4 ms·

I think there's room to argue that intentionally shipping all your IP to a lower tax country then charging the main company (that developed that IP in the first

by rtkwe 7y ago

I think there's room to argue that intentionally shipping all your IP to a lower tax country then charging the main company (that developed that IP in the first place) high fees to use that IP as a way to shift profits from higher tax areas to lower tax areas could constitute fraud. Either they sold/transferred the IP for way to little or they're charging themselves way too much because it's advantageous for taxes.

Mirioron 7y ago
Here's the million/billion/trillion dollar question: how much is a brand worth? Clearly it is worth something. Facebook can do the most inane thing, but if they put their brand on it then it will have some value. To me this is the flaw in corporate taxation. I don't think you can ever work around this as long as you allow free trade. It just makes sense to tax them in other ways instead and perhaps simply get rid of corporate taxation itself.
- rtkwe 7y ago
  That is the tough bit for sure in trying to tell up front if an IP transfer is just a setup for tax avoidance. You can tell after the fact though just by seeing how much the company claims it's worth to use. A VAT style tax probably solves that right? It doesn't care how much money you actually make so you can't slip profits out the back door as costs.
  - iguy 7y ago
    How well would VAT work for services like this? If facebook.fr sells adverts to (say) local realtors, and spends a lot of that on its own people, servers, etc, is VAT collected on the entire sales price? (I'm really asking, I don't know how this works.) Completely agree that for physical goods, collecting tax where they are physically sold to end-users sounds like a great way of avoiding this game of deciding which branch of a company made the profit.
    - Mirioron 7y ago
      VAT is charged on the consumer of the product. It is as the name says: a value-added tax. Let's look at an example of a physical good. Let's say the VAT rate is 25% and you buy a graphics card for €500. 25% is added as VAT which makes the total cost €625. Now you resell that graphics card for €1000 and have to add €250 as VAT. However, you get the €125 you paid when buying the product back (realistically you simply pay the government 250 - 125 = €125). Essentially, you added €500 to the value of the product and that's what you pay this tax on. I assume (don't know for sure) that in the case of FB ads FB just adds on the VAT rate to the cost of ads and that is then paid to the government. In the EU VAT has to be paid to the country where the purchase originates from. So if a French company buys ads then France should get the VAT.
- pbalau 7y ago
  > how much is a brand worth? Clearly it is worth something. Facebook can do the most inane thing, but if they put their brand on it then it will have some value. Then, Toyota should only pay taxes in Japan? Or Volkswagen?
  - Mirioron 7y ago
    Well, no. You simply tax their activities in other ways. Things like VAT and income taxes for employees etc.
  - kube-system 7y ago
    Volkswagen and Toyota clearly do things other than making intellectual property, and some of those things are taxed.
- danenania 7y ago
  Could the US simply impose a tax on all corporate profits, including international profits, for any company with any sort of nexus or business activity in the US? US citizens are basically already treated this way as individuals. I imagine it would allow the rate to be drastically lower since the tax base would be so much larger. And while megacorps would obviously grumble, it would still be a profitable decision to pay the tax and remain in the US market given how lucrative it is. It would end all these country-to-country shell games once and for all, and would also provide some natural advantage to smaller homegrown companies that haven't gone international yet.
  - iguy 7y ago
