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As others have said, it isn't evasion but avoidance. The issue is that there a lot of ways to put the money on the books wherever you want it. Let's say you wan

As others have said, it isn't evasion but avoidance. The issue is that there a lot of ways to put the money on the books wherever you want it. Let's say you want to sell mobile phones. You could create one company in France that builds, buys and sells phones. In this case it becomes pretty clear it is a French company and all the money will be taxed in France. But let's say you have that same company and split it up into three companies. You put your corporate company A in Ireland. That company A owns a company B in India that makes the phones. The corporate company A also owns a company C in France that only sells phones. Company A can decide which company is profitable by deciding who much B charges C for the phones they make. Company A can also charge B and C consulting fees for helping to run their businesses. Basically A can decide which of the three companies is profitable and make the others even "lose" money as far as the accounting goes. It is now very unclear if this is a French company and at who's tax laws the money should be assessed. Obviously, the company A can make this much more complicated. It is also really hard to know which of these organizational things are about tax avoidance and what is about efficiency of manufacturing and running a business.

alkonaut 8y ago
The difference between avoidance and evasion is only relevant if you have tax law interpreted to the letter only. Tax law should be interpreted by the lawmakers intention and companies should be ready to be fined or uptaxed if authorities find they pay less taxes than is reasonable given global profits and relative turnover within their jurisdiction. Constructs such as paying “royalties” to parent companies, or taking very expensive internal loans to effectively move all profits to tax havens (using Dutch BV’s etc) should simply be outlawed. Countries simply shouldn’t recognize these as acceptable practices. This obviously leads to what companies like to call a “hostile business climate” - so a country will need to be pretty attractive in other aspects to not scare off international business.
- nradov 8y ago
  It's unreasonable to expect judges to divine lawmakers' intent on subtle issues of tax policy. If lawmakers want a tax to work a certain way then they need to just write that down so that it's clear to everyone.
  - Marazan 8y ago
    You liter ally put it in a preamble. Like, if you say "this tax break is intended solely for people who sell second hand cars" then you don't have to spend 100 pages exactly specifying every nuance to 100% prevent people not selling second hand cars from taking advantage of it. Ots called principles based tax code and it works. I was initially high sceptical of the idea but, based on outcomes, it is a vastly superior system to rules based tax codes. It makes it far simpler and clearer to everyone.
    - gizmo686 8y ago
      If it is that simple, you can add a clause to the law that makes selling second hand cars a requirement. Then you have to clarify how much of your expanses are eligable. Just those directly involved in the sale? Upkeep of your main facility? Upkeep of your satalite corporate offices? Your finance division? What if you sell new and used cars? What if you are actually a battery manufacturer that makes and sells cars and also buys back and resales used cars? What if you are a software engineer who sells your current car every 6 months?
      - Marazan 8y ago
        But what if the people 'engaged' in the selling of the cars are only tenuously engaged in the activity and are simply trying to game the law and rack up paper losses? All the car buying and selling is racked up by agents working on their behalf and they pay absolutely no heed to buying a selling cars? http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/second-hand-car-dealer-tax-scheme-scrapped-964268 http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressre... https://www.theguardian.com/media/2014/feb/21/chris-moyles-used-car-dealer-tax-avoidance https://www.theguardian.com/media/2014/feb/21/chris-moyles-u...
- RHSeeger 8y ago
  I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today, or that either will interpret the laws the same way they were intended, or that the group of people that wrote the laws all had the same intent.
  - Fnoord 8y ago
    > I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today [...] You can say the same about law in general, yet law isn't "simple and explicit". It is very complex, hard to grok, therefore only a small amount of people are able to, leading to expensive lawyers and a law system which the poor cannot afford (ie. class justice). Yes, ideally I also want laws to be simple and explicit. I'd even argue that worked quite well before globalization. Now it doesn't anymore. We need to adapt.
  - duado 8y ago
    Crimes much more serious than tax evasion have grey areas specifically to create room for judicial discretion. Words like “with malice aforethought” or “forcibly” are used in statutes because the law can’t preconceive of every possible way to commit a murder or rape.
    - RHSeeger 8y ago
      And crimes much less serious, too. There's a LOT of US laws that are intentionally vague and/or grant far too much leeway for the justice system. The grants extraordinary power because of edge cases they want the law to be able to handle ("think of the children"). Yet time and time again, it's the average Joe that has the law abused against him. These overly vague laws are used incorrectly, and yet we keep creating them because we don't learn that the people in power cannot be trusted; most of them are good, but it only takes one bad apple to ruin the lives of many people.
- crazygringo 8y ago
