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You are describing the failure of an idea of corporate income tax. I mean, it should be completely obvious that tax doesn't work by considering this example: T

You are describing the failure of an idea of corporate income tax. I mean, it should be completely obvious that tax doesn't work by considering this example: Two companies A and B work in the same market, produce the same thing of the same quality and have the same labor/material costs and revenue. Both companies make 100M in the market. The difference is that A is a local company and pay corporate tax on that 100M and B is buys "brand" or "marketing strategy" from a company located somewhere else (maybe on some island in the middle of Caribbean Sea or something). The rights to use the brand cost 100M/year. Company B pays 0 income tax in the country it operates. This is an obvious failure of the tax system. The solution is quite simple: get rid of corporate income tax, focus on consumption taxes. Then you won't need to chase anyone around trying to prove they overpayed or "hid" income. You just don't care at all about those things. You also invite other corporations to come to your country and pay salaries and then you get consumption/real estate/land taxes on that salaries as well (and maybe personal income taxes as well if you are into that). I mean it seems so obvious for anyone who ever did any business on any scale where international sales are involved and who has seen how easy it is to avoid paying income taxes and how it really is a tax on honesty and on how ethical you want to be.

sandstrom 10y ago
I agree, I think corporate taxation has many flaws (especially in a global context). But as long as it's in place it should be applied equally and fairly. Most countries struggle only to make small changes to their tax-systems (just look at all the loopholes and flaws most countries have sprinkled throughout their tax code). Or India, they've spent some ~25 years working on an update[1]. A global, synchronised overhaul of the tax-system would be very hard. Most likely, it'll have to be a gradual change. I also think more emphasis on consumption tax (VAT) and real-estate taxes would be good. But any change will take time. [1] http://www.nytimes.com/2016/08/04/world/asia/india-goods-and-services-tax.html http://www.nytimes.com/2016/08/04/world/asia/india-goods-and...
- cyberpunk 10y ago
  The problem as I see it is that it's actually impossible to enforce when we're talking Google, Facebook, etc scale.... Let's take BigCorp'inc or whoever which is selling stuff in the UK and not paying any corp tax; should the uk govt take them to court and try to reclaim money it feels its owed? The govt doesn't really have the teeth for that fight; it's in BigCorp's interest to fight incredibly hard and throw vast sums at that kind of problem.. I'm feeling like the endless pockets of these companies would force the govt to drop any case when the costs get high enough (with enough lawyers, how many years do you think even the frist phases of such a case could be drawn out, and at what taxpayer cost?) that would be a huge embarrassment and would mean publically admitting we can't actually enfore this and so we don't even try to do it... So what's another option? We could attempt a sales ban, but that's a simple bit of math from BigCorp's side which makes it also pointless to attempt: If losing access said market forever costs less than paying taxes in all other countries where you are doing that kind of advoidance is, then goodbye to that market.. Right? If a sales ban on the UK worked, then the same thing would start happening everywhere -- it makes sense for them then to just walk away (certainly, it'll be cheaper). So we can't force them to pay, and we can't threaten them with exclusion unless everyone else does too, so what else is possible? Drop corp tax and double vat?
Fnoord 10y ago
> This is an obvious failure of the tax system. The solution is quite simple Yes, it is indeed: 1) if a company does local business, they should pay local tax, and, 2) by making sure the company has physical presence instead of being a P.O. box. Ie. by flagging those companies who claim they are in the middle of the Caribbean Sea while they're clearly not as tax evaders who ought to be prosecuted 3) use whitelists on companies who are honest, and for those who are not: immediately distract the corporate income tax from their transactions (it is 2016, after all). EDIT: 4) the construction with fake companies who the companies deal with should also be pretty easy to catch with some ML/AI :) Your solution: > get rid of corporate income tax, focus on consumption taxes. Would give corporations a free ride at the expense of consumers. It'd stimulate consumers to start fake corporations just to avoid tax. Finally, it'd lower the value of the money the consumer has as it is. Hardly a fair solution.
- basch 10y ago
  corporations are consumers. what percent of software spending is enterprise consumption? what percent of pc sales are enterprise?
  - quinnchr 10y ago
    Why would corporations not just move consumption offshore too? What happens when Ireland has 0% sales tax on software?
- bluecalm 10y ago
  >>1) if a company does local business, they should pay local tax, and, 2) by making sure the company has physical presence instead of being a P.O. box. Ie. by flagging those companies who claim they are in the middle of the Caribbean Sea while they're clearly not as tax evaders who ought to be prosecuted 3) use whitelists on companies who are honest This is delusional to be honest. There are many shades of gray when it comes to tax avoidance. Other than straight up fraud there are costs which really are needed but might be a bit overblown. Are you really going to use resources to prove this piece of software bought in Bermuda is worth 4M and not 5M? It's a fundamental problem with income tax which can't be fixed unless you have access to an oracle which just spits a real value for everything. >>4) the construction with fake companies who the companies deal with should also be pretty easy to catch with some ML/AI :) It doesn't need to be fake at all. You just overpay for software/advice/tours/coaching/brands here and there. It's fluid, there is no chance tax authorities catch all of those or prove they were in fact overpriced. It becomes tax on honesty/ethics again as