    If I understand right, US citizens only owe income tax if what they already paid is less than the US rate. (Edit: "IRS Form 1116. If your income was taxed by a foreign country, you can subtract that tax from your US tax") If something similar were applied to the tax on corporate profits, then it would not change much, as the US rate (21% I think) is pretty low by world standards. But there are exceptions, like Ireland (6-12%, IIRC). But isn't the Irish company a different entity anyway? How far down the chain of ownership / authorized-importer-relationship would such a rule go?
    - danenania 7y ago
      "If I understand right, US citizens only owe income tax if what they already paid is less than the US rate." I'm not an expert, but my understanding is that unless there's a tax treaty specifying otherwise (which we do have with many countries), all personal income over the "foreign earned income exclusion" (roughly 100k) is subject to income tax just like US-derived income would be. (Edit: just saw your edit about Form 1116... thanks, I didn't know about this. But I guess my point still applies in that, tax credit aside, you are still considered to be under the authority of the IRS even if your life and all your income are elsewhere.) "If something similar were applied to the tax on corporate profits, then it would not change much, as the US rate (21% I think) is pretty low by world standards. But there are exceptions, like Ireland (6-12%, IIRC)." Right, but if we taxed all international profits, it could probably be very low (maybe < 5%?) while still generating as much or more revenue, since there would be no way to avoid it. And it would be a naturally progressive tax since it would by definition hit multinationals the hardest. "But isn't the Irish company a different entity anyway? How far down the chain of ownership / authorized-importer-relationship would such a rule go?" My thinking is that perhaps we should end this silly game of international subsidiaries being treated like separate entities for tax purposes and just tax the aggregated profits of the parent entity, regardless of where in the world or under what subsidiary they are realized.
- SkyBelow 7y ago
  If you tax based on revenue instead of profits, just like how you and I are taxed, it becomes simpler to apply the tax.
danenania 7y ago
Is there any good reason to treat subsidiaries as separate from the main entity for tax purposes? All these "subsidiary X licenses from subsidiary Y" schemes seem basically fraudulent in terms of common sense--none of it generates any real profits or losses for the parent company.
- rtkwe 7y ago
  Mostly that deciding when it's a legitimately different subsidiary and when it's just a shell for a corporate tax dodge seems difficult and with billions of dollars at stake for the largest companies there's a lot of incentive to make or find and exploit loopholes where FB Ireland technically qualifies as a legit division instead of a tax dodge shell.
  - danenania 7y ago
    While there's certainly a lot of incentive to exploit loopholes, I think we could make it sufficiently onerous and lawsuit-prone to skirt the line that these massive corporations might just pay their damn taxes instead. With fairly commonsense questions like: - Was the company formed at Megacorp's behest? - Is there direct coordination between Megacorp and company leadership? - Do Megacorp and the company share business infrastructure? - Does the company share information that would normally be private with Megacorp? - Does the company take actions that advantage Megacorp over the company itself? You could at least make it a serious pain in the ass with many potential pitfalls to avoid responsibility in this way.
    - rtkwe 7y ago
      I agree those are good questions for determining if a company should be treated like a single entity but any definition for those will be endlessly argued in court where, unless funding is increased for enforcement actions, the IRS is at a disadvantage for resources. Apple Ireland for example was able to skirt something around 13 billion dollars in already low Irish taxes, that's a hell of a war chest for defending against a lawsuit. In 2019 the IRS's whole budget was something around $11 billion dollars.

