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Corporate domicile is essentially a market and corporations have a choice where to domicile themselves. So instead of governments making futile attempts to legi

Corporate domicile is essentially a market and corporations have a choice where to domicile themselves. So instead of governments making futile attempts to legislate their way to a solution why don't they do as participants in any other market do and actually be competitive? This means reducing costs and finding savings to compete on price, i.e. lower rates of taxation. If government was a private enterprise, it would go out of business.

danieltillett 11y ago
Government isn't a private business so it makes little sense to make such a comparison. Tax should be paid in the jurisdiction the profit is earned.
- DVassallo 11y ago
  > Tax should be paid in the jurisdiction the profit is earned. Why should it be that way? One problem with these loopholes seems to be that it is not easy to determine where the profit is earned.
  - danieltillett 11y ago
    The reason why is you will end up with every country in the world taxing each company on their worldwide income. Any company operating in more than one country will be taxed out of existence. It is not that hard to determine where the income is earned provided countries share data.
    - gabbo 11y ago
      It is hard, though: not least because determining where income is earned depends on defining "income". Revenue is maybe easy enough, but what about expenses? Depending on the industry, there's plenty of opportunity for chicanery which makes it far from "not that hard". Example: you're a large tech company who can afford good accountants and complicated legal structures. Your high-tax jurisdiction European subsidiaries can "license" a whole bunch of "intellectual property" from their counterparts in Ireland/Luxembourg which significantly beef up their costs to the point that net income in the high-tax jurisdiction is minimal and it all gets booked somewhere which will charge you less. Kind of like how Apple manages its assets via a Nevada subsidiary to avoid paying tax in California, and how Microsoft does something similar with software licensing. Except at least in the US case there's still tax revenue going to the federal government.
      - danieltillett 11y ago
        When I said not hard I should have said it is possible :) Intellectual property is certainly a major way of avoid tax, but there are many ways of solving this. You could only allow each country to apportion IP costs on the basis of where income is earned. Alternatively, you could prevent deduction for IP licenses to entities owned by the parent company. Once you have the information of where the money goes then you can certainly tax it fairly.
    - DVassallo 11y ago
      Let's say I write a book and make $1 million in sales from customers in 100 countries... Do you think that each country should collect taxes on the profits (not on the sales) from the customers that reside in the country? And if yes, how would the profit be determined? What if I took a $999,999 salary to write the book? Do you also think I should pay income tax on that salary to each country I sold the book to?
      - harryh 11y ago
        I'm not an accountant so I don't know the details but, for the record, the vast majority of countries in the world only tax corporate income earned within their borders. The US is a rare exception to this standard.
    - jazzyk 11y ago
      How about we tax companies based on revenue realized in the US? Also, companies that have 60% or more employees in the US would be taxed at a lower, (moderately progressive) rate and international companies at a higher rate. It could be a sensible way to account for the fact that international companies realize huge profits in the US (big market, etc), without contributing ANYTHING to training workers, maintaining telecom, logistic infrastructure, etc.
    - SilasX 11y ago
      >It is not that hard to determine where the income is earned provided countries share data. It actually is, because that requires you to be able to easily identify which transactions are shams designed only to move the profits to a low-tax country. Let's say the books indicate that the project required the licensure of umpteen billion dollars of IP from Luxembourg. How do you know that the U.S. branch didn't "really" need that IP (or it wasn't really produced in Lux) from only looking at the balance sheets?
      - danieltillett 11y ago
        If the parent company happens to own the company licensing the IP then I think it is pretty easy to tell the whole thing is a sham.
        SilasX 11y ago
        But it's also possible for artistic works to legitimately have different pieces created by artists in different countries, and still be parts of the same parent company. An objective answer would require internal value accounting of an ultra-illiquid, ultra-sparsely traded good, which would be hard for experts to gauge, let alone accountants.
        danieltillett 11y ago
        These artistic works are not created in places like the british virgin islands. It would be pretty easy to just put in place a rule that internal IP can only be licensed from the entity that created it.
        SilasX 11y ago
        That's what they were already doing -- the whole problem is that it's hard to find a rigorous way to say which entity "really" created it in the sense of which portion of the value came from where. If Pixar:USA claims that the scribble on frame 33 (added by Pixar:Luxembourg) was worth $10 million, how does that show up on a accounting document that a tax authority could reject as being a sham?
  - grecy 11y ago
    > Tax should be paid in the jurisdiction the profit is earned. > Why should it be that way? Because the entity earning profit (person or corporation) used resources to their advantage that were paid for by the taxes in that jurisdiction. i.e. Facebook employees drive to work on public roads, use public police, firemen and military to keep them safe, attended public elementary schools, eat food approved by the public FDA, enjoy breathable air and drinkable water governed by the public EPA, etc. etc. The list is endless. So they're getting benefit from all those things funded by public taxes, therefore they should contribute to those taxes. If they're not paying taxes, they shouldn't be allowed to benefit from all those things.
- sjtgraham 11y ago
  Governments should act as such. Corporations are highly mobile and operate in a global market. We are all customers of government, and it is only because they have a captive monopoly that they are not in fact at all competitive and extremely inefficient. Unfortunately for them, globalisation has changed this and their complete disregard for competition is costing significant revenue.
jacobolus 11y ago
That is what happens. And then you get huge number of companies headquartered in Bermuda or the Cayman Islands or whatever,† where there isn’t any need to collect taxes at all. Of course, the companies involved still take advantage of all the government-provided services in the US, Europe, etc., which is why those states are getting together now to fix the rules. † Where “headquartered” means they have a P.O. box there.
- danieltillett 11y ago
  Exactly. Who do you think is Pfizer's biggest customer - a hint - it is the one who is banned by legislation from being able to negotiate prices and the same one who they don't want to pay any taxes to.

danieltillett 11y ago

Government isn't a private business so it makes little sense to make such a comparison. Tax should be paid in the jurisdiction the profit is earned.

