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Something recently occurred to me. The fundamental problem here is that as companies have grown multinational, something that used to be mostly a one-to-many r

Something recently occurred to me. The fundamental problem here is that as companies have grown multinational, something that used to be mostly a one-to-many relationship (country contains many taxable entities) has become a many-to-many relationship. It wouldn't be fair or logical to tax any multi-national as if it existed 100% in each country where it does business. So the question is how to write the rules such that a business's overall operation is taxed by each sovereign state in a way that is "fair" compared to the amount of operation / amount of benefit it is getting in each. This might be obvious to most people but it was a new way of thinking about it for me.

x5n1 11y ago
We have this for income, why does it not apply for corporations. Then countries make treaties with each other as to who gets what so corporations are not double taxes. The corporations have to declare all their income to all the countries that they operate in and then those countries have to work out a logic on how that is to be taxed.
- cowsandmilk 11y ago
  Uh, it is this way for corporations. This is why Google can pretend it made most of its european money in Bermuda and not pay taxes on it.
  - x5n1 11y ago
    Why does Google get to decide this? I mean what's the logic for this. For people it's wherever you spent most of your time. For a corporation it should be where and how and from whom you derived most of your revenue.
    - tonfa 11y ago
      Usually the tricky part is when you have to decide licensing. Eg for Amazon, most of (all?) the site is developed in the US, so every local subsidiary has to license it. How much this license is worth is the whole question. Some gov would like to say 0, so they can get a higher share of the tax, companies might say it is worth all their local income (so they pay 0 tax locally). The truth is probably in between. Other issue might be that this IP often ends up being owned in a tax heaven, instead of the US which would be the logical owner.
      - sokoloff 11y ago
        Exactly. To put it even more explicitly, imagine that Google adwords system is solely created in the US. Now, Google wants to start selling ads in Spain. Should google.es pay anything for the IP underlying adwords? (I think they should; otherwise, there's a massive distortion in profitability and the US would cry foul that all the expenses are being borne in the US subsidiary and google.es is artificially highly profitable.) Now, in order to manage that licensing activity (which can be very lucrative, but also requires specialized expertise and some risk), Google decides to set up a licensing division to manage all this. In researching this, suppose they hypothesize that that IP labor and expertise is available in Ireland and decide to setup the IP licensing activity in Ireland. Google's Irish licensing division could negotiate a sub-licensable license from Google in US, then turn around and license it to Google (and perhaps other) companies around the world. Every player in that chain is creating value and it is perfectly proper for Google to create IP, to create a subsidiary to license that IP, and to license and deploy that IP in Spain; the question is "how much value did each entity contribute?"
tvanantwerp 11y ago
What you're suggesting is a territorial tax system, versus the a worldwide tax system such as the one the US currently has. Using a worldwide system is actually very rare--only six OECD countries implement worldwide taxation rather than territorial. Part of the reason America-based companies seem to be trying so hard to avoid American taxes is because they are, compared to the other nations they operate in, much worse.
- joelrunyon 11y ago
  Making the US tax system more competitive worldwide is very rarely brought up. Corporate taxes aside, I think the US is one of just 2 countries (the other being Eritrea) where you're taxes personally on the money you make based on your citizenship (not residency) no matter where you live. Stuff like that is why you're starting to see people give theirs up in favor of more favorable tax codes.
  - ryanhuff 11y ago
    Does being US company afford these companies benefits that justify a tax premium?
    - mike_hearn 11y ago
      No. Why would it?
lubos 11y ago
Simple. The way Google gets away by paying little corporate tax in USA is by loading up their US entity with tax-deductible expenses. What is stopping IRS to say.... "Hold on. These tax-deductible expenses are bullshit, we don't accept them. Here is new tax assessment the way we see it" IRS does this to small businesses all the time.
- jeffdavis 11y ago
  Except that you can't write a law that says "no bullshit". You have to actually specify what is bullshit and what isn't. The alternative is arbitrary power, and that doesn't have a good history.
  - newjersey 11y ago
    We could say there are no deductions, ever. Every dollar earned is taxable. Every dollar spent is taxable. Nothing and no one is exempt from taxes. No expenditure is deductible. General Electrics pays the same income tax (hopefully a progressive tax so as to be realistic) as Podunk College. This would be ideal. Side rant: The government shall keep public policy and tax policy separate. While we are at it, we shall prohibit state and local governments from doing these things as well. No, Maryland may not give a tax break to House of Cards. No, AnyTown USA may not give tax break to Walmart. If there is a reduction in tax, it should apply to everyone. Oh and yes, no special excise or stamp taxes either. Yes, our tools in public policy will get blunt and there will be a very rough transition period. However, I think the end result will be worth it. It is definitely better than having these neo-cons in power while bitching and moaning about not being in power.
    - aianus 11y ago
      > No expenditure is deductible. So if Walmart buys $1B worth of groceries and sells them for $1.05B they should pay $350 million in taxes on their $50 million profit???
      - newjersey 11y ago
xyzzy4 11y ago
It has nothing to do with fairness. The way it works is a company can decide "I don't have to be here" and shut down operations there, while a country can decide "You have to pay X tax because I said so". The end result is a compromise between different extremes.
- haberman 11y ago
  Yes that is a very accurate way of looking at the actual power structure involved. Though I think the abstract idea of "fairness" is usually the way that the country justifies its levying of taxes in public discourse.

