8 ms·

This is why corporate taxes are a dumb idea. Firms should not keep one set of books for management accounting and another set that they use for tax purposes.

This is why corporate taxes are a dumb idea. Firms should not keep one set of books for management accounting and another set that they use for tax purposes. When money is paid to an individual, tax it as income tax. Very simple. Don't give firms an incentive to act as tax shelters or tax avoiders. Think about all the legal fees that have been spent by the firms on that list to avoid and reduce corporate taxes. It's outlandish. Not only do the complicated tax avoidance schemes waste lots of money getting created/maintained, they also drastically reduce transparency and make auditing the company (by regulators, shareholders, etc.) far more subjective and complex. There is no issue of fairness, since all the firms can conceivably do any of the avoidance schemes any of the others are doing if it offers positive ROI. The issue is that so much time, money, and energy is spent on corporate taxation that should be spent on things that benefit society.

zimablue 9y ago
I think that what you're suggesting (based on a vague understanding of the UK tax system) is abolishing corporate taxes and taxing dividends as income? I'd be curious to hear someone who knows more accounting's view on this. I've always thought that the answer was to have wealth taxes, easier to avoid but surely what we should actually aim for.
- rossriley 9y ago
  Well the problem is that you just create a loophole. You can already avoid paying any corporation tax by taking money out of a company as salary. In the UK you have dividend tax credit so effectively when you take a dividend you get the tax back that has already been paid (as corporation tax). So both those reasonable ways of extracting money from a company allow you to not pay any additional tax above what income tax would be. However if there was no corporation tax then the loophole / incentive would be to move money out of the jurisdiction and extract the dividends in a zero tax country. This is effectively what the big multinationals do via transfer pricing etc but not having any corporation tax would no doubt make it a lot easier for more companies to do that.
  - Quarrelsome 9y ago
    > when you take a dividend you get the tax back that has already been paid Yea, that needs to stop. This idea of being "taxed twice" is ridiculous because companies are not people. If they were then yes they would be taxed twice and it would be "unfair" but then they'd also be taxed at the proper rate.
    - rossriley 9y ago
      No, I was explaining that this already happens. Actually at least in the UK the system is just changing over to be more clear so rather than the tax credit you just get a lower rate. So for instance instead of the 25%ish that you would expect to pay in tax on your income you pay 7.5% on your dividends which is more or less the income tax rate minus the corporation tax already paid.
      - Quarrelsome 9y ago
        yeah but your company paid the corp tax, not you. That's isn't fair because your company can offset its losses and individuals cannot. Its not a fair comparison.
  - twic 9y ago
    This doesn't seem insuperable. The rule could be that any dividend paid to anyone other than a UK taxpayer, or another UK company, is taxed at the top rate of income tax. That would make such a shunt pointless. You could then extend the existing international double taxation agreements to cover these dividends. So, for example, if a dividend is paid to a Dutch taxpayer, it is not taxed at source, but as income. You might want to retain the current UK arrangement in this situation, though, so as to keep some of that tax revenue in the UK. You wouldn't extend these arrangements to tax havens. Manoeuvres like the Double Irish or whatever would still get around this, and would still need to be attacked in the way they are (or at least should be) now. You would need to extend the spirit of this rule to share repurchases, which might be tricky.
  - Nursie 9y ago
    >> In the UK you have dividend tax credit Not any more, that got shelved a few years back AFAICT.
- grandalf 9y ago
  There are several issues that are all relevant, I think: - Corporate taxes reduce the competitiveness of a jurisdiction and create a market for tax havens like the Caymans which add no value. - Companies' tax avoidance schemes are massively complex and create an incentive to hide earnings and obscure profits, making this information less transparent to markets. - A company's share price should reflect company performance only, not the performance of the company's accountants in the realm of tax minimization. - Offshore tax avoidance schemes reduce government revenues. Google avoids taxes by running such a scheme. Why shouldn't Google pay the same fair share as a tiny startup that lacks the budget to set up such a scheme? Why should governments lose out on the revenues? - By simply taxing the money when it is income or capital gains, governments can get the proper amount of revenue. Suppose Google evaded $10B in taxes via its offshore scheme. This $10B would instead have been collected from shareholders and employees via capital gains and income taxes. Why don't we switch to a system of zero corporate tax? The firms like Google that have invested heavily to set up an offshore tax avoidance system are quite happy with the result. They get to be insulated from smaller competitors who do not have the budget to set up their own scheme. Larger firms like WalMart are cash cow businesses that are not doing enough R&D to offset the profits. Investors in WalMart are OK with this and the shares are priced accordingly. If WalMart paid no corporate tax, the dividends would be higher and the revenue could be captured by capital gains tax and income tax.