by rtkwe 7y ago

Mirioron 7y ago

Here's the million/billion/trillion dollar question: how much is a brand worth? Clearly it is worth something. Facebook can do the most inane thing, but if they put their brand on it then it will have some value. To me this is the flaw in corporate taxation. I don't think you can ever work around this as long as you allow free trade. It just makes sense to tax them in other ways instead and perhaps simply get rid of corporate taxation itself.

rtkwe 7y ago
That is the tough bit for sure in trying to tell up front if an IP transfer is just a setup for tax avoidance. You can tell after the fact though just by seeing how much the company claims it's worth to use. A VAT style tax probably solves that right? It doesn't care how much money you actually make so you can't slip profits out the back door as costs.
- iguy 7y ago
  How well would VAT work for services like this? If facebook.fr sells adverts to (say) local realtors, and spends a lot of that on its own people, servers, etc, is VAT collected on the entire sales price? (I'm really asking, I don't know how this works.) Completely agree that for physical goods, collecting tax where they are physically sold to end-users sounds like a great way of avoiding this game of deciding which branch of a company made the profit.
  - Mirioron 7y ago
    VAT is charged on the consumer of the product. It is as the name says: a value-added tax. Let's look at an example of a physical good. Let's say the VAT rate is 25% and you buy a graphics card for €500. 25% is added as VAT which makes the total cost €625. Now you resell that graphics card for €1000 and have to add €250 as VAT. However, you get the €125 you paid when buying the product back (realistically you simply pay the government 250 - 125 = €125). Essentially, you added €500 to the value of the product and that's what you pay this tax on. I assume (don't know for sure) that in the case of FB ads FB just adds on the VAT rate to the cost of ads and that is then paid to the government. In the EU VAT has to be paid to the country where the purchase originates from. So if a French company buys ads then France should get the VAT.
pbalau 7y ago
> how much is a brand worth? Clearly it is worth something. Facebook can do the most inane thing, but if they put their brand on it then it will have some value. Then, Toyota should only pay taxes in Japan? Or Volkswagen?
- Mirioron 7y ago
  Well, no. You simply tax their activities in other ways. Things like VAT and income taxes for employees etc.
- kube-system 7y ago
  Volkswagen and Toyota clearly do things other than making intellectual property, and some of those things are taxed.
danenania 7y ago
Could the US simply impose a tax on all corporate profits, including international profits, for any company with any sort of nexus or business activity in the US? US citizens are basically already treated this way as individuals. I imagine it would allow the rate to be drastically lower since the tax base would be so much larger. And while megacorps would obviously grumble, it would still be a profitable decision to pay the tax and remain in the US market given how lucrative it is. It would end all these country-to-country shell games once and for all, and would also provide some natural advantage to smaller homegrown companies that haven't gone international yet.
- iguy 7y ago
  If I understand right, US citizens only owe income tax if what they already paid is less than the US rate. (Edit: "IRS Form 1116. If your income was taxed by a foreign country, you can subtract that tax from your US tax") If something similar were applied to the tax on corporate profits, then it would not change much, as the US rate (21% I think) is pretty low by world standards. But there are exceptions, like Ireland (6-12%, IIRC). But isn't the Irish company a different entity anyway? How far down the chain of ownership / authorized-importer-relationship would such a rule go?
  - danenania 7y ago
    "If I understand right, US citizens only owe income tax if what they already paid is less than the US rate." I'm not an expert, but my understanding is that unless there's a tax treaty specifying otherwise (which we do have with many countries), all personal income over the "foreign earned income exclusion" (roughly 100k) is subject to income tax just like US-derived income would be. (Edit: just saw your edit about Form 1116... thanks, I didn't know about this. But I guess my point still applies in that, tax credit aside, you are still considered to be under the authority of the IRS even if your life and all your income are elsewhere.) "If something similar were applied to the tax on corporate profits, then it would not change much, as the US rate (21% I think) is pretty low by world standards. But there are exceptions, like Ireland (6-12%, IIRC)." Right, but if we taxed all international profits, it could probably be very low (maybe < 5%?) while still generating as much or more revenue, since there would be no way to avoid it. And it would be a naturally progressive tax since it would by definition hit multinationals the hardest. "But isn't the Irish company a different entity anyway? How far down the chain of ownership / authorized-importer-relationship would such a rule go?" My thinking is that perhaps we should end this silly game of international subsidiaries being treated like separate entities for tax purposes and just tax the aggregated profits of the parent entity, regardless of where in the world or under what subsidiary they are realized.
SkyBelow 7y ago
If you tax based on revenue instead of profits, just like how you and I are taxed, it becomes simpler to apply the tax.

danenania 7y ago

Is there any good reason to treat subsidiaries as separate from the main entity for tax purposes? All these "subsidiary X licenses from subsidiary Y" schemes seem basically fraudulent in terms of common sense--none of it generates any real profits or losses for the parent company.

rtkwe 7y ago
Mostly that deciding when it's a legitimately different subsidiary and when it's just a shell for a corporate tax dodge seems difficult and with billions of dollars at stake for the largest companies there's a lot of incentive to make or find and exploit loopholes where FB Ireland technically qualifies as a legit division instead of a tax dodge shell.
- danenania 7y ago
  While there's certainly a lot of incentive to exploit loopholes, I think we could make it sufficiently onerous and lawsuit-prone to skirt the line that these massive corporations might just pay their damn taxes instead. With fairly commonsense questions like: - Was the company formed at Megacorp's behest? - Is there direct coordination between Megacorp and company leadership? - Do Megacorp and the company share business infrastructure? - Does the company share information that would normally be private with Megacorp? - Does the company take actions that advantage Megacorp over the company itself? You could at least make it a serious pain in the ass with many potential pitfalls to avoid responsibility in this way.
  - rtkwe 7y ago
    I agree those are good questions for determining if a company should be treated like a single entity but any definition for those will be endlessly argued in court where, unless funding is increased for enforcement actions, the IRS is at a disadvantage for resources. Apple Ireland for example was able to skirt something around 13 billion dollars in already low Irish taxes, that's a hell of a war chest for defending against a lawsuit. In 2019 the IRS's whole budget was something around $11 billion dollars.