people not willing to play the game will pay more. >>Would give corporations a free ride at the expense of consumers. No it wouldn't. Consumption taxes as well as corporate income taxes are 100% financed by what consumers pay. >>It'd stimulate consumers to start fake corporations just to avoid tax. It's way more difficult to avoid VAT than income tax. Avoiding VAT on any significant scale requires forgery while avoiding corporate income tax is as easy as overpaying a bit here and there and maybe getting "unlucky" with some risky purchases. >>Finally, it'd lower the value of the money the consumer has as it is. No it wouldn't. It doesn't matter if you tax a consumer or corporation the money comes from consumers anyway. It seems you are not very familiar with how consumption taxes work and how they the tax burden under them looks comparing to corporate income taxes. I don't want to suggest sources but as this is widely discussed issue by economists on all sides it's easy to google for it. There are issues mainly concerned with consumption taxes not being progressive (or regressive if you take immediate look) but "giving corporations free ride" isn't one of them.
room271 10y ago
Consumption taxes are typically seen as a bad solution because they are regressive. If coupled with increased progressive taxation elsewhere this might be okay, but otherwise it's a big problem. The truth is there isn't a 'simple' solution to this, which is part of the reason that status quo is unchanged (another part of the reason is obviously the lobbying power of large/multi-national corporates.
- thefalcon 10y ago
  Basic Income combined with a Prebate seem like they would work rather well in consumption-tax land.
  - notahacker 10y ago
    Until you start dealing with the fact that the largest taxpayers really don't consume that high a proportion of their annual income, and someone has to pick up the bill...
- the_gastropod 10y ago
  Robert H. Frank's Luxury Fever[1] advocates for a progressive consumption tax, and has some fairly compelling arguments. One of which is that it flips the "save money" incentive to consumers. This coupled with Piketty's wealth tax would be difficult, but probably effective in combatting wealth inequality, and making taxes a bit more "fair"
- bluecalm 10y ago
  Consumption taxes aren't regressive unless you take a very narrow view of what happens in given year. Consumption taxes are linear as the money will be spent at some point and taxed there (and if it isn't spent it's fantastic as someone just provided free services to society and didn't want anything in return). Still if you are concerned about them being regressive in small time window then there are many ways to compensate for that: -tax necessities at lower rate -give every citizen some way to get some of the consumption tax back (up to X amount) -introduce more social programs like some kind of unconditional payment; as this will be much bigger % of income for poorer people it will in effect make consumption tax progressive. >>The truth is there isn't a 'simple' solution to this, which is part of the reason that status quo is unchanged (another part of the reason is obviously the lobbying power of large/multi-national corporates. I think your "another part" is what is really going on here. I would add one more reason: people are not good at understanding economics and consequences of regulations. Even if you prove on paper that consumption tax is just more fair, will make companies pay in market they operate and therefore will lower tax burden on lower/middle class it's still easier for a politician to shout: "tax the rich CEO's!" and they will get people to follow them.
Gustomaximus 10y ago
> The solution is quite simple: get rid of corporate income tax, focus on consumption taxes. I feel the better solution is a global tax treaty. Where WTO nations or appropriate group all agree to have a minimum corporate tax rate if they want to trade. This will stop any race to the bottom by countries trying to attract companies via a double Irish type method and remove the incentive of corporations for this. All while allowing taxes to be collected at the corporate level in a global economy. The problem of removing corporate tax is corporate vehicles will become a holding vessel for profit hoarding. E.g for someone like me that likes to save rather than pay my tax bill each year on investment earnings I'll set up a company and put all my savings into this. Each year these invest profits will be retained tax free as I continue to save. This will pull massive tax revenue from the economy as people do this at scale. For this reason shifting to consumption tax only will just open another tax avoidance option.
- bluecalm 10y ago
  I don't like it. There are too may countries, local governments with various degree of corruption. Legislation with various kind of rebates and laws which allow you to deduct all kind of different things. Global treaties like that can't work in a world with so many realities and cultures. >>The problem of removing corporate tax is corporate vehicles will become a holding vessel for profit hoarding. I don't mind it. Sooner or later they spent the money. If we have inflation at some decent level that will serve as a tax on hoarding. >>E.g for someone like me that likes to save rather than pay my tax bill each year on investment earnings I'll set up a company and put all my savings into this. Each year these invest profits will be retained tax free as I continue to save. I don't see the problem. It's a basic arithmetic property of multiplication that it doesn't matter if you save more first and then are taxed at 23% (or w/e the rate) or are taxed first and save later. If you are buying assets then some other people get the money to spend. >>This will pull massive tax revenue from the economy as people do this at scale I think encouraging savings is good, it stops over the top consumption and allows building capital to finance new ventures and therefore allow for faster progress of our civilization. If you never spend the money it's great for everyone (you provided free services and didn't want anything in return), if you spend it: you are taxed. If you buy some assets you will be taxed on that and some other people will have your money to spend and be taxed there. I just don't see it as a problem as long as there is at least minimal inflation (aka tax on keeping cash).

