Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion(bloomberg.com)
bloomberg.com
Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion
http://www.bloomberg.com/news/2012-12-10/google-revenues-sheltered-in-no-tax-bermuda-soar-to-10-billion.html
177 comments
So in the vast world of disciplines, there are two kinds: disciplines that are scientific, and disciplines that aren't. Economics is one of the latter. There is no reason to take what economists say as conclusive, specially in the domain of macroeconomics.
The comment by the Cornell professor above also ignores a very simple fact: capital expenditures are tax deductible. The idea that taxation directly reduces the money available to invest in the company or hire workers is just factually incorrect. It may reduce those things indirectly, through deadweight losses in the economy, but tax law is structured so that capital expenditures and salaries are paid for with pre-tax dollars.
There is a strong fairness argument to taxing corporations the same as individuals: corporations are treated as separate persons for liability purposes, they should be taxed as separate persons for tax purposes.
The comment by the Cornell professor above also ignores a very simple fact: capital expenditures are tax deductible. The idea that taxation directly reduces the money available to invest in the company or hire workers is just factually incorrect. It may reduce those things indirectly, through deadweight losses in the economy, but tax law is structured so that capital expenditures and salaries are paid for with pre-tax dollars.
There is a strong fairness argument to taxing corporations the same as individuals: corporations are treated as separate persons for liability purposes, they should be taxed as separate persons for tax purposes.
There is a lot of science in economics, but where it becomes unscientific is when humans are involved. Much early macroeconomics made the simplifying assumption that humans made rational decisions, and that they had perfect information when making these decisions. That is useful for some models, but the real world is much more complex than that, and that is why the models often don't reflect reality. There is a lot of science in economics though.
If the business tax rate is different to the individual tax rate then this creates some distortions, but more importantly there is the issue of double taxation. In New Zealand dividends/drawings are treated as tax paid, i.e. the business has already paid tax on this income, so no further tax is due. In UK, and I think USA, the individual would be taxed again, hence there is a double taxation on business profits, which does seem kind of unfair.
If the business tax rate is different to the individual tax rate then this creates some distortions, but more importantly there is the issue of double taxation. In New Zealand dividends/drawings are treated as tax paid, i.e. the business has already paid tax on this income, so no further tax is due. In UK, and I think USA, the individual would be taxed again, hence there is a double taxation on business profits, which does seem kind of unfair.
It's not double taxation.
Income tax is by it's nature a transaction tax: income is taxed when money changes hands. But that income is counted as income each time it changes hands, so that's not "double taxation." Say we have an economy with just you and me. I make $100. I'm taxed $20 (20%). I give you $80. You're taxed $16 (20%). Total income = $180. Total taxes paid = $36 (20% of $180).
The mistake is assuming that the corporation's money is the shareholder's money the minute the corporation makes it, i.e. that the corporation is a mere proxy for the shareholder. It's not. The corporation is a separate person. If the corporation incurs a liability (say one of its trucks runs someone over), it's not automatically the shareholder's liability, again because the corporation is a separate person. A dividend payment is no different than the payment between you and me in the example above. It's not "double taxed"--it's taxed each time it is counted as income, the same as every other payment.
There is a deep symmetry here between how income is treated between separate entities and how it is taxed between separate entities. Say we have a married couple. The husband stays at home and does housework, and the wife gives him a $1,000 a week allowance. If they divorce, but the husband still does the housework in return for $1,000, then GDP (i.e. the sum of national incomes) goes up by $1,000. This is the nature of the GDP calculation--when you break apart an internal transaction and make it a market transaction, GDP goes up without anything else changing. Taxation precisely mirrors this. The husband doesn't pay taxes on his $1,000 while he is married and part of the same taxable entity. It's not income to him. But if they divorce, it becomes income to him. GDP goes up and taxes go up by the same proportion.
Income tax is by it's nature a transaction tax: income is taxed when money changes hands. But that income is counted as income each time it changes hands, so that's not "double taxation." Say we have an economy with just you and me. I make $100. I'm taxed $20 (20%). I give you $80. You're taxed $16 (20%). Total income = $180. Total taxes paid = $36 (20% of $180).
The mistake is assuming that the corporation's money is the shareholder's money the minute the corporation makes it, i.e. that the corporation is a mere proxy for the shareholder. It's not. The corporation is a separate person. If the corporation incurs a liability (say one of its trucks runs someone over), it's not automatically the shareholder's liability, again because the corporation is a separate person. A dividend payment is no different than the payment between you and me in the example above. It's not "double taxed"--it's taxed each time it is counted as income, the same as every other payment.
There is a deep symmetry here between how income is treated between separate entities and how it is taxed between separate entities. Say we have a married couple. The husband stays at home and does housework, and the wife gives him a $1,000 a week allowance. If they divorce, but the husband still does the housework in return for $1,000, then GDP (i.e. the sum of national incomes) goes up by $1,000. This is the nature of the GDP calculation--when you break apart an internal transaction and make it a market transaction, GDP goes up without anything else changing. Taxation precisely mirrors this. The husband doesn't pay taxes on his $1,000 while he is married and part of the same taxable entity. It's not income to him. But if they divorce, it becomes income to him. GDP goes up and taxes go up by the same proportion.
In the US companies generally arrange to pay their shareholders with capital gains through a combination of share buy backs and stock splits.
This enables investors to take income when they want to in a very tax concessional way.
This enables investors to take income when they want to in a very tax concessional way.
Economics is scientific in nature. It is just hard to model and predict the behavior of humans. That doesn't mean that economics can't tell us anything conclusive.
Even though capital expenditures are tax deductible, the returns from capital expenditure are being taxed at a higher rate. This makes consumption relatively more attractive to shareholders which is bad for economic growth. It's not about the money available to invest, it's about the incentives to invest that money.
Even though capital expenditures are tax deductible, the returns from capital expenditure are being taxed at a higher rate. This makes consumption relatively more attractive to shareholders which is bad for economic growth. It's not about the money available to invest, it's about the incentives to invest that money.
>We don't want to prevent Microsoft and General Motors ... from investing more and improving their product line
A lack of cash is not what stops these companies from improving their product line. Apple is sitting on $100 billion (maybe somewhat less now that they're doing dividends?). Corporate taxes are not preventing Apple from employing more people, they have no need for more people. If Apple were taxed less, they would not hire more people.
I am highly skeptical of the claim that removing corporate taxes would create jobs in other sectors as well. Why would GM need to employ more people if their taxes were lowered? Consumer demand is unchanged, they don't suddenly need to pump out twice as many cars. Innovation and improvements on product lines don't come from the number of product designers a company has.
A lack of cash is not what stops these companies from improving their product line. Apple is sitting on $100 billion (maybe somewhat less now that they're doing dividends?). Corporate taxes are not preventing Apple from employing more people, they have no need for more people. If Apple were taxed less, they would not hire more people.
I am highly skeptical of the claim that removing corporate taxes would create jobs in other sectors as well. Why would GM need to employ more people if their taxes were lowered? Consumer demand is unchanged, they don't suddenly need to pump out twice as many cars. Innovation and improvements on product lines don't come from the number of product designers a company has.
I've never understood that argument. If anything, it's the other way around: Reduce taxes on the middle class so they buy more cars and iPhones. Reducing tax on corporations and the wealthy doesn't do much. Is a rich person going to buy another car if you reduce their taxes?
Meh. "Tax rich people" is not a tax plan. How do you tax them? VAT? Property tax? Income tax? Capital gains tax?
All taxes are distortionary. It's their nature. If you ignore the benefits gained from programs that tax dollars buy, all taxes are bad for the economy.
The problem with capital gains and corporate income tax is not (just) that they're bad for the economy, it's that they're de facto optional for multinational entities because of transfer pricing. Cash doesn't have a country, so anyone with more than one country just puts their cash in the country that takes the smallest piece of it.
Now we hear the cries of "but they made the money here" -- OK, sure. So make that the rule then, if that's what you care about. If you sell your product in a country, you pay its taxes. That's sales tax or VAT. If you make your money employing a country's workers, you pay its taxes. That's personal income tax.
If you like you can specify that the product tax will be paid by the seller and the labor tax will be paid by the employer. That may actually provide some amount of leverage to buyers and employees in price negotiations (to the extent it doesn't push sellers and employers toward other countries), but at the end of the day it is what it is: A tax that makes products more expensive or reduces the amount that employees bring home, but can't be avoided by sly accountants and tax lawyers if you still want to sell products or hire workers.
All taxes are distortionary. It's their nature. If you ignore the benefits gained from programs that tax dollars buy, all taxes are bad for the economy.
The problem with capital gains and corporate income tax is not (just) that they're bad for the economy, it's that they're de facto optional for multinational entities because of transfer pricing. Cash doesn't have a country, so anyone with more than one country just puts their cash in the country that takes the smallest piece of it.
Now we hear the cries of "but they made the money here" -- OK, sure. So make that the rule then, if that's what you care about. If you sell your product in a country, you pay its taxes. That's sales tax or VAT. If you make your money employing a country's workers, you pay its taxes. That's personal income tax.
If you like you can specify that the product tax will be paid by the seller and the labor tax will be paid by the employer. That may actually provide some amount of leverage to buyers and employees in price negotiations (to the extent it doesn't push sellers and employers toward other countries), but at the end of the day it is what it is: A tax that makes products more expensive or reduces the amount that employees bring home, but can't be avoided by sly accountants and tax lawyers if you still want to sell products or hire workers.
Those taxes are hard to avoid, but they are bourne by workers/consumers, regardless of who you collect them from (i.e. the economic incidence of a tax is not the same as the legal incidence). I.e. foreign entity Google profits doing business in your jurisdiction, but your citizens (both consumers in your country and workers in your country) bear the whole tax burden.
Even assuming corporate taxes were perfectly collectible (they're not, that's the primary problem with them). Why would it make sense to disincentive profit than to disincentize wages or sales.
(Taxes are at heart, a disincentive, or more properly, a Price, to do the a certain thing.)
(Taxes are at heart, a disincentive, or more properly, a Price, to do the a certain thing.)
Arguably the least distortionary thing you can do, if you must have taxes, is to disincentivize labor and profit by the same amount. Otherwise, you drive people to engaging in one sort of activity over the other.
Then given the difficulty in measuring taxable profit effectively, it sounds like you should be in favor of a consumption tax that doesn't distinguish the source of the money being used to make the purchase.
No, because consumption taxes don't reach profits that aren't spent on goods and services. They are massively regressive. It over-incentivizes "investing" money. There are three assumptions by economists in this regard that don't reflect reality: 1) the world is open, resources are unlimited, and growth is always possible; 2) that investment is always good; 3) distribution doesn't matter. None of those assumptions are true.
>No, because consumption taxes don't reach profits that aren't spent on goods and services.
Nothing lasts forever. Eventually the profits will either be spent or escheat to the state when the last heir to a fortune dies without any descendants. And you can't very well benefit from having money if you never spend it.
>They are massively regressive.
This is trivial to fix. Send everyone a check for a fixed amount every month as a "tax refund" and the effective tax rate of those with less money to spend drops or becomes negative.
>It over-incentivizes "investing" money.
All taxes are distortionary. If you tax income then you under-incentivize investment. Why is over-borrowing and over-spending better than over-investing?
