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It's great how we're living in a world where tax codes are so idiotic and complex that it takes long lawsuits to figure out what tax is actually due. It's not

It's great how we're living in a world where tax codes are so idiotic and complex that it takes long lawsuits to figure out what tax is actually due. It's not about following the letter of the law; it's about following the letter of the law, avoiding the court of public opinion, and coughing up whatever is necessary to stop the complaints when some politician wants to distract people from their incompetence and whip up some good old nationalist fury. What do you legally owe? It's undefined. Or more, defined by whether the country you are in likes you for PR reasons (Google is stealing our newspaper jobs!) * the skill of your lawyers. Great! How about, we admit corporate income tax is a stupid idea, get rid of it, and raise capital gains taxes respectively (and dividends)? People have the great feature of being corporeal beings which live in a country, which makes them much easier to tax than ethereal corporations. Of course there are rough edges to fix around overseas investors, but it could not possibly, in any world, be worse than the system we have today.

forrestthewoods 11y ago
It's worse than that. Countries will make up taxes for foreign companies just because they can. Microsoft EU settlements being a prime example. Windows 7 N is one of the dumbest things ever. The whole situation makes a lot more sense if you view it as a tax.
- Oletros 11y ago
  > Countries will make up taxes for foreign companies just because they can. Microsoft EU settlements being a prime example. What has to do Microsoft N with taxes?
  - forrestthewoods 11y ago
    Windows 7 N exists because of the 2004 European Commission decision. That decision being a 497 million Euro fine. The fine was stupid when it was issued and it's ramifications were stupid when they forced Windows 7 N into existence. If you view the fine as a tax it all makes far more sense. The fine is merely a tax that is the cost of doing business in Europe. Microsoft is willing to pay it because they still net profit in Europe. And Europe certainly has no issue demanding money from an American corporation. Nation states demanding unreasonable things from foreign companies is nothing new. There's many a ruling that would have gone another way were the defendant a local entity.
    - Oletros 11y ago
      > The fine was stupid when it was issued and it's ramifications were stupid when they forced Windows 7 N into existence. This is just opinion > If you view the fine as a tax it all makes far more sense It is not a tax, so it doesn't make sense > The fine is merely a tax that is the cost of doing business in Europe Wrong, the fine is a consequence of breaking competition laws > And Europe certainly has no issue demanding money from an American corporation. The majority of the fines have been given to European companies, more than 80% of the money. >Nation states demanding unreasonable things from foreign companies is nothing new. There's many a ruling that would have gone another way were the defendant a local entity. Reality says that this is not the case, but if you have more data, I will look at it
      - kchoudhu 11y ago
        > Wrong, the fine is a consequence of breaking competition laws I assure you, the cost of breaking the law is factored into a spreadsheet somewhere in all corporations of note, and that this metaphorical spreadsheet is always used to make decisions. The OP is absolutely correct when he says that fines are the cost of doing business. He's wrong when he says that this is a phenomenon associated with Europe though -- corporate amorality ultimately knows nothing of national boundaries.
        Oletros 11y ago
        > The OP is absolutely correct when he says that fines are the cost of doing business Perhaps is correct is it is the cost of doing business BREAKING the law, but it is wrong when the OP says that it is the cost just for operating in a place without breaking any law
      - forrestthewoods 11y ago
        1) Windows 7 N is as objectively stupid as can be given that is an object with zero consumer interest created in the name of consumer protection. It's not a thing that anyone wants or wanted. It's a colossal waste of resources that provides zero value. 2/3) You're right. A fine isn't a tax. Now assume you are a nation state and some foreign entity is making a shit ton of money off your population. Now let's assume that you feel you aren't getting as large of a slice of pie as you deserve. What are some ways you can increase your slice size? Raising taxes is one way. Issuing fines is another way. For example local police generate money off things such as parking fines. It's true that the parking fine is a consequence of breaking a local ordinance. However the rationale for issuing more fines can one of several reasons. It could be an increased focus on enforcing existing laws. It could also be because the police need more money and they looked at ways to generate more revenue and found that an increased focus on parking violations would be a cost efficient way to do so. This same line of reasoning can be applied to certain Euro fines. 4) That's fine. The commission can issue fines for many reasons. 5) Ask some lawyer friends for the opinion on Nintendo vs Galoob. They almost certainly discussed it in school. Opinions will vary. More than a few will likely agree that if Nintendo were an American company the outcome would have been different. That's the most famous case I know of.
