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I read about tax avoidance schemes like corporate inversions or sending all your patents to a company in some tax free haven and licensing your patents from you

I read about tax avoidance schemes like corporate inversions or sending all your patents to a company in some tax free haven and licensing your patents from your company for all your profits, and so on, and it makes me really mad. Companies making many billions of dollars paying no taxes. My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies? "You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine." These tax shenanigans would stop if laws were enforced.

gnicholas 6y ago
This is a case of economies of scale. A fairly wealthy person could save maybe $50,000 per year with the advice of the smartest tax lawyers and accountants in the world. But it would cost them $500,000 per year to pay for the structure to be created/updated. When I worked as a tax lawyer, we created structures and defended cases that saved our clients hundreds of millions of dollars. At this scale, paying for our services was a no-brainer. On top of that, big companies lobby lawmakers to make the tax system favorable to them. This makes sense for the same reason: paying a couple million dollars to create/maintain a provision that saves $100M/yr is a no-brainer. I'm not saying any of this is right or good (and I am no longer a tax lawyer; I now build tools that help people with disabilities). I'm just saying this is why it makes sense that companies can walk a fine line on taxes, save tons of money, and you and I cannot.
- wiz21c 6y ago
  Maybe it's a little too much to ask, but are why are you "not saying any of this is right or good". Part of my brain wishes that law would actually mean justice but somehow, if I trust only what I know, I cleary cannot judge, as you do, if finance engineering is good or bad. I'd like to know what prevents you to choose if it's good or right (as person who have worked inside the business) thx
  - gnicholas 6y ago
    I do have opinions about various tax provisions that I know well. But the topics I mentioned in my prior comment were not about a specific tax provision, or even tax policy generally. I was just stating the facts of life. It will always be the case that big companies will find it efficient to engage in certain revenue-producing activities that smaller companies/individuals will not. Just as I don't have feelings about laws of physics, I don't have any feelings about economies of scale. Lobbying is a bit different. Like most folks, the idea of 'lobbying' strikes me as wasteful/corrupt. But if you try to come up with a definition about what 'lobbying' is, and how you might try to restrict it, you realize that it is very difficult to do so without being underinclusive or overinclusive (or both!). So while I find the idea distasteful, I don't have any answers on how to 'fix' it.
    - sdoering 6y ago
      Thanks. What I love about the comments you make is twofold: - You clearly differentiate between opinion, observation and fact. - You don't try to find an easy answer. Thanks. Comments like these make me come back and read on HN.
      - gnicholas 6y ago
        My hobby [1] is helping people think clearly about media bias and filter bubbles, so I'm glad to hear that my comments come across as rational and balanced! 1: http://www.readacrosstheaisle.com http://www.readacrosstheaisle.com
        animal_spirits 6y ago
        This is an interesting concept. I think this is a tool that I would use, however I don't have an iPhone and I don't use Chrome. Are there plans to release this as a Firefox addon?
    - yeahNo00 6y ago
      So you don’t have any emotional opinions on the work of others that has real effect on your life? Physicists can be wrong. Economists can be wrong. At some point technical nonsense becomes “imperfect people choosing.” A fix might simply be change tax laws? Kind of like how the billionaires changed them to be less distributed. But you don’t have feelings enough about economics being purposely wielded at scale to manipulate; let’s hope you’re still one of the privileged enough to be indifferent and comfortable in the future. popcorn Real-time meltdown of Pax Americana is pretty metal.
- gizzlon 6y ago
  > At this scale, paying for our services was a no-brainer. What? I don't think so. If money is the only thing they care about, sure. But is it? Should it be? And if breaking the spirit of the law is fine, shouldn't breaking the letter of the law be fine as well? As long as the risk is low enough.. </rant>
  - CraneWorm 6y ago
    You either save the billions in taxes or cannot scale further because now you can't afford to compete with those that do. Also things sure do look different when you are at the helm. If you decide your company should pay more in taxes the board will probably vote you out on your ass.
  - buran77 6y ago
    > if breaking the spirit of the law is fine, shouldn't breaking the letter of the law be fine as well? There's no law against breaking the spirit of the law. Breaking the spirit of the law will only get you tried in the court of public opinion. Breaking the letter will also go to a court of justice.
