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The problem with that is the expenses are already arbitrary with international businesses. It is Hollywood accounting of making movies "never turn a profit" wri

The problem with that is the expenses are already arbitrary with international businesses. It is Hollywood accounting of making movies "never turn a profit" writ large and arguably more honest. If say Amazon UK "rents" their branding, storefront, and similiar from Amazon US the value. Essentially unfixed value goods + deductions = massive loophole. Unfixed fuzzy values are also very valuable to money launderers. It is nastily entangled with other issues where a fix would carry major side effects. It is a metaphorical lodged bullet against the heart wall - its current existence is problematic but just yanking it out would do way worse damage. Removing all deductions wouldn't be viable from many other business models. For simpler amateur closes I can see a simple close being an explicit "your own external owned subcorporations never count as expenses" or "if you sell these exploitable things they must be open market bid and are transaction taxed" which would lead to lots of weirdness.

deleted 7y ago
[deleted]
aembleton 7y ago
That's why I think corporation tax should be applied to UK Sales - UK Costs. - Buy in the branding from the US? That can't be deducted. - Import from China? Can't be deducted. - Employ more people. Deductible - Buy more from UK suppliers. Deductible. Now go on and export more with that. Those export sales won't affect your tax.
- danaris 7y ago
  Unfortunately, that would make some entire categories of business non-viable. Any business that relies on importing raw materials would be hit with punishing taxes—unless their margins were huge, or their local & labour costs were orders of magnitude higher than their import raw material costs, they would likely not be able to operate. Effectively, you would be taxing them on revenue, rather than profit.
  - mcv 7y ago
    They wouldn't get to deduct the costs of importing those raw materials, but they would get to deduct the costs (labour, probably) of refining them and making something out of those raw materials. And if they sell back to the country they imported raw materials from, they get to deduct the raw material costs from those profits (assuming that country uses a similar scheme). But you're right, for a company that makes their revenue in a different country than where they make their costs, it's effectively a tax on revenue. So it would encourage countries to make their costs in the same countries where they sell. It might stop companies from moving all their jobs to low-wage countries. I admit raw materials would be an issue; those are not equally available everywhere. But at the same time, it would effect every company in that industry equally, so I don't think the end result would be that much of a problem. I guess it'd discourage extracting raw materials from poor countries. Would that reduce their exploitation by western companies, or would that deny them the exports they need to grow their economy? I don't really know.
    - danaris 7y ago
      > But at the same time, it would effect every company in that industry equally, so I don't think the end result would be that much of a problem. It would be a problem if it meant that an entire category of product suddenly became completely impossible to profitably produce in the country—particularly if it was one that had been produced in significant quantity there for some time.
    - IAmEveryone 7y ago
      That's totally unworkable. That banana you buy in the supermarket is imported and sold with a gross margin in the low single-digits. Taxes the revenue at income tax levels would effectively raise prices by the tax rate, i. e. 30% or so. If the supermarket doesn't buy the banana directly from the plantation, that tax would accrue at every step of the chain. You'd effectively be prohibiting trade and people would switch to monthly drives to local farms and an entirely potato-based diet.
      - mcv 7y ago
- mcv 7y ago
  > "Now go on and export more with that. Those export sales won't affect your tax." Not in the UK, but of course they will be taxable in the country you're exporting to. Assuming that country uses similar tax rules.
- occamrazor 7y ago
  VAT works approximately like that (except for the fact that salaries are not deductible)
  - mcv 7y ago
    That's pretty much my inspiration for this. Except I've been wondering if VAT wouldn't be fairer if salaries and other local costs would be deductible.
  - aembleton 7y ago
    It does work approximately like this, but this way it would be taxing the value added from imports and profits. Value added by paying someone for labour wouldn't be included as the government will get money for that through income tax.
refurb 7y ago
Expenses aren’t arbitrary. Look up transfer pricing. There has been a ton of policy developed that severely limits what one subsidiary can charge another. Are there still areas that need further tightening? Sure, but the prices charged within a company are not arbitrary.
mcv 7y ago
That's why I think you need to tie it in a non-transferable way to a market. So if Amazon UK pays Amazon US for a license, either it pays that license in the US, which means they can't deduct it from their UK profits, or they pay the license in the UK, which means Amazon US has to pay taxes on it in the UK. Either way, someone is going to pay tax over that revenue in the UK, and it'd be the most profitable for Amazon if it was done by the company that also spends the most on costs (labour, services, whatever) in the UK. I still think that would actually close these loopholes. It would erect some barriers to international trade, though, because companies making their costs and revenue in the same market have an advantage over companies coming from other markets. I don't think that's necessarily bad, though, and it can be mitigated by trade deals by which countries decide to treat their markets as a single market for these purposes as long as their tax rates are similar enough. Of course then they shouldn't make those deals with tax havens, and they'd be stupid to do so, because they'd be inviting a loss in tax revenue if they did that.

