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This is happening because unlike almost every other developed nation the US has a worldwide tax system. Almost every other nation has a territorial tax system.

This is happening because unlike almost every other developed nation the US has a worldwide tax system. Almost every other nation has a territorial tax system. The rest of the world with their territorial system taxes income earned within that country, the US rather taxes income worldwide, regardless of where it is earned. For example, if a British company earns income in Germany, its pays German taxes on its German income. But if a US company earns income in Germany it pays both German taxes and US taxes. This is not about avoiding tax on profit earned in the US, after the inversion companies continue to pay US taxes, they just don’t pay taxes on income earned outside of the US.

peteretep 11y ago
You've over simplified and misunderstood. If a UK company bills a German company for goods, tax is paid wherever the profit is made, which would be in the UK. If a British company sends a consultant to a German company for a month, the tax is paid where the profit is made, which again is in the UK. If a UK has a German subsidiary, that's different.
josefresco 11y ago
Are countries with a territorial tax system hurt by businesses leaving in order to seek out a lower tax rate? That seems to be the argument the US government is making - although I haven't seen any data - anyone have a link?
- Someone1234 11y ago
  They do. But it doesn't work even in the US's case. US companies will routinely "sell" their intellectual property to a subsidiary in e.g. Ireland and then license to back to the US company to avoid paying US taxes. There are some highly successful US companies who, per the books, make nearly $0/year profit within the US.
  - wiredfool 11y ago
    They should charge executives Irish income taxes if they pull that off. (While Ireland's corporate taxes are low, their personal taxes are ~59% over ~100k, and that _includes_ capital gains, and a lot of things that are tax advantaged in the states)
    - talideon 11y ago
      The loophole[1] regarding tax residency allowing a company to be effectively stateless was closed a while back. That was one of the things being exploited in this. The net effect, however, was that the companies in question just started using the Caymans and other similar jurisdictions. [1] This explains the loophole that was closed: http://www.pearse-trust.ie/blog/bid/102942/Changes-To-Irish-Corporate-Tax-Residence http://www.pearse-trust.ie/blog/bid/102942/Changes-To-Irish-...
    - deleted 11y ago
      [deleted]
mtgx 11y ago
> This is not about avoiding tax on profit earned in the US, after the inversion companies continue to pay US taxes, they just don’t pay taxes on income earned outside of the US. I assume you mean to the US, but many of these companies don't pay taxes in the countries in which they operate either.
sschueller 11y ago
And the US double taxes their citizens living abroad the same way. As an American making the same money as your non-american co-worker you are left with a lot less just for having a US passport. It is even possible you have never set foot in the US yet are required to pay uncle sam's taxes. Wanna get rid of your US passport? Not before you pay 10 years projected taxes and pay an abhorrent fee. You will also be listed on a government website so you can be shamed like a sex offender.
- sremani 11y ago
  They have painted the picture of these rich billionaires getting away without paying taxes, and once they got the draconian laws, they are applying it to every day Joe, who hardly make a six figure salary overseas. For a country which has no short supply of aspiring immigrants and US is actually very petty towards people who want to abdicate their citizenship.
  - statictype 11y ago
    If you make less than 6 figures overseas, then you likely don't have to pay anything to the IRS
- kspaans 11y ago
  That's not double-taxation if the US has a tax treaty with the other nation (which is does with most nations). You get tax credits for foreign income taxes paid such that you pay max(foreign_tax, us_tax).
  - theandrewbailey 11y ago
    (IANATA) If you get tax credits, wouldn't you pay us_tax-foreign_tax if us_tax>foreign_tax ?
    - kspaans 11y ago
      Yes, that's my understanding as well (IANATA)! And it's still not double-taxation: if us_tax>foreign_tax, then you pay foreign_tax + us_tax-foreign_tax == us_tax. (Or foreign_tax, if it's greater.) The citizenship taxation system means you can't move away and legally pay LESS taxes than if you'd stayed in the US. But you're welcome to pay more and not have to remit anything extra to the US. ;)
deleted 11y ago
[deleted]
Shivetya 11y ago