sandstrom 10y ago

I agree, I think corporate taxation has many flaws (especially in a global context). But as long as it's in place it should be applied equally and fairly. Most countries struggle only to make small changes to their tax-systems (just look at all the loopholes and flaws most countries have sprinkled throughout their tax code). Or India, they've spent some ~25 years working on an update[1]. A global, synchronised overhaul of the tax-system would be very hard. Most likely, it'll have to be a gradual change. I also think more emphasis on consumption tax (VAT) and real-estate taxes would be good. But any change will take time. [1] http://www.nytimes.com/2016/08/04/world/asia/india-goods-and-services-tax.html http://www.nytimes.com/2016/08/04/world/asia/india-goods-and...

cyberpunk 10y ago
The problem as I see it is that it's actually impossible to enforce when we're talking Google, Facebook, etc scale.... Let's take BigCorp'inc or whoever which is selling stuff in the UK and not paying any corp tax; should the uk govt take them to court and try to reclaim money it feels its owed? The govt doesn't really have the teeth for that fight; it's in BigCorp's interest to fight incredibly hard and throw vast sums at that kind of problem.. I'm feeling like the endless pockets of these companies would force the govt to drop any case when the costs get high enough (with enough lawyers, how many years do you think even the frist phases of such a case could be drawn out, and at what taxpayer cost?) that would be a huge embarrassment and would mean publically admitting we can't actually enfore this and so we don't even try to do it... So what's another option? We could attempt a sales ban, but that's a simple bit of math from BigCorp's side which makes it also pointless to attempt: If losing access said market forever costs less than paying taxes in all other countries where you are doing that kind of advoidance is, then goodbye to that market.. Right? If a sales ban on the UK worked, then the same thing would start happening everywhere -- it makes sense for them then to just walk away (certainly, it'll be cheaper). So we can't force them to pay, and we can't threaten them with exclusion unless everyone else does too, so what else is possible? Drop corp tax and double vat?

Fnoord 10y ago

> This is an obvious failure of the tax system. The solution is quite simple Yes, it is indeed: 1) if a company does local business, they should pay local tax, and, 2) by making sure the company has physical presence instead of being a P.O. box. Ie. by flagging those companies who claim they are in the middle of the Caribbean Sea while they're clearly not as tax evaders who ought to be prosecuted 3) use whitelists on companies who are honest, and for those who are not: immediately distract the corporate income tax from their transactions (it is 2016, after all). EDIT: 4) the construction with fake companies who the companies deal with should also be pretty easy to catch with some ML/AI :) Your solution: > get rid of corporate income tax, focus on consumption taxes. Would give corporations a free ride at the expense of consumers. It'd stimulate consumers to start fake corporations just to avoid tax. Finally, it'd lower the value of the money the consumer has as it is. Hardly a fair solution.

basch 10y ago
corporations are consumers. what percent of software spending is enterprise consumption? what percent of pc sales are enterprise?
- quinnchr 10y ago
  Why would corporations not just move consumption offshore too? What happens when Ireland has 0% sales tax on software?
bluecalm 10y ago
>>1) if a company does local business, they should pay local tax, and, 2) by making sure the company has physical presence instead of being a P.O. box. Ie. by flagging those companies who claim they are in the middle of the Caribbean Sea while they're clearly not as tax evaders who ought to be prosecuted 3) use whitelists on companies who are honest This is delusional to be honest. There are many shades of gray when it comes to tax avoidance. Other than straight up fraud there are costs which really are needed but might be a bit overblown. Are you really going to use resources to prove this piece of software bought in Bermuda is worth 4M and not 5M? It's a fundamental problem with income tax which can't be fixed unless you have access to an oracle which just spits a real value for everything. >>4) the construction with fake companies who the companies deal with should also be pretty easy to catch with some ML/AI :) It doesn't need to be fake at all. You just overpay for software/advice/tours/coaching/brands here and there. It's fluid, there is no chance tax authorities catch all of those or prove they were in fact overpriced. It becomes tax on honesty/ethics again as people not willing to play the game will pay more. >>Would give corporations a free ride at the expense of consumers. No it wouldn't. Consumption taxes as well as corporate income taxes are 100% financed by what consumers pay. >>It'd stimulate consumers to start fake corporations just to avoid tax. It's way more difficult to avoid VAT than income tax. Avoiding VAT on any significant scale requires forgery while avoiding corporate income tax is as easy as overpaying a bit here and there and maybe getting "unlucky" with some risky purchases. >>Finally, it'd lower the value of the money the consumer has as it is. No it wouldn't. It doesn't matter if you tax a consumer or corporation the money comes from consumers anyway. It seems you are not very familiar with how consumption taxes work and how they the tax burden under them looks comparing to corporate income taxes. I don't want to suggest sources but as this is widely discussed issue by economists on all sides it's easy to google for it. There are issues mainly concerned with consumption taxes not being progressive (or regressive if you take immediate look) but "giving corporations free ride" isn't one of them.