jph 11y ago
What Apple owes is clear to me: pay the standard U.S. corporate tax on the standard U.S. profits. Do the same for all countries. The Apple problem is that its lawyers are deliberately avoiding using current tax codes, and instead essentially claiming that Apple is based in Ireland, then playing shell games with what counts as U.S. sales, U.S. profits, and also U.S. property. Apple ends up paying ~10% U.S. tax, rather than ~35%. Where Apple is located is clear to me: Apple products say Cupertino and there's a gigantic new Cupertino headquarters in progress. Apple also has many subsidiary locations worldwide, and occupies real property, and hires real people; these locations should pay their respective country taxes. Tim Cook and Apple have an opportunity and moral responsibility to help close these tax loopholes that are siphoning money out of the U.S., California, and Silicon Valley-- then do similarly with the EU and worldwide. Specifically, the goal is to streamline tax codes to be more clear, more consistent, and more algorithmic. This would be unpopular with stockholders but it's the right thing to do for employees, customers, and countries.
- bpodgursky 11y ago
  No! No! No! What you legally owe in taxes, in a reasonable tax structure, has NOTHING to do with your moral compass. You should be able to plug numbers into a spreadsheet and get it. I'm not saying that taxes are bad. We need tax revenue. I get that. But there should NEVER, EVER, be two legally correct answers to how much you owe. The fact that you had to spend paragraphs making your case, makes mine -- when you resort to emotional appeal to try to get people to pay their taxes, the system is completely broken. Edit: the original comment said that this was clear to anyone with a "moral compass"
  - wavefunction 11y ago
    People pay their taxes, generally. Corporations on the other hand... Well many pay their taxes as well, if I'm being fair.
    - adventured 11y ago
      Very few corporations in the US can dance around jurisdictions to avoid high tax rates like Apple & Co can. To be fair, most American corporations pay very high tax rates compared to the rest of the world, and almost none of them as a percentage are able to avoid paying those high rates. The median corporate income tax rate, is higher than the median individual income tax rate.
deleted 11y ago
[deleted]
guelo 11y ago
It's only complicated because the corporations hire hordes of top-notch lawyers to figure out the optimal structure for paying the least amount of taxes by exploiting all loopholes and coming as close as possible to skirting the laws. If the corporations optimized for simplicity the corporate structures would be much different.
- tn13 11y ago
  Corporations are trying to keep their own money. Hiring top notch lawyers is economical because they actually help them save more than what the lawyers get paid. I dont see how fault lies with the corporations.
  - jgalt212 11y ago
    I assume you do understand the problem that would result if everyone could pursue every possible loophole to the maximum extent like Apple, Google, Amazon, FB, et al do.
    - tn13 11y ago
      I don't understand your point. If there is a loophole I can exploit to pay 0 tax I would and recommend everyone else to do so.
      - jgalt212 11y ago
        My point is what would happen if everyone had the resources and moral turpitude to exploit every possible loophole.
        xixi77 11y ago
        Perhaps the government would then have an incentive to simplify the tax system and eliminate the loophole?
        11y ago
lumberjack 11y ago
Why are you blaming the tax code? I think the problem originates in the loss of economic sovereignty of nations after signing countless FTAs. It is only because of that reason that Apple and Google can play nations against each other to dodge taxes. What has happened in the last 30 years is that laws has been passed that allow these multinationals to operate as such while at the same time everyone else is still limited by national borders. Why is it so easy for these corporations to open and close subsidiaries everywhere as they please? Oh right, something to do with the (misguided) liberal ideal that foreign and domestic investors should be treated equally, completely ignoring the fact that the foreign investor is not tied to the nation in the same way that the domestic investor is.
bedhead 11y ago
It's one of the great misconceptions. You can't tax a corporation, you can only tax people.
- tim333 11y ago
  You can tax corporations. They of course will be owned by people until the AIs take over.
tim333 11y ago
>How about, we admit corporate income tax is a stupid idea, get rid of it, and raise capital gains taxes Technical reasons why that doesn't work - basically it makes it too easy to avoid all tax by keeping the money in corporations. What we need is a unified global tax regime for international corporations so they can't play off each countries tax loop holes.
- ves 11y ago
