6 ms·

That's illegal for a person to do, but legal for these big companies. Don't blame the companies for exploiting loopholes. Blame the law. Fix the law.

by eloff 9y ago

anothersham 9y ago
So corporations are people only when it benefits them?
gribbly 9y ago
Why do you think that law hasn't been fixed ...
- sgt101 9y ago
  I have two sources and one line of reasoning. 1) Reading newspapers and watching the news gives me the impression that there are large numbers of people who are not happy with the current social contract. 2) Speaking to people in and outside of my community informs me that there are many people who are not happy with the current social contract. The line of reasoning I have is that there are simple ways that could readjust the flow of revenue and capital to enable the removal of many of the perceived injustices that other people cite when I speak with them or read of their experiences.
toast0 9y ago
The problem with a person doing this style of tax avoidance is that the barrier to entrance is much higher than the gain. Assuming general principals of US tax law, if you're already working as an independent contractor, you could legally set up a local company and an overseas company, have the local company bill the client, pay you a reasonable amount, and pay the overseas company the remainder for the use of its name (or whatever justification you like). Your local company would have no net income, but may pay employer side taxes on your wages, and any minimum taxes on corporations in the local jurisdiction. Your overseas company would have a net income, but you picked an overseas jurisdiction with low taxes, right? You would have recognized income of the wages, and unrecognized capital gains in the overseas company. At such time as you take the money from the overseas company, that would be recognized as a capital gain. At the end of the day, you have to run two companies, one in an unfamiliar jurisdiction, and you get to defer recognition of income and change the character of the income from normal income to capital gains. You may also have paid taxes to the overseas jurisdiction that I'm not sure qualifies for a foreign tax credit. It's a real gain, but it may not outweigh the costs. If you're a direct employee of a company, it's also not an option, since you can't redirect your wages out of your recognized income.
- charlesdm 9y ago
  Yes, if you're making $50k a year. But not if you're an entrepreneur pulling in $1m a year. Everything involving intellectual property rights is generally very fluid and easy to move around. A smaller scale example would be living life as a perpetual traveller°: an internet based entrepreneur who makes $200k a year and bases him/herself in a jurisdiction that does not tax income. Or who travels around between countries to avoid tax. Instead of paying 40% tax on $200k (= $80k gone, poof) you put that in your pocket and use that to pay for travel expenses. "Going into tax exile" essentially ends up paying for itself, and then some. That is why companies (and individuals) participate in tax avoidance. °: exception; this doesn't apply to Americans. You get to pay US taxes wherever you reside, above a certain income threshold.
  - csomar 9y ago
    How does this apply to other countries? Aren't you supposed to get residence in some country before losing the residence connection of your original country? That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.
    - charlesdm 9y ago
      Not really, but it's better to have official residency somewhere, though. Some countries are quite flexible on residency, however. Cyprus offers residency after spending 60 days per year in the country, and exempts foreign income from tax. In Malta you can get residency by paying €20k a year (no requirement to spend any time in the country), and foreign income is also exempt from tax, etc. > That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself. I believe you can run foreign companies from Thailand without having to pay tax there, as they have no CFC laws. So the example the poster above gave basically applies, but you would book all your income in ForeignCo and take a small salary in the Thai company from fees you charge ForeignCo. That's essentially a zero tax country then.
enraged_camel 9y ago
>>Don't blame the companies for exploiting loopholes. Blame the law. The companies may be acting legally, but the question is whether they are acting morally. We generally expect that of people. Corporations are people, right?
- charlesdm 9y ago
  Just like corporations, people don't actually end up in jail because they don't act morally. They end up in jail because they don't act within the boundaries of the law. There are plenty of rich assholes out there who would screw people over on a deal (for example, one well known New York real estate developer..)
- prostoalex 9y ago
  It's one of those things where either everyone has to do it, or no one does. Nobody wants to be the first schmuck to pay higher taxes while allowing the competition to accummulate larger cash reserves and gain better margin flexibility.
prostoalex 9y ago
The grandparent would be eligible to pay taxes at off-shore locations if he had any income generated at those off-shore locations. The IRS would treat that as foreign income and the first $100,800 of it might qualify for exclusion https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore...
zdkl 9y ago
No, the intent of the law is absolutely unmistakeable especially in tax-related domains. Bad-faith actors don't deserve the statutory crevices through which they divert their accounting. Fix the moral compass of their boards and officers or assign them a post-facto "we really don't like what you did there" penalty. Could be a fine, business restriction or mandatory supervision by the public authorities. The notion that these companies should only be beholden to the strictest letter of the law is nonsensical.
- Spivak 9y ago
  > The notion that these companies should only be beholden to the strictest letter of the law is nonsensical. Right, they should be beholden to the letter when it benefits them and the spirit when it benefits them. Seriously -- you wouldn't want to live in a world where this isn't the case. * Nobody should have a technicality in the letter result in fines and punishment when they were following the spirit in earnest. * Similarly, nobody who takes care to follow the letter exactly should be punished even if it violates the spirit. Because otherwise people and companies have no clear way to know what is and isn't allowed. It's only when someone is violating both the letter and the spirit that there are grounds for punishment.
  - zdkl 9y ago
    Yes that argument makes sense for rational actors, but I believe some privte organisations are simply too well adapted to the sane model for it to be effectively usable to mitigate their bad actions. I'd argue corporations specifically could do with some more fear of the stick, in the cases where they fall in a grey area.
  - sgt101 9y ago
    I think that all relies on a lot of judgement and perspective. I think that the way to fix things is to shrink down (or expand) the letter of the law so as to catch the corner cases and to protect people appropriately (from the application of the law). I think that the letter of the law must be applied generously and sparingly - but the rapid expansion of egregious evasion should be addressed because it is having corrosive social effects that will compromise this attitude and the norms that underpin it.
throwaway2048 9y ago
Who do you think helps create laws that have loopholes, and then heavily lobbies to maintain them.
sgt101 9y ago
Yes - it must be this way round. If there is a clear level playing field then things will sort themselves out in the medium term. While there's a lot of nonsense and confusion bad outcomes will arise.

