4 ms·

Reducing/removing taxes from abroad just incentivizes the firm to move as much of their profit abroad as possible, leaving nothing but domestic holding companie

Reducing/removing taxes from abroad just incentivizes the firm to move as much of their profit abroad as possible, leaving nothing but domestic holding companies that report losses on behalf of their profitable overseas subsidiaries.

malandrew 9y ago
Huh? These customers will sell wherever there are customers. They can't just move their American customers abroad so they earn money from them outside the country.
- alexbeloi 9y ago
  If there is a 35% tax on profits in the US and a 0% tax in Europe and the cost of customer acquisition is similar, the obvious conclusion is to invest in your European branches until cost of acquisition becomes so high that it makes sense to invest in the US again. So yes, you cannot immediately trade out American customers for customer abroad, but it makes foreign investments more profitable than domestic ones. Leading the firm to invest more of their earnings abroad rather than domestically, which I believe is the opposite of what you wanted.
  - malandrew 9y ago
    If this was actually a real concern and not a strawman argument, these businesses wouldn't even bother with having any business in the US at all. From a purely theoretical position, your argument may not make sense, but the already have all this money earned abroad and staying abroad paying low taxes there. Basically all companies that are in this position are those that are so large that they are looking for returns on investment wherever they can find them, domestically and abroad. A smaller company with less profits to reinvest would likely perform the calculation you made, but then again they'd be small enough that this wouldn't even matter. These companies want to bring these profits back to the US. What is worth barring is the ability to pay them back out as dividends in exchange for the tax break. Basically, just structure the tax break to make sure that they only get it if the money is funneled into investments in the US only.
- xapata 9y ago
  There's such a thing as internal charges. The customer buys from the domestic subsidiary at low margin, the domestic subsidiary sources from the foreign subsidiary at a tremendous margin. https://www.bloomberg.com/news/articles/2016-12-16/the-inside-story-of-apple-s-14-billion-tax-bill https://www.bloomberg.com/news/articles/2016-12-16/the-insid... "The investigators say the company channeled profits from dozens of countries through two Ireland-based units. In a system at least tacitly endorsed by Irish authorities, earnings were split, with the vast majority attributed to a “head office” with no employees and no specific home base -- and therefore liable to no tax on any profits from sales outside Ireland. The U.S., meanwhile, didn't tax the units because they’re incorporated in Ireland."

malandrew 9y ago

Huh? These customers will sell wherever there are customers. They can't just move their American customers abroad so they earn money from them outside the country.

alexbeloi 9y ago
If there is a 35% tax on profits in the US and a 0% tax in Europe and the cost of customer acquisition is similar, the obvious conclusion is to invest in your European branches until cost of acquisition becomes so high that it makes sense to invest in the US again. So yes, you cannot immediately trade out American customers for customer abroad, but it makes foreign investments more profitable than domestic ones. Leading the firm to invest more of their earnings abroad rather than domestically, which I believe is the opposite of what you wanted.
- malandrew 9y ago
  If this was actually a real concern and not a strawman argument, these businesses wouldn't even bother with having any business in the US at all. From a purely theoretical position, your argument may not make sense, but the already have all this money earned abroad and staying abroad paying low taxes there. Basically all companies that are in this position are those that are so large that they are looking for returns on investment wherever they can find them, domestically and abroad. A smaller company with less profits to reinvest would likely perform the calculation you made, but then again they'd be small enough that this wouldn't even matter. These companies want to bring these profits back to the US. What is worth barring is the ability to pay them back out as dividends in exchange for the tax break. Basically, just structure the tax break to make sure that they only get it if the money is funneled into investments in the US only.
xapata 9y ago
There's such a thing as internal charges. The customer buys from the domestic subsidiary at low margin, the domestic subsidiary sources from the foreign subsidiary at a tremendous margin. https://www.bloomberg.com/news/articles/2016-12-16/the-inside-story-of-apple-s-14-billion-tax-bill https://www.bloomberg.com/news/articles/2016-12-16/the-insid... "The investigators say the company channeled profits from dozens of countries through two Ireland-based units. In a system at least tacitly endorsed by Irish authorities, earnings were split, with the vast majority attributed to a “head office” with no employees and no specific home base -- and therefore liable to no tax on any profits from sales outside Ireland. The U.S., meanwhile, didn't tax the units because they’re incorporated in Ireland."