    - throwaway0a5e 6y ago
      One should read up on the judiciary system in their specific state before they start breaking the spirit of the law. In some states the judges are quasi-politicians with an implied mandate to rule how they think the people want them to rule. In others the judiciary is a system for evaluating the law and they see they consider it their mandate to enforce the law exactly as written, especially when it gives the legislature and the public the middle finger because that's the incentive for those groups to write and demand good law.
  - NineStarPoint 6y ago
    The thing about capitalism is that companies that don’t do everything in their power to increase profit are at a disadvantage against those who do. Profit is the ability to invest more in R&D, attract more investors, scale faster, advertise more. Unless your consumers care enough to only support you if you pay taxes, or you can get substantially more productive employees by paying taxes, or some other advantage in the marketplace by paying taxes, paying taxes when your competition does not is an albatross around your neck. And if your morality creates enough albatrosses around your neck your company will either fold or be eternally small as your competitors without such restrictions have higher efficiency. So it’s a no-brainer in that any company that gets to the scale where spending millions on lawyers is appropriate is already of this mindset. This is why laws need to be crafted to not give companies the benefit of the doubt when it comes to acting in the best interest of society. Less because it is impossible for a company to be moral in a vacuum, but because if being immoral is allowed and advantageous inevitably the immoral company will out compete the moral one. (Of course it can be hard to agree on what moral is. Some say that taxes are immoral after all.)
- harry8 6y ago
  >this is why it makes sense that companies can walk a fine line on taxes, save tons of money, and you and I cannot. Nope, these are the reasons that cause the situation. This outcome does /not/ make sense nobody sane without a huge vested interest would design a system to achieve less tax paid when you earn more. It's entirely contrary to the intent and spirit of the tax code. This is not sensible. How to fix it? That's harder. Start with its a problem and morally and ethically wrong. It's really the only place to start from. I would say keep in mind two wrongs is not an improvement and unchecked government power is far worse than tax cheats but that does not change where this discussion should start.
  - deleted 6y ago
    [deleted]
  - chewz 6y ago
    > How to fix it? Make a tax code as simple as possible. So simple there is no room for interpretation.
    - apexalpha 6y ago
      Or do like Europe is finally starting: just tax revenue. They can suppress their 'profit' whichever way they want, they can't suppress their revenue in a given country. The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digital business models. https://home.kpmg/us/en/home/insights/2019/07/tnf-france-digital-services-tax-enacted.html#:~:text=The%20digital%20services%20tax%20is,more%20generally%2C%20digital%20business%20models https://home.kpmg/us/en/home/insights/2019/07/tnf-france-dig....
      - jlokier 6y ago
        > Or do like Europe is finally starting: just tax revenue. That rapidly turns into a disaster of consolidations and monopolies. You don't want that. Think about the difference between big company $BIG selling you the consumer a million Widgets for 10^9 currency units, versus 26 small companies $a..$z each selling to the next in a long supply chain which results in a million Widgets. In revenue taxation, big company $BIG pays 10^9∗$TAX_RATE. Whereas the 26 small companies pay something more like 26∗10^9∗$TAX_RATE because each time a company pays the next company, that's revenue for the next company. The difference in tax between those two scenarios is so enormous, that it would create enormous pressure for companies $a..$z to consolidate into a single company. Repeat this across the entire economy, and you have enormous pressure to consolidate everything into as few companies as possible.
- hackeraccount 6y ago
  This is why I've always been skeptical of high _income_ tax rates. First tax avoidance is at base a fixed cost. It's the price of a really tax lawyer (or at the extreme a couple of US Senators). If that fixed price is less then your tax bill only idiot pays the tax bill. The second reason is that I don't believe people view money fractionally - I think they look at it absolutely. For me am million dollars is a lot of money. For Bill Gates though a million dollars is ... a lot of money. It doesn't matter that he's a billionaire he's still not going to throw around a million dollars the same way I'd throw around the same fraction of my wealth that a million is to him. He still recognizes the absolute value of that money and he can still see it's potential to make things happen in the world just as I can see what a hundred dollars (or whatever my fractional equivalent is) can do in the world.
  - srtjstjsj 6y ago
    Look at Bill Gates's house to see how obvious false that thesis is.
    - Zenbit_UX 6y ago
      Na, you're both wrong, GP for assuming he knows how a billionaire views a million dollars and you for your weak rebuttal that his home proves he doesn't value money. You both need to stop speculating about Bill Gates.
- dastx 6y ago
  When is the right time to consult a tax lawyer for an average person that is paid quite a bit above average?