  But you can't do anything with that money (left in the corporation) - it eventually winds up buying things for people, or being transferred to someone's bank account, at which point it will be taxed. You could leave it on the company's balance sheets forever, but that's pretty stupid, especially if you're trying to avoid taxes, as then you just get none of the money instead of most of it. Why not just tax the people that make up the corporations? They have to spend 51% of their time somewhere, and all taxable stuff winds up in their hands (don't tax reinvestments), so figuring out their tax obligations is simple, relatively.
  - tim333 11y ago
    Yeah but say you own a house and write some hit software that brings in $1m a year. At the moment either you or your company pay income tax on the $1m. With zero corp tax you leave all the money in the company, the company buys a corporate yacht and jet, for spending money you pay yourself minimum wage and borrow a bit against the house. Result millionaire lifestyle, zero tax. I see your point in principle but in practice it makes the above kind of avoidance too easy. Unless you are some place that doesn't need to raise income tax because it has another source of money eg, Dubai with oil or Monaco with real estate.
    - yummyfajitas 11y ago
      You can (in principle) do this anyway - the jet and the yacht are expenses, and you only pay corporate income tax on the profit ($1M - cost of yacht - cost of house ~= $0). In practice the IRS will treat use of the yacht as taxable income paid to the user.
JohnTHaller 11y ago
Don't forget that many of these large companies paid off the politicians to ensure there were these loopholes to exploit in the first place.
- Pyxl101 11y ago
  > Don't forget that many of these large companies paid off the politicians to ensure there were these loopholes to exploit in the first place. Which companies did that? Can you provide a link to more details?
  - JohnTHaller 11y ago
    In addition to the usual political donations, the amount of money big tech companies put into lobbying firms like Digital Economy Group, Fipra and RLM Finsbury is pretty absurd. Heck Apple hired a top lawyer away from the European Commission that was investigating their tax irregularities because that's somehow legal at the moment.
belorn 11y ago
People do have the great feature of being corporeal beings, but companies has the great feature of having limited liability. Owners and investors likes this because the state will take part of the responsibility if the ethereal corporations goes south, and countries likes it because it makes corporations an entity which they can tax. A easy solution is to admit that creating ethereal entities is a stupid idea, get rid of it, and just has owners and investors. It would scare away the larger corporations, but it would make life much easier for everyone else, eliminate a bunch of complicated laws, and make international trade much easier since you then only deal with corporeal beings.
funkyy 11y ago
Or just introduce 1% revenue tax, get rid of all other taxes and tax credits?
- funkyy 11y ago
  I would like the person that downvoted this to speak up, after all HN is conversation driven community. Whenever I see someone mentioning revenue tax for corporations I see those posts being downvoted a lot and I never see anyone ever explaining why.
  - IanCal 11y ago
    I didn't downvote, but you seem to have put basically no thought into this or have at least not shown any in your comment. Why 1%? How would that work? What are the downsides, etc? Why is VAT in the EU not the right way?
    - funkyy 11y ago
      1% would mean there would be increase in revenue to the government. For example Adam Smith Foundation in Poland have calculated that introducing revenue tax of 1% would increase revenue to the country budget, remove black market and allow country to tax international corporations easily. Also savings from tax collection process would be huge and there would be no place to manipulate with tax credits. At the moment in Poland 0.44% of revenue gets to the budget through corporate taxes which is really low. Then additional benefit is that business owners will not need to worry about bad decisions by tax office. The institute found that around 60% of companies in Poland do not pay any kind of corporate tax at all meaning all of them - at least on paper - are loosing money. Google has not paid any tax in Poland in last years despite owning 80% of ad market. The research on the new tax was done by the brightest economist and they are hoping it will be introduced at least for foreign corporations. The VAT is OK as long as it is fixed and low (10-12% without discounts etc.), the issue is with corporate taxes. Source: http://wyborcza.biz/biznes/1,100896,15540136,Podatek_od_przychodu__czyli_bat_na_korporacje.html http://wyborcza.biz/biznes/1,100896,15540136,Podatek_od_przy...
cmurf 11y ago
Corporate profits have to be taxed, either the tax is paid by shareholders (annual pass through like S) or by the corporation (C corporation). Just doing it on cap gains doesn't work because there is no tax unless the asset is sold, and the asset doesn't even have to be sold, it can be borrowed against cheaply and make even more money that isn't taxed at the same rate as earned income. There's a reason why it's stupid and complicated, it's a political and economic compromise. Compromise is exactly why it's ugly. There is no possible meritocracy here. It won't ever happen, it's politically untenable. Also, corporations have fought to be recognized as persons when it comes to political free speech, so tough noogies they can pay tax like a person too.