Would you care to elaborate as to what bearing your list of assumptions has on the issue? It wasn't clear from your post.
Nothing lasts forever. Eventually the profits will either be spent or escheat to the state when the last heir to a fortune dies without any descendants. And you can't very well benefit from having money if you never spend it.
>They are massively regressive.
This is trivial to fix. Send everyone a check for a fixed amount every month as a "tax refund" and the effective tax rate of those with less money to spend drops or becomes negative.
>It over-incentivizes "investing" money.
All taxes are distortionary. If you tax income then you under-incentivize investment. Why is over-borrowing and over-spending better than over-investing?
Would you care to elaborate as to what bearing your list of assumptions has on the issue? It wasn't clear from your post.
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>Those taxes are hard to avoid, but they are bourne by workers/consumers, regardless of who you collect them from (i.e. the economic incidence of a tax is not the same as the legal incidence).
Yes and no. Nominally imposing the tax on the seller or employer is better for the buyer or employee -- it doesn't necessarily mean the seller won't be able to pass the tax on, but it helps. For example, if the employee is making minimum wage, the employer can't reduce their compensation by law, so imposing a labor tax on the employer will force them to eat it because they're not allowed to take it out of the employee's compensation. If the tax was nominally on the employee then it would instead come right out of their minimum wage paycheck. And the same goes for any other mechanism that tends to prevent employers from lowering wages: If you have an employment contract that specifies your compensation, you keep getting paid what you were agreed to be paid even if your employer now has to pay more taxes instead of you. If you have a trade union, the union is going to have a better shot at preventing a wage reduction than demanding raises to counteract a new tax, etc.
In the longer term, as employers have time to hire new employees with new contracts or refuse raises etc., the free market catches up with the tax changes. But that doesn't mean the tax is paid entirely by consumers and employees. If sellers could raise the price of their goods by the amount of a newly imposed VAT without reducing their sales then they would have done it already regardless. When the VAT is imposed industry-wide it allows some cover for price increases, but not by 100% of the tax amount except for in rare cases (such as where the profits in that industry were already legitimately non-existent and passing on the full tax is the only alternative to going out of business). In non-collusive markets the existing players will be fighting to keep prices close to where they were in order to retain as much of their existing sales volume as possible to keep their sunk cost infrastructure utilized, which will require them to eat a sizable chunk of the tax burden.
More to the point, how is that possibly worse than it is now, with international corporations nominally paying a tax on profits but then arranging to not have any profits in jurisdictions where taxes are high, and then subjecting local small businesses to the taxes avoided by their larger competitors?
Yes and no. Nominally imposing the tax on the seller or employer is better for the buyer or employee -- it doesn't necessarily mean the seller won't be able to pass the tax on, but it helps. For example, if the employee is making minimum wage, the employer can't reduce their compensation by law, so imposing a labor tax on the employer will force them to eat it because they're not allowed to take it out of the employee's compensation. If the tax was nominally on the employee then it would instead come right out of their minimum wage paycheck. And the same goes for any other mechanism that tends to prevent employers from lowering wages: If you have an employment contract that specifies your compensation, you keep getting paid what you were agreed to be paid even if your employer now has to pay more taxes instead of you. If you have a trade union, the union is going to have a better shot at preventing a wage reduction than demanding raises to counteract a new tax, etc.
In the longer term, as employers have time to hire new employees with new contracts or refuse raises etc., the free market catches up with the tax changes. But that doesn't mean the tax is paid entirely by consumers and employees. If sellers could raise the price of their goods by the amount of a newly imposed VAT without reducing their sales then they would have done it already regardless. When the VAT is imposed industry-wide it allows some cover for price increases, but not by 100% of the tax amount except for in rare cases (such as where the profits in that industry were already legitimately non-existent and passing on the full tax is the only alternative to going out of business). In non-collusive markets the existing players will be fighting to keep prices close to where they were in order to retain as much of their existing sales volume as possible to keep their sunk cost infrastructure utilized, which will require them to eat a sizable chunk of the tax burden.
More to the point, how is that possibly worse than it is now, with international corporations nominally paying a tax on profits but then arranging to not have any profits in jurisdictions where taxes are high, and then subjecting local small businesses to the taxes avoided by their larger competitors?
When you tax something you disincentive it. Corporate income tax is a disincentive to profit.
Worse, profit is too intangible, and essentially all companies above a certain size hire teams of creative accountants to either 1. Create faux losses, or faux deferments. (See Hollywood). Or just locate abroad, see Google.
It's a tragedy of the commons. If you're not doing these things, you're at a competitive disadvantage.
Much better to tax wages, property, sales, etc. And of course, as progressively as possible.
Overly complicated or bureaucratic schemes never work.(Carbon tax, Trading), instead tax fossil fuels.
Edit: Perhaps Iand has already said this in a simpler manner:
"They are pointing out that they pay taxes on tangibles such as salaries, VAT and business rates. Corporation tax is based on the fungible concept of profit and really is unworkable."
Worse, profit is too intangible, and essentially all companies above a certain size hire teams of creative accountants to either 1. Create faux losses, or faux deferments. (See Hollywood). Or just locate abroad, see Google.
It's a tragedy of the commons. If you're not doing these things, you're at a competitive disadvantage.
Much better to tax wages, property, sales, etc. And of course, as progressively as possible.
Overly complicated or bureaucratic schemes never work.(Carbon tax, Trading), instead tax fossil fuels.
Edit: Perhaps Iand has already said this in a simpler manner:
"They are pointing out that they pay taxes on tangibles such as salaries, VAT and business rates. Corporation tax is based on the fungible concept of profit and really is unworkable."
Yes, it needs to be pointed out that the corporate income tax is basically regressive. Large corporations with enough scale can afford to implement advanced tax avoidance strategies along with armies of accountants, lawyers, and shell companies.
Your average small business and even larger private companies can't afford to do this at all. Yes, they have the S-corp option available, but a C-corp paying 3% effective tax rate on its profits and its shareholders only paying a dividend tax is superior to being an S-corp and paying payroll taxes on your paycheck to yourself (required) and then personal income taxes on the rest.
39% corporate tax rate is really mind boggling IMO.
Your average small business and even larger private companies can't afford to do this at all. Yes, they have the S-corp option available, but a C-corp paying 3% effective tax rate on its profits and its shareholders only paying a dividend tax is superior to being an S-corp and paying payroll taxes on your paycheck to yourself (required) and then personal income taxes on the rest.
39% corporate tax rate is really mind boggling IMO.
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Companies also take advantage of the infrastructure that taxes pay for. As an example, what if FedEx/UPS didn't have to pay corporate taxes even though they heavily use public highways?
In my opinion, companies should pay taxes but there is room for debate as to what percentage they should be forced to pay.
In my opinion, companies should pay taxes but there is room for debate as to what percentage they should be forced to pay.
>As an example, what if FedEx/UPS didn't have to pay corporate taxes even though they heavily use public highways?
If this is your concern then the simple solution is to fund public highways with fuel taxes. (This theoretically allows taxpayers to "cheat" by buying more fuel efficient vehicles, but I think we can live with that incentive structure.)
If this is your concern then the simple solution is to fund public highways with fuel taxes. (This theoretically allows taxpayers to "cheat" by buying more fuel efficient vehicles, but I think we can live with that incentive structure.)
The question is, do they use these services proportionally to their corporate income or even over-proportionally, as often implemented by progressive taxation? Considering that they make money by advertising, I bet the infrastructure use is heavily sub-proportional.
It only does good if Google does something with it.
That's why there's a call to tax long-held reserves, rather than profits.
That's why there's a call to tax long-held reserves, rather than profits.
In my personal opinion, the money does more good in Google's hands than in the government's hands.
Ok then: in my opinion my money is better in my hands, but I have a hard time convincing the IRS. My wife and my family agree with me too, by the way. Who is going to pay for the roads and the military and the......
Ok then: in my opinion my money is better in my hands, but I have a hard time convincing the IRS. My wife and my family agree with me too, by the way. Who is going to pay for the roads and the military and the......
Corporations can't hold on to money forever: at some point it goes to actual people. For the sake of argument, without saying whether it's a good idea or not, you could make a revenue-neutral elimination of corporate tax by raising taxes on people.
I'm not an economist, so this is layman speculation, but it seems that taxing corporate money would encourage the company to re-invest it more quickly. Some have said that reducing corporate taxes (and increasing taxes on money when it actually goes to people) would provide more money to create jobs/grow the business. Wouldn't there also be a reduced incentive re-invest the money?
Taxing it would mean they had less of it to spend. They might spend it depending on tax breaks, but that might skew incentives in terms of forcing companies to spend the money on something for themselves rather than see it disappear in taxes. That something might not be the best investment though.
That guy's money will go somewhere eventually too, into local coffee shops, craft market, plasma TV.
Just because it goes somewhere, doesn't mean it goes to the right place.
Just because it goes somewhere, doesn't mean it goes to the right place.
The difference being that Google is not going by opinion, but rather by law. Not saying I like what Google is doing (or like that they can), but if you want Google's behavior to change, the only route is likely going to be to change the law.
I responded to his comment. But I agree that what Google is doing is common and I do not blame them since it seems legal. IMO, laws will change.
You might be right. What kinds of public goods have you created lately? I listed a bunch that Google has done.
Maybe it's because I'm young and don't have experience with large-scale tax problems, but I have struggled for years and still cannot understand why companies do this. Is it truly in Google's interest to work towards the minimization of government capability wherever it is? To ensure that California roads are less taken care of? To ensure that any local public debt is increased rather than decreased? It doesn't make sense to me. Wouldn't a company want to contribute its share of taxes to the government of where it is located, so that the quality of life is better for everyone there including the employees?
It seems to me that Google, especially being in California, is being...well, something close to evil by making sure they help out their local governments and people as little as legally possible.
I understand that their profits are higher each quarter because of this. I understand that's what shareholders demand. But why?! Can this attitude lead to anything except terrible news? I just don't get it.
It seems to me that Google, especially being in California, is being...well, something close to evil by making sure they help out their local governments and people as little as legally possible.
I understand that their profits are higher each quarter because of this. I understand that's what shareholders demand. But why?! Can this attitude lead to anything except terrible news? I just don't get it.
Google pay taxes on all US income (not to mention payroll taxes, consumption taxes, etc.). There is a massive miscomprehension of these tax stories as they portray Google, Apple etc. avoiding all taxes when this is not the case. The income housed in Bermuda is from non-USA receipts, each of which have already passed through a local tax jurisdiction from wherever they were generated. They are not avoiding any taxes.
The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is difficult to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
Many large corporations that hold large cash balances keep them offshore. Around 75% of Apple's large cash holdings are held offshore. They have already paid tax on that money. It is the US naturalization laws that are broken, and the perception that Google, Apple et al aren't paying taxes or somehow avoiding them.
The best thing the US Government could do would be to institute another repatriation tax holiday. There is precedent for it as happen in 2004. As much as a trillion dollars could make its way back into the US economy if a deal could be worked out - a private mini-stimulus that the economy of 2 years ago really needed.
The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is difficult to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
Many large corporations that hold large cash balances keep them offshore. Around 75% of Apple's large cash holdings are held offshore. They have already paid tax on that money. It is the US naturalization laws that are broken, and the perception that Google, Apple et al aren't paying taxes or somehow avoiding them.
