7 ms·

Large companies should be taxed where the value is created. And because that’s hard to measure, cost should be used instead. So if Google spends 60% of its budg

by Hermel 8y ago

Large companies should be taxed where the value is created. And because that’s hard to measure, cost should be used instead. So if Google spends 60% of its budget in the US, 60% of its profits should also be attributed to the US. (Side note: the alternative of taxing profits where the revenue is generated does not make much sense as this would be equivalent to a sales tax.)

kyrra 8y ago
All large multi-national corporations do this. For example, NYT did a piece about Apple doing it[0]. Wikipedia has a list of companies that used the Double Irish setup[1]. The double-irish has been closed (via regulation) and most companies will be moving off of it by 2020. [0] https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey.html https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey.... [1] https://en.wikipedia.org/wiki/Double_Irish_arrangement#US_multinationals_using_Irish_tax_schemes https://en.wikipedia.org/wiki/Double_Irish_arrangement#US_mu...
- soneil 8y ago
  They'll figure out an alternative. eg, Liechtenstein only has 2.5% corporate tax rates for IP & royalties. So create a shell there, sell it your IP, and then license it back.
- hinkley 8y ago
  > U.S. IP-heavy multinationals now employ a quarter of Ireland's private sector workforce,[28] pay 80% of Irish business tax,[29] pay 50% of Irish salary tax and VAT,[30] and create 57% of economic value-add.[28] Doesn’t that mean Ireland is fucked in 2020?
paulryanrogers 8y ago
Does that risk pushing their spending to low tax jurisdictions?
- DubiousPusher 8y ago
  Probably some amount but I reason this would be much harder. You must pay workers where they live and buy resources from where they are produced. It's easier to offshore a made up entity like a corporation than a bunch of people and their hardware.
  - chatmasta 8y ago
    > You must pay workers where they live and buy resources from where they are produced. If tax law provides the incentives, companies can do all sorts of gymnastics to obfuscate those two things. There is always a loophole if you look hard enough for it. Pay workers where they live? Why not hire them through an offshore firm that pays them as international contractors? Buy resources where they are produced? Buy the rights to the resources from an offshore company who owns the IP rights to the method of production. These are convoluted examples but the point is, companies can always add a level of misdirection to fit within a loophole.
NeedMoreTea 8y ago
Nothing wrong with a sales tax being part of a possible solution.
- ucaetano 8y ago
  The problem is that sales taxes are regressive, disproportionally impacting those for whom consumption is a large % of their total income. Particularly poor people. And sales taxes (vs. VAT) is a terrible idea overall, it is a tax on consumers, not on companies, as it only applies on the final sale to consumer.
  - NeedMoreTea 8y ago
    OK I admit I was thinking of VAT when I made the comment (I'm in the UK), and also the typical exclusions from VAT for food, books etc and partial liability on businesses (sales minus allowable purchases). Undoubtedly a sales tax can be regressive but don't those exceptions move it far enough into being a tax on discretionary purchases? There doesn't seem much anti-VAT feeling in the UK outside of occasional axe-grinding from the popular press.
    - ucaetano 8y ago
      Europeans have a more friendly relationship with taxes than Americans. But VAT, despite being regressive, is still required, as today we have very complex businesses and you want to prevent gaming, where corporations optimize for allocating their value into a certain channel that is untaxed. For example, by placing their operations in a separate country with lower taxes and shipping from there. So you need income tax, sales/vat tax, and corporate taxes to prevent any gaps.
  - leetcrew 8y ago
    > And sales taxes (vs. VAT) is a terrible idea overall, it is a tax on consumers, not on companies, as it only applies on the final sale to consumer. you are correct that sales tax is almost always regressive, but please be careful making this kind of "just so" argument regarding taxes. the place in the production pipeline where taxes are collected has almost nothing to do with who ultimately bears the burden of the tax. see https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence if you're interested in learning more.
nightski 8y ago
The article itself points out the difficulty with this. The numbers are hard to obtain. It's why they don't go after them in the first place.
chriswarbo 8y ago
One trick used to push profits offshore is to use "transfer pricing": transactions are made with a subsidiary based in a tax haven (either part of the same legal entity, or a partner/shell company used to the same effect), with prices skewed so that the offshore company comes out with a huge profit. (Googling around, I found http://repository.essex.ac.uk/8098/ http://repository.essex.ac.uk/8098/ which seems to my untrained eye to give a reasonable overview of this). For example, the subsidiary company might have ownership of a trademark, and the onshore company pays a ludicrous amount to license that trademark. The accounts show this as a cost for the onshore company, lowering its profits; whilst the offshore company makes a large profit. An example I've come across (but can't find/verify them at the moment) is pencils being bought from an oversea office for thousands of dollars each. If corporations were charged based on location of costs rather than profits, as you suggest, I can imagine this being used the other way: almost all of a company's assets, from across the globe, are funnelled into an offshore division, in order to pay a ludicrous amount for some trivial local item (e.g. rent and security guard for their empty 1-room office). PS: I think these sorts of tricks are the reason the article keeps using the phrase "tangible assets", rather than just "assets".
- hinkley 8y ago
  Doesn’t Hollywood pull stuff like this to cheat collaborators out of their percentage? Certain cult classic movies that look like flops on paper. I always wonder if the money went down a subsidiary black hole to keep insiders happy.
  - zo1 8y ago
    That's what coined the term, Hollywood Accounting: https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting
mlinksva 8y ago
> Large companies should be taxed where the value is created. Tax land.
- Tushon 8y ago
  What does that mean? Some companies have no physical presence.
  - snidane 8y ago
    I'll explain. You probably wouln't collect much in land taxes from these large tech companies. But why this eagerness to tax them so much in the first place? Because of unfairness relative to smaller companies and employees who carry the whole burden of taxation and those tech giants pay close to zero. In land based tax system you wouldn't collect much from large tech, but you wouldn't collect much from small businesses and employees either. Fairness achieved. Now you might ask, wouldn't we be really short in tax revenues if we kept only land taxation? The answer is pretty surprising that it would likely collect even more revenue that current system based on sales tax, income, vat, etc., but I encourage the careful reader to study land based tax systems on their own to discover their simplicity and beauty. I'll just hint that there is so much value stored in real estate (of which the biggest part is its location value, ie. land) that it dwarfs world stock and bond markets together. So just imagine making it a base for a tax.
ethbro 8y ago
Taxing budget would be akin to penalizing employment. In that a company would be incentivized to decrease spending in your country. Which is why it's more politically palatable to tax profits. That said, this isn't rocket science. As the article points out, it's simply an unwillingness by the host countries to hold multinationals who utilize tax havens to account.