room271 10y ago

Consumption taxes are typically seen as a bad solution because they are regressive. If coupled with increased progressive taxation elsewhere this might be okay, but otherwise it's a big problem. The truth is there isn't a 'simple' solution to this, which is part of the reason that status quo is unchanged (another part of the reason is obviously the lobbying power of large/multi-national corporates.

thefalcon 10y ago
Basic Income combined with a Prebate seem like they would work rather well in consumption-tax land.
- notahacker 10y ago
  Until you start dealing with the fact that the largest taxpayers really don't consume that high a proportion of their annual income, and someone has to pick up the bill...
the_gastropod 10y ago
Robert H. Frank's Luxury Fever[1] advocates for a progressive consumption tax, and has some fairly compelling arguments. One of which is that it flips the "save money" incentive to consumers. This coupled with Piketty's wealth tax would be difficult, but probably effective in combatting wealth inequality, and making taxes a bit more "fair"
bluecalm 10y ago
Consumption taxes aren't regressive unless you take a very narrow view of what happens in given year. Consumption taxes are linear as the money will be spent at some point and taxed there (and if it isn't spent it's fantastic as someone just provided free services to society and didn't want anything in return). Still if you are concerned about them being regressive in small time window then there are many ways to compensate for that: -tax necessities at lower rate -give every citizen some way to get some of the consumption tax back (up to X amount) -introduce more social programs like some kind of unconditional payment; as this will be much bigger % of income for poorer people it will in effect make consumption tax progressive. >>The truth is there isn't a 'simple' solution to this, which is part of the reason that status quo is unchanged (another part of the reason is obviously the lobbying power of large/multi-national corporates. I think your "another part" is what is really going on here. I would add one more reason: people are not good at understanding economics and consequences of regulations. Even if you prove on paper that consumption tax is just more fair, will make companies pay in market they operate and therefore will lower tax burden on lower/middle class it's still easier for a politician to shout: "tax the rich CEO's!" and they will get people to follow them.

Gustomaximus 10y ago

> The solution is quite simple: get rid of corporate income tax, focus on consumption taxes. I feel the better solution is a global tax treaty. Where WTO nations or appropriate group all agree to have a minimum corporate tax rate if they want to trade. This will stop any race to the bottom by countries trying to attract companies via a double Irish type method and remove the incentive of corporations for this. All while allowing taxes to be collected at the corporate level in a global economy. The problem of removing corporate tax is corporate vehicles will become a holding vessel for profit hoarding. E.g for someone like me that likes to save rather than pay my tax bill each year on investment earnings I'll set up a company and put all my savings into this. Each year these invest profits will be retained tax free as I continue to save. This will pull massive tax revenue from the economy as people do this at scale. For this reason shifting to consumption tax only will just open another tax avoidance option.

bluecalm 10y ago
I don't like it. There are too may countries, local governments with various degree of corruption. Legislation with various kind of rebates and laws which allow you to deduct all kind of different things. Global treaties like that can't work in a world with so many realities and cultures. >>The problem of removing corporate tax is corporate vehicles will become a holding vessel for profit hoarding. I don't mind it. Sooner or later they spent the money. If we have inflation at some decent level that will serve as a tax on hoarding. >>E.g for someone like me that likes to save rather than pay my tax bill each year on investment earnings I'll set up a company and put all my savings into this. Each year these invest profits will be retained tax free as I continue to save. I don't see the problem. It's a basic arithmetic property of multiplication that it doesn't matter if you save more first and then are taxed at 23% (or w/e the rate) or are taxed first and save later. If you are buying assets then some other people get the money to spend. >>This will pull massive tax revenue from the economy as people do this at scale I think encouraging savings is good, it stops over the top consumption and allows building capital to finance new ventures and therefore allow for faster progress of our civilization. If you never spend the money it's great for everyone (you provided free services and didn't want anything in return), if you spend it: you are taxed. If you buy some assets you will be taxed on that and some other people will have your money to spend and be taxed there. I just don't see it as a problem as long as there is at least minimal inflation (aka tax on keeping cash).