That's illegal for a person to do, but legal for these big companies. Don't blame the companies for exploiting loopholes. Blame the law. Fix the law.

by eloff 9y ago

That's illegal for a person to do, but legal for these big companies. Don't blame the companies for exploiting loopholes. Blame the law. Fix the law.

anothersham 9y ago

So corporations are people only when it benefits them?

gribbly 9y ago

Why do you think that law hasn't been fixed ...

sgt101 9y ago
I have two sources and one line of reasoning. 1) Reading newspapers and watching the news gives me the impression that there are large numbers of people who are not happy with the current social contract. 2) Speaking to people in and outside of my community informs me that there are many people who are not happy with the current social contract. The line of reasoning I have is that there are simple ways that could readjust the flow of revenue and capital to enable the removal of many of the perceived injustices that other people cite when I speak with them or read of their experiences.

toast0 9y ago

The problem with a person doing this style of tax avoidance is that the barrier to entrance is much higher than the gain. Assuming general principals of US tax law, if you're already working as an independent contractor, you could legally set up a local company and an overseas company, have the local company bill the client, pay you a reasonable amount, and pay the overseas company the remainder for the use of its name (or whatever justification you like). Your local company would have no net income, but may pay employer side taxes on your wages, and any minimum taxes on corporations in the local jurisdiction. Your overseas company would have a net income, but you picked an overseas jurisdiction with low taxes, right? You would have recognized income of the wages, and unrecognized capital gains in the overseas company. At such time as you take the money from the overseas company, that would be recognized as a capital gain. At the end of the day, you have to run two companies, one in an unfamiliar jurisdiction, and you get to defer recognition of income and change the character of the income from normal income to capital gains. You may also have paid taxes to the overseas jurisdiction that I'm not sure qualifies for a foreign tax credit. It's a real gain, but it may not outweigh the costs. If you're a direct employee of a company, it's also not an option, since you can't redirect your wages out of your recognized income.