by Hermel 8y ago

kyrra 8y ago

All large multi-national corporations do this. For example, NYT did a piece about Apple doing it[0]. Wikipedia has a list of companies that used the Double Irish setup[1]. The double-irish has been closed (via regulation) and most companies will be moving off of it by 2020. [0] https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey.html https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey.... [1] https://en.wikipedia.org/wiki/Double_Irish_arrangement#US_multinationals_using_Irish_tax_schemes https://en.wikipedia.org/wiki/Double_Irish_arrangement#US_mu...

soneil 8y ago
They'll figure out an alternative. eg, Liechtenstein only has 2.5% corporate tax rates for IP & royalties. So create a shell there, sell it your IP, and then license it back.
hinkley 8y ago
> U.S. IP-heavy multinationals now employ a quarter of Ireland's private sector workforce,[28] pay 80% of Irish business tax,[29] pay 50% of Irish salary tax and VAT,[30] and create 57% of economic value-add.[28] Doesn’t that mean Ireland is fucked in 2020?

paulryanrogers 8y ago

Does that risk pushing their spending to low tax jurisdictions?

DubiousPusher 8y ago
Probably some amount but I reason this would be much harder. You must pay workers where they live and buy resources from where they are produced. It's easier to offshore a made up entity like a corporation than a bunch of people and their hardware.
- chatmasta 8y ago
  > You must pay workers where they live and buy resources from where they are produced. If tax law provides the incentives, companies can do all sorts of gymnastics to obfuscate those two things. There is always a loophole if you look hard enough for it. Pay workers where they live? Why not hire them through an offshore firm that pays them as international contractors? Buy resources where they are produced? Buy the rights to the resources from an offshore company who owns the IP rights to the method of production. These are convoluted examples but the point is, companies can always add a level of misdirection to fit within a loophole.

