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Facebook Tax Bill Over Ireland Move Could Cost $5B
- maaaats 10y agoHow can countries avoid the spiral of death with taxing? I hate how google, facebook etc. makes hundreds of millions in my country, but barely pay taxes. While local companies do.
- Jgrubb 10y agoSeems like he only long term answer is somehow to make global companies beholden to a global tax authority, but no idea how that would work on a planet with sovereign nations.
- lossolo 10y agoIt would be additional global tax from capital. If you are interested more read "Capital in the Twenty-First Century" by Thomas Piketty.
- samfisher83 10y agoCompanies want to pay no taxes, but they want protection from the legal system infrastructure etc. that allows a company to be successful.
- lossolo 10y agoYou can't have cake and eat cake. Without taxes there would be no system at all. It's a shame that small companies pay for this system and big corporations use this system but evade paying. No justice in this.
- refurb 10y agoThere is so much inefficieny in gov't spending that your statement is meaningless. The biggest line items in the gov't budgets have nothing to do with the legal system or infrastructure.
- samfisher83 10y agoMedicare and social security pays for the millions of people who have help build this country. Yes the government might be inefficient. How many google, Facebook, and apples are coming out of Ireland or India?
- Frondo 10y agoGovernment, by definition, can be more efficient than any private entity because it never needs to produce a profit. Businesses need to be able to skim a little off for the owners. Government can provide services at cost, no mark up. If you're unhappy with the implementation of a specific program, like Medicare (which is, of course, more efficient than private health insurance in the US), let's talk about that. My pick is the military--very wasteful. We could fold 90% of that budget into university and health care and live in heaven on earth.
- refurb 10y agoBut profit creates an incentive for efficiency. Sell the same thing for 1% lower than your competitor and that goes right into your pocket. Our current gov't system provide very little incentive for efficient use of funds. I'm not arguing that all of these programs need to just disappear. I'm arguing a "race to the bottom" in terms of efficiency is a good thing, not a bad thing for gov'ts.
- Frondo 10y agoI think the kind of constant oversight and worrying over how our tax dollars are spent creates an incentive for efficiency. And the ability to vote regularly on elected officials who guide our programs, that too creates an incentive for efficiency. Having seen what races to the bottom do in various other industries, I shudder to think of how government works would suffer under the same pressure. Not the kind of society I'd want to aspire to live in.
- Lazare 10y ago> I hate how google, facebook etc. makes hundreds of millions in my country, but barely pay taxes. Figuring out how much a large company makes is complex, which is why we have a very complex system of rules and laws to let us calculate it. And according to those laws, Google, Facebook, etc. don't actually make hundreds of millions in profit in your country. That's why they don't pay taxes, and it's what the linked article is about: Because your country (and mine) has passed laws which say that they aren't making money despite what your intuition tells you. If you want to fix it, the starting point would be those laws. Except...we've been trying to improve those laws for a long, long time. Many are now many decades old. Transfer pricing rules exist for a reason; simply abolishing them would cause other problems and greater imbalances. At some point maybe we need to step back and focus on taxing the consumption of real people (which is, in comparison, much easier). Facebook may be inherently hard to tax; but those profits flow into the pockets of real people, and they are (in comparison!) easy to tax.
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- sbov 10y agoReal people disproportionately situated in the US. I'm not sure if that helps any of those other countries. The basic problem is companies using public resources of a country but not paying back into the system.
- Lazare 10y agoIf you're taking about resources which have usage which is measurable and excludable (postal service, road network, legal system) then charge for use. Amazon relies heavily on the road network to deliver goods; it's trivial (and a good idea in any case) to charge commercial vehicles a fee to cover their wear and tear on the roads, carbon emissions, etc. Similarly, if they're filing legal cases, charge them a fee, etc. If you're talking not so much about them using actual resources, but benefiting in some vague sense from a country having a functioning police system, even if they don't actually use it, then no, you can't charge them fees. But if they're making sales in your country, you can charge GST/VAT. But if they're not using actual resources, not making sales in your country, and not making profits... ...then they're not going to be paying back into the system. Even if you really need them too, even if it would be highly immoral for them not to. The existence of a problem doesn't imply the existence of a solution.