forrestthewoods 11y ago

It's worse than that. Countries will make up taxes for foreign companies just because they can. Microsoft EU settlements being a prime example. Windows 7 N is one of the dumbest things ever. The whole situation makes a lot more sense if you view it as a tax.

Oletros 11y ago
> Countries will make up taxes for foreign companies just because they can. Microsoft EU settlements being a prime example. What has to do Microsoft N with taxes?
- forrestthewoods 11y ago
  Windows 7 N exists because of the 2004 European Commission decision. That decision being a 497 million Euro fine. The fine was stupid when it was issued and it's ramifications were stupid when they forced Windows 7 N into existence. If you view the fine as a tax it all makes far more sense. The fine is merely a tax that is the cost of doing business in Europe. Microsoft is willing to pay it because they still net profit in Europe. And Europe certainly has no issue demanding money from an American corporation. Nation states demanding unreasonable things from foreign companies is nothing new. There's many a ruling that would have gone another way were the defendant a local entity.
  - Oletros 11y ago
    > The fine was stupid when it was issued and it's ramifications were stupid when they forced Windows 7 N into existence. This is just opinion > If you view the fine as a tax it all makes far more sense It is not a tax, so it doesn't make sense > The fine is merely a tax that is the cost of doing business in Europe Wrong, the fine is a consequence of breaking competition laws > And Europe certainly has no issue demanding money from an American corporation. The majority of the fines have been given to European companies, more than 80% of the money. >Nation states demanding unreasonable things from foreign companies is nothing new. There's many a ruling that would have gone another way were the defendant a local entity. Reality says that this is not the case, but if you have more data, I will look at it
    - kchoudhu 11y ago
      > Wrong, the fine is a consequence of breaking competition laws I assure you, the cost of breaking the law is factored into a spreadsheet somewhere in all corporations of note, and that this metaphorical spreadsheet is always used to make decisions. The OP is absolutely correct when he says that fines are the cost of doing business. He's wrong when he says that this is a phenomenon associated with Europe though -- corporate amorality ultimately knows nothing of national boundaries.
      - Oletros 11y ago
        > The OP is absolutely correct when he says that fines are the cost of doing business Perhaps is correct is it is the cost of doing business BREAKING the law, but it is wrong when the OP says that it is the cost just for operating in a place without breaking any law
    - forrestthewoods 11y ago
      1) Windows 7 N is as objectively stupid as can be given that is an object with zero consumer interest created in the name of consumer protection. It's not a thing that anyone wants or wanted. It's a colossal waste of resources that provides zero value. 2/3) You're right. A fine isn't a tax. Now assume you are a nation state and some foreign entity is making a shit ton of money off your population. Now let's assume that you feel you aren't getting as large of a slice of pie as you deserve. What are some ways you can increase your slice size? Raising taxes is one way. Issuing fines is another way. For example local police generate money off things such as parking fines. It's true that the parking fine is a consequence of breaking a local ordinance. However the rationale for issuing more fines can one of several reasons. It could be an increased focus on enforcing existing laws. It could also be because the police need more money and they looked at ways to generate more revenue and found that an increased focus on parking violations would be a cost efficient way to do so. This same line of reasoning can be applied to certain Euro fines. 4) That's fine. The commission can issue fines for many reasons. 5) Ask some lawyer friends for the opinion on Nintendo vs Galoob. They almost certainly discussed it in school. Opinions will vary. More than a few will likely agree that if Nintendo were an American company the outcome would have been different. That's the most famous case I know of.