- losvedir 9y ago
  > I've always thought that the answer was to have wealth taxes Oh, I totally think this is where we should be going, too! Income seems like such a weird thing to tax; the wealthiest people don't necessarily have income, and high earners aren't necessarily that wealthy. In terms of "tax the rich", I think wealth taxes are more along the lines of what people envision. It would simplify things so much, too; you don't have to worry about capital gains vs. ordinary income, or gifts, or the so-called "death tax". Businesses don't need to withhold taxes. It seems like a simple, low, flat wealth tax, over a certain cut-off, would be best. If would counteract the march to aristocracy and dynastic families, unless the children are similarly able to provide value with their assets. Otherwise their wealth will dwindle over time and others will have a shot. I think the two negatives I can think of are: 1) dealing with liquidity - you might be "worth" millions, but does that mean you can afford your tax bill? and 2) off-shore havens storing the wealth. But neither seem insurmountable. I'd love to see any discussions of pros-and-cons of this approach to taxation. I know Islam proscribes a wealth tax, Zakat, but I'm not sure how it works in practice.
  - Tyr42 9y ago
    What if you just spend all your money before you are taxed? This seems to reward non-tangable things, like trips, since they don't count towards your networth unlike say, a house.
    - mcguire 9y ago
      A professor I once knew said,"You can only eat so much filet mignon."
  - marrington 9y ago
    "Otherwise their wealth will dwindle over time and others will have a shot" Wealth is not a zero sum game, it's the opposite. Wealth creates more wealth for the society around us.
  - marcosdumay 9y ago
    You can already stop at your two cons. Those are pretty insurmountable themselves. Number 1 in particular creates a huge intervention in the details of an economy. Any government would want to fine tune this, and not create a tax aimed mostly on revenue collection. In particular, you do not want to go out of your way to bankrupt people when they make productive investments.
- joefourier 9y ago
  Estonia takes an interesting approach - profits are only taxed when they are taken out as dividends. There is thus essentially no corporate tax, as companies can accumulate profit and not have it taxed until it is distributed to shareholders.
danmaz74 9y ago
Yes, and what happens when those corporations keep hundreds of billions in profits in the bank for years - see eg Apple?
- ams6110 9y ago
  They paid income tax on the profits (at least the profits earned in the USA). Apple was the number one tax payer on the list by a wide margin. Are they supposed to be taxed on their bank balances also?
  - justherefortart 9y ago
    They ship a lot of those USA profits to Ireland because that's where they shipped all their "intellectual property". It's either ignorant or disingenuous to say that Apple paid the proper tax on their US income. It's a wonderfully "liberal" scam they've got going.
  - danmaz74 9y ago
    They paid income tax on the profits generated in the USA, but not those generated eg in the EU.
    - seanmcdirmid 9y ago
      Well, SAP also paid income taxes on USA profits, but not those generated e.g. in the EU. So what?
- grandalf 9y ago
  If shareholders do not demand the money as a dividend and prefer instead to have it kept in the company's control, then so be it. Shareholders in Apple want Apple to be able to make big investments or acquisitions and are willing to let the money sit there rather than take it as a dividend. This would not be true for most firms.
  - danmaz74 9y ago
seanmcdirmid 9y ago
So should the USA tax SAP on worldwide profits as it does Apple?
jellicle 9y ago
I suppose your solution of "murder is a problem, so let's decriminalize it" could work, but I think there may be better ones.
rpiguy 9y ago
Simply taxing revenue is bad for start ups and puts them at a even more of a disadvantage.
MarkMc 9y ago
Wouldn't that provide an incentive for ultra-wealthy shareholders to move to low-tax jurisdictions like Monaco?
- grandalf 9y ago
  It would be easy enough to pass a law requiring tax payments on dividends paid out to be sent in by the firms, and for such payments to be required regardless of the nationality or location of the investor, in much the same way that firms are required to collect income tax payments on behalf of employees.