- vishnugupta 6y ago
  > that saved our clients hundreds of millions of dollars. Could you elaborate, from your experience, what happened to these $$$? Do they sit in banks without being used or do they get get invested and recirculated in the economy? Also, given that just about every function of the US govt has been privatised, what would the US govt spend this money on? Spend it on defence (and channel the money back to private defense entities)? Pay off trade deficit? I'm not aware of US budget break down on expenditure side so any pointer would be great.
  - nickpp 6y ago
    Money in banks ARE invested and circulated in the economy.
  - pjc50 6y ago
    Spend it on? How about COVID relief? IIRC defense is about 20% of the US federal budget. About 40% of that (ie 8% of total federal spending) is paid to staff. In some ways it's the largest redistributive program. The trade deficit is private, it's an accounting summary between private importers and exporters. Nothing to "pay off".
- costcopizza 6y ago
  Out of curiosity, what kind of disability tools?
  - gnicholas 6y ago
    My startup’s tech makes reading on screen easier. It is used by all types of readers, but is especially helpful popular among people with dyslexia, ADHD, vision impairment, and various chronic conditions. http://www.beelinereader.com http://www.beelinereader.com
- Mumps 6y ago
  This has been on my mind for quite a while: is there a way to set up saving structures like those of Big Corp to poor people - i.e. find a way for the people least able to pay tax to pay less of it. Would you mind chatting about your expertise here? Do you think there is any feasible way of generalizing these tax avoidance structures so that Joe and Jane can reap some of those sweet sweet loophole benefits as well?
  - pjc50 6y ago
    There's usually a high fixed cost to them. The merely averagely rich have been taking advantage of them, but gradually the low-cost loopholes are closed, e.g. https://www.accountingweb.co.uk/any-answers/isle-of-man-tax-avoidance-scheme https://www.accountingweb.co.uk/any-answers/isle-of-man-tax-... Mind you, most actually poor people have a low tax incidence in the first place due to progressive tax rates.
    - leetcrew 6y ago
      sorry for the nitpick, but I don't think tax incidence [0] is the term you were looking for here. it's hard for poor people to take advantage of tax loopholes because they don't directly pay much tax after the standard deduction and (possibly) EITC. whether they bear the burden (ie, tax incidence) of taxes levied against other entities is controversial. [0] https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence
- api 6y ago
  In practice this amounts to a regressive tax system.
- tappio 6y ago
  Economies or scale... How about just power? These companies have too many people in their pocket. When you have enough power you can get away with this. These companies, even if not paying taxes directly, are huge contributors of economy. You threaten them, and they threaten you back. Do you want them to take their 10,000 jobs somewhere else? It's not tax laws and enforcing them, just rather just too much power on too few people's hands.
- stjohnswarts 6y ago
  Do you have any input as to how they can be prevented from beating the system or do you think there will always be enough loop holes for them to get out of paying taxes because they essentially own the law makers?
- neycoda 6y ago
  That's all great for business and terrible for the public interest.
akira2501 6y ago
> Companies making many billions of dollars paying no taxes. I feel like if that's the case, then you shouldn't expect the US Government to participate in the enforcement of your patent. You licensed in some tax haven? Then adjudicate it in that same tax haven, we want no part of your disputes over it.
- gnicholas 6y ago
  There are actually some traps for the unwary at the intersection of tax optimization and patent enforcement. For example, if you aren't careful in how you offshore your patents and file your patent lawsuits, you can be ineligible for 'lost profits' as a measure of damages. This is hugely impactful because the 'lost profits' method can generate much greater payouts than the 'reasonable royalty' method. This isn't motivated by the sentiment you express, but it nonetheless illustrates that companies that are aggressive on taxes can end up getting bitten in other arenas.
MattGaiser 6y ago
The IRS tries and loses. https://www.propublica.org/article/ultrawealthy-taxes-irs-internal-revenue-service-global-high-wealth-audits https://www.propublica.org/article/ultrawealthy-taxes-irs-in...
- srtjstjsj 6y ago
  Because the legislature ties IRS hands behind their back.
Zarath 6y ago
If you are upper middle class it is possible to pay zero taxes. Between tax loss harvesting, 401ks, opportunity zones, and LLC formation, a citizen can legally pay no taxes some years. It's a bit of a learning curve but none of the mechanics are particularly difficult.
