2 ms·

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 se

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.

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.