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...
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
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.
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?
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.
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.
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.
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.
> 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.
Switzerland's haven status was shot down by the GWB administration, and Cyprus surprise taxation made a lot of shady billionaires weary of EU.
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.
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.
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.
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.
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.
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?
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.
Move your money wherever you want, after you paid your taxes.
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.
Someone should pitch this to the Mossack Fonseca guys.
Middle class is seriously squeezed and we're not getting much back from government "services".
“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!”
Same with tax deducting 5 seater commercial 4x4 pickups as work expenses and using mostly for family and recreation.
(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.)
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.
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.
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.
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.
That’s the price you pay to have the most powerful country in the world as a destination to which you can always retreat.
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.
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.
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).
: 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 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.
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.
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.
 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.
- 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.
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.
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.
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.
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.
Are there still areas that need further tightening? Sure, but the prices charged within a company are not arbitrary.
- 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.
Effectively, you would be taxing them on revenue, rather than profit.
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.
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.
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.
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.
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.
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.
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.
>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.
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.
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?
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 . 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.
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).
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.
Also, Mossack Fonseca was shut down.
Mind you - nothing happened to the basic approach of offshore shell companies - which is the real problem.
Hope in humanity restored, a little bit.
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.
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.
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.
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.
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...
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.
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.
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?
> 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
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!
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.
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...
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.