jph 11y ago

What Apple owes is clear to me: pay the standard U.S. corporate tax on the standard U.S. profits. Do the same for all countries. The Apple problem is that its lawyers are deliberately avoiding using current tax codes, and instead essentially claiming that Apple is based in Ireland, then playing shell games with what counts as U.S. sales, U.S. profits, and also U.S. property. Apple ends up paying ~10% U.S. tax, rather than ~35%. Where Apple is located is clear to me: Apple products say Cupertino and there's a gigantic new Cupertino headquarters in progress. Apple also has many subsidiary locations worldwide, and occupies real property, and hires real people; these locations should pay their respective country taxes. Tim Cook and Apple have an opportunity and moral responsibility to help close these tax loopholes that are siphoning money out of the U.S., California, and Silicon Valley-- then do similarly with the EU and worldwide. Specifically, the goal is to streamline tax codes to be more clear, more consistent, and more algorithmic. This would be unpopular with stockholders but it's the right thing to do for employees, customers, and countries.

bpodgursky 11y ago
No! No! No! What you legally owe in taxes, in a reasonable tax structure, has NOTHING to do with your moral compass. You should be able to plug numbers into a spreadsheet and get it. I'm not saying that taxes are bad. We need tax revenue. I get that. But there should NEVER, EVER, be two legally correct answers to how much you owe. The fact that you had to spend paragraphs making your case, makes mine -- when you resort to emotional appeal to try to get people to pay their taxes, the system is completely broken. Edit: the original comment said that this was clear to anyone with a "moral compass"
- wavefunction 11y ago
  People pay their taxes, generally. Corporations on the other hand... Well many pay their taxes as well, if I'm being fair.
  - adventured 11y ago
    Very few corporations in the US can dance around jurisdictions to avoid high tax rates like Apple & Co can. To be fair, most American corporations pay very high tax rates compared to the rest of the world, and almost none of them as a percentage are able to avoid paying those high rates. The median corporate income tax rate, is higher than the median individual income tax rate.

deleted 11y ago

[deleted]

guelo 11y ago

It's only complicated because the corporations hire hordes of top-notch lawyers to figure out the optimal structure for paying the least amount of taxes by exploiting all loopholes and coming as close as possible to skirting the laws. If the corporations optimized for simplicity the corporate structures would be much different.

tn13 11y ago
Corporations are trying to keep their own money. Hiring top notch lawyers is economical because they actually help them save more than what the lawyers get paid. I dont see how fault lies with the corporations.
- jgalt212 11y ago
  I assume you do understand the problem that would result if everyone could pursue every possible loophole to the maximum extent like Apple, Google, Amazon, FB, et al do.
  - tn13 11y ago
    I don't understand your point. If there is a loophole I can exploit to pay 0 tax I would and recommend everyone else to do so.
    - jgalt212 11y ago
      My point is what would happen if everyone had the resources and moral turpitude to exploit every possible loophole.
      - xixi77 11y ago
        Perhaps the government would then have an incentive to simplify the tax system and eliminate the loophole?
        11y ago

lumberjack 11y ago

Why are you blaming the tax code? I think the problem originates in the loss of economic sovereignty of nations after signing countless FTAs. It is only because of that reason that Apple and Google can play nations against each other to dodge taxes. What has happened in the last 30 years is that laws has been passed that allow these multinationals to operate as such while at the same time everyone else is still limited by national borders. Why is it so easy for these corporations to open and close subsidiaries everywhere as they please? Oh right, something to do with the (misguided) liberal ideal that foreign and domestic investors should be treated equally, completely ignoring the fact that the foreign investor is not tied to the nation in the same way that the domestic investor is.

bedhead 11y ago

It's one of the great misconceptions. You can't tax a corporation, you can only tax people.

tim333 11y ago
You can tax corporations. They of course will be owned by people until the AIs take over.

tim333 11y ago

>How about, we admit corporate income tax is a stupid idea, get rid of it, and raise capital gains taxes Technical reasons why that doesn't work - basically it makes it too easy to avoid all tax by keeping the money in corporations. What we need is a unified global tax regime for international corporations so they can't play off each countries tax loop holes.