The best thing the US Government could do would be to institute another repatriation tax holiday. There is precedent for it as happen in 2004. As much as a trillion dollars could make its way back into the US economy if a deal could be worked out - a private mini-stimulus that the economy of 2 years ago really needed.
> Google pay taxes on all US income (not to mention payroll taxes, consumption taxes, etc.). There is a massive miscomprehension of these tax stories as they are portrayed as Google, Apple etc. avoiding all taxes when this is not the case. The income housed in Bermuda is from non-USA receipts, each of which have already passed through a local tax jurisdiction from wherever they were generated. They are not avoiding any taxes.
Saying they've paid anything in the "local tax jurisdiction[s]" isn't quite true. In most cases they've passed through Ireland and the Netherlands, even if the income is from other European countries. In most cases they haven't paid any corporation tax at all on the profits made in the local countries.
Take Starbucks in the UK as an example. They had sales of £400m but paid £0 corporation tax by ensuring the company didn't make a profit in the UK. It paid various license fees to foreign sister companies, and even purchased its coffee from Starbucks Switzerland to help offset profits. £0 profit in the UK, £0 corporation tax due.
> The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is really hard to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
They wouldn't be double taxed, the USA have double tax treaties with many countries. The reason they keep it off shore is because they're waiting for one of those amnesties that would allow them to bring the cash home to the US and pay far less than they would have outside the amnesty.
Example with no amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues by using "license fee", loan or other perfectly legal schemes.
Google move money from Ireland to Bermuda tax free.
Google move money back into the US and pay (to the US) the difference between tax due originally and tax already paid (in Ireland).
Net result is Google pay the standard 35% (or whatever it is in the US) tax on the money. It's just a chunk of it goes to Ireland rather than the US.
Example with amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues.
Google move money from Ireland to Bermuda.
US announce amnesty rate of 5.625% and Google moves money back to the US paying a total of 18.125%. That's a whole lot less than 35%.
It's exactly those amnesties that mean large US corporations can do this. Without them there would be little reason to hoard money offshore as it could never get back to the US without the full amount of tax having to have been paid on it.
Saying they've paid anything in the "local tax jurisdiction[s]" isn't quite true. In most cases they've passed through Ireland and the Netherlands, even if the income is from other European countries. In most cases they haven't paid any corporation tax at all on the profits made in the local countries.
Take Starbucks in the UK as an example. They had sales of £400m but paid £0 corporation tax by ensuring the company didn't make a profit in the UK. It paid various license fees to foreign sister companies, and even purchased its coffee from Starbucks Switzerland to help offset profits. £0 profit in the UK, £0 corporation tax due.
> The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is really hard to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
They wouldn't be double taxed, the USA have double tax treaties with many countries. The reason they keep it off shore is because they're waiting for one of those amnesties that would allow them to bring the cash home to the US and pay far less than they would have outside the amnesty.
Example with no amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues by using "license fee", loan or other perfectly legal schemes.
Google move money from Ireland to Bermuda tax free.
Google move money back into the US and pay (to the US) the difference between tax due originally and tax already paid (in Ireland).
Net result is Google pay the standard 35% (or whatever it is in the US) tax on the money. It's just a chunk of it goes to Ireland rather than the US.
Example with amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues.
Google move money from Ireland to Bermuda.
US announce amnesty rate of 5.625% and Google moves money back to the US paying a total of 18.125%. That's a whole lot less than 35%.
It's exactly those amnesties that mean large US corporations can do this. Without them there would be little reason to hoard money offshore as it could never get back to the US without the full amount of tax having to have been paid on it.
I agree that tax amnesties are stupid, but you've got the logic wrong. When they've had them in the past, proponents were shocked at how few corporations took them up on it.
The trouble is that there is no advantage to bringing the money back. If you have your money in Bermuda, you can still invest it. You can buy securities, or you can loan it back to your sister companies in higher tax jurisdictions, and then the interest they pay you on it is generally tax deductible in the higher tax jurisdiction. The loan gives you all the benefits of having the money with none of the taxes. In that way they do bring the money back -- they just don't pay the taxes.
Even if they brought it back through the tax amnesty, what happens then? They've now got an extra billion dollars they didn't pay taxes on, so now they go out and invest it and the returns are taxable in the higher tax jurisdiction. Who thinks they're that stupid, when the alternative is to invest the money in the exact same investments but have the profits go to the sister company in the lower tax jurisdiction?
The trouble is that there is no advantage to bringing the money back. If you have your money in Bermuda, you can still invest it. You can buy securities, or you can loan it back to your sister companies in higher tax jurisdictions, and then the interest they pay you on it is generally tax deductible in the higher tax jurisdiction. The loan gives you all the benefits of having the money with none of the taxes. In that way they do bring the money back -- they just don't pay the taxes.
Even if they brought it back through the tax amnesty, what happens then? They've now got an extra billion dollars they didn't pay taxes on, so now they go out and invest it and the returns are taxable in the higher tax jurisdiction. Who thinks they're that stupid, when the alternative is to invest the money in the exact same investments but have the profits go to the sister company in the lower tax jurisdiction?
I remember reading that the US Congressional sub-committee report into a possible amnesty found that approx 50% of the money was back in the USA via securities and loans anyway.
With the 2004 amnesty - you are right - but there are a few things you can't do with offshore funds - which is why this time Cisco, Apple and the big pharma co's are lobbying for an amnesty
You can't do acquisitions, you can't do a share buyback and you can't pay a dividend.
If you are managing smaller reserves it makes sense to leave it offshore - but with larger reserves such as with Apple investors want you to do more with it (they want to _get paid_)
With the 2004 amnesty - you are right - but there are a few things you can't do with offshore funds - which is why this time Cisco, Apple and the big pharma co's are lobbying for an amnesty
You can't do acquisitions, you can't do a share buyback and you can't pay a dividend.
If you are managing smaller reserves it makes sense to leave it offshore - but with larger reserves such as with Apple investors want you to do more with it (they want to _get paid_)
>If you are managing smaller reserves it makes sense to leave it offshore - but with larger reserves such as with Apple investors want you to do more with it (they want to _get paid_)
If they hold stock in a company whose share price has appreciated as a result of accumulating undistributed profits and they want money, they can always sell some of their shares.
And are you sure they can't do acquisitions? What stops them borrowing the acquisition money from their sister company, or doing the merger for stock?
If they hold stock in a company whose share price has appreciated as a result of accumulating undistributed profits and they want money, they can always sell some of their shares.
And are you sure they can't do acquisitions? What stops them borrowing the acquisition money from their sister company, or doing the merger for stock?
A very common argument - four points:
1. Companies are not necessarily double-taxed on foreign profits when they enter the US - they can actually claim a foreign tax credit to offset their US taxes. See here: http://www.irs.gov/pub/irs-soi/06itcorptaxsnap.pdf. There are issues with this - you cannot have a tax credit that results in a refund - but it is not a given that all profits are double-taxed.
2. Google (along with a lot of other companies) utilizes the so-called "Double Irish" (http://en.wikipedia.org/wiki/Double_Irish_arrangement) - and this, specifically, is a tax avoidance strategy. Thus, it is a misrepresentation to say that they are not avoiding taxes. Granted, they have passed through one local tax jurisdiction (Ireland) on their way to Bermuda, but that means that a lot of other countries, in addition to the US, do not get access to the taxes from companies that are operating in their countries.
3. US companies are already holding enormous amounts of cash on their books - but that hasn't lead to large-scale increased capital spend.
4. On 2004: the argument then (as now) was that these funds would result in jobs and new capital being spent. But that didn't happen. Instead most of the money was just paid out in dividends which really only affects, a big scale, people in the 1-2% incomes who get a lot or most of their income from dividends.
Comments welcome!
1. Companies are not necessarily double-taxed on foreign profits when they enter the US - they can actually claim a foreign tax credit to offset their US taxes. See here: http://www.irs.gov/pub/irs-soi/06itcorptaxsnap.pdf. There are issues with this - you cannot have a tax credit that results in a refund - but it is not a given that all profits are double-taxed.
2. Google (along with a lot of other companies) utilizes the so-called "Double Irish" (http://en.wikipedia.org/wiki/Double_Irish_arrangement) - and this, specifically, is a tax avoidance strategy. Thus, it is a misrepresentation to say that they are not avoiding taxes. Granted, they have passed through one local tax jurisdiction (Ireland) on their way to Bermuda, but that means that a lot of other countries, in addition to the US, do not get access to the taxes from companies that are operating in their countries.
3. US companies are already holding enormous amounts of cash on their books - but that hasn't lead to large-scale increased capital spend.
4. On 2004: the argument then (as now) was that these funds would result in jobs and new capital being spent. But that didn't happen. Instead most of the money was just paid out in dividends which really only affects, a big scale, people in the 1-2% incomes who get a lot or most of their income from dividends.
Comments welcome!
A red herring, I feel. If tax had been paid properly as you suggest then they could hold it in jurisdictions where it was generated, such as the UK. Instead it is moved to places like Bermuda through byzantine schemes to minimise the amount paid in the jurisdictions where the income was generated.
I'm sure you'd like the money to be "repatriated" to the US, but I'd like just some of it to stick around in the UK and Europe to pay for roads, schools, hospitals (and nuclear submarines) first.
I'm sure you'd like the money to be "repatriated" to the US, but I'd like just some of it to stick around in the UK and Europe to pay for roads, schools, hospitals (and nuclear submarines) first.
Google paid £6M on tax on a turnover of £395M in the UK - given that they don't have that much operations in the UK that suggests they they have been avoiding tax on their UK operations by manipulating where they choose to make profits so that the profits occur offshore rather than in the UK.
Nothing particularly unusual or illegal about this.
So they have been "avoiding" tax - but there is nothing illegal about that, or from my perspective, particularly immoral about it.
Nothing particularly unusual or illegal about this.
So they have been "avoiding" tax - but there is nothing illegal about that, or from my perspective, particularly immoral about it.
> £6M on tax
£6M in corporate income tax, which is only one of many taxes (and usually the smallest component) that a corporation pays.
For eg. they would have collected a 20% VAT (consumption tax in the rest of the world) - which is another £80M, a 13.8% national insurance contribution, which would work out to be approx another £40M, and then on top of that a payroll tax.
I am not familiar with the other payroll tax rates in the UK but it is similar in most other countries - the three or four different tiers. In the USA payroll taxes are 5-6x larger than corporate income taxes. Add them up for Google in the UK and you get to £130-140M contributed from a gross of £395M - a very different story to the headline figures that are being argued.
edit: forget the figures, I don't know the UK tax system enough to even guesstimate, but the tl;dr is that corporate income tax is the smallest of a number of tax components that a corporation pays and arguing by taking out corporate income tax figures alone is misleading. This is the point that Google attempted to make.
£6M in corporate income tax, which is only one of many taxes (and usually the smallest component) that a corporation pays.
For eg. they would have collected a 20% VAT (consumption tax in the rest of the world) - which is another £80M, a 13.8% national insurance contribution, which would work out to be approx another £40M, and then on top of that a payroll tax.