- bagels 6y ago
  Where can we learn how to do this?
  - triceratops 6y ago
    Here's one case study: https://www.gocurrycracker.com/never-pay-taxes-again/ https://www.gocurrycracker.com/never-pay-taxes-again/
    - berdario 6y ago
      "Once income and spending exceed this level, taxes must be paid. Unless… Unless that income comes from qualified dividends or long-term capital gains. In this case, a married couple can have $24,400 a year in income AND $78,750 in investment income, TAX-FREE" If you can get 78k$ yearly investment income from index funds, you already have a net worth of several million $, and you're thus already among the people that don't need to work (or you had some incredible luck for smaller investments)
      - lotsofpulp 6y ago
        But according to that link, all you have to do is choose leisure over labor* *and have $5M+ in assets
        sokoloff 6y ago
        Closer to $2M will do it with a low risk of portfolio failure, $2.5M will do it with almost no risk of failure.
      - 6y ago
closeparen 6y ago
If it's a real loophole, the government is out of luck; best it can do is remove it next year. When the money flowing through a corporation actually makes someone rich, it becomes his personal income. It's not clear that corporations paying their own taxes is even a good idea vs. collecting the same revenue through higher marginal tax rates on the beneficial owners.
- wolco2 6y ago
  Expensives can be hidden at the corporate level but used personally. The company plane can be used for both personal/business and those are hard to separate.
  - gnicholas 6y ago
    There are actually very detailed rules about how personal use of corporate planes needs to be reported for both tax purposes and shareholder reporting purposes. Even if a plane is already going from City A to City B for business purposes, if the CEO brings a spouse along for personal reasons, there can be reporting consequences. Of course, this only matters if the company is under sufficient scrutiny to actually report such details.
    - srtjstjsj 6y ago
      Donald Trump deducts all his personal expenses from his businesses because he claims his personal lifestyle is a marketing program for his businesses.
- hugh-avherald 6y ago
  Tax loopholes can generally be closed retrospectively.
  - gnicholas 6y ago
    At least in the US, there are constitutional issues created by changing tax laws with retroactive effect.
jusssi 6y ago
An alternative to attempting to tax companies, is to tax people. There is no company that would just exist to forever eat money away from the public. Eventually they intend to pay the profits to a real person (either in money, or other benefits). Taxing that dividend or salary transaction might be simple enough to just work. And you have a real person to put to jail when the taxes were avoided.
- gnicholas 6y ago
  This could work, but it would have to be reconciled with the existing basis step-up at death, which is a key part of our intergenerational personal tax system. If you only taxed people when there is a dividend or salary payment, a savvy CEO of a private company could follow the tax advice of "borrow, buy, die". Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. Then when the CEO dies, the loans are repaid out of the estate. And the basis in the remaining shares is stepped up when passed to heirs. So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.
  - jusssi 6y ago
    > Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank. > Then when the CEO dies, the loans are repaid out of the estate. And at this point, income is raised out of the company and would become taxable. At least where I live, the estate of a natural person pays taxes for their income like a living natural person. > the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime But they'd still pay the taxes eventually. I don't see this as a huge issue. If the society can't wait to get their the taxes (IMHO a nation state should plan for timeframes longer than a single lifetime), they can use the same trick to get a loan from the bank with the future tax income as collateral.
Cthulhu_ 6y ago
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies? I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes. I could be wrong. I'm just reminded of people like the Google founders who humblebragged about only earning $1 / year in salary. They still became multi-billionaires off of stocks. In my country, assets are taxed by a percentage of a percentage (they tax estimated return on investment, which is ridiculous if you only have a savings account that nowadays has either no interest or even negative interest). I think there should be an additional tax on any money or assets moving out of said investment account. Because that's how rich people do it; they hardly pay any taxes because they have hardly any taxable income or assets. They put their house into a corporation or foundation, funnel any cash they need through various shell organizations and tax havens, etc.
- goatinaboat 6y ago
  I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes. This is a common trick in the UK, or at least it was before the IR35 crackdown. Programmers, sportsmen, celebrities, even politicians and civil servants would run single-person companies and get their salaries paid to them. Then those companies in turn would pay them in dividends.