and this will merely accelerate the moves off shore as the US tax system and the petulant attitude of US politicians are both out of control. Heck, they seem to taking lessons of how to screw up straight out of Atlas Shrugged. The real fix is tax reform, not going full on ballistic because companies and individuals are fleeing the taxation tyranny. The IRS long moved from taxation to a political weapon.
raverbashing 11y ago
Did you read the article? This has nothing to do with personal income tax, but rather the acquisition of other companies to move their headquarters outside of the US
tmaly 11y ago
Also, the US has one of the highest corporate tax rates in the world. If you can go to Ireland and pay something close to 10%, its a no brainier. The tax rates are pretty crazy in the US if you think about it. A single person small business just getting started still has to pay 33% of their profit even if their profit is $1,000 for the entire year.
- ams6110 11y ago
  A single person small business is likely an LLC or S-Corp and taxed on the owner's individual form 1040.
- calbear81 11y ago
  I'm not a tax expert but this statement is true if you only look at the statutory corporate tax rate before deductions and tax credits are taken into account. Once those are done and you used a weighted average based on country size, then the US is not that much higher (http://www.forbes.com/sites/taxanalysts/2015/03/25/the-truth-about-corporate-tax-rates http://www.forbes.com/sites/taxanalysts/2015/03/25/the-truth...). I don't disagree that tax reform is necessary but taxes help pay for the infrastructure, safety, and public goods that we all tap into and take advantage of.
  - prostoalex 11y ago
    > I don't disagree that tax reform is necessary but taxes help pay for the infrastructure, safety, and public goods that we all tap into and take advantage of. People say that, but with specifics to corporate taxation the tax revenues in question flow to US Treasury. US highways are funded by a combination of Highway Trust Fund, gasoline taxes and road tolls, public safety and other goods such as parks and libraries are funded by local property and business taxes. The way the funds flow is set up currently, increase or decrease in corporate taxation would not result in change of funding for the local services you mentioned. Federal government is not sending a bonus check to Cupertino, CA or Redmond, WA because they managed to squeeze a few extra billions off Apple or Microsoft.
    - 11y ago
rayiner 11y ago
Territorial versus non-territorial taxation isn't such a simple issue. In a non-territorial system, it's very easy for a company to set up internal transfers to shift profits to whatever happens to be the lowest-tax jurisdiction. Moreover, the U.S. system generally does not double-tax income that is already taxed elsewhere. A U.S. company that pays taxes on German income will receive a credit for those taxes paid against its U.S. liability: http://www.cbpp.org/research/the-fiscal-and-economic-risks-of-territorial-taxation http://www.cbpp.org/research/the-fiscal-and-economic-risks-o....
cohomologo 11y ago
Foreign taxes are effectively a business expense for corporations in the US, since the foreign tax credit allows them to not pay taxes on the taxes paid to foreign countries. I think this makes sense. If I live in the US and make some product and sell it in Germany, then whatever profit I bring home from Germany (less German taxes) is still an income that was effectively earned in the US, since I am living and working here. The business transactions occurred in Germany, but the income was 'earned' by my labor in the US. From this point of view, a territorial tax system is a subsidy designed to make goods more competitive in foreign markets. (Since I don't have to pay taxes on foreign profits, I can lower the price I charge overseas.)
- prostoalex 11y ago
  It's very rare that a transnational corporation would have their labor concentrated in a single country.
- deleted 11y ago
  [deleted]
danvoell 11y ago
I thought the issue was that companies acquire say an Irish company and then instead of 35%, they are paying 10% and then instead of paying taxes in the US, they figure out how to move around goods and services to make it look like the profit was territorially gained in Ireland when in fact it was in the US. That is the issue. The greed is typically on the corporate side, more so than the government.
- Tobani 11y ago
  This was my understanding too. All parts of the world pay a "Licensing Fee" to the Irish company worth almost all of the profit on the good/service, and now all income is made in Ireland.
peter303 11y ago
This does stop making the profits appear in the lowest taxed country. Google just paid a large fine to the UK for making UK profits appear to happen in Ireland.
tn13 11y ago
This is most BS thing about USA. Every year I have to make sure I do not transfer money to my own accounts in India but transfer it to may father's account etc. Most BS system ever.

