nice country but don't want to pay any taxes for it.

And secondly, just that everybody would avoid to pay taxes if they could, doesn't mean it's okay for corporations to be able to do so. It merely underscores the inequality between people and corporations.


As far as I understand Piketty does not argue that wealth accumulation is morally wrong. He argues that wealth accumulation has a negative effect on society.


It's a bit odd seeing Zucman as a contributor here, considering his recent economic advice has been criticized for assuming that tax avoidance isn't a thing.


I think it is a good thing, like a free market for tax laws - you can choose the one that best suits your needs :)

More seriously though, tax havens are necessary: governments are just as greedy as corporations, so we need some means of tax avoidance, otherwise politicians would just pass a law introducing 100% tax rate on everything.


What typically happens to corporate profits that are declared in a tax-haven?

Naively, when those profits are moved out of the tax-haven, they will create income, profits or dividends on the entities they are transferred to, and those will be taxed in turn. But there are probably ways around these taxes, what would the point be otherwise?


If you want to go down the rabbit whole - read the link below...

https://www.taxpolicycenter.org/briefing-book/how-does-curre...


I am honestly not surprised. In my country the current government came up with the idea to slam an additional tax on banks because they "think they earn too much" and they need to share with the society.


My guess is that’s and approximation of the U.S. companies’ foreign source income that they don’t want to be double taxed on...were the double taxation to go away there wouldn’t be a need to play this game


the exact next line is rather underwhelming:

> This shifting reduces corporate income tax revenue by nearly $200 billion, or 10% of global corporate tax receipts.

Companies sometimes have to shift profits through tax heavens because many 'proper' countries are too bureaucratic when it comes to things like IP or international profits handling. "Multinational" no longer means that it's a megacorp - we live in a connected globe. Perhaps we should talk about why tax compliance is such a big burden for mid-size businesses.

Seems Germany is losing more than everyone


Weren’t the corporate tax cuts supposed to help with this? Has it been helping? Isn’t the us corporate tax rate now basically competitive with other countries?


It helped in the way that legalising murder would lower the crime rate.


Breaking news: Businesses avoid taxes to maximize their profits just as individuals do. More at 9.


the forty percent number here is quite ironic -- that is about the same percentage of your total income you will pay in California as a high-value working professional person.. high-tech engineer and a company, registered nurse at a huge health company.. like that .. forty percent of you check is -gone-, roughly.. you might get some back at tax time (yearly) if your papers are a certain way..


I'm surprised it's not more.


Corporations already pay myriad income taxes and distributed profits (capital gains and dividends) are taxed, paid by the recipient. Corporate tax is double taxation and is inefficient. The optimal corporate tax rate is zero and I wish people would understand this.

35% corporate tax rate the US had before the tax cut was completely absurd and the only corps that paid it were small ones that didn’t have in house staff to get around it. Even your favorite socialist European countries have far lower rates than 35%.

If we set the rate to 0% companies would stop playing all these stupid games and fire all the people who spend their lives waging this war. It drives me bananas!


This is something that a lot of economists agree on: tax the rich, not the corporations. I happen to agree with it as well.

The problem is the ultra rich then leave the money in the corporations, and find ways to benefit from their company cars, company jets, and company manhattan duplex penthouse apartments above their offices that they then pay a nominal rent for.

I think that below a certain revenue (not profit), corporations should be taxed at 0%. Problem is (same with free webhosting), people take advantage and just start spinning up hundreds or thousands of corporations (real estate companies do this already for liability).

No matter how you structure it there is no way to provide tax advantages to one entity without having people game that system.


Seriously this. It absolutely baffles me how many accountants and lawyers there are in the United States. I find it funny that there's not that much automation on that front.

We will always need people to check over numbers but the question is always going to be, how many and how much should you/they be paid to check over numbers versus building a system that can check for numbers and alert someone when something looks fishy...


The 35% is absurd if you ignore all the tax breaks which allow the average paid tax rate to be under 20%.

A point that I'd like to make is the government can be viewed as many things, but one of them is a provider of services: legal, military, diplomacy. These all cost a lot of money, and you are arguing that companies, who benefit most directly from those services, should not have to pay for them.

If the US spends, say, $2B enabling Shell's business interests, why shouldn't that price be built into the product? And before you say: you're an idiot, it would mean higher prices for consumers, yes, exactly. The cost of goods should be baked into its price.


I think the idea is that taxes aren't only evaded at the level of the firm. Shareholders also evade taxes, but through "double taxation" they might still end up paying something.


I don’t think the designs of tax structures are that clever or principled. I think it’s more like “we want to spend more and so let’s find the most politically expedient revenue source we can get away with”. Over time, the legislation (and spending habits) put in place by all the politicians that come and go results in an inefficient, inscrutable mess that is modern taxation and government spending, along with requisite anomalies like taxing the same dollar several times.


Not to stray into politics but in general terms, I'm wondering if decided views on the topic (either way) would be altered for folk living in a country which then democratically elected a government with a no-bones-about-it Marxist agenda. Interestingly enough, I believe such an experiment might take place shortly.


Reduces taxes. Problem solved.




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