I am not familiar with the other payroll tax rates in the UK but it is similar in most other countries - the three or four different tiers. In the USA payroll taxes are 5-6x larger than corporate income taxes. Add them up for Google in the UK and you get to £130-140M contributed from a gross of £395M - a very different story to the headline figures that are being argued.
edit: forget the figures, I don't know the UK tax system enough to even guesstimate, but the tl;dr is that corporate income tax is the smallest of a number of tax components that a corporation pays and arguing by taking out corporate income tax figures alone is misleading. This is the point that Google attempted to make.
For eg. they would have collected a 20% VAT (consumption tax in the rest of the world) - which is another £80M, a 13.8% national insurance contribution, which would work out to be approx another £40M, and then on top of that a payroll tax.
Consumer VAT and consumer income tax are not tax paid by a company, and it's disingenuous to suggest that 'a corporation pays'. They merely collect them from the customer/employee for the government, it's not as if the corporation contributes anything on top of that. They do contribute to NI as you mention, and local business rates on property in the UK at least, but the vast majority of revenues can escape taxation, and I don't think customer VAT, and employee IT can be considered paid by the employer, they are paid by the customer or employee.
There are of course many benefits to having a company setting up in your country (the aforementioned VAT and income tax receipts from the employees, rates, and jobs generated), but companies offshoring profits and shopping for tax jurisdictions by setting up fake subsidiaries whose sole purpose is to evade tax is a huge problem for all western countries, and not one they can address with current tax law. That's the reason that many receipts in Europe nowadays bear the legend 'S.a.r.l, Luxembourg'. All major corporations from Apple, to Amazon, to Google do this to some extent, and it results in tiny countries like Luxemburg collecting huge amounts of tax (in proportion to their size, and the true number of business who truly transact business there (as opposed to claiming they do)), simply because they're willing to give corporations the lowest international rate,and let them set up shell companies to funnel online revenue through the tax haven.
Consumer VAT and consumer income tax are not tax paid by a company, and it's disingenuous to suggest that 'a corporation pays'. They merely collect them from the customer/employee for the government, it's not as if the corporation contributes anything on top of that. They do contribute to NI as you mention, and local business rates on property in the UK at least, but the vast majority of revenues can escape taxation, and I don't think customer VAT, and employee IT can be considered paid by the employer, they are paid by the customer or employee.
There are of course many benefits to having a company setting up in your country (the aforementioned VAT and income tax receipts from the employees, rates, and jobs generated), but companies offshoring profits and shopping for tax jurisdictions by setting up fake subsidiaries whose sole purpose is to evade tax is a huge problem for all western countries, and not one they can address with current tax law. That's the reason that many receipts in Europe nowadays bear the legend 'S.a.r.l, Luxembourg'. All major corporations from Apple, to Amazon, to Google do this to some extent, and it results in tiny countries like Luxemburg collecting huge amounts of tax (in proportion to their size, and the true number of business who truly transact business there (as opposed to claiming they do)), simply because they're willing to give corporations the lowest international rate,and let them set up shell companies to funnel online revenue through the tax haven.
VAT is paid by the consumer, not by Google. The best you can argue is that maybe if people had not spent that money with Google they might have spent it on goods that do not have VAT levied on them. That is a pretty weak way to claim they are responsible for £80 million in additional tax revenue.
They'd only be paying £40M in employers NI if all of their turnover went on salaries - which seems unlikely as they are clearly profitable.
I'd also argue that it is employees who pay income tax - not the employer (even with PAYE meaning that employees don't see that money).
I'd also argue that it is employees who pay income tax - not the employer (even with PAYE meaning that employees don't see that money).
Nice spin. Regardless of your angle, there is no "miscomprehension of these tax stories", but it is the case the Google does its best to avoid paying taxes in all countries except the US.
Considering that over 50% of Google's revenues are non-US, I personally find appalling how they avoid paying little-to-no taxes in other countries. Here are the self-proclaimed "don't do evil" and "down with Wall St." institutions acting as "vampire squids".
Considering that over 50% of Google's revenues are non-US, I personally find appalling how they avoid paying little-to-no taxes in other countries. Here are the self-proclaimed "don't do evil" and "down with Wall St." institutions acting as "vampire squids".
You should read about transfer pricing. In many cases it is entirely possible to assign where a large firm's income is made for tax purposes by internally transferring intellectual property.
On the point of why would tech companies want to do this instead of helping the community, I argue it may actually help California. Instead of doing the responsible thing and moving the firm to somewhere with a lower state corporate tax rate, the firm can simply avoid taxes. This keeps employees in the area contributing to state income and property taxes. In a world or multinationals, I am not certain corporate income taxes make sense.
On the point of why would tech companies want to do this instead of helping the community, I argue it may actually help California. Instead of doing the responsible thing and moving the firm to somewhere with a lower state corporate tax rate, the firm can simply avoid taxes. This keeps employees in the area contributing to state income and property taxes. In a world or multinationals, I am not certain corporate income taxes make sense.
I have first hand experience with transfer pricing. My old startup had offices in Australia, India and the USA, income from all over the world, etc.
These tax systems also apply to the smallest of startups operating online. Its just that Google can afford the best advice and are the biggest target.
My concern is that further changes to tax laws that are aimed at Google and Apple could end up affecting smaller companies and startups as collateral damage.
Google and Apple will wriggle their way out of any changes to transfer pricing laws, as they usually always do, while small startups and businesses might not.
These tax systems also apply to the smallest of startups operating online. Its just that Google can afford the best advice and are the biggest target.
My concern is that further changes to tax laws that are aimed at Google and Apple could end up affecting smaller companies and startups as collateral damage.
Google and Apple will wriggle their way out of any changes to transfer pricing laws, as they usually always do, while small startups and businesses might not.
While I agree with the general sentiment of your argument, it's still wrong since Google would get a credit for foreign taxes paid. Your post is moot due to this fact, aka reality. :)
You are free to send the government as much money as you like. How much do you send? If you are in the US, do you just send the amount that turbo tax tells you to, or do you send more?
Do you take any deductions (i.e. the standard deduction, or itemizing)? By the reasoning of your post, that would make you "something close to evil."
Do you take any deductions (i.e. the standard deduction, or itemizing)? By the reasoning of your post, that would make you "something close to evil."
yes, I do send more [than I could].
I could set up my salary through some finance companies in europe that help you keep up to 85% of your salary, but I don't.
I could set up my salary through some finance companies in europe that help you keep up to 85% of your salary, but I don't.
Priorities. I would pay the lowest possible amount I can legally pay in taxes and give to things that I prioritize. For example, the ACLU, the EFF, and the NRA. You sound like someone who already gives but for everyone else's benefit, here is a link [1]. Contributions to the ACLU Foundation are tax deductible for charitable purposes. (This means talk to your accountant if you make a lot of money.) Give, won't you?
[1] https://www.aclu.org/secure/support-aclu-foundation
[1] https://www.aclu.org/secure/support-aclu-foundation
But I don't want you to give money to the NRA (I assume that's the gun club), I would much rather you paid taxes.
I see the danger in the system you mention that lots of money will go to niche organisations out of proportion with societies requirements. Better to pay taxes in the hope that they are distributed where they are most needed.
I see the danger in the system you mention that lots of money will go to niche organisations out of proportion with societies requirements. Better to pay taxes in the hope that they are distributed where they are most needed.
I just saw [this](https://www.youtube.com/watch?v=SZb8EXUrQTo) video and I hereby withdraw any and all association I had or I implied I had with the deranged senile people. I hope everyone who still is a part of the NRA dies a slow and painful death (without the use of guns).
But that means I have to participate in the democratic process!
No matter how much cryptoz makes, he won't get near paying $2B in taxes. The extra taxes cryptoz could pay would have no effect on anything in the government but could really alter his/her quality of life. Google looks like they will make over $12B in profits this year, so $2B less of it wouldn't be noticeable in any tangible way.
If you are in the US, do you just send the amount that turbo tax tells you to, or do you send more?
Speaking for myself, I enter deductions into the H&R Block program and watch the estimated payment. When the payment is something I think is reasonable, I stop entering deductions. So yes, I do send more than I have to.
Speaking for myself, I enter deductions into the H&R Block program and watch the estimated payment. When the payment is something I think is reasonable, I stop entering deductions. So yes, I do send more than I have to.
You do realize this is highly unusual behaviour, correct? OP's question was more or less hypothetical, in that almost everyone who isn't a programmer sends exactly the amount they have to, and no more.
(and often less, if they think they can get away with it)
(and often less, if they think they can get away with it)
That isn't equivalent to what Google does at all though; if they didn't shift business around to shell companies in Ireland or Luxembourg and just paid the "the amount they have to, and no more" they would pay a hell of a lot more tax in the UK. You are comparing two different things: sending in extra money, which I think we can all agree is rare (although I also could pay less tax than I do), and actively using complex accounting involving other countries so that you pay far less then you normally would (and other equivalent dodges for individuals), which is not common among individuals.
Of course, it is not so easy to avoid tax as a salaried individual, which is why your comparison is failing. Somebody on PAYE (i.e. most people) can't create a clone of themselves in Ireland to pay their income tax there instead of the UK. If that option was available to individuals then I'm sure plenty would take it (assuming Irish income tax is lower, I have no idea). That is what the debate is about though: some entities have great flexibility and can avoid tax if they want, others (individuals of average means or less) don't have the choice to pay less.
Of course, it is not so easy to avoid tax as a salaried individual, which is why your comparison is failing. Somebody on PAYE (i.e. most people) can't create a clone of themselves in Ireland to pay their income tax there instead of the UK. If that option was available to individuals then I'm sure plenty would take it (assuming Irish income tax is lower, I have no idea). That is what the debate is about though: some entities have great flexibility and can avoid tax if they want, others (individuals of average means or less) don't have the choice to pay less.
Agreed, it's different. I didn't want to make a broader comment, actually. Was just letting OP know that his behavior (used as an anecdote to counter the other poster's hypothetical) is highly unrepresentative.
On a side note, one point I've been stuck on is what to call the commentors above me. I know there's established language for it (parent, grandparent) but I have trouble using it right. Anyone know what I should have called the poster of the hypothetical, and the response that I responded to?
On a side note, one point I've been stuck on is what to call the commentors above me. I know there's established language for it (parent, grandparent) but I have trouble using it right. Anyone know what I should have called the poster of the hypothetical, and the response that I responded to?
This strikes me as a tragedy of the commons. It's in everyone's individual interest (including corporations) to pay as little tax as possible.
Assuming that this is entirely legal, I don't see how this is a problem in Google's behaviour. If there is a problem, it is in the tax code, and the Government has sole responsibility for that.
Making tax codes simpler would make it easier to not leave loopholes, but politics always seems to drive it in the other direction. Perhaps the need to avoid this kind of situation can be a good force in keeping tax codes simpler.
Assuming that this is entirely legal, I don't see how this is a problem in Google's behaviour. If there is a problem, it is in the tax code, and the Government has sole responsibility for that.
Making tax codes simpler would make it easier to not leave loopholes, but politics always seems to drive it in the other direction. Perhaps the need to avoid this kind of situation can be a good force in keeping tax codes simpler.
These "loopholes" are not really what you think they are. Most of the complexity of the tax code doesn't come from "loop holes," but from trying to define a framework for computing net income as opposed to gross income. In the corporate tax case, complexity also comes from trying to avoid taxing companies for profits that have nothing to do with American operations.
> These "loopholes" are not really what you think they are.