- tn13 10y agoWhy do you think paying taxes is a virtue ? Why does US government need 40% of our hard earned money ? May be American politicians should stop the war on drugs, wars in far off countries and medicare and reduce tax levels to 20%. Facebook, Google, Apple and push the frontiers of human knowledge at rapid rate if they can spend that money themselves. In case of government it will be used to by some junk airforce planes that dont fly.
- lukateake 10y agoSerious question: who pays an effective rate of 40 percent? Many of these huge corporate entities are in the single or negative digits.
- refurb 10y agoThat's because they are deferring the taxes on the ex-US money. It's a 401k in the US. It's a tax deferment, not a tax break. If your effective rate went from 35% to 25% due to your 401k contribution, you still end up paying 35%, just not right now.
- uiri 10y agoNo, you don't end up paying 35%. Part of the advantages of a 401k come from distributing dollars being taxed at a high marginal rate to another year when they are taxed at a lower marginal rate.
- refurb 10y agoIt all depends. Sure, if you put almost nothing in a 401k, then when you pull it out, you'd be in a lower margin tax bracket (and living on very little money). But if you put a lot in, the fact you HAVE to start taking money out at a certain again AND it all gets taxed before you die means you pretty much end up paying the taxes anyways (or more if rates have gone up).
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- branchless 10y agoThey should isolate countries like Ireland who are allowing countries to wash profits through their territory to "allow investment". Ireland is 5m people. Just hang them out to dry. Either they consume as much as they add in value or their standard of living has to drop until this is held to be correct.
- rm999 10y ago>The IRS claims Facebook’s tax adviser Ernst & Young LLP undervalued the company’s property as it was transferred to Facebook Ireland Holdings Ltd. by evaluating pieces of the online platform separately, according to court filings ... “I don’t think Facebook is necessarily hiding anything, but it’s a fight over pricing,” said Stephen Hamilton, a tax lawyer in Philadelphia. “This is what companies do when they transfer their own assets; they try to value them as low as possible and when the issue is litigated, they usually end up somewhere in the middle." It's kind of sad that a team of E&Y accountants and lawyers have probably added more "value" to Facebook by playing this legal tax evasion game with the IRS than an entire team of developers and product managers adding a big new feature.
- tn13 10y agoAccountants and Lawyers end up doing value addition because government regulations are far too complex.
- hiou 10y agoNope. Accountants and Lawyers end up doing value addition because corporations like Facebook take things to the legal gray border of the regulations. The whole double irish is barely useful if you give your assets fair market value. Don't be so gullible to believe this needed to be complex.
- ErikVandeWater 10y agoAccounting and law firms hire lobbyists to persuade the government to make the law more complex. This is value destruction.
- sp332 10y agoThe only reason for Facebook to move assets to Ireland is to take advantage of more complexity in the interactions of multiple legal systems instead of sticking with the relative simplicity of one.
- wyager 10y agoI'm not sure why you put value in scare quotes. By avoiding excessive US taxes, Facebook is now a more efficient company. That is how taxes work. The government introduces friction into economic transactions, which sucks up some amount of productivity from those who produce value, which the government can then use for its own ends. By moving to a country with more reasonable taxes, Facebook's economic interactions now have less friction and higher efficiency.
- drcross 10y agoI cannot understand the indignation, the system is working exactly as designed- board members have responsibilities to the shareholders to maximise profits, it would be imprudent if they didn't move to reduce tax burden. The miles of column inches written on this topic is being tediuos. Solutions are simple, anyone telling you otherwise are the same people who hold economists in high regard- 1. Reduce your local tax to compete with the lowest one. Or- 2. Stop the company from trading in your country. Or- 3. Tax profits derived from local business if they are earning them in your country.