  That would be a nightmare. First, tax laws don't have clear intentions to begin with -- if a tax law passes with 51 out of 100 votes in the legislature, all 51 representatives could be supporting the "letter" of the law for 51 different actual intentions, many of which might not be noble in the first place (e.g. give a particular local factory a tax break to win more votes next election). Second, because of this, "intention" would be left open to completely different interpretation by different judges and result in completely arbitrary, non-predictable outcomes in different cases, which would be a nightmare for companies to even attempt to comply with. There's a reason that laws are interpreted by their letter -- it's the only fair way to do it. Third, the tax laws are passed by different countries and are not harmonized, so even if they had clear intentions, their intentions can completely conflict, and there's no reason why they should be harmonized -- different countries are allowed to have legitimately different philosophies on taxation, there's no "right" answer. The things you say should "simply be outlawed" -- how? How are you going to determine which internal loan is merely "expensive" (OK) versus "very expensive" (not OK)? How are you going to differentiate between legitimate payments and the "royalties" you put in quotes that you call a construct?
  - pjc50 8y ago
    The usual solution is a "General anti-avoidance rule" (GAAR). This doesn't get into the intent of the tax law, only into the intent of the business action. If there would be a simpler, more natural, and otherwise cheaper way to do it, but it's been done a particular way to avoid tax, then it's unlawful.
    - ethbro 8y ago
      This seems kind of like the "What is / isn't gerrymandering?" problem. I am not an accountant, but couldn't most corporate structures be reimagined by taxing authorities as an idealized "single company"? Then calculate the difference between taxes that would be owed by that company vs the actual structure? If there's a statistically significant discrepancy, require the company to provide a rationale. Or pay some penalty.
    - Nasrudith 8y ago
- gamblor956 8y ago
  Enforcement of tax law is based on the spirit of the law, not just the text. Things which are legal for a few years could become illegal the best without any change in the tax laws themselves, though this is only a real risk if you structure your activities within the letter of the law but not the intent of the law. (I'm a tax lawyer.)
ip26 8y ago
Suddenly it strikes me that one fix might be eliminating international subsidiaries. It's possible it would be hard to enforce in practice, but the crux of the problem is the absence of a competitive relationship & autonomy between these supposedly independent companies.
- davidgay 8y ago
  > one fix might be eliminating international subsidiaries I believe that means "no multinational companies" - one could certainly argue for that, but it's a much bigger discussion. And I think you would have to end up forbidding citizens (residents? how does it work when you move countries?) of country A owning shares of company in country B if you really wanted that to work.
- tonyedgecombe 8y ago
  The obvious solution is to eliminate corporation tax and shift it to areas that are harder to avoid such as dividends, capital gains and land value.
  - ttoinou 8y ago
    Or stop taxing "profits" but tax every transaction on its total amount, that would also end a lot of "tax niches"
    - tonyedgecombe 8y ago
      We already have VAT or sales tax.
      - ttoinou 8y ago
        > Or stop taxing "profits" By "profits" I meant to stop business being able to claim expenses and reduce the tax. We could replace complex taxation scheme only-on-positive-profit with a simple 1% (for example) tax on all transfers, on the total amount, no matter what is the purpose of the money transfer
hanniabu 8y ago
I was listening to Presidential candidate Andrew Yang in his podcast with Joe Rogan. His plans, since there's a lot of avoidance, is to attempt a different route called a "value added" tax where there's a tax for trucking mileage and online transactions. He mentioned other countries to both of these, but don't remember which he mentioned off the top of my head. Here's the podcast for those interested, there's a lot of other interesting discussions here that are related to this topic, such as automation and basic income. https://youtu.be/cTsEzmFamZ8?t=843 https://youtu.be/cTsEzmFamZ8?t=843
- thoughtstheseus 8y ago
  A VAT tax makes a lot of sense. It would reduce the incentive for large market quasi-monopoly seeking companies to optimize for no profits to avoid taxes. The current dynamic is- why pay taxes when you can spend it to expand your market share?
  - Mirioron 8y ago
    VAT in European countries is often the highest or the second highest revenue stream. The downside is that it's usually a flat tax and it disproportionately affects poor people.
  - T2_t2 8y ago
    Except Digital sales take place in no-man's land, and are hard to tax. A federal tax hits Amazon, but would it hit Alibaba? The specifics are what make these ideas so difficult.
    - hanniabu 8y ago
      I think that's pretty simple. If the purchaser in this country, tax them for that sale.
  - adventured 8y ago
    VAT taxes are extraordinarily regressive. Next to lowering taxes on the rich, it's among the worst possible options. Increasing the income tax and taxing capital gains at regular income rates, along with bolstering estate taxes on the rich, are the ideal near-term solutions to the US budget problem. The US still has a lot of slack taxing capacity on the wealthy. That should be maxed out long before we look at a VAT.
benologist 8y ago
It's tax avoidance because we call it that, so why don't we start by not saying tax avoidance anymore and call it tax evasion like it literally is when a company invests massively in accounting to abscond with their taxes.
- petronio 8y ago
  There's a big difference between the two. Tax evasion is breaking the law to pay less tax. Tax avoidance is working within the confines of the law to pay less tax. Putting money in a retirement account is a form of tax avoidance, but it was provided and is working as intended. The issue is not the definition, it's that legal loopholes allows unintended tax avoidance. The way to correct it would therefore be to close the loopholes, and many of the remaining loopholes span international borders and are tough to close without negative unintended consequences.

