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> profit you would have made by normal accounting standards These are normal accounting standards.

FridgeSeal 9y ago
Just because it was legal and normal before doesn't mean it should stay that way. If we decide that the double duct/Irish sandwich/etc are loopholes that are being explored and we'd like them closed, then it's entirely valid to do so. Money made in the past does not mean that your are entitled or guaranteed to make money in the future.
- ucaetano 9y ago
  Sure, but it is up to the countries to get together and change them. If companies are paying fewer taxes by following the law, don't blame it on companies, they are doing exactly what they are supposed to do. I am completely in favor of designing new tax laws that close such loopholes. But taxing revenue in this way is a very, very dumb idea.
- jopsen 9y ago
  Is it even legal? It's surely also most impossible prosecute, but speculation wrt. taxes is generally not legal.
andruby 9y ago
I wonder if companies have a fiscal accounting and an economic accounting. The latter would be used to base economic decision on. That accounting should show a nice profit in EU countries.
- wongarsu 9y ago
  If you learn accounting in Germany, there's external accounting and internal accounting. External accounting is what you show your investors and tax authorities. It has to conform to all relevant laws, and you play your usual tax avoidance games. Both of those make it fairly unusable for decision making. Internal accounting is what you base your decisions on, and you can do whatever you like (since you aren't showing it around). It just has to provide insight. For example you can have departments do virtual payments to each other for production steps and services to help you quantify how well departments are doing. In English/US accounting traditionally you would only do fiscal accounting, but doing internal accounting as well is getting popular.
- ucaetano 9y ago
  They do, and they frequently release the numbers (often calling it non-GAAP). The issue is that accounting is very complicated. Like really, really complicated. And that's because you're trying to make a lot of very different companies follow the same rules on how to recognize revenue, costs, investments, etc. For example, here's a real world problem I came across once: how do you recognize the revenue of selling virtual tractors on FarmVille? - When the sale takes place? - Over a pre-set period of time, determined by the average lifetime of an user? - Over a pre-set schedule that follows depreciation schedules of real tractors? Economic is even more complicated. Economic profit takes in account the cost of opportunity, so a company might have accounting profit but no economic profit. It gets even worse when you're talking about cross-border accounting. In other words, companies usually have managerial accounting using their own internal rules, and standards-based accounting (GAAP, IFRS, etc.), to report operations to the government and to the owners.
- ryanworl 9y ago
  Yes, this is called “managerial accounting” in business school.

Just because it was legal and normal before doesn't mean it should stay that way. If we decide that the double duct/Irish sandwich/etc are loopholes that are being explored and we'd like them closed, then it's entirely valid to do so. Money made in the past does not mean that your are entitled or guaranteed to make money in the future.

ucaetano 9y ago
Sure, but it is up to the countries to get together and change them. If companies are paying fewer taxes by following the law, don't blame it on companies, they are doing exactly what they are supposed to do. I am completely in favor of designing new tax laws that close such loopholes. But taxing revenue in this way is a very, very dumb idea.
jopsen 9y ago
Is it even legal? It's surely also most impossible prosecute, but speculation wrt. taxes is generally not legal.

andruby 9y ago

I wonder if companies have a fiscal accounting and an economic accounting. The latter would be used to base economic decision on. That accounting should show a nice profit in EU countries.

wongarsu 9y ago
If you learn accounting in Germany, there's external accounting and internal accounting. External accounting is what you show your investors and tax authorities. It has to conform to all relevant laws, and you play your usual tax avoidance games. Both of those make it fairly unusable for decision making. Internal accounting is what you base your decisions on, and you can do whatever you like (since you aren't showing it around). It just has to provide insight. For example you can have departments do virtual payments to each other for production steps and services to help you quantify how well departments are doing. In English/US accounting traditionally you would only do fiscal accounting, but doing internal accounting as well is getting popular.
ucaetano 9y ago
They do, and they frequently release the numbers (often calling it non-GAAP). The issue is that accounting is very complicated. Like really, really complicated. And that's because you're trying to make a lot of very different companies follow the same rules on how to recognize revenue, costs, investments, etc. For example, here's a real world problem I came across once: how do you recognize the revenue of selling virtual tractors on FarmVille? - When the sale takes place? - Over a pre-set period of time, determined by the average lifetime of an user? - Over a pre-set schedule that follows depreciation schedules of real tractors? Economic is even more complicated. Economic profit takes in account the cost of opportunity, so a company might have accounting profit but no economic profit. It gets even worse when you're talking about cross-border accounting. In other words, companies usually have managerial accounting using their own internal rules, and standards-based accounting (GAAP, IFRS, etc.), to report operations to the government and to the owners.
ryanworl 9y ago
Yes, this is called “managerial accounting” in business school.