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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? De
by 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 agoWhen 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.