alkonaut 8y ago

The difference between avoidance and evasion is only relevant if you have tax law interpreted to the letter only. Tax law should be interpreted by the lawmakers intention and companies should be ready to be fined or uptaxed if authorities find they pay less taxes than is reasonable given global profits and relative turnover within their jurisdiction. Constructs such as paying “royalties” to parent companies, or taking very expensive internal loans to effectively move all profits to tax havens (using Dutch BV’s etc) should simply be outlawed. Countries simply shouldn’t recognize these as acceptable practices. This obviously leads to what companies like to call a “hostile business climate” - so a country will need to be pretty attractive in other aspects to not scare off international business.

nradov 8y ago
It's unreasonable to expect judges to divine lawmakers' intent on subtle issues of tax policy. If lawmakers want a tax to work a certain way then they need to just write that down so that it's clear to everyone.
- Marazan 8y ago
  You liter ally put it in a preamble. Like, if you say "this tax break is intended solely for people who sell second hand cars" then you don't have to spend 100 pages exactly specifying every nuance to 100% prevent people not selling second hand cars from taking advantage of it. Ots called principles based tax code and it works. I was initially high sceptical of the idea but, based on outcomes, it is a vastly superior system to rules based tax codes. It makes it far simpler and clearer to everyone.
  - gizmo686 8y ago
    If it is that simple, you can add a clause to the law that makes selling second hand cars a requirement. Then you have to clarify how much of your expanses are eligable. Just those directly involved in the sale? Upkeep of your main facility? Upkeep of your satalite corporate offices? Your finance division? What if you sell new and used cars? What if you are actually a battery manufacturer that makes and sells cars and also buys back and resales used cars? What if you are a software engineer who sells your current car every 6 months?
    - Marazan 8y ago
      But what if the people 'engaged' in the selling of the cars are only tenuously engaged in the activity and are simply trying to game the law and rack up paper losses? All the car buying and selling is racked up by agents working on their behalf and they pay absolutely no heed to buying a selling cars? http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/second-hand-car-dealer-tax-scheme-scrapped-964268 http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressre... https://www.theguardian.com/media/2014/feb/21/chris-moyles-used-car-dealer-tax-avoidance https://www.theguardian.com/media/2014/feb/21/chris-moyles-u...
RHSeeger 8y ago
I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today, or that either will interpret the laws the same way they were intended, or that the group of people that wrote the laws all had the same intent.
- Fnoord 8y ago
  > I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today [...] You can say the same about law in general, yet law isn't "simple and explicit". It is very complex, hard to grok, therefore only a small amount of people are able to, leading to expensive lawyers and a law system which the poor cannot afford (ie. class justice). Yes, ideally I also want laws to be simple and explicit. I'd even argue that worked quite well before globalization. Now it doesn't anymore. We need to adapt.
- duado 8y ago
  Crimes much more serious than tax evasion have grey areas specifically to create room for judicial discretion. Words like “with malice aforethought” or “forcibly” are used in statutes because the law can’t preconceive of every possible way to commit a murder or rape.
  - RHSeeger 8y ago
    And crimes much less serious, too. There's a LOT of US laws that are intentionally vague and/or grant far too much leeway for the justice system. The grants extraordinary power because of edge cases they want the law to be able to handle ("think of the children"). Yet time and time again, it's the average Joe that has the law abused against him. These overly vague laws are used incorrectly, and yet we keep creating them because we don't learn that the people in power cannot be trusted; most of them are good, but it only takes one bad apple to ruin the lives of many people.
crazygringo 8y ago
That would be a nightmare. First, tax laws don't have clear intentions to begin with -- if a tax law passes with 51 out of 100 votes in the legislature, all 51 representatives could be supporting the "letter" of the law for 51 different actual intentions, many of which might not be noble in the first place (e.g. give a particular local factory a tax break to win more votes next election). Second, because of this, "intention" would be left open to completely different interpretation by different judges and result in completely arbitrary, non-predictable outcomes in different cases, which would be a nightmare for companies to even attempt to comply with. There's a reason that laws are interpreted by their letter -- it's the only fair way to do it. Third, the tax laws are passed by different countries and are not harmonized, so even if they had clear intentions, their intentions can completely conflict, and there's no reason why they should be harmonized -- different countries are allowed to have legitimately different philosophies on taxation, there's no "right" answer. The things you say should "simply be outlawed" -- how? How are you going to determine which internal loan is merely "expensive" (OK) versus "very expensive" (not OK)? How are you going to differentiate between legitimate payments and the "royalties" you put in quotes that you call a construct?
- pjc50 8y ago
  The usual solution is a "General anti-avoidance rule" (GAAR). This doesn't get into the intent of the tax law, only into the intent of the business action. If there would be a simpler, more natural, and otherwise cheaper way to do it, but it's been done a particular way to avoid tax, then it's unlawful.
  - ethbro 8y ago
    This seems kind of like the "What is / isn't gerrymandering?" problem. I am not an accountant, but couldn't most corporate structures be reimagined by taxing authorities as an idealized "single company"? Then calculate the difference between taxes that would be owed by that company vs the actual structure? If there's a statistically significant discrepancy, require the company to provide a rationale. Or pay some penalty.
  - Nasrudith 8y ago
gamblor956 8y ago
Enforcement of tax law is based on the spirit of the law, not just the text. Things which are legal for a few years could become illegal the best without any change in the tax laws themselves, though this is only a real risk if you structure your activities within the letter of the law but not the intent of the law. (I'm a tax lawyer.)