I am defining a loophole as anything that the media are getting into a frenzy about that is perfectly legal. If one prefers that they weren't using some technique to minimise tax, then it [that technique] is a loophole. If this means that they've failed to "define a framework for computing net income as opposed to gross income" that works, then that's a loophole.
> In the corporate tax case, complexity also comes from trying to avoid taxing companies for profits that have nothing to do with American operations.
I don't see what has got to do with it. Clearly no jurisdiction can justifiably claim that it deserves tax revenue unless a company has operations there. If it has operations there, it falls under that jurisdiction's tax code. If the company can avoid paying some tax in any particular jurisdiction that one would like it to be paying, then the tax code of that jurisdiction is broken.
I am defining a loophole as anything that the media are getting into a frenzy about that is perfectly legal. If one prefers that they weren't using some technique to minimise tax, then it [that technique] is a loophole. If this means that they've failed to "define a framework for computing net income as opposed to gross income" that works, then that's a loophole.
> In the corporate tax case, complexity also comes from trying to avoid taxing companies for profits that have nothing to do with American operations.
I don't see what has got to do with it. Clearly no jurisdiction can justifiably claim that it deserves tax revenue unless a company has operations there. If it has operations there, it falls under that jurisdiction's tax code. If the company can avoid paying some tax in any particular jurisdiction that one would like it to be paying, then the tax code of that jurisdiction is broken.
Also, a lot of "loopholes" come from the government trying to shape behavior via tax breaks.
A good example of this is the Mortgage Tax Credit, a much loved tax break for average, middle class families. This is essentially a "tax loophole" for people who buy houses.
It's just more fun to yell about tax loopholes that corporations utilize, because big faceless corporations sound more evil than tax breaks that John and Jane benefit from.
It's just more fun to yell about tax loopholes that corporations utilize, because big faceless corporations sound more evil than tax breaks that John and Jane benefit from.
Ironically, the largest beneficiaries of the mortgage interest deduction are the banks. If you give one person a subsidy, it allows that person to buy a home when they otherwise couldn't. If you give everyone a subsidy, they just bid up housing prices by nearly the entire amount of the subsidy. (If the government really wanted to make it easier to own a home, they should subsidize new home construction in order to increase the supply of homes and thereby reduce their cost.)
But once you've established the deduction and people have already bought homes expecting it, they require its continued existence to be able to keep making the payments.
What they really ought to do is remove the deduction for new mortgages but not existing mortgages (or refinances of existing mortgages that don't increase the loan principal).
But once you've established the deduction and people have already bought homes expecting it, they require its continued existence to be able to keep making the payments.
What they really ought to do is remove the deduction for new mortgages but not existing mortgages (or refinances of existing mortgages that don't increase the loan principal).
I'd say that was more of a welfare benefit than a tax loophole. It's just that we don't like to label money going to average middle class families as welfare. Much government social expenditure is structured this way: if you are poor you are really made to know that you are receiving welfare, and sometimes they don't even give you real money. On the other hand, middle class people don't get 'welfare', just 'tax breaks'.
The result of this is that better off people underestimate how much direct government assistance they have received [1]. I won't comment on the potential political motivations for dividing up the welfare state in this way
[1] http://themonkeycage.org/blog/2011/02/08/the_invisible_ameri...
The result of this is that better off people underestimate how much direct government assistance they have received [1]. I won't comment on the potential political motivations for dividing up the welfare state in this way
[1] http://themonkeycage.org/blog/2011/02/08/the_invisible_ameri...
The mortgage interest deduction benefits wealthy households much more than "average middle class" households. The tax advantage of home ownership is also reflected in higher prices for those houses, so it's not much of a win in any case.
I only used the terminology 'average middle class' because the parent had. I'm British and terms like working class and middle class seem to have slightly different meanings in the US so usually I try to avoid using them.
Also, even if it is not much of a win for the wealthy households, higher property prices generally mean higher rents so it disadvantages the class of people that rent. A similar argument applies to housing benefit in the uk, which is something you receive if you are poor (working or not). The recipient doesn't really see the money, but it helps to keep rents high so it's more of a 'landlords benefit', much like your mortgage deduction seems to be of more benefit to the banks than home owners.
Also, even if it is not much of a win for the wealthy households, higher property prices generally mean higher rents so it disadvantages the class of people that rent. A similar argument applies to housing benefit in the uk, which is something you receive if you are poor (working or not). The recipient doesn't really see the money, but it helps to keep rents high so it's more of a 'landlords benefit', much like your mortgage deduction seems to be of more benefit to the banks than home owners.
Just to be clear, there are two problems with the mortgage interest deduction. First, it's regressive; by the numbers, the people who benefit most from the deduction are those least in need of a benefit from the government. Second, regardless of your income level, the mortgage interest deduction artificially increases the desirability of residential real estate, which drives up the prices, which acts as a shadow tax on home ownership.
The first problem you could address by capping the benefit somehow. The latter you cannot.
The first problem you could address by capping the benefit somehow. The latter you cannot.
My microecon is a little rusty but isn't the second problem essentially a wash? It seems that the shadow tax should never exceed the mortgage interest deduction (assuming rational markets).
To a first approximation, the MID pushes up the costs of housing by as much as the tax deduction. Making it entirely useless for "encouraging home ownership."
Honestly, it's hard to say exactly how much money the government has given someone. If I agree to a compromise where my taxes go up by $10,000 but I now get to deduct my frobozzes and so they go down $1,000, am I being given $1,000?
Or, if the government decides to tax everyone at 100%, but then gives out a series of "tax breaks" that lands everyone at their current tax level, is whatever government people get to keep welfare?
I don't want to go to far in the other direction. It's 100% possible for politicians to spend money via tax breaks. So neither worldview really works, but you have to have something between them.
Or, if the government decides to tax everyone at 100%, but then gives out a series of "tax breaks" that lands everyone at their current tax level, is whatever government people get to keep welfare?
I don't want to go to far in the other direction. It's 100% possible for politicians to spend money via tax breaks. So neither worldview really works, but you have to have something between them.
As others have said, many people think that corporate tax should be abolished completely. I'm fairly liberal (socially and fiscally), but I also support this.
Ultimately, I want corporations to be as profitable as possible, because that is good for our economy. Profitable companies buy and sell goods, hire individuals, the usual talking points. If we want to give more money to public education, increase income/capital gains tax (e.g. individuals)...not corporate tax.
Besides, you can make the case that only a small portion of the taxes Google pays actually improves the roads or public education. A large percentage will go towards things like defense research, healthcare, bridges in Alaska, any number of things that have no bearing on Google at all.
(I'm not a Google apologist, this would apply to any company.)
Ultimately, I want corporations to be as profitable as possible, because that is good for our economy. Profitable companies buy and sell goods, hire individuals, the usual talking points. If we want to give more money to public education, increase income/capital gains tax (e.g. individuals)...not corporate tax.
Besides, you can make the case that only a small portion of the taxes Google pays actually improves the roads or public education. A large percentage will go towards things like defense research, healthcare, bridges in Alaska, any number of things that have no bearing on Google at all.
(I'm not a Google apologist, this would apply to any company.)
I want corporations to be as profitable as possible, because that is good for our economy
What if they spirit all of that money out of the country to somewhere else? Surely it benefits the host country more to tax profits rather than just let them escape entirely?
What if they spirit all of that money out of the country to somewhere else? Surely it benefits the host country more to tax profits rather than just let them escape entirely?
This is a fair point. But why would a company spirit the money away if there wasn't corporate tax? Wouldn't it be wiser to let it sit in country that doesn't tax it?
I honestly have no idea, but if the company is owned abroad by a company listed on a stock exchange in that foreign country, by institutional stockholders also in that country, one would assume that they'd be trying to move some proportion of it back 'home', if there is such a place.
I'll freely admit my knowledge of corporate finance falls apart somewhere around here.
I'll freely admit my knowledge of corporate finance falls apart somewhere around here.
That makes sense. I flounder when it comes to money moving across borders, not something that I have a solid grasp on.
So corporations should be able to use all infrastructure provided by taxing individuals and make no contribution? Should they pay, for example, local property tax?
I'm not sure I understand how those two are equivalent. If you want to tax a company for using public infrastructure...tax them for using the infrastructure (property tax, tolls, etc).
Collecting a portion of their profit just because it's another place to add a tax doesn't seem to make sense. Imagine Google compared to a trucking company. Google makes 100x the profit of this particular trucking company. Does Google add 100x the wear and tear on roads that the trucking company does? Why should they be liable for a larger portion of maintenance on said roads simply because they have a larger profit?
Collecting a portion of their profit just because it's another place to add a tax doesn't seem to make sense. Imagine Google compared to a trucking company. Google makes 100x the profit of this particular trucking company. Does Google add 100x the wear and tear on roads that the trucking company does? Why should they be liable for a larger portion of maintenance on said roads simply because they have a larger profit?
Good points - I actually misread the OP and didn't see the word "corporate" tax - need more coffee!
Many western economies have a graduated tax system, that is the more money you earn, each additional dollar is taxed at a slightly higher rate than the previous dollars (or euros). You will experience this as the harder you work the more money you are obligated to give to the government.
But here is the rub, what if the Government spends the money you gave them on an all expense paid trip for themselves to Las Vegas where they ran up big bills at strip clubs and on luxury suites? How do you feel about that?
How about the Greek people, their economy in flames, their country ruined, where "not paying taxes is a national pastime" according to The Economist.
The insight you are missing is that when "your" opinion of the government's fiscal policy is destroyed by abuse, "you" feel completely justified in exploiting all the legal ways to not give them any more money than you have to.
It is hard for an individual to fix government it is easy for an individual to minimize their tax burden. So people take the easy way out.
But here is the rub, what if the Government spends the money you gave them on an all expense paid trip for themselves to Las Vegas where they ran up big bills at strip clubs and on luxury suites? How do you feel about that?
How about the Greek people, their economy in flames, their country ruined, where "not paying taxes is a national pastime" according to The Economist.
The insight you are missing is that when "your" opinion of the government's fiscal policy is destroyed by abuse, "you" feel completely justified in exploiting all the legal ways to not give them any more money than you have to.
It is hard for an individual to fix government it is easy for an individual to minimize their tax burden. So people take the easy way out.
> You will experience this as the harder you work the more money you are obligated to give to the government.
This is not really true. There are many ways to make money without expending much effort. Example: capital gains. By simply having a lot of money, I can invest this and make a solid profit...and be taxed in a lower bracket.
It has no bearing on effort expended. In fact, you can easily argue that "More Effort = More Money" has a very definite ceiling which you can't cross. At some point, you have to start leveraging other assets (money, employees, etc).
Taxing based on the amount of income earned is really the only sensible way to tax. You can't tax "effort"
This is not really true. There are many ways to make money without expending much effort. Example: capital gains. By simply having a lot of money, I can invest this and make a solid profit...and be taxed in a lower bracket.
It has no bearing on effort expended. In fact, you can easily argue that "More Effort = More Money" has a very definite ceiling which you can't cross. At some point, you have to start leveraging other assets (money, employees, etc).
Taxing based on the amount of income earned is really the only sensible way to tax. You can't tax "effort"
I don't disagree with your thesis that earned income is a reasonable basis for taxation, it is certainly better than 'value added.'