peteretep 11y ago

You've over simplified and misunderstood. If a UK company bills a German company for goods, tax is paid wherever the profit is made, which would be in the UK. If a British company sends a consultant to a German company for a month, the tax is paid where the profit is made, which again is in the UK. If a UK has a German subsidiary, that's different.

josefresco 11y ago

Are countries with a territorial tax system hurt by businesses leaving in order to seek out a lower tax rate? That seems to be the argument the US government is making - although I haven't seen any data - anyone have a link?

Someone1234 11y ago
They do. But it doesn't work even in the US's case. US companies will routinely "sell" their intellectual property to a subsidiary in e.g. Ireland and then license to back to the US company to avoid paying US taxes. There are some highly successful US companies who, per the books, make nearly $0/year profit within the US.
- wiredfool 11y ago
  They should charge executives Irish income taxes if they pull that off. (While Ireland's corporate taxes are low, their personal taxes are ~59% over ~100k, and that _includes_ capital gains, and a lot of things that are tax advantaged in the states)
  - talideon 11y ago
    The loophole[1] regarding tax residency allowing a company to be effectively stateless was closed a while back. That was one of the things being exploited in this. The net effect, however, was that the companies in question just started using the Caymans and other similar jurisdictions. [1] This explains the loophole that was closed: http://www.pearse-trust.ie/blog/bid/102942/Changes-To-Irish-Corporate-Tax-Residence http://www.pearse-trust.ie/blog/bid/102942/Changes-To-Irish-...
  - deleted 11y ago
    [deleted]

mtgx 11y ago

> This is not about avoiding tax on profit earned in the US, after the inversion companies continue to pay US taxes, they just don’t pay taxes on income earned outside of the US. I assume you mean to the US, but many of these companies don't pay taxes in the countries in which they operate either.

sschueller 11y ago

And the US double taxes their citizens living abroad the same way. As an American making the same money as your non-american co-worker you are left with a lot less just for having a US passport. It is even possible you have never set foot in the US yet are required to pay uncle sam's taxes. Wanna get rid of your US passport? Not before you pay 10 years projected taxes and pay an abhorrent fee. You will also be listed on a government website so you can be shamed like a sex offender.

sremani 11y ago
They have painted the picture of these rich billionaires getting away without paying taxes, and once they got the draconian laws, they are applying it to every day Joe, who hardly make a six figure salary overseas. For a country which has no short supply of aspiring immigrants and US is actually very petty towards people who want to abdicate their citizenship.
- statictype 11y ago
  If you make less than 6 figures overseas, then you likely don't have to pay anything to the IRS
kspaans 11y ago
That's not double-taxation if the US has a tax treaty with the other nation (which is does with most nations). You get tax credits for foreign income taxes paid such that you pay max(foreign_tax, us_tax).
- theandrewbailey 11y ago
  (IANATA) If you get tax credits, wouldn't you pay us_tax-foreign_tax if us_tax>foreign_tax ?
  - kspaans 11y ago
    Yes, that's my understanding as well (IANATA)! And it's still not double-taxation: if us_tax>foreign_tax, then you pay foreign_tax + us_tax-foreign_tax == us_tax. (Or foreign_tax, if it's greater.) The citizenship taxation system means you can't move away and legally pay LESS taxes than if you'd stayed in the US. But you're welcome to pay more and not have to remit anything extra to the US. ;)

deleted 11y ago

[deleted]

Shivetya 11y ago

and this will merely accelerate the moves off shore as the US tax system and the petulant attitude of US politicians are both out of control. Heck, they seem to taking lessons of how to screw up straight out of Atlas Shrugged. The real fix is tax reform, not going full on ballistic because companies and individuals are fleeing the taxation tyranny. The IRS long moved from taxation to a political weapon.