  - deleted 6y ago
    [deleted]
  - youngtaff 6y ago
    The saving is more from a National Insurance perspective than an income tax one as income tax is paid on dividends (and dividends come out of profit after tax) Only first 2k of dividends is tax free, then its 7.5% within the basic earnings band, and 32.5% in the higher band. This is from funds that have already had 19% corporation tax applied to them. Of course anything paid as dividends doesn't attract either employees or employers National Insurance so there's a saving there, and adding a spouse or partner as a director allows the income and dividends to be split so reducing tax. Merging National Insurance into Income Tax is one way to start addressing the issue also simplifies administration work (for companies and government) but you'd get the political issue of tax increases on pensioners savings. Fundamentally we need to start treating earned (salary) and un-earned (interest, dividends) income the same from a tax point of view
martin8412 6y ago
Well, you can blame the US governments for it being needed in the first place. If you're an American company operating in another country, you get to pay taxes twice on the same money. In the country where you sold the product, and in the US due to their worldwide taxation.
a_imho 6y ago
When people do it, it is tax avoidance. At scale it is tax optimization. Call it disruption if you will. These tax shenanigans would stop if laws were enforced. Those who could enforce them have no interest to do so.
DanBC 6y ago
> Why isn't the same standard applied to rich companies? Prosecuting you is cheap and easy. Prosecuting a multinational billion dollar company is expensive and difficult. One of the reasons it's difficult is that they're not (usually) outright evading tax. They're avoiding tax. The law is what's written, but also how that's interpreted by the courts. Sometimes the courts have not yet decided how to interpret a bit of the written law, and so companies will continue to use those bits in interesting ways. Finally, some places have a "light touch" approach to regulation and they use courts as a measure of last resort, for the worst offenders. Everyone else will be persuaded to change their tax affairs. One consequence of this is that courts only rule on the obvious stuff, and we don't build up case law for the gray areas that get used in tax avoidance schemes. I agree it's baffling that we let them get away with it. In the UK we think there are between £30bn and £120bn in tax that's evaded, avoided, or uncollected.
- arethuza 6y ago
  That's because there is so much effort highlighting benefit fraud - even though that is estimated to be about £2.3 billion a year. Edit: Just for the record I'm against benefit fraud and tax evasion.
chrismcb 6y ago
If you found a cute gotcha, then you would do just fine. You would get thrown in jail if you lied, or didn't have the cute gotcha. But the odds that you find a loophole like that, that you could take advantage of, is fairly slim
ponker 6y ago
Well look at the Sacklers. Kill 500,000 people and you pay a $225 million fine out of the $8 billion you made from their deaths. Kill 10 people and they give you a lethal injection.
lordgrenville 6y ago
Earlier this year I read the book The Chickenshit Club on the advice of someone on here. It has a lot of interesting information but I didn't agree with the author's summary, basically: "prosecutors are cowardly and don't fight cases that don't look easily winnable. They should be braver and go for the highest-profile cases to make a statement". This seems wrong to me because a) litigating a complex, lengthy case and losing is a huge waste of public funds (it isn't a deterrent if the defendants know they can hire expensive lawyers and get off) and b) it can often be counterproductive, since it leads judges to set precedents which make their work harder in future. One regulatory ideas I thought of was a salary cap on criminal defence attorneys (lawyers can make as much money as they want in civil law, but letting the wealthy hire a different league of lawyers in criminal cases is a huge distortion of justice). This is all more about actual crimes than violating the spirit of the law, but maybe the same could apply to tax law. (I feel like there must be a flaw with this, would be happy to hear what it is.) (Wrote more about the book here: https://www.goodreads.com/review/show/3507224023 https://www.goodreads.com/review/show/3507224023)
- rapht 6y ago
  The flaw is simple: you'll end up with only having as criminal defence attorneys those people who didn't succeed at being civil case attorneys, as everyone will prefer to earn more money with mostly the same training. So you won't have any outstanding criminal defence attorneys, which is equivalent to undermining the rights of those of need to defend themselves in criminal cases. If you want to go this way, you have to go for the full-fledged solution: either the defendant choses their attorney (at a capped price) or an attorney shall be selected at random among all attorneys registered with the bar and must take charge of the case, the only exception being if they have a valid conflict of interest in that case.