- lossolo 10y agoNo, it's not that simple. 1. What if you can't ? You have your budget that can't go lower. 2. And what if it employs 100 000 people in your country? Good luck with that. 3. You know what costs are ? Because they can have 0 earning in your country when mother company will take all for licensing.
- tvanantwerp 10y agoI don't know of anyone choosing #2, but #1 and #3 are extremely common. The US surprisingly has one of the highest corporate tax rates in the OECD and is one of very very few countries with a worldwide rather than territorial tax system. Those two points taken together are why US tech firms transfer their IP to Ireland in the first place. It's also why so many US companies (at least pre-Brexit) would merge with European countries and establish new headquarters in London rather than the US. The American corporate tax system strongly incentivizes US companies to move.
- gooserock 10y agoBut this whole game is inherently one where some governments will lose. If countries are free to set their own corporate tax rates, you'll get some with high rates and some with lower, and corporations - which can relocate in a way that a state cannot - will just gravitate from the high end to the low end, screwing over those at the high end. That is the problem: we live in a world where business can be global, but our states are regional. It's asymmetric warfare: because of the structure of the game, the corporations always have the upper hand.
- elgabogringo 10y agoAnd Facebook COO Just endorsed Hillary publicly on FB, the day after WSJ reported that Hillary has taken $48.5 Million from hedgefunds/Wall Street vs $19,000 for Donald Trump. We know who is on the little people's side in this election.
- known 10y agohttps://en.wikipedia.org/wiki/Electoral_fraud https://en.wikipedia.org/wiki/Electoral_fraud
- gscott 10y agoRather then pay taxes he will have a direct line to the White House to Corrupt Hillary that is for sure.
- civilian 10y agoIncase you're wondering, your comment is kinda tinfoily-hat and it's off-topic from the main discussion of company valuation and tax strategies. I'd also add the caveat-- are you sure who is buying who here? The next President has some power to make Wall Street's life difficult. I suspect that the donations that Wall Street gives is more of a Clinton-shake-down than it is a bribe from Wall Street. Additionally, these analyses simply group individual donations in with whatever company the individual works at. Does this mean that the company I work for is schemeing to make /R(?:on|and) Paul/ president? Hell no. It's the individual's money to donate, and just because they have a successful career in the finance industry their political donations come into question. Do you have any idea how insulting you're being to the true Clinton supporters who work in finance? It just feels very conspiratorial and small-minded. With a dash of wealth envy. IDK. I could easily be accused of being a shill, but I've never heard a solid argument presented from your camp. It's always "look at this coincidence!! What else could it mean?!?!"
- thisisbad 10y agoCorporate income taxes should be eliminated. Instead of focusing on building a company and good products, companies have to dedicate resources to figure out how to escape the taxation. Taxation should be done when profit is distributed to shareholders (similar to Estonia). There is also unfair double taxation - paying taxes after company pays them.
- spyspy 10y agoThen we'd have companies like Amazon that refuse to pay a dividend indefinitely.
- thinkdevcode 10y agoYou don't have to invest in Amazon if it doesn't meet your expectations.
- jonas21 10y agoTaxes on profits would be deferred indefinitely. This increases everyone else's share of the tax burden regardless of whether they've invested in the company.
- mnx 10y agoIf they make no profit, aren't they essentially running a charity for the efficient delivery of paper towels and power adapters?
- Pxtl 10y agoTax capital gains as income.
- mtgx 10y agoRemember just a couple of days ago all the people praising Facebook over its "profits"? Not paying taxes can get you that. I just think it's terrible how Facebook wants to have its cake and eat it, too - profit from low European taxes, but transfer all of Europe's data to the U.S. for maximum amount of mining.