raverbashing 11y ago

Did you read the article? This has nothing to do with personal income tax, but rather the acquisition of other companies to move their headquarters outside of the US

tmaly 11y ago

Also, the US has one of the highest corporate tax rates in the world. If you can go to Ireland and pay something close to 10%, its a no brainier. The tax rates are pretty crazy in the US if you think about it. A single person small business just getting started still has to pay 33% of their profit even if their profit is $1,000 for the entire year.

ams6110 11y ago
A single person small business is likely an LLC or S-Corp and taxed on the owner's individual form 1040.
calbear81 11y ago
I'm not a tax expert but this statement is true if you only look at the statutory corporate tax rate before deductions and tax credits are taken into account. Once those are done and you used a weighted average based on country size, then the US is not that much higher (http://www.forbes.com/sites/taxanalysts/2015/03/25/the-truth-about-corporate-tax-rates http://www.forbes.com/sites/taxanalysts/2015/03/25/the-truth...). I don't disagree that tax reform is necessary but taxes help pay for the infrastructure, safety, and public goods that we all tap into and take advantage of.
- prostoalex 11y ago
  > I don't disagree that tax reform is necessary but taxes help pay for the infrastructure, safety, and public goods that we all tap into and take advantage of. People say that, but with specifics to corporate taxation the tax revenues in question flow to US Treasury. US highways are funded by a combination of Highway Trust Fund, gasoline taxes and road tolls, public safety and other goods such as parks and libraries are funded by local property and business taxes. The way the funds flow is set up currently, increase or decrease in corporate taxation would not result in change of funding for the local services you mentioned. Federal government is not sending a bonus check to Cupertino, CA or Redmond, WA because they managed to squeeze a few extra billions off Apple or Microsoft.
  - 11y ago

rayiner 11y ago

Territorial versus non-territorial taxation isn't such a simple issue. In a non-territorial system, it's very easy for a company to set up internal transfers to shift profits to whatever happens to be the lowest-tax jurisdiction. Moreover, the U.S. system generally does not double-tax income that is already taxed elsewhere. A U.S. company that pays taxes on German income will receive a credit for those taxes paid against its U.S. liability: http://www.cbpp.org/research/the-fiscal-and-economic-risks-of-territorial-taxation http://www.cbpp.org/research/the-fiscal-and-economic-risks-o....

cohomologo 11y ago

Foreign taxes are effectively a business expense for corporations in the US, since the foreign tax credit allows them to not pay taxes on the taxes paid to foreign countries. I think this makes sense. If I live in the US and make some product and sell it in Germany, then whatever profit I bring home from Germany (less German taxes) is still an income that was effectively earned in the US, since I am living and working here. The business transactions occurred in Germany, but the income was 'earned' by my labor in the US. From this point of view, a territorial tax system is a subsidy designed to make goods more competitive in foreign markets. (Since I don't have to pay taxes on foreign profits, I can lower the price I charge overseas.)

prostoalex 11y ago
It's very rare that a transnational corporation would have their labor concentrated in a single country.
deleted 11y ago
[deleted]

danvoell 11y ago

I thought the issue was that companies acquire say an Irish company and then instead of 35%, they are paying 10% and then instead of paying taxes in the US, they figure out how to move around goods and services to make it look like the profit was territorially gained in Ireland when in fact it was in the US. That is the issue. The greed is typically on the corporate side, more so than the government.

Tobani 11y ago
This was my understanding too. All parts of the world pay a "Licensing Fee" to the Irish company worth almost all of the profit on the good/service, and now all income is made in Ireland.

peter303 11y ago

This does stop making the profits appear in the lowest taxed country. Google just paid a large fine to the UK for making UK profits appear to happen in Ireland.

tn13 11y ago

This is most BS thing about USA. Every year I have to make sure I do not transfer money to my own accounts in India but transfer it to may father's account etc. Most BS system ever.