But wonder if you are arguing that earning money through non-manual labor is 'effortless' ?
This could use some clarification:
" By simply having a lot of money, I can invest this and make a solid profit...and be taxed in a lower bracket."
Is there some magic money pool somewhere that I can put a million dollars into and count on it to make a "solid profit" ? What is a 'solid profit' ? Is it inflation + 4%? 5%? 10%?
People have told me that programming takes no effort, they say "Oh yeah, you just go in there and type in some stuff and make a word processor or something and then sell that again and again for $100, its like printing your own money!" I realize that they don't understand what programming involves in terms of making a living at it.
For the last 15 years or so I've had the opportunity to manage the funds that I rolled over from a 401K as a 'self managed IRA'. I haven't found making that money 'grow' either easy or effortless. Rather it has been very much a challenge.
During the dot-com frenzy I knew people who mortgaged their houses to raise capital that they were going to 'make money hand over fist' with. But I don't know any of them where that turned out to be the best use of that capital. Not definitive I know but it made me cautious.
But wonder if you are arguing that earning money through non-manual labor is 'effortless' ?
This could use some clarification:
" By simply having a lot of money, I can invest this and make a solid profit...and be taxed in a lower bracket."
Is there some magic money pool somewhere that I can put a million dollars into and count on it to make a "solid profit" ? What is a 'solid profit' ? Is it inflation + 4%? 5%? 10%?
People have told me that programming takes no effort, they say "Oh yeah, you just go in there and type in some stuff and make a word processor or something and then sell that again and again for $100, its like printing your own money!" I realize that they don't understand what programming involves in terms of making a living at it.
For the last 15 years or so I've had the opportunity to manage the funds that I rolled over from a 401K as a 'self managed IRA'. I haven't found making that money 'grow' either easy or effortless. Rather it has been very much a challenge.
During the dot-com frenzy I knew people who mortgaged their houses to raise capital that they were going to 'make money hand over fist' with. But I don't know any of them where that turned out to be the best use of that capital. Not definitive I know but it made me cautious.
It takes effort to make a solid profit from investing, but more than that, it takes effort to avoid losses.
That's one of the reasons wages and investment are treated differently: your effort can be wasted in either case, but with investment you can also lose your capital.
That's one of the reasons wages and investment are treated differently: your effort can be wasted in either case, but with investment you can also lose your capital.
Largely true, with the exception of the banks lucky enough to be a Primary dealer for the Federal Reserve, for whom the Fed is indeed your magic money pool.
In regards to investing, nearly everyone is best off just investing in an index fund of the entire market.
In regards to investing, nearly everyone is best off just investing in an index fund of the entire market.
The progressive income tax exists because there's a diminishing marginal utility of income.
In regards to government expenditures, I'd say generally, it makes sense morally to reduce your tax as low as possible, and than donate that amount to charity, research, or whatnot, not just because government wastes money, but because they use money to engage in horrific activities such as the Iraq War.
In regards to government expenditures, I'd say generally, it makes sense morally to reduce your tax as low as possible, and than donate that amount to charity, research, or whatnot, not just because government wastes money, but because they use money to engage in horrific activities such as the Iraq War.
This would make sense if you were talking about Zynga, but we're talking about Google here.
A dollar spent on Google's self-driving cars program will improve transport in California more than a dollar spent on resurfacing highways; a dollar spent on removing SEO spam from search results will improve education in California more than a dollar spent on paper textbooks full of lies sold by corrupt monopolies; and a dollar spent on developing Android will improve smartphones more than a dollar spent adjudicating pointless patent cases filed by patent pirates like Apple and Intellectual Ventures to eliminate competition.
And then there's the benefit to the rest of the world outside California.
And then there's the fact that a third of your tax money goes to the military, whose mission is to make the world a shittier place for everyone outside the US.
I'm not a huge fan of Google (see http://lists.canonical.org/pipermail/kragen-tol/2011-August/...) but in a competition with the US and California governments for cost-effective ways to use dollars to improve the world, Google wins hands down.
A dollar spent on Google's self-driving cars program will improve transport in California more than a dollar spent on resurfacing highways; a dollar spent on removing SEO spam from search results will improve education in California more than a dollar spent on paper textbooks full of lies sold by corrupt monopolies; and a dollar spent on developing Android will improve smartphones more than a dollar spent adjudicating pointless patent cases filed by patent pirates like Apple and Intellectual Ventures to eliminate competition.
And then there's the benefit to the rest of the world outside California.
And then there's the fact that a third of your tax money goes to the military, whose mission is to make the world a shittier place for everyone outside the US.
I'm not a huge fan of Google (see http://lists.canonical.org/pipermail/kragen-tol/2011-August/...) but in a competition with the US and California governments for cost-effective ways to use dollars to improve the world, Google wins hands down.
But they can do this already. They could just spend the money on research and then they wouldn't have so much profit to be taxed.
When I wrote that comment, I thought that investment in R&D was taxed because it added to the book value of the company —you carry the results as intangible assets on your books until you depreciate them. Some other comments have asserted that that's not the case, since capital investment is not taxed as profit.
From the tax money they would pay only a very little part would go towards their community and employees. Most of it would be wasted on a lot of nonsense. If their goal was to make the world a better place it would be a lot more efficient to take the matter in their own hands and use their money directly on stuff they think should work better. States and governments are hugely inefficient.
> Is it truly in Google's interest to work towards the minimization of government capability wherever it is?
This is the wrong perspective. They're working toward maximizing their profits, not minimizing their benefit to the state.
$1 billion of taxes into the state does not even come close to producing $1 billion of benefit to themselves. Considering how much money gets distributed to parts of the state hundreds of miles away and how inefficiently (and sometimes wasted) the government handles money, it's probably fractions of a penny on the dollar that they actually get back in some benefit.
Is it worth it to you to avoid taxes? Yep. Even if it means that your local school where your children actually go to gets a bit less money, you save a couple thousand dollars and the school misses out on a hundred bucks. The impact on you personally is beyond negligible.
This is the wrong perspective. They're working toward maximizing their profits, not minimizing their benefit to the state.
$1 billion of taxes into the state does not even come close to producing $1 billion of benefit to themselves. Considering how much money gets distributed to parts of the state hundreds of miles away and how inefficiently (and sometimes wasted) the government handles money, it's probably fractions of a penny on the dollar that they actually get back in some benefit.
Is it worth it to you to avoid taxes? Yep. Even if it means that your local school where your children actually go to gets a bit less money, you save a couple thousand dollars and the school misses out on a hundred bucks. The impact on you personally is beyond negligible.
It depends on the country, but in many (certainly in the US) a very significant portion of tax revenues goes toward funding immoral activities and corruption. If you're worried about the health of society, you should be worried about the trillions devoted to war and propping up the financial industry's elite, not the billions Google retains in order to create more free services on the internet.
It seems to me to be a "tragedy of the commons" situation: It's in each individual business' interest to avoid as much tax as it can, as it receives all the benefits of the extra net income, while the damage to the state is shared by everyone; but, if every business makes this individually-rational economic decision, everyone suffers from the adverse effects you describe in your first paragraph.
Free rider problem. Google would get some benefit from it's local governments being more effective, but it would also pay a cost. Meanwhile, it's competitors keep high margins, and don't pay anything.
Say California closes tax loopholes. Then all California companies are placed on an equal footing. But they're now at a disadvantage to non-California companies that don't pay taxes.
Usually higher/simpler taxes will be the better solution. The higher the level they're applied at, the better, as far as the companies are concerned.
Recall that Amazon has been pushing for Federal rules on state sales taxes. Absent those, it's been simpler for amazon to fight paying taxes rather than set up a compliance system and pay taxes on a state by state basis.
Say California closes tax loopholes. Then all California companies are placed on an equal footing. But they're now at a disadvantage to non-California companies that don't pay taxes.
Usually higher/simpler taxes will be the better solution. The higher the level they're applied at, the better, as far as the companies are concerned.
Recall that Amazon has been pushing for Federal rules on state sales taxes. Absent those, it's been simpler for amazon to fight paying taxes rather than set up a compliance system and pay taxes on a state by state basis.
Perhaps Google as well as anyone else, including my self, feel that they can spend 2B in a better way than the government would. For example, lobbying for more open internet.
They're not spending that $2B. They're putting into "safe" investments like treasuries or just keeping as cash. Thus, you are effectively paying them to hold onto it via your taxes (for the bonds) and inflation (for the cash).
I would imagine what Google does is less "evil", while also being totally legal, than how California government would actually chose to spend those taxed dollars. Maybe if Google holds off a little longer then California may actually get more competent people handling their debt obligations and future expenditures. Overspending at a local level needs to be reigned in for any tax revenue to be truly effective.
Not to mention that California's state government is in lots of debt. If the big tax-avoiding companies in CA paid a bit more tax, well...
Why is California's state government in lots of debt?
A city of 36,664 with a 16% unemployment and a per capita income of $24,800 paid its council men twice of what is the salary of the POTUS[1].
I am personally opposed to capital punishment but I would not mind the strictest possible sentence to these people other than a death sentence. Perhaps suspend their drivers' license and passport and make them pay some enormous amount of money (in addition to the money they took from the government) which they cannot wipe away with a bankruptcy.
[1]: https://en.wikipedia.org/wiki/City_of_Bell_scandal
A city of 36,664 with a 16% unemployment and a per capita income of $24,800 paid its council men twice of what is the salary of the POTUS[1].
I am personally opposed to capital punishment but I would not mind the strictest possible sentence to these people other than a death sentence. Perhaps suspend their drivers' license and passport and make them pay some enormous amount of money (in addition to the money they took from the government) which they cannot wipe away with a bankruptcy.
[1]: https://en.wikipedia.org/wiki/City_of_Bell_scandal
If the CA government had more income, I'm sure they would just find new ways to deplete it even faster. More money does not fix behavioral problems. This is a common pattern which many fail to observe.
This quote stuck in my craw:
"Google said it complies with all tax rules, and its investment in various European countries helps their economies. In the U.K., “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, California-based company said in a statement..."
Everybody contributes to the economy, not just entities like Google, and they pay a higher tax rate for the income they derive through that contribution. Bringing these issues up is asking for double credit.
"Google said it complies with all tax rules, and its investment in various European countries helps their economies. In the U.K., “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, California-based company said in a statement..."
Everybody contributes to the economy, not just entities like Google, and they pay a higher tax rate for the income they derive through that contribution. Bringing these issues up is asking for double credit.
They are pointing out that they pay taxes on tangibles such as salaries, VAT and business rates. Corporation tax is based on the fungible concept of profit and really is unworkable.
Everyone pays VAT, but as a matter of economics it is, like a sales tax, bourne by the consumer, not intermediate producers. Salaries are deductible everywhere I'm aware of, and "payroll taxes," although they are nominally collected from the employer, are, in the concensus of most economists, mostly if not entirely bourne by employees in the form of lower wages.
Yeah, OK, however it is paid by all the other companies working in the UK, Europe etc... and many have not the means to register at Bermuda...
I can bet they can manage pay no VAT (because this is a compensated tax, you deduce what you spend...).
I may agree: corp. tax may be unworkable but saying "we are honest, we contribute to the economy" is flatly insulting to the other companies which cannot get away with it like Bermuda-based Google.
I can bet they can manage pay no VAT (because this is a compensated tax, you deduce what you spend...).