ves 11y ago
But you can't do anything with that money (left in the corporation) - it eventually winds up buying things for people, or being transferred to someone's bank account, at which point it will be taxed. You could leave it on the company's balance sheets forever, but that's pretty stupid, especially if you're trying to avoid taxes, as then you just get none of the money instead of most of it. Why not just tax the people that make up the corporations? They have to spend 51% of their time somewhere, and all taxable stuff winds up in their hands (don't tax reinvestments), so figuring out their tax obligations is simple, relatively.
- tim333 11y ago
  Yeah but say you own a house and write some hit software that brings in $1m a year. At the moment either you or your company pay income tax on the $1m. With zero corp tax you leave all the money in the company, the company buys a corporate yacht and jet, for spending money you pay yourself minimum wage and borrow a bit against the house. Result millionaire lifestyle, zero tax. I see your point in principle but in practice it makes the above kind of avoidance too easy. Unless you are some place that doesn't need to raise income tax because it has another source of money eg, Dubai with oil or Monaco with real estate.
  - yummyfajitas 11y ago
    You can (in principle) do this anyway - the jet and the yacht are expenses, and you only pay corporate income tax on the profit ($1M - cost of yacht - cost of house ~= $0). In practice the IRS will treat use of the yacht as taxable income paid to the user.

JohnTHaller 11y ago

Don't forget that many of these large companies paid off the politicians to ensure there were these loopholes to exploit in the first place.

Pyxl101 11y ago
> Don't forget that many of these large companies paid off the politicians to ensure there were these loopholes to exploit in the first place. Which companies did that? Can you provide a link to more details?
- JohnTHaller 11y ago
  In addition to the usual political donations, the amount of money big tech companies put into lobbying firms like Digital Economy Group, Fipra and RLM Finsbury is pretty absurd. Heck Apple hired a top lawyer away from the European Commission that was investigating their tax irregularities because that's somehow legal at the moment.

belorn 11y ago

People do have the great feature of being corporeal beings, but companies has the great feature of having limited liability. Owners and investors likes this because the state will take part of the responsibility if the ethereal corporations goes south, and countries likes it because it makes corporations an entity which they can tax. A easy solution is to admit that creating ethereal entities is a stupid idea, get rid of it, and just has owners and investors. It would scare away the larger corporations, but it would make life much easier for everyone else, eliminate a bunch of complicated laws, and make international trade much easier since you then only deal with corporeal beings.

funkyy 11y ago

Or just introduce 1% revenue tax, get rid of all other taxes and tax credits?

funkyy 11y ago
I would like the person that downvoted this to speak up, after all HN is conversation driven community. Whenever I see someone mentioning revenue tax for corporations I see those posts being downvoted a lot and I never see anyone ever explaining why.
- IanCal 11y ago
  I didn't downvote, but you seem to have put basically no thought into this or have at least not shown any in your comment. Why 1%? How would that work? What are the downsides, etc? Why is VAT in the EU not the right way?
  - funkyy 11y ago
    1% would mean there would be increase in revenue to the government. For example Adam Smith Foundation in Poland have calculated that introducing revenue tax of 1% would increase revenue to the country budget, remove black market and allow country to tax international corporations easily. Also savings from tax collection process would be huge and there would be no place to manipulate with tax credits. At the moment in Poland 0.44% of revenue gets to the budget through corporate taxes which is really low. Then additional benefit is that business owners will not need to worry about bad decisions by tax office. The institute found that around 60% of companies in Poland do not pay any kind of corporate tax at all meaning all of them - at least on paper - are loosing money. Google has not paid any tax in Poland in last years despite owning 80% of ad market. The research on the new tax was done by the brightest economist and they are hoping it will be introduced at least for foreign corporations. The VAT is OK as long as it is fixed and low (10-12% without discounts etc.), the issue is with corporate taxes. Source: http://wyborcza.biz/biznes/1,100896,15540136,Podatek_od_przychodu__czyli_bat_na_korporacje.html http://wyborcza.biz/biznes/1,100896,15540136,Podatek_od_przy...

cmurf 11y ago

Corporate profits have to be taxed, either the tax is paid by shareholders (annual pass through like S) or by the corporation (C corporation). Just doing it on cap gains doesn't work because there is no tax unless the asset is sold, and the asset doesn't even have to be sold, it can be borrowed against cheaply and make even more money that isn't taxed at the same rate as earned income. There's a reason why it's stupid and complicated, it's a political and economic compromise. Compromise is exactly why it's ugly. There is no possible meritocracy here. It won't ever happen, it's politically untenable. Also, corporations have fought to be recognized as persons when it comes to political free speech, so tough noogies they can pay tax like a person too.