DVassallo 11y ago
> Tax should be paid in the jurisdiction the profit is earned. Why should it be that way? One problem with these loopholes seems to be that it is not easy to determine where the profit is earned.
- danieltillett 11y ago
  The reason why is you will end up with every country in the world taxing each company on their worldwide income. Any company operating in more than one country will be taxed out of existence. It is not that hard to determine where the income is earned provided countries share data.
  - gabbo 11y ago
    It is hard, though: not least because determining where income is earned depends on defining "income". Revenue is maybe easy enough, but what about expenses? Depending on the industry, there's plenty of opportunity for chicanery which makes it far from "not that hard". Example: you're a large tech company who can afford good accountants and complicated legal structures. Your high-tax jurisdiction European subsidiaries can "license" a whole bunch of "intellectual property" from their counterparts in Ireland/Luxembourg which significantly beef up their costs to the point that net income in the high-tax jurisdiction is minimal and it all gets booked somewhere which will charge you less. Kind of like how Apple manages its assets via a Nevada subsidiary to avoid paying tax in California, and how Microsoft does something similar with software licensing. Except at least in the US case there's still tax revenue going to the federal government.
    - danieltillett 11y ago
      When I said not hard I should have said it is possible :) Intellectual property is certainly a major way of avoid tax, but there are many ways of solving this. You could only allow each country to apportion IP costs on the basis of where income is earned. Alternatively, you could prevent deduction for IP licenses to entities owned by the parent company. Once you have the information of where the money goes then you can certainly tax it fairly.
  - DVassallo 11y ago
    Let's say I write a book and make $1 million in sales from customers in 100 countries... Do you think that each country should collect taxes on the profits (not on the sales) from the customers that reside in the country? And if yes, how would the profit be determined? What if I took a $999,999 salary to write the book? Do you also think I should pay income tax on that salary to each country I sold the book to?
    - harryh 11y ago
      I'm not an accountant so I don't know the details but, for the record, the vast majority of countries in the world only tax corporate income earned within their borders. The US is a rare exception to this standard.
  - jazzyk 11y ago
    How about we tax companies based on revenue realized in the US? Also, companies that have 60% or more employees in the US would be taxed at a lower, (moderately progressive) rate and international companies at a higher rate. It could be a sensible way to account for the fact that international companies realize huge profits in the US (big market, etc), without contributing ANYTHING to training workers, maintaining telecom, logistic infrastructure, etc.
  - SilasX 11y ago
    >It is not that hard to determine where the income is earned provided countries share data. It actually is, because that requires you to be able to easily identify which transactions are shams designed only to move the profits to a low-tax country. Let's say the books indicate that the project required the licensure of umpteen billion dollars of IP from Luxembourg. How do you know that the U.S. branch didn't "really" need that IP (or it wasn't really produced in Lux) from only looking at the balance sheets?
    - danieltillett 11y ago
      If the parent company happens to own the company licensing the IP then I think it is pretty easy to tell the whole thing is a sham.
      - SilasX 11y ago
        But it's also possible for artistic works to legitimately have different pieces created by artists in different countries, and still be parts of the same parent company. An objective answer would require internal value accounting of an ultra-illiquid, ultra-sparsely traded good, which would be hard for experts to gauge, let alone accountants.
        danieltillett 11y ago
        These artistic works are not created in places like the british virgin islands. It would be pretty easy to just put in place a rule that internal IP can only be licensed from the entity that created it.
        SilasX 11y ago
        That's what they were already doing -- the whole problem is that it's hard to find a rigorous way to say which entity "really" created it in the sense of which portion of the value came from where. If Pixar:USA claims that the scribble on frame 33 (added by Pixar:Luxembourg) was worth $10 million, how does that show up on a accounting document that a tax authority could reject as being a sham?
- grecy 11y ago
  > Tax should be paid in the jurisdiction the profit is earned. > Why should it be that way? Because the entity earning profit (person or corporation) used resources to their advantage that were paid for by the taxes in that jurisdiction. i.e. Facebook employees drive to work on public roads, use public police, firemen and military to keep them safe, attended public elementary schools, eat food approved by the public FDA, enjoy breathable air and drinkable water governed by the public EPA, etc. etc. The list is endless. So they're getting benefit from all those things funded by public taxes, therefore they should contribute to those taxes. If they're not paying taxes, they shouldn't be allowed to benefit from all those things.
sjtgraham 11y ago
Governments should act as such. Corporations are highly mobile and operate in a global market. We are all customers of government, and it is only because they have a captive monopoly that they are not in fact at all competitive and extremely inefficient. Unfortunately for them, globalisation has changed this and their complete disregard for competition is costing significant revenue.

jacobolus 11y ago

That is what happens. And then you get huge number of companies headquartered in Bermuda or the Cayman Islands or whatever,† where there isn’t any need to collect taxes at all. Of course, the companies involved still take advantage of all the government-provided services in the US, Europe, etc., which is why those states are getting together now to fix the rules. † Where “headquartered” means they have a P.O. box there.

danieltillett 11y ago
Exactly. Who do you think is Pfizer's biggest customer - a hint - it is the one who is banned by legislation from being able to negotiate prices and the same one who they don't want to pay any taxes to.