4 ms·

The nature of "corporation law" is at the heart of a lot of intractable issues, from tax policy to shipping to trade. Non Natural "persons," corporations and o

The nature of "corporation law" is at the heart of a lot of intractable issues, from tax policy to shipping to trade. Non Natural "persons," corporations and other legal entities, can own each other. They can be part owned. They can be owned, taxed and regulated in jurisdictions of their own choosing. Effectively, this allows groups (clumps of legal entities) to be structured such that tax liabilities, other liabilities, transparency requirements, and such are chosen a la carte. Transparency requirements of entity type A in jurisdiction X. Tax liabilities of entity type B in jurisdiction Y. etc. There has never been a reform of this system. It just keeps growing in complexity. At this point considering these "loopholes" is hopelessly naive. This kind of detailed & complex structure is very open to regulatory capture. Politicians, who tend to think in principles or ideals can't translate their opinions into legislative details effectively. Companies, who can, have a powerful position. Accountants and lawyers, who actually understand the implications of details, have a strong interest in the complexity itself. The whole thing is premised on ideas like "company A is a commercial company" or "company A is an American company." Those just aren't true. Company A is a legal entity, that forms part of a commercial company. The "group" is the company. Company A is also not american or any other nationality. Part of the group may be subjects to parts of american laws. As a whole though... Anti-terrorism is only the tip of the iceberg. Embargo avoidance. Tax avoidance. Liability avoidance. Labour law avoidance. For a startup analogy, consider the cliche "You set the price, I'll set the terms." You can fund or buy a company at any nominal "price," but the terms define what that price means. EG. price X with a 10X preference term makes price irrelevant in many circumstances. This is the game regulators and legislators are playing with corporation laws.

fastball 6y ago
I think the UN should agree to a global minimum corporate tax rate and anyone that doesn't implement and act on it gets sanctioned.
- cpursley 6y ago
  Corporations don't pay taxes, the consumers of their products do via higher prices.
- dalbasal 6y ago
  possibly unpopular opinion... We need to be realistic about what the UN is, why it exists and what it can realistically do. Taxes are far outside the UN's scope. It's even outside the EU's scope (currently), and the EU has a lot more authority over members and economic issues generally. In any case, it's not the rates that matter. It's corporation law, which determines what a company is for tax purposes. It's also corporation tax law, which is strategically byzantine. Individual countries (especially the US) can fix this, it's just hard. For example, corporation law acknowledges Google's claim that "Google Ireland" is not related to "Alphabet" and that arbitrary amounts (many billions)paid by Alphabet to Google Ireland (ostensibly IP royalty payments) are ordinary business expenses. If US corporation law considered them one entity, they would owe the corporate tax rate. Besides that... maybe corporate profit tax is just a bad solution. It has never really worked well. Historically such estate-like taxes have been a more solid approach. "Every grain flour owes its lord $n per year." In modern terms, you could say that Amazon owes x% (say 1%) of its market cap. In theory, this doesn't distinguish between profitable companies that can afford to pay from unprofitable ones that can't. In practice, (a)neither does the current system and (b)shares are money too. For analogy, consider gambling taxes. You can try to charge the gambler on wins. Because of the nature of gambling, this needs to be netted against losses somehow. Meanwhile, requiring gamblers to keep records is a lost cause. The opportunities for tax evasion, the complexity of needed rules... it makes the whole thing unworkable. Over time, various countries have moved to taxing casinos themselves with an excise-tax-like machine. Instead of gamblers paying on wins, casinos pay on wins. This is easy to manage, requires one paragraph of tax law and produces a predictable and steady stream of taxes. Structure is what matters, not rates, not moral rhetoric. This is why politicians have such a hard time dealing with it.
  - deleted 6y ago
    [deleted]
  - fastball 6y ago
    Right, my whole point is that tax havens / structuring like you have with Google Ireland would be less useful if there was a global minimum corporate tax rate. I hold no illusions about the capacity of the UN to wield real power. But if UN member countries agree to this global minimum and sanction anyone who doesn't, it achieves the goal, no? Tax havens are a classic example of Tragedy of the Commons. Since we don't actually have an institution with global powers that can effectively prevent such situations via global regulation, we need to do the next best thing – bully everyone into behaving better. Sure, sanctions hurt everyone in the short run, but in the long run it's worth it if we can stop spending a ludicrous amount of human capital on what is effectively dodging societal obligations at an unprecedented scale.

fastball 6y ago

I think the UN should agree to a global minimum corporate tax rate and anyone that doesn't implement and act on it gets sanctioned.

cpursley 6y ago
Corporations don't pay taxes, the consumers of their products do via higher prices.
dalbasal 6y ago
possibly unpopular opinion... We need to be realistic about what the UN is, why it exists and what it can realistically do. Taxes are far outside the UN's scope. It's even outside the EU's scope (currently), and the EU has a lot more authority over members and economic issues generally. In any case, it's not the rates that matter. It's corporation law, which determines what a company is for tax purposes. It's also corporation tax law, which is strategically byzantine. Individual countries (especially the US) can fix this, it's just hard. For example, corporation law acknowledges Google's claim that "Google Ireland" is not related to "Alphabet" and that arbitrary amounts (many billions)paid by Alphabet to Google Ireland (ostensibly IP royalty payments) are ordinary business expenses. If US corporation law considered them one entity, they would owe the corporate tax rate. Besides that... maybe corporate profit tax is just a bad solution. It has never really worked well. Historically such estate-like taxes have been a more solid approach. "Every grain flour owes its lord $n per year." In modern terms, you could say that Amazon owes x% (say 1%) of its market cap. In theory, this doesn't distinguish between profitable companies that can afford to pay from unprofitable ones that can't. In practice, (a)neither does the current system and (b)shares are money too. For analogy, consider gambling taxes. You can try to charge the gambler on wins. Because of the nature of gambling, this needs to be netted against losses somehow. Meanwhile, requiring gamblers to keep records is a lost cause. The opportunities for tax evasion, the complexity of needed rules... it makes the whole thing unworkable. Over time, various countries have moved to taxing casinos themselves with an excise-tax-like machine. Instead of gamblers paying on wins, casinos pay on wins. This is easy to manage, requires one paragraph of tax law and produces a predictable and steady stream of taxes. Structure is what matters, not rates, not moral rhetoric. This is why politicians have such a hard time dealing with it.
- deleted 6y ago
  [deleted]
- fastball 6y ago
  Right, my whole point is that tax havens / structuring like you have with Google Ireland would be less useful if there was a global minimum corporate tax rate. I hold no illusions about the capacity of the UN to wield real power. But if UN member countries agree to this global minimum and sanction anyone who doesn't, it achieves the goal, no? Tax havens are a classic example of Tragedy of the Commons. Since we don't actually have an institution with global powers that can effectively prevent such situations via global regulation, we need to do the next best thing – bully everyone into behaving better. Sure, sanctions hurt everyone in the short run, but in the long run it's worth it if we can stop spending a ludicrous amount of human capital on what is effectively dodging societal obligations at an unprecedented scale.