NeedMoreTea 8y ago

Nothing wrong with a sales tax being part of a possible solution.

ucaetano 8y ago
The problem is that sales taxes are regressive, disproportionally impacting those for whom consumption is a large % of their total income. Particularly poor people. And sales taxes (vs. VAT) is a terrible idea overall, it is a tax on consumers, not on companies, as it only applies on the final sale to consumer.
- NeedMoreTea 8y ago
  OK I admit I was thinking of VAT when I made the comment (I'm in the UK), and also the typical exclusions from VAT for food, books etc and partial liability on businesses (sales minus allowable purchases). Undoubtedly a sales tax can be regressive but don't those exceptions move it far enough into being a tax on discretionary purchases? There doesn't seem much anti-VAT feeling in the UK outside of occasional axe-grinding from the popular press.
  - ucaetano 8y ago
    Europeans have a more friendly relationship with taxes than Americans. But VAT, despite being regressive, is still required, as today we have very complex businesses and you want to prevent gaming, where corporations optimize for allocating their value into a certain channel that is untaxed. For example, by placing their operations in a separate country with lower taxes and shipping from there. So you need income tax, sales/vat tax, and corporate taxes to prevent any gaps.
- leetcrew 8y ago
  > And sales taxes (vs. VAT) is a terrible idea overall, it is a tax on consumers, not on companies, as it only applies on the final sale to consumer. you are correct that sales tax is almost always regressive, but please be careful making this kind of "just so" argument regarding taxes. the place in the production pipeline where taxes are collected has almost nothing to do with who ultimately bears the burden of the tax. see https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence if you're interested in learning more.

nightski 8y ago

The article itself points out the difficulty with this. The numbers are hard to obtain. It's why they don't go after them in the first place.

chriswarbo 8y ago

One trick used to push profits offshore is to use "transfer pricing": transactions are made with a subsidiary based in a tax haven (either part of the same legal entity, or a partner/shell company used to the same effect), with prices skewed so that the offshore company comes out with a huge profit. (Googling around, I found http://repository.essex.ac.uk/8098/ http://repository.essex.ac.uk/8098/ which seems to my untrained eye to give a reasonable overview of this). For example, the subsidiary company might have ownership of a trademark, and the onshore company pays a ludicrous amount to license that trademark. The accounts show this as a cost for the onshore company, lowering its profits; whilst the offshore company makes a large profit. An example I've come across (but can't find/verify them at the moment) is pencils being bought from an oversea office for thousands of dollars each. If corporations were charged based on location of costs rather than profits, as you suggest, I can imagine this being used the other way: almost all of a company's assets, from across the globe, are funnelled into an offshore division, in order to pay a ludicrous amount for some trivial local item (e.g. rent and security guard for their empty 1-room office). PS: I think these sorts of tricks are the reason the article keeps using the phrase "tangible assets", rather than just "assets".

hinkley 8y ago
Doesn’t Hollywood pull stuff like this to cheat collaborators out of their percentage? Certain cult classic movies that look like flops on paper. I always wonder if the money went down a subsidiary black hole to keep insiders happy.
- zo1 8y ago
  That's what coined the term, Hollywood Accounting: https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting

mlinksva 8y ago

> Large companies should be taxed where the value is created. Tax land.

Tushon 8y ago
What does that mean? Some companies have no physical presence.
- snidane 8y ago
  I'll explain. You probably wouln't collect much in land taxes from these large tech companies. But why this eagerness to tax them so much in the first place? Because of unfairness relative to smaller companies and employees who carry the whole burden of taxation and those tech giants pay close to zero. In land based tax system you wouldn't collect much from large tech, but you wouldn't collect much from small businesses and employees either. Fairness achieved. Now you might ask, wouldn't we be really short in tax revenues if we kept only land taxation? The answer is pretty surprising that it would likely collect even more revenue that current system based on sales tax, income, vat, etc., but I encourage the careful reader to study land based tax systems on their own to discover their simplicity and beauty. I'll just hint that there is so much value stored in real estate (of which the biggest part is its location value, ie. land) that it dwarfs world stock and bond markets together. So just imagine making it a base for a tax.

ethbro 8y ago

Taxing budget would be akin to penalizing employment. In that a company would be incentivized to decrease spending in your country. Which is why it's more politically palatable to tax profits. That said, this isn't rocket science. As the article points out, it's simply an unwillingness by the host countries to hold multinationals who utilize tax havens to account.