  - lordgrenville 6y ago
    But prosecutor salaries are (more or less) fixed, so if you let defence attorneys earn the same as prosecutors I don't think this harms the right of the defendant. You have a right to a reasonably good lawyer, but not to be defended by the most brilliant legal mind on earth who could get anybody acquited. The randomisation suggestion sounds good too.
lordnacho 6y ago
I'd go further than this and make a positive case. If we want the free market to work, business models need to be clear. We want people to see a successful business and say "hey, I can do that better". Part of that is transparent accounts, and part of that is transparent ownership. Would also help againt some of the more egregious frauds we've seen in recent years. Some of them would have gotten caught if they'd just had more eyes on them, and you get more eyes if things are transparent.
rapht 6y ago
Tax loopholes (and tax lawyers) exist only because there is sufficient complexity in the tax system/tax code. This is because the tax system actually has 2 conflicting uses: (i) collect revenue for the gov't and (ii) create incentives/disincentives that are meant to push taxpayers in ways that are deemed beneficial, be it to the economy or to certain policy like environment, housing, etc. If you drop (ii) you can end up with an extremely simple tax code as most of the tax code complexities deal with those incentives/disincentives. So the question is: to what extent can you do away with (ii), or more generally with tax code complexity?
- srtjstjsj 6y ago
  No, the tax system is complex because businesses are synthetic entities that can be arbitrarily complex. This is because corporations are allowed to exist unchecked since the 19th century. Return to the original intention of corporations, that they must be chartered and regulated in order to preserve their exemption from human individual law, and most of the problem goes away.
  - WJW 6y ago
    That is a very charitable interpretation of the original intention of corporations. For all intents and purposes, the earliest corporations were the shipping companies in Holland and England of the 16- and 1700s that were made to distribute the risk of colonial trading operations. Chartering and regulation came much later, when the various governmental structures of the time recognized the vast profits that were being made and decided to use their standing armies to get some of that money for themselves. The earliest corporate law is only from ~1798, almost 2 centuries after the founding of the VOC. The original intention of corporations was to make more money for their owners and that is pretty much still the case. Chartering and regulation were introduced later, to curb the worst excesses of human greed. Arguably, this very discussion thread and the push by governments to curtail tax evasion is proof of that ongoing process.
- cywick 6y ago
  > Tax loopholes (and tax lawyers) exist only because there is sufficient complexity in the tax system/tax code. I don't think this is entirely correct. Even if there were no deductions and no other complexities, and the corporate income tax was simply based on "all revenue minus all costs", a company could still reduce or even eliminate its tax burden entirely by simply paying IP licensing costs to a different company located in a tax haven.
kortilla 6y ago
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies? The same standards do apply, the loopholes just don’t really exist down at a normal individual income level. Calling it a “loophole” is a bit of a misnomer as well since it’s just the regular law. Being a subsidiary of another company is extremely common and isolating particular resources into subsidiaries with exclusive licensing/usage agreements for liability/accounting/ownership/management purposes is extremely common. > These tax shenanigans would stop if laws were enforced. Again, the laws are enforced. Tax avoidance schemes operate within the bounds of the law. It sounds like you’re confusing with “tax evasion”, which is illegal and is enforced.
- srtjstjsj 6y ago
  Tax evasion is rarely enforced, because the IRS was defunded.
lucideer 6y ago
> These tax shenanigans would stop if laws were enforced. At the end of it all, laws are enforced by the judiciary. The judiciary (similarly to politicians) are human people, and each individual's interpretation of what is law will vary. Probably the biggest example of the difficulty of enforcement is the Irish Apple case[0]. The European Commission carried out a two-year investigation that found Apple avoided paying €13 billion in taxes to the Irish state. The Irish state rejected the Commission's findings and appealed the findings to the European General Court (EGC). And the EGC found in favour of the Irish state (and Apple). Does this count as laws being enforced? [0] https://en.wikipedia.org/wiki/EU_illegal_state_aid_case_against_Apple_in_Ireland#Appeal_(2016%E2%80%932020) https://en.wikipedia.org/wiki/EU_illegal_state_aid_case_agai...
nicolas_t 6y ago
> I read about tax avoidance schemes like corporate inversions or sending all your patents to a company in some tax free haven and licensing your patents from your company for all your profits, and so on, and it makes me really mad. Companies making many billions of dollars paying no taxes. This used to be a typical loophole but is being closed by the OECD, a lot of tax havens are now taxing royalties differently. 10 years ago after reading up on this, I've decided that it was only fair for me to read up and try the same methods. I didn't see why I should pay high taxes when the richest in my country didn't. It's not overly difficult to do this completely legally (that's the difference between tax avoidance and tax evasion), it's not an issue of the laws being enforced, it's mostly that there are many countries in the world and some have an incentive to compete on tax law. So, you can do a lot while still being completely legal (it's easier though if you are willing to move and live in different countries and if you're not american but still possible otherwise). In the last 5 years, the OECD has been fighting against this and forced a lot of tax havens to change their laws. From my read of the texts and has someone who has been impacted by this, it doesn't really make avoiding tax impossible just more expensive, meaning it's increasingly difficult and costly for a single person who is middle class like me to do it but still relatively easy for big corporations with an army of accountants to do it. I'm not sure that's really an improvement.