x5n1 11y ago

We have this for income, why does it not apply for corporations. Then countries make treaties with each other as to who gets what so corporations are not double taxes. The corporations have to declare all their income to all the countries that they operate in and then those countries have to work out a logic on how that is to be taxed.

cowsandmilk 11y ago
Uh, it is this way for corporations. This is why Google can pretend it made most of its european money in Bermuda and not pay taxes on it.
- x5n1 11y ago
  Why does Google get to decide this? I mean what's the logic for this. For people it's wherever you spent most of your time. For a corporation it should be where and how and from whom you derived most of your revenue.
  - tonfa 11y ago
    Usually the tricky part is when you have to decide licensing. Eg for Amazon, most of (all?) the site is developed in the US, so every local subsidiary has to license it. How much this license is worth is the whole question. Some gov would like to say 0, so they can get a higher share of the tax, companies might say it is worth all their local income (so they pay 0 tax locally). The truth is probably in between. Other issue might be that this IP often ends up being owned in a tax heaven, instead of the US which would be the logical owner.
    - sokoloff 11y ago
      Exactly. To put it even more explicitly, imagine that Google adwords system is solely created in the US. Now, Google wants to start selling ads in Spain. Should google.es pay anything for the IP underlying adwords? (I think they should; otherwise, there's a massive distortion in profitability and the US would cry foul that all the expenses are being borne in the US subsidiary and google.es is artificially highly profitable.) Now, in order to manage that licensing activity (which can be very lucrative, but also requires specialized expertise and some risk), Google decides to set up a licensing division to manage all this. In researching this, suppose they hypothesize that that IP labor and expertise is available in Ireland and decide to setup the IP licensing activity in Ireland. Google's Irish licensing division could negotiate a sub-licensable license from Google in US, then turn around and license it to Google (and perhaps other) companies around the world. Every player in that chain is creating value and it is perfectly proper for Google to create IP, to create a subsidiary to license that IP, and to license and deploy that IP in Spain; the question is "how much value did each entity contribute?"

tvanantwerp 11y ago

What you're suggesting is a territorial tax system, versus the a worldwide tax system such as the one the US currently has. Using a worldwide system is actually very rare--only six OECD countries implement worldwide taxation rather than territorial. Part of the reason America-based companies seem to be trying so hard to avoid American taxes is because they are, compared to the other nations they operate in, much worse.

joelrunyon 11y ago
Making the US tax system more competitive worldwide is very rarely brought up. Corporate taxes aside, I think the US is one of just 2 countries (the other being Eritrea) where you're taxes personally on the money you make based on your citizenship (not residency) no matter where you live. Stuff like that is why you're starting to see people give theirs up in favor of more favorable tax codes.
- ryanhuff 11y ago
  Does being US company afford these companies benefits that justify a tax premium?
  - mike_hearn 11y ago
    No. Why would it?

lubos 11y ago

Simple. The way Google gets away by paying little corporate tax in USA is by loading up their US entity with tax-deductible expenses. What is stopping IRS to say.... "Hold on. These tax-deductible expenses are bullshit, we don't accept them. Here is new tax assessment the way we see it" IRS does this to small businesses all the time.

jeffdavis 11y ago
Except that you can't write a law that says "no bullshit". You have to actually specify what is bullshit and what isn't. The alternative is arbitrary power, and that doesn't have a good history.
- newjersey 11y ago
  We could say there are no deductions, ever. Every dollar earned is taxable. Every dollar spent is taxable. Nothing and no one is exempt from taxes. No expenditure is deductible. General Electrics pays the same income tax (hopefully a progressive tax so as to be realistic) as Podunk College. This would be ideal. Side rant: The government shall keep public policy and tax policy separate. While we are at it, we shall prohibit state and local governments from doing these things as well. No, Maryland may not give a tax break to House of Cards. No, AnyTown USA may not give tax break to Walmart. If there is a reduction in tax, it should apply to everyone. Oh and yes, no special excise or stamp taxes either. Yes, our tools in public policy will get blunt and there will be a very rough transition period. However, I think the end result will be worth it. It is definitely better than having these neo-cons in power while bitching and moaning about not being in power.
  - aianus 11y ago
    > No expenditure is deductible. So if Walmart buys $1B worth of groceries and sells them for $1.05B they should pay $350 million in taxes on their $50 million profit???
    - newjersey 11y ago

xyzzy4 11y ago

It has nothing to do with fairness. The way it works is a company can decide "I don't have to be here" and shut down operations there, while a country can decide "You have to pay X tax because I said so". The end result is a compromise between different extremes.

haberman 11y ago
Yes that is a very accurate way of looking at the actual power structure involved. Though I think the abstract idea of "fairness" is usually the way that the country justifies its levying of taxes in public discourse.