I may agree: corp. tax may be unworkable but saying "we are honest, we contribute to the economy" is flatly insulting to the other companies which cannot get away with it like Bermuda-based Google.
> Yeah, OK, however it is paid by all the other companies working in the UK, Europe etc... and many have not the means to register at Bermuda...
They all have the means to register in Bermuda (or Cyprus or several other countries used to offshore money), it's relatively simple for an accountant to setup, but there's little point as the UK doesn't have any easy way to get the money back into the country from offshore without paying the required amount of corporation tax; so there's no point in sending it overseas in the first place.
The US does have periodic amnesties that allow offshore money to be brought back into the US at a reduced tax rate which makes hoarding it overseas for a few years financially worthwhile.
Of course, there's nothing stopping a UK company with good cashflow (which is required if you're going to be keeping lots of cash overseas in the hope of a future amnesty) from moving their headquarters to the US and doing exactly what these US companies are doing to pay little/no UK corporation tax.
They all have the means to register in Bermuda (or Cyprus or several other countries used to offshore money), it's relatively simple for an accountant to setup, but there's little point as the UK doesn't have any easy way to get the money back into the country from offshore without paying the required amount of corporation tax; so there's no point in sending it overseas in the first place.
The US does have periodic amnesties that allow offshore money to be brought back into the US at a reduced tax rate which makes hoarding it overseas for a few years financially worthwhile.
Of course, there's nothing stopping a UK company with good cashflow (which is required if you're going to be keeping lots of cash overseas in the hope of a future amnesty) from moving their headquarters to the US and doing exactly what these US companies are doing to pay little/no UK corporation tax.
The small team of NPR's Planet Money has two offshore companies. It's not really hard or expensive to setup: it costs less than $800/company to create one in Belize.
http://www.npr.org/blogs/money/2012/07/27/157421340/how-to-s...
http://www.npr.org/blogs/money/2012/07/27/157421340/how-to-s...
Companies don't pay VAT. It's somewhat more complicated than that.
Exactly.
Companies get profits proportional to the value of goods they provide to the economy.
Saying that somehow $100 earned by Google is more beneficial than the $100 earned by a small dental gabinet is extremely stupid. Both companies should pay taxes on their profits and none of them can claim it does more good for its money than the other.
To me, what Google tries to say is pure bullshit.
Companies get profits proportional to the value of goods they provide to the economy.
Saying that somehow $100 earned by Google is more beneficial than the $100 earned by a small dental gabinet is extremely stupid. Both companies should pay taxes on their profits and none of them can claim it does more good for its money than the other.
To me, what Google tries to say is pure bullshit.
It's so frustrating to see this come up again and again and see people refuse to acknowledge the reality of this. Corporations, separate taxable entities, can be created on demand, and profit and loss distributed at will across them. Given that, there's very little chance that a large company that knows what it's doing will ever pay any significant taxes.
Argue about loopholes or Republicats all you want, this is fundamentally built into our system and there is NO ONE who wants to take on changing it. I guarantee you Romney and Obama BOTH know how this works and yet they play dumb in tax debates for hours, and no one calls them out on it.
I think getting rid of the corporate tax makes sense because it would at least level the playing field for smaller companies, but pretending that it makes a difference for larger companies just demonstrates how uninformed the electorate is.
Argue about loopholes or Republicats all you want, this is fundamentally built into our system and there is NO ONE who wants to take on changing it. I guarantee you Romney and Obama BOTH know how this works and yet they play dumb in tax debates for hours, and no one calls them out on it.
I think getting rid of the corporate tax makes sense because it would at least level the playing field for smaller companies, but pretending that it makes a difference for larger companies just demonstrates how uninformed the electorate is.
The only one at fault here are the governments that allow this. The government is the one trying to collect money, they are the ones who make the rules about collection, and they are the ones with the power to enforce said rules.
If governments are allowing this, it's because they want to, not because of some accidental goof.
If governments are allowing this, it's because they want to, not because of some accidental goof.
It's surprisingly hard to get this right when companies can hire teams of people who's only job is to find these kinds of tax avoidance schemes.
Well, I surely don't know all of the subtleties involved. In fact, I'm quite sure nobody does. Again, I'm being US centric here, but our tax code is pretty absurd.
You can download a copy here: http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-.... I've read in many places that the US taxcode is > 70,000 pages. Maybe that includes state taxes. This pdf is a little over 3000 pages.
Still pretty complicated, and makes plenty of room for maneuvering in tax avoidance efforts.
You can download a copy here: http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-.... I've read in many places that the US taxcode is > 70,000 pages. Maybe that includes state taxes. This pdf is a little over 3000 pages.
Still pretty complicated, and makes plenty of room for maneuvering in tax avoidance efforts.
I just love it when politicians express indignant outrage when they're the ones who made the rules...
Tax competition is a good thing. Kudos to Google and Bermuda.
Tax competition is a good thing. Kudos to Google and Bermuda.
Tax competition might be a good thing, but creative accounting just to dodge taxes isn't. Not in my book, at least.
I view what Google (and many other corporations do) as tax arbitrage.
We see this here in the US where States will undercut each other to get a business to move to their state (although it is different from doing this at a country level). In my opinion it is a fools game for States to do this - it is a race to the bottom and the company will just pack up and move to another state as soon as they're done taking advantage of the tax code.
I also think it is fine for an individual politician to express indignation as (a) they may not have been in office when this was passed and (b) one politician can't, by him or herself, change the law.
What I find most interesting was what happened in the UK with Starbucks - basically they bowed to public and government pressure on tax avoidance. Still, Starbucks sounded like they were "doing the right thing" as though paying tax was voluntary. Hysterical.
We see this here in the US where States will undercut each other to get a business to move to their state (although it is different from doing this at a country level). In my opinion it is a fools game for States to do this - it is a race to the bottom and the company will just pack up and move to another state as soon as they're done taking advantage of the tax code.
I also think it is fine for an individual politician to express indignation as (a) they may not have been in office when this was passed and (b) one politician can't, by him or herself, change the law.
What I find most interesting was what happened in the UK with Starbucks - basically they bowed to public and government pressure on tax avoidance. Still, Starbucks sounded like they were "doing the right thing" as though paying tax was voluntary. Hysterical.
"Tax competition is a good thing"? How does that make any sense? If competition is a good thing for a particular service (say, firefighting), then you don't need to fund it with taxes, and indeed shouldn't; you can fund it by charging the consumers of the service. It's only the services for which competition-on-price is actually a bad thing (e.g. health care, stock market regulation, and indeed firefighting) where you can morally justify funding them with taxation.
a) It is in the interest of all companies, shareholders, and consumers for corporations to pay the smallest amount of tax possible. Higher taxes are simply passed on to consumers in the form of higher prices or lower supply of products.
b) All of this 'tax dodging' is perfectly legal. But the laws are not perfect that incentivize this sort of behavior.
c) Of course the Europeans opt for some larger-government solution, all in the name of 'fairness'. I say that much injustice indeed has been done in the name of this fairness, since those with the lawmaking power are the ones who decide what's 'fair.' These outcomes usually do not promote liberty, free markets, or growth.
d) I'm sick of those who spout off this 'fair share' business about taxes. Show me some figures on who is paying the taxes and who is free-riding (as far as personal income tax goes), and I will then be able to hear an argument about 'fair share.' Hint: the top few percent pay the vast majority of income taxes.
b) All of this 'tax dodging' is perfectly legal. But the laws are not perfect that incentivize this sort of behavior.
c) Of course the Europeans opt for some larger-government solution, all in the name of 'fairness'. I say that much injustice indeed has been done in the name of this fairness, since those with the lawmaking power are the ones who decide what's 'fair.' These outcomes usually do not promote liberty, free markets, or growth.
d) I'm sick of those who spout off this 'fair share' business about taxes. Show me some figures on who is paying the taxes and who is free-riding (as far as personal income tax goes), and I will then be able to hear an argument about 'fair share.' Hint: the top few percent pay the vast majority of income taxes.
d) ok, great! We'll all use off-shore companies to get our taxes down to a few %. Then let's see how we fund the NHS, roads, infrastructure, education, welfare and everything else you use daily that you don't pay for directly.
You seem to have missed the point: government spending is far too high across the board. You could tax the rich in America 100% and still not have enough money to run the government for more than a couple months!
That's not what your point d) says.
From the article:
"Last week, the European Union’s executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the EU 1 trillion euros ($1.3 trillion) a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a press conference in Brussels."
This is the issue. The Euro-zone is in a world of hurt and having a few hundred billion euros would "fix" that problem. So they are gearing up to change their tax laws, which is going to be a huge fight (taking money from wealthy people or corporations is always strongly resisted by those people).
I see it as a side effect of the EU fiscal problem in general (the root of which is non-soverign control over fiscal policy and enforcement) and suspect it will impact Europe at least as much as the end of the cold war did, if not more. I'm not entirely comfortable predicting what those effects will be.
"Last week, the European Union’s executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the EU 1 trillion euros ($1.3 trillion) a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a press conference in Brussels."
This is the issue. The Euro-zone is in a world of hurt and having a few hundred billion euros would "fix" that problem. So they are gearing up to change their tax laws, which is going to be a huge fight (taking money from wealthy people or corporations is always strongly resisted by those people).
I see it as a side effect of the EU fiscal problem in general (the root of which is non-soverign control over fiscal policy and enforcement) and suspect it will impact Europe at least as much as the end of the cold war did, if not more. I'm not entirely comfortable predicting what those effects will be.
I say good on Google. They've found a legal loophole that allows them to use their funds more efficiently.
Are Google (depending on how you define their identity) bound to do this out of fiduciary duty, or do they have some semblance of choice in this?
In the U.S., there is no fiduciary duty to minimize tax liability or to maximize profits. In any case the bar for a successful shareholder suit is extremely high, and executives are given tremendous leeway in situations where conflicts of interest aren't involved. I can't imagine that you could successfully sue a CEO for a company's not taking aggressive tax positions.
Achieving low tax rates is largely about keeping up with Wall Street analyst expectations. CEO's of public companies having to face a bunch of analysts every quarter to discuss quarterly earnings, including after-tax earnings, is a huge driver of this sort of behavior. CEO's are judged on how analysts view their stock, and it's a horse race. If some other company makes $0.05 more than you per share because of a lower tax rate, they are going to get credit for that.
Achieving low tax rates is largely about keeping up with Wall Street analyst expectations. CEO's of public companies having to face a bunch of analysts every quarter to discuss quarterly earnings, including after-tax earnings, is a huge driver of this sort of behavior. CEO's are judged on how analysts view their stock, and it's a horse race. If some other company makes $0.05 more than you per share because of a lower tax rate, they are going to get credit for that.
There is a wide band of freedom given to business judgement. The critic that is the capital markets is a bit more harsh, however. If your returns aren't good enough relative to other investments of similar risk because you opted to pay more in taxes, you may have a harder time attracting investments. That's the theory at least, and a pretty good one if you ask me. To ignore that is to basically ask for not only increased taxes, but increased cost of capital overall.
They could stay with the truth and claim that they are not... Bermuda-based?
It seems as simple as that, from my ordinary tax-paying citizen POV.
It seems as simple as that, from my ordinary tax-paying citizen POV.