- srtjstjsj 6y ago
  It's insane that a nation delegates its sovereignty to others. There's no reason to allow subjects to shop around for better tax rates, except corruption.
pibechorro 6y ago
The laws have always and will always favor those with capital. Its naive to think otherwise. There will always be loopholes, resources to fight it, go lobby a d bribe. The "corruption" is a feature, not a bug. If you truly want go get rid of the assymetry, then the answer is not more regulations and extractions, but less across the board. Fund the services without relying on taxes to income, not only will it be fair for you and mc.corp, it will also create efficient market incentives and eliminate the vectors for corruption when there is nothing to gain.
- IG_Semmelweiss 6y ago
  Only if power is concentrated as it is today. Concentration of power in congress is a feature, not a bug. You can remove concentration of power and simply aee corruption/bribe/lobbying dissappear overnight See my post above for how to do this with 3 simple laws
indymike 6y ago
"You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine." Seems like this is a bit on the difficult to enforce side. Incidentally, profit is what is taxed, so the easy way to avoid tax is to simply not be profitable. Individuals pay tax on all of our income from interest and employment so this difference always feels somewhat unfair. The very laws that allow companies to avoid paying income tax are usually created as incentives: do this (HQ in Ireland), and in trade, you get to pay less in tax. The C suite and lawyers are usually guilty of meticulously obeying the law, which really makes the whole thing feel even more unfair. Reality is that the system is working as coded, but there are bugs in the code.
amelius 6y ago
Yes, and then there are countries with secret tax discounts for large multinationals. These tax discounts should really be subsidies, and open to the public to view. Proper accounting is where fairness starts.
deleted 6y ago
[deleted]
pa7x1 6y ago
This tax shenanigans happen because we have built an absurdly complex tax framework which can be gamed/abused with economies of scale. The solution is to streamline the tax framework as to make its implementation almost unavoidable. Long-story short, my bet is: - Sales tax (VAT) - Inflation - UBI Sales tax is far less gameable as it's linked to concrete economic activity. It also has the benefit of tracking the added value produced by an economy (it has the right properties as a tax). It has a problem though, it's regressive, see last point. Every economic activity should be included (e.g. stocks should have a VAT; you sell stock you collect VAT, you buy stocks, you pay VAT). Some progressiveness may be included by using different VAT rates for different products, to be done judiciously. Inflation is a fantastic tax, very hard to game as it's quite pervasive and taxes the accumulation of capital so it tends to be distributive, anti-regressive. Cash sitting idle does nothing for the economy so disincentivizing it makes sense. This doesn't mean that inflation has to be high (the usual moderately low and positive that economists aim for may be reasonable), just that inflation should be seen as the taxation mechanism for the accumulation of capital. And we shouldn't reduce it to a single number for the entire economy but understand how inflation is evolving in the different parts of the economy to make sure monetary and fiscal policy are hitting the targets. UBI, fixes the regressiveness of VAT. UBI is not too different from having a lowest tax-free income bracket or even negative-tax income bracket if you prefer to look at it that way. UBI can also help hit the right inflation rates in consumer products which we have been having great trouble achieving through conventional central bank policies. I think this mix is far less gameable, tracks better the size of the economy, places the right incentives and disincentives and will survive better the ongoing economic transformations (good luck taxing income when most of the economic output is produced by computers).
- srtjstjsj 6y ago
  Sales tax is extreme regressive, more than UBI can handle. Unless you are proposing a 50% sales tax and a progressive UBI?