charlesdm 9y ago
Yes, if you're making $50k a year. But not if you're an entrepreneur pulling in $1m a year. Everything involving intellectual property rights is generally very fluid and easy to move around. A smaller scale example would be living life as a perpetual traveller°: an internet based entrepreneur who makes $200k a year and bases him/herself in a jurisdiction that does not tax income. Or who travels around between countries to avoid tax. Instead of paying 40% tax on $200k (= $80k gone, poof) you put that in your pocket and use that to pay for travel expenses. "Going into tax exile" essentially ends up paying for itself, and then some. That is why companies (and individuals) participate in tax avoidance. °: exception; this doesn't apply to Americans. You get to pay US taxes wherever you reside, above a certain income threshold.
- csomar 9y ago
  How does this apply to other countries? Aren't you supposed to get residence in some country before losing the residence connection of your original country? That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.
  - charlesdm 9y ago
    Not really, but it's better to have official residency somewhere, though. Some countries are quite flexible on residency, however. Cyprus offers residency after spending 60 days per year in the country, and exempts foreign income from tax. In Malta you can get residency by paying €20k a year (no requirement to spend any time in the country), and foreign income is also exempt from tax, etc. > That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself. I believe you can run foreign companies from Thailand without having to pay tax there, as they have no CFC laws. So the example the poster above gave basically applies, but you would book all your income in ForeignCo and take a small salary in the Thai company from fees you charge ForeignCo. That's essentially a zero tax country then.

enraged_camel 9y ago

>>Don't blame the companies for exploiting loopholes. Blame the law. The companies may be acting legally, but the question is whether they are acting morally. We generally expect that of people. Corporations are people, right?

charlesdm 9y ago
Just like corporations, people don't actually end up in jail because they don't act morally. They end up in jail because they don't act within the boundaries of the law. There are plenty of rich assholes out there who would screw people over on a deal (for example, one well known New York real estate developer..)
prostoalex 9y ago
It's one of those things where either everyone has to do it, or no one does. Nobody wants to be the first schmuck to pay higher taxes while allowing the competition to accummulate larger cash reserves and gain better margin flexibility.

prostoalex 9y ago

The grandparent would be eligible to pay taxes at off-shore locations if he had any income generated at those off-shore locations. The IRS would treat that as foreign income and the first $100,800 of it might qualify for exclusion https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion https://www.irs.gov/individuals/international-taxpayers/fore...

zdkl 9y ago

No, the intent of the law is absolutely unmistakeable especially in tax-related domains. Bad-faith actors don't deserve the statutory crevices through which they divert their accounting. Fix the moral compass of their boards and officers or assign them a post-facto "we really don't like what you did there" penalty. Could be a fine, business restriction or mandatory supervision by the public authorities. The notion that these companies should only be beholden to the strictest letter of the law is nonsensical.

Spivak 9y ago
> The notion that these companies should only be beholden to the strictest letter of the law is nonsensical. Right, they should be beholden to the letter when it benefits them and the spirit when it benefits them. Seriously -- you wouldn't want to live in a world where this isn't the case. * Nobody should have a technicality in the letter result in fines and punishment when they were following the spirit in earnest. * Similarly, nobody who takes care to follow the letter exactly should be punished even if it violates the spirit. Because otherwise people and companies have no clear way to know what is and isn't allowed. It's only when someone is violating both the letter and the spirit that there are grounds for punishment.
- zdkl 9y ago
  Yes that argument makes sense for rational actors, but I believe some privte organisations are simply too well adapted to the sane model for it to be effectively usable to mitigate their bad actions. I'd argue corporations specifically could do with some more fear of the stick, in the cases where they fall in a grey area.
- sgt101 9y ago
  I think that all relies on a lot of judgement and perspective. I think that the way to fix things is to shrink down (or expand) the letter of the law so as to catch the corner cases and to protect people appropriately (from the application of the law). I think that the letter of the law must be applied generously and sparingly - but the rapid expansion of egregious evasion should be addressed because it is having corrosive social effects that will compromise this attitude and the norms that underpin it.

throwaway2048 9y ago

Who do you think helps create laws that have loopholes, and then heavily lobbies to maintain them.

sgt101 9y ago

Yes - it must be this way round. If there is a clear level playing field then things will sort themselves out in the medium term. While there's a lot of nonsense and confusion bad outcomes will arise.