I find it interesting that the tech titans, who seem to overwhelmingly support high-tax politicians and policies, are also engaged in the most aggressive tax avoidance in the world.
We only need to look at Europe to see how widespread tax avoidance plus high government spending creates an unsustainable path that puts the entire economy and country at risk.
Seems to me the only rational path is to either support lower government spending across the board to complement the aggressive tax avoidance, or demand that leading companies pay taxes according to the state or country where the bulk of their employees are, and not based on wherever a shell company may reside.
We only need to look at Europe to see how widespread tax avoidance plus high government spending creates an unsustainable path that puts the entire economy and country at risk.
Seems to me the only rational path is to either support lower government spending across the board to complement the aggressive tax avoidance, or demand that leading companies pay taxes according to the state or country where the bulk of their employees are, and not based on wherever a shell company may reside.
Don't be angry at Google, be angry at government. It's years that companies are using this - I would call it a government failure.
What I don't understand is why - please tell me why - the EU is not doing anything to fix it? Irland got billions from EU to get to the level where they are today (they were to poorest country in europe before), don't tell me that the EU hasn't any way to press Ireland or Netherland to change their law. Again, it needs to go through the press to shake it a bit.
But isn't it also the same problem in the US? Some states have very low taxes on business profits. So you can see very often companies having offices over there?
But isn't it also the same problem in the US? Some states have very low taxes on business profits. So you can see very often companies having offices over there?
Google is reaping benefits from the infrastructure built on taxes paid by small companies and yet they fucking dare to say they do more good than them.
Fucking hypocrites
Fucking hypocrites
What infrastructure are they using?
Fiber networks? Their employees security by funding Police and the Military? Health care for their employees and customers?
What infrastructure are translators and lawyers using? They still pay normal taxes because they extract profits from a given country and are ought to pay taxes on it. One shouldn't argue whether he or she is ought to pay taxes. If it was the case, 95% of companies and entities would argue that they shouldn't pay a cent. All using their own, twisted logic.
No one wants to pay taxes but avoiding them is unethical and doesn't help the society at all.
What infrastructure are translators and lawyers using? They still pay normal taxes because they extract profits from a given country and are ought to pay taxes on it. One shouldn't argue whether he or she is ought to pay taxes. If it was the case, 95% of companies and entities would argue that they shouldn't pay a cent. All using their own, twisted logic.
No one wants to pay taxes but avoiding them is unethical and doesn't help the society at all.
They pay their access fee for fiber networks, surely. As they are paying for all utilities.
Should police/military funding be used to protect corporations or citizens? Are citizens paying it with take home salary? Google could hire their own private military, likely for less than the tax burden you're implying they should pay.
Should police/military funding be used to protect corporations or citizens? Are citizens paying it with take home salary? Google could hire their own private military, likely for less than the tax burden you're implying they should pay.
The same argument can be made for any company.
> Fiber networks? Their employees security by funding Police and the Military? Health care for their employees and customers?
Since the post complains largely about behavior in the United States, it seems a fair reminder that from this list Police and Military are paid through taxes, while the others are (for the majority) constitute private transactions for services which individuals have no inherent right to consume.
> No one wants to pay taxes but avoiding them is unethical
I am sure many here would be interested in how you would support this assertion.
Since the post complains largely about behavior in the United States, it seems a fair reminder that from this list Police and Military are paid through taxes, while the others are (for the majority) constitute private transactions for services which individuals have no inherent right to consume.
> No one wants to pay taxes but avoiding them is unethical
I am sure many here would be interested in how you would support this assertion.
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Can someone explain to me why we don't lower corporate taxes across the board and raise dividend and capital gains taxes to compensate. It seems to me that the later taxes are fairer and more difficult to dodge. Plus they encourage reinvestment (eg. hiring) since money gets taxed when or if it leaves the company.
I wonder... why do they not hire abut 2.000.000 people in Bermuda? That would be very helpful to Bermuda's economy, would it not? Instead of just pumping money into it, give them some jobs.
They're waiting for a US tax amnesty (last one was in 2004) to allow them to bring the money back into the US and only pay ~5% tax on it rather than 20% to 30% (depending on what has already been paid overseas) if they brought it in now.
Apple has ~$74bn sitting off shore waiting for the same thing: http://news.yahoo.com/apples-phantom-taxes-hide-billions-pro...
The European countries are annoyed because they're not getting any of it (apart from Ireland who are getting 12.5% of a lot of this money as they're one of the countries where these tax schemes do pay corporation tax).
Apple has ~$74bn sitting off shore waiting for the same thing: http://news.yahoo.com/apples-phantom-taxes-hide-billions-pro...
The European countries are annoyed because they're not getting any of it (apart from Ireland who are getting 12.5% of a lot of this money as they're one of the countries where these tax schemes do pay corporation tax).
And that allows them not to pay any taxes in the UK because...
I just don't get it.
And I don't care about Apple right now: this is a Google thread.
Edit: I obviously understand "how" it is done. I do not get why that gives them the right to do so (apart from the obvious "being able to do that").
I just don't get it.
And I don't care about Apple right now: this is a Google thread.
Edit: I obviously understand "how" it is done. I do not get why that gives them the right to do so (apart from the obvious "being able to do that").
Here's the simple version.
A company pays corporation tax in the UK on its profit, not on its sales, just its profit.
Your UK company makes sales of £500m and makes £200m profit.
You offset this by paying a £200m 'license fee' (for nothing special, it's easy to conjure up) to a company you also own based in Ireland. It pays just 12.5% corporation tax on this £200m instead of 28% in the UK.
That Irish company moves the money out to Bermuda in a similar way and there's no corporation tax to pay between Ireland and Bermuda.
You can't go directly from the UK to Bermuda as the UK's existing tax laws prevent that. Going via Ireland is the cheapest method (see "Double Irish"). Variants to help indemnify sometimes use a firm in the Netherlands (see "Dutch Sandwich").
So, by paying a £200m license fee to another company the UK company has made no profit, so it pays no corporation tax in the UK, despite sales of £500m.
Other variants include obtaining loans from the foreign companies and then paying interest on these loans.
If you want to bring that money back into the UK again then the remaining 15.5% (28% UK corportation tax rate minus the 12.5% already paid in Ireland) is due, so you're no better off than having just paid the full 28% in the UK in the first place.
Eventually you want to have the money somewhere else than Bermuda, and in Google's case this is back in the US, so they wait for the US Government to announce another tax amnesty and bring it back into the US from Bermuda and only pay 5% on it. Ireland wins (they get 12.5% for nothing really), the US wins (they get 5% instead of nothing) and the UK loses out (it gets 0%).
My point about Apple was that Google aren't alone in doing this, nor are they the biggest beneficiaries of these types of schemes.
A company pays corporation tax in the UK on its profit, not on its sales, just its profit.
Your UK company makes sales of £500m and makes £200m profit.
You offset this by paying a £200m 'license fee' (for nothing special, it's easy to conjure up) to a company you also own based in Ireland. It pays just 12.5% corporation tax on this £200m instead of 28% in the UK.
That Irish company moves the money out to Bermuda in a similar way and there's no corporation tax to pay between Ireland and Bermuda.
You can't go directly from the UK to Bermuda as the UK's existing tax laws prevent that. Going via Ireland is the cheapest method (see "Double Irish"). Variants to help indemnify sometimes use a firm in the Netherlands (see "Dutch Sandwich").
So, by paying a £200m license fee to another company the UK company has made no profit, so it pays no corporation tax in the UK, despite sales of £500m.
Other variants include obtaining loans from the foreign companies and then paying interest on these loans.
If you want to bring that money back into the UK again then the remaining 15.5% (28% UK corportation tax rate minus the 12.5% already paid in Ireland) is due, so you're no better off than having just paid the full 28% in the UK in the first place.
Eventually you want to have the money somewhere else than Bermuda, and in Google's case this is back in the US, so they wait for the US Government to announce another tax amnesty and bring it back into the US from Bermuda and only pay 5% on it. Ireland wins (they get 12.5% for nothing really), the US wins (they get 5% instead of nothing) and the UK loses out (it gets 0%).
My point about Apple was that Google aren't alone in doing this, nor are they the biggest beneficiaries of these types of schemes.
If I have a British widget company that buys £2 million of plastic and sells £3 million of widgets, I pay out a profit of £1 million to my shareholders and that profit is subject to corporation tax.
If my company buys £2 million of plastic and spends £1 million licensing a widget design from a company based in Bermuda, I haven't made a profit and I don't pay my shareholders, so I pay no profit tax. The Bermuda-based company, on the other hand, has made a profit of £1 million - and they're only taxed at whatever Bermuda's tax rate is. And if that completely separate company happens to have the same shareholders...
If my company buys £2 million of plastic and spends £1 million licensing a widget design from a company based in Bermuda, I haven't made a profit and I don't pay my shareholders, so I pay no profit tax. The Bermuda-based company, on the other hand, has made a profit of £1 million - and they're only taxed at whatever Bermuda's tax rate is. And if that completely separate company happens to have the same shareholders...
> I do not get why that gives them the right to do so (apart from the obvious "being able to do that").
Their duty to shareholders is to maximise profit.
Google are big and ubiquitous enough that they've probably decided that the negative aspects (bad PR from these stories) is outweighed by the increased profits and, therefore, shareholder value.
Their duty to shareholders is to maximise profit.
Google are big and ubiquitous enough that they've probably decided that the negative aspects (bad PR from these stories) is outweighed by the increased profits and, therefore, shareholder value.
because UK politicians allow corporations like google to do so , there is no magic , Google doesnt write UK's laws. Politicians could close loopholes yet they dont why ? that the real question.
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Don't be evil.
Not sure I’m buying much of the righteous indignation going about regarding corporate taxes these days especially when politicians partake in it. If they put themselves into a situation where they have to depend on the moral choices of multinational corporations they are part of the problem.
And in fact it’s not a moral issue at all but a legal one. And if the conduct is legal then it’s not Google’s problem, is it?! the focus on Google in some of this tax talk is indicative of some sort of a PR offensive against them by governments and other bodies who aren't fond of Google and are using this as a wedge issue against the company.
Everyone does it and it’s been done for a while, governments allow much of it to encourage corporations to hire and invest within the local economies and now they pretend to be surprised and appalled by it. This just reeks of hypocrisy.
And in fact it’s not a moral issue at all but a legal one. And if the conduct is legal then it’s not Google’s problem, is it?! the focus on Google in some of this tax talk is indicative of some sort of a PR offensive against them by governments and other bodies who aren't fond of Google and are using this as a wedge issue against the company.
Everyone does it and it’s been done for a while, governments allow much of it to encourage corporations to hire and invest within the local economies and now they pretend to be surprised and appalled by it. This just reeks of hypocrisy.
We all know that always are going to be changed and earnings will drop by quite a bit, the govs are starving for cash. They were always hungry but now it's starvation time.
"The corporate income tax makes no sense whatsoever," said Robert Frank, a professor at Cornell. "We don't want to prevent Microsoft and General Motors ... from investing more and improving their product line," Baker said. "That's a good thing in my view."
Our economists said if you want to tax rich people as public policy, then tax rich people — tax the people who own corporations. But taxing the corporation itself is taxing the thing that really does create jobs.
In my personal opinion, the money does more good in Google's hands than in the government's hands.