ip26 8y ago

Suddenly it strikes me that one fix might be eliminating international subsidiaries. It's possible it would be hard to enforce in practice, but the crux of the problem is the absence of a competitive relationship & autonomy between these supposedly independent companies.

davidgay 8y ago
> one fix might be eliminating international subsidiaries I believe that means "no multinational companies" - one could certainly argue for that, but it's a much bigger discussion. And I think you would have to end up forbidding citizens (residents? how does it work when you move countries?) of country A owning shares of company in country B if you really wanted that to work.
tonyedgecombe 8y ago
The obvious solution is to eliminate corporation tax and shift it to areas that are harder to avoid such as dividends, capital gains and land value.
- ttoinou 8y ago
  Or stop taxing "profits" but tax every transaction on its total amount, that would also end a lot of "tax niches"
  - tonyedgecombe 8y ago
    We already have VAT or sales tax.
    - ttoinou 8y ago
      > Or stop taxing "profits" By "profits" I meant to stop business being able to claim expenses and reduce the tax. We could replace complex taxation scheme only-on-positive-profit with a simple 1% (for example) tax on all transfers, on the total amount, no matter what is the purpose of the money transfer

hanniabu 8y ago

I was listening to Presidential candidate Andrew Yang in his podcast with Joe Rogan. His plans, since there's a lot of avoidance, is to attempt a different route called a "value added" tax where there's a tax for trucking mileage and online transactions. He mentioned other countries to both of these, but don't remember which he mentioned off the top of my head. Here's the podcast for those interested, there's a lot of other interesting discussions here that are related to this topic, such as automation and basic income. https://youtu.be/cTsEzmFamZ8?t=843 https://youtu.be/cTsEzmFamZ8?t=843

thoughtstheseus 8y ago
A VAT tax makes a lot of sense. It would reduce the incentive for large market quasi-monopoly seeking companies to optimize for no profits to avoid taxes. The current dynamic is- why pay taxes when you can spend it to expand your market share?
- Mirioron 8y ago
  VAT in European countries is often the highest or the second highest revenue stream. The downside is that it's usually a flat tax and it disproportionately affects poor people.
- T2_t2 8y ago
  Except Digital sales take place in no-man's land, and are hard to tax. A federal tax hits Amazon, but would it hit Alibaba? The specifics are what make these ideas so difficult.
  - hanniabu 8y ago
    I think that's pretty simple. If the purchaser in this country, tax them for that sale.
- adventured 8y ago
  VAT taxes are extraordinarily regressive. Next to lowering taxes on the rich, it's among the worst possible options. Increasing the income tax and taxing capital gains at regular income rates, along with bolstering estate taxes on the rich, are the ideal near-term solutions to the US budget problem. The US still has a lot of slack taxing capacity on the wealthy. That should be maxed out long before we look at a VAT.

benologist 8y ago

It's tax avoidance because we call it that, so why don't we start by not saying tax avoidance anymore and call it tax evasion like it literally is when a company invests massively in accounting to abscond with their taxes.

petronio 8y ago
There's a big difference between the two. Tax evasion is breaking the law to pay less tax. Tax avoidance is working within the confines of the law to pay less tax. Putting money in a retirement account is a form of tax avoidance, but it was provided and is working as intended. The issue is not the definition, it's that legal loopholes allows unintended tax avoidance. The way to correct it would therefore be to close the loopholes, and many of the remaining loopholes span international borders and are tough to close without negative unintended consequences.