deleted 7y ago

[deleted]

aembleton 7y ago

That's why I think corporation tax should be applied to UK Sales - UK Costs. - Buy in the branding from the US? That can't be deducted. - Import from China? Can't be deducted. - Employ more people. Deductible - Buy more from UK suppliers. Deductible. Now go on and export more with that. Those export sales won't affect your tax.

danaris 7y ago
Unfortunately, that would make some entire categories of business non-viable. Any business that relies on importing raw materials would be hit with punishing taxes—unless their margins were huge, or their local & labour costs were orders of magnitude higher than their import raw material costs, they would likely not be able to operate. Effectively, you would be taxing them on revenue, rather than profit.
- mcv 7y ago
  They wouldn't get to deduct the costs of importing those raw materials, but they would get to deduct the costs (labour, probably) of refining them and making something out of those raw materials. And if they sell back to the country they imported raw materials from, they get to deduct the raw material costs from those profits (assuming that country uses a similar scheme). But you're right, for a company that makes their revenue in a different country than where they make their costs, it's effectively a tax on revenue. So it would encourage countries to make their costs in the same countries where they sell. It might stop companies from moving all their jobs to low-wage countries. I admit raw materials would be an issue; those are not equally available everywhere. But at the same time, it would effect every company in that industry equally, so I don't think the end result would be that much of a problem. I guess it'd discourage extracting raw materials from poor countries. Would that reduce their exploitation by western companies, or would that deny them the exports they need to grow their economy? I don't really know.
  - danaris 7y ago
    > But at the same time, it would effect every company in that industry equally, so I don't think the end result would be that much of a problem. It would be a problem if it meant that an entire category of product suddenly became completely impossible to profitably produce in the country—particularly if it was one that had been produced in significant quantity there for some time.
  - IAmEveryone 7y ago
    That's totally unworkable. That banana you buy in the supermarket is imported and sold with a gross margin in the low single-digits. Taxes the revenue at income tax levels would effectively raise prices by the tax rate, i. e. 30% or so. If the supermarket doesn't buy the banana directly from the plantation, that tax would accrue at every step of the chain. You'd effectively be prohibiting trade and people would switch to monthly drives to local farms and an entirely potato-based diet.
    - mcv 7y ago
mcv 7y ago
> "Now go on and export more with that. Those export sales won't affect your tax." Not in the UK, but of course they will be taxable in the country you're exporting to. Assuming that country uses similar tax rules.
occamrazor 7y ago
VAT works approximately like that (except for the fact that salaries are not deductible)
- mcv 7y ago
  That's pretty much my inspiration for this. Except I've been wondering if VAT wouldn't be fairer if salaries and other local costs would be deductible.
- aembleton 7y ago
  It does work approximately like this, but this way it would be taxing the value added from imports and profits. Value added by paying someone for labour wouldn't be included as the government will get money for that through income tax.

refurb 7y ago

Expenses aren’t arbitrary. Look up transfer pricing. There has been a ton of policy developed that severely limits what one subsidiary can charge another. Are there still areas that need further tightening? Sure, but the prices charged within a company are not arbitrary.

mcv 7y ago

That's why I think you need to tie it in a non-transferable way to a market. So if Amazon UK pays Amazon US for a license, either it pays that license in the US, which means they can't deduct it from their UK profits, or they pay the license in the UK, which means Amazon US has to pay taxes on it in the UK. Either way, someone is going to pay tax over that revenue in the UK, and it'd be the most profitable for Amazon if it was done by the company that also spends the most on costs (labour, services, whatever) in the UK. I still think that would actually close these loopholes. It would erect some barriers to international trade, though, because companies making their costs and revenue in the same market have an advantage over companies coming from other markets. I don't think that's necessarily bad, though, and it can be mitigated by trade deals by which countries decide to treat their markets as a single market for these purposes as long as their tax rates are similar enough. Of course then they shouldn't make those deals with tax havens, and they'd be stupid to do so, because they'd be inviting a loss in tax revenue if they did that.