  - pa7x1 6y ago
    Sales tax would be the only conventional tax in the scheme proposed. So it would need to be as high as needed to fit the public government spending. In some EU countries that would be above 50%, in the US may be roughly 40%. That may seem like a lot but averaged it would be the same than the average tax payer paid before, except more evenly distributed so likely median tax payer would be benefited. UBI by itself is progressive, a simple flat UBI creates a progressive effective rate. You can tweak the numbers to obtain your desired target tax curve; increasing or decreasing UBI, having different VATs for different products. As John Von Neumann said, "with 3 parameters I can draw an elephant and with 4 I can make it wiggle its trunk". There is enough free parameters to make the taxation more or less progressive. I'm not prescribing those details because I think there should be ample room for fine-tuning. What size government spending should have in an economy and how progressive should a tax system be are questions that different countries have answered differently and you find success and failure all across the spectrum. So I consider it a transversal issue. My focus is on efficiency, resiliency to abuses/gameability and economic incentives.
0goel0 6y ago
You should read https://www.huffpost.com/highline/article/white-collar-crime/ https://www.huffpost.com/highline/article/white-collar-crime... Some excerpts (it's a great, long piece. Read it all): "In 2017, researchers estimated that fraud by America’s largest corporations cost Americans up to $360 billion annually between 1996 and 2004. That’s roughly two decades’ worth of street crime every single year." "Even though auditing millionaires and billionaires is one of the most cost-effective government activities imaginable—an independent report estimated in 2014 that it yielded up to $4,545 in recovered revenue per hour of staff time—the IRS investigated the returns of just 3 percent of American millionaires in 2017." "It is, as one of those high-priced lawyers might say, improbable that these demographic and economic facts exert no influence whatsoever on judges' rulings. In a 2012 review of sentencing data in Florida, researchers found that “high-status” white collar criminals, such as doctors scamming Medicaid, were 98.7 percent less likely to receive prison terms than welfare fraudsters. A 2015 study found that judges showed increasing mercy as fraud offenders moved up the income scale: Criminals who stole more than $400 million got sentences that were less than half of the minimum recommended by federal guidelines. Criminals who stole $5,000 or less served sentences well over the minimum." "The only thing that consistently worked was to combine them— warnings from government agencies, surveillance of the worst actors, harsher punishments for repeat offenders and, yes, at the top of the ladder, criminal prosecutions for corporations that refused to shape up. This is hardly some exotic, untested concept. When it comes to every other form of crime, law enforcement agencies are perfectly comfortable cracking down on offenses at every level. This is the country that invented three-strikes laws and “broken windows” policing. When it comes to street gangs and drug distribution networks, the criminal justice system has no problem simplifying complex criminal liability questions into four simple words: You should have known. "
- Nasrudith 6y ago
  First off tax avoidance isn't fraud even given such shenanigans. They really do have offshore corporate offices in those countries. If they tried faking paperwork and really kept it in a corporate bank account? Actual fraud. There is a reason for that - said strict criminal liability is broken it just breaks single lives and horrifyingly can be ignored. But break an entire systems and that leads to instability. Take a complex economy with byzatine rules - either you have selective enforcement and effectively a dictatorship with extra steps or it is applied mercilessly across the board. Given the added risk to investments unsurprisingly many would choose to get the hell out of there. Really the answer should be to do away with strict liability bullcrap.
ipython 6y ago
It gets very complicated at the high levels of tax compliance. I am part of a company who had paid a specialized company to set up a tax advantaged structure in a foreign country several years ago in order to avoid capital gains tax. The tax treaty document between the US and this country was over 100 pages long. When it came time to actually take the tax advantages on a return, we decided to figure out what the risks were of being audited and potential penalties. We engaged several tax experts to give their opinion. What ensued was eye opening. We received wildly different opinions depending on the expert. The entire case hinged upon how one line in that 100+ page document could be interpreted. At the end of the day you are subject to the mercy of the IRS. For a large corporation, you may be able to afford the litigation (or avoid it all together as you could proactively play to the court of public opinion). For us, we decided to fire the tax consultant and pay the tax. It was - for us - a very large sum, several million dollars. Ultimately the “laws” are less like a set of rules and more a set of malleable guidelines. People who say, “oh I can just take whatever loopholes I’ve been given” don’t understand the sheer complexity and ambiguity of the tax code. While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation.
- 908B64B197 6y ago
  > Ultimately the “laws” are less like a set of rules and more a set of malleable guidelines. People who say, “oh I can just take whatever loopholes I’ve been given” don’t understand the sheer complexity and ambiguity of the tax code. I wonder if it's laziness or by design. > While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation. That's the thing: Moral should never come into play. If it does, that means the law wasn