zimablue 9y ago

I think that what you're suggesting (based on a vague understanding of the UK tax system) is abolishing corporate taxes and taxing dividends as income? I'd be curious to hear someone who knows more accounting's view on this. I've always thought that the answer was to have wealth taxes, easier to avoid but surely what we should actually aim for.

rossriley 9y ago
Well the problem is that you just create a loophole. You can already avoid paying any corporation tax by taking money out of a company as salary. In the UK you have dividend tax credit so effectively when you take a dividend you get the tax back that has already been paid (as corporation tax). So both those reasonable ways of extracting money from a company allow you to not pay any additional tax above what income tax would be. However if there was no corporation tax then the loophole / incentive would be to move money out of the jurisdiction and extract the dividends in a zero tax country. This is effectively what the big multinationals do via transfer pricing etc but not having any corporation tax would no doubt make it a lot easier for more companies to do that.
- Quarrelsome 9y ago
  > when you take a dividend you get the tax back that has already been paid Yea, that needs to stop. This idea of being "taxed twice" is ridiculous because companies are not people. If they were then yes they would be taxed twice and it would be "unfair" but then they'd also be taxed at the proper rate.
  - rossriley 9y ago
    No, I was explaining that this already happens. Actually at least in the UK the system is just changing over to be more clear so rather than the tax credit you just get a lower rate. So for instance instead of the 25%ish that you would expect to pay in tax on your income you pay 7.5% on your dividends which is more or less the income tax rate minus the corporation tax already paid.
    - Quarrelsome 9y ago
      yeah but your company paid the corp tax, not you. That's isn't fair because your company can offset its losses and individuals cannot. Its not a fair comparison.
- twic 9y ago
  This doesn't seem insuperable. The rule could be that any dividend paid to anyone other than a UK taxpayer, or another UK company, is taxed at the top rate of income tax. That would make such a shunt pointless. You could then extend the existing international double taxation agreements to cover these dividends. So, for example, if a dividend is paid to a Dutch taxpayer, it is not taxed at source, but as income. You might want to retain the current UK arrangement in this situation, though, so as to keep some of that tax revenue in the UK. You wouldn't extend these arrangements to tax havens. Manoeuvres like the Double Irish or whatever would still get around this, and would still need to be attacked in the way they are (or at least should be) now. You would need to extend the spirit of this rule to share repurchases, which might be tricky.
- Nursie 9y ago
  >> In the UK you have dividend tax credit Not any more, that got shelved a few years back AFAICT.
grandalf 9y ago
There are several issues that are all relevant, I think: - Corporate taxes reduce the competitiveness of a jurisdiction and create a market for tax havens like the Caymans which add no value. - Companies' tax avoidance schemes are massively complex and create an incentive to hide earnings and obscure profits, making this information less transparent to markets. - A company's share price should reflect company performance only, not the performance of the company's accountants in the realm of tax minimization. - Offshore tax avoidance schemes reduce government revenues. Google avoids taxes by running such a scheme. Why shouldn't Google pay the same fair share as a tiny startup that lacks the budget to set up such a scheme? Why should governments lose out on the revenues? - By simply taxing the money when it is income or capital gains, governments can get the proper amount of revenue. Suppose Google evaded $10B in taxes via its offshore scheme. This $10B would instead have been collected from shareholders and employees via capital gains and income taxes. Why don't we switch to a system of zero corporate tax? The firms like Google that have invested heavily to set up an offshore tax avoidance system are quite happy with the result. They get to be insulated from smaller competitors who do not have the budget to set up their own scheme. Larger firms like WalMart are cash cow businesses that are not doing enough R&D to offset the profits. Investors in WalMart are OK with this and the shares are priced accordingly. If WalMart paid no corporate tax, the dividends would be higher and the revenue could be captured by capital gains tax and income tax.
losvedir 9y ago
> I've always thought that the answer was to have wealth taxes Oh, I totally think this is where we should be going, too! Income seems like such a weird thing to tax; the wealthiest people don't necessarily have income, and high earners aren't necessarily that wealthy. In terms of "tax the rich", I think wealth taxes are more along the lines of what people envision. It would simplify things so much, too; you don't have to worry about capital gains vs. ordinary income, or gifts, or the so-called "death tax". Businesses don't need to withhold taxes. It seems like a simple, low, flat wealth tax, over a certain cut-off, would be best. If would counteract the march to aristocracy and dynastic families, unless the children are similarly able to provide value with their assets. Otherwise their wealth will dwindle over time and others will have a shot. I think the two negatives I can think of are: 1) dealing with liquidity - you might be "worth" millions, but does that mean you can afford your tax bill? and 2) off-shore havens storing the wealth. But neither seem insurmountable. I'd love to see any discussions of pros-and-cons of this approach to taxation. I know Islam proscribes a wealth tax, Zakat, but I'm not sure how it works in practice.
- Tyr42 9y ago
  What if you just spend all your money before you are taxed? This seems to reward non-tangable things, like trips, since they don't count towards your networth unlike say, a house.
  - mcguire 9y ago
    A professor I once knew said,"You can only eat so much filet mignon."
- marrington 9y ago
  "Otherwise their wealth will dwindle over time and others will have a shot" Wealth is not a zero sum game, it's the opposite. Wealth creates more wealth for the society around us.
- marcosdumay 9y ago
  You can already stop at your two cons. Those are pretty insurmountable themselves. Number 1 in particular creates a huge intervention in the details of an economy. Any government would want to fine tune this, and not create a tax aimed mostly on revenue collection. In particular, you do not want to go out of your way to bankrupt people when they make productive investments.
joefourier 9y ago
Estonia takes an interesting approach - profits are only taxed when they are taken out as dividends. There is thus essentially no corporate tax, as companies can accumulate profit and not have it taxed until it is distributed to shareholders.