- rayiner 10y agoPeople should actually read up on the tax structure Facebook used: http://www.bloomberg.com/news/articles/2016-07-28/facebook-gets-3-5-billion-irs-tax-notice-over-ireland-move http://www.bloomberg.com/news/articles/2016-07-28/facebook-g.... It's not reliant on some crazy lobbied-for loopholes in the tax code. It actually relies on some fairly mundane provisions of various countries' tax laws. Just getting rid of, say, transfer pricing rules wouldn't make tax avoidance harder, it would make it easier. Say you do all your R&D in the U.S. But you set up a subsidiary in a low-tax jurisdiction, and license the U.S.-made IP to that subsidiary for $0. Boom the U.S. company now has no profits to show and all profits are in the low-tax jurisdiction.
- koralatov 10y ago> license the U.S.-made IP to that subsidiary for $0. > Boom the U.S. company now has no profits to show and > all profits are in the low-tax jurisdiction That seems simple, but the U.S. government are wise to that kind of thing. At a previous job, the U.S. parent company used to supply our spare parts, which we then sold to end-users in Europe. We operated under very strict rules, derived somehow from Sarbanes-Oxley, about how much the U.S. parent had to charge us for these parts to ensure that they weren't simply running up a loss for tax reasons. IP worked the same way.
- mentos 10y agoI often wonder about a tax system that just works on inflation. Why does a govt go out of its way to collect taxes if it's also going to print money? To me it's so that you can tax different entities at different rates. But if we're willing to adopt a flat tax of X% I wonder if it could be collected through inflating everyone's dollar?
- raverbashing 10y agoThis is a very good way of making the poor even more poor
- ojno 10y agoPerhaps if you were to only use the created money for welfare etc? (Not that I'm optimistic that such a system could come about in practice, or that I'm an economist.)
- derefr 10y agoWhat are US treasury bonds going to be valued at by foreign investors under this scheme? Inflation can do whatever you like if your country's economy is a closed system; it can't give you money to pay debts to other countries with.
- bluecalm 10y agoMy view is that corporate income tax is just a very bad idea. It will always introduce a lot of judgement problems and you will always need to assess every single transaction. Is it "fair price" or is it done to funnel money somewhere? Those questions are impossible to answer objectively and we shouldn't really care. Tax owners of the corporation. Tax people for living in a nice place (land tax, real estate tax, all kinds of consumption taxes). If you really want you can tax companies' revenue (not profits). Some taxes for polluting the environment, using the infrastructure would be great as well. Try to understand what makes your country an attractive place to operate from and charge for those things. Taxing income is just a recipe for problems and unfair treatment (companies with access to top lawyers pay less, small companies pay more).
- pikzen 10y ago>(companies with access to top lawyers pay less, small companies pay more). That is a problem of the law being easier to circumvent if you've got resources to do so. From abusing how complicated the tax code is, to actively lobbying to pass laws that make it easy for you to do so. Simplifying the tax code, removing loopholes is one step, but that would require a total rewrite of it, which is a long process. Corporate income tax is necessary in our society. Corporations use government built infrastructure, whether it is roads, copper cables, etc. They use government services and plethora of government funded things. It is absolutely normal they contribute back to society. Sadly, in an increasingly globalized world, it is much easier for a company to hide its profits in a fiscal paradise.
- edanm 10y ago"It is absolutely normal they contribute back to society." OP never said that companies shouldn't contribute back to society, only that it not be done in the form of an income tax.
- jsmith0295 10y ago>(companies with access to top lawyers pay less, small companies pay more) I think this is one reason why the system doesn't get reformed in general. The tax system's complexity gives a competitive advantage to large corporations who then lobby the government to gain further advantages.
- nxzero 10y agoJust curious, but what would happen in a country where no one paid any taxes?
- koralatov 10y agoGreece would be a pretty good example. Some people were paying taxes, of course, but there was widespread corruption and underpayment of taxes.
- mankash666 10y ago'Facebook said in the filing that the liability “could have a material adverse impact” on its finances, results or cash flows.' - that's a funny defense, that forcing a company or person to pay taxes that they don't plan to pay, affects their finances.