danmaz74 9y ago

Yes, and what happens when those corporations keep hundreds of billions in profits in the bank for years - see eg Apple?

ams6110 9y ago
They paid income tax on the profits (at least the profits earned in the USA). Apple was the number one tax payer on the list by a wide margin. Are they supposed to be taxed on their bank balances also?
- justherefortart 9y ago
  They ship a lot of those USA profits to Ireland because that's where they shipped all their "intellectual property". It's either ignorant or disingenuous to say that Apple paid the proper tax on their US income. It's a wonderfully "liberal" scam they've got going.
- danmaz74 9y ago
  They paid income tax on the profits generated in the USA, but not those generated eg in the EU.
  - seanmcdirmid 9y ago
    Well, SAP also paid income taxes on USA profits, but not those generated e.g. in the EU. So what?
grandalf 9y ago
If shareholders do not demand the money as a dividend and prefer instead to have it kept in the company's control, then so be it. Shareholders in Apple want Apple to be able to make big investments or acquisitions and are willing to let the money sit there rather than take it as a dividend. This would not be true for most firms.
- danmaz74 9y ago

seanmcdirmid 9y ago

So should the USA tax SAP on worldwide profits as it does Apple?

jellicle 9y ago

I suppose your solution of "murder is a problem, so let's decriminalize it" could work, but I think there may be better ones.

rpiguy 9y ago

Simply taxing revenue is bad for start ups and puts them at a even more of a disadvantage.

MarkMc 9y ago

Wouldn't that provide an incentive for ultra-wealthy shareholders to move to low-tax jurisdictions like Monaco?

grandalf 9y ago
It would be easy enough to pass a law requiring tax payments on dividends paid out to be sent in by the firms, and for such payments to be required regardless of the nationality or location of the investor, in much the same way that firms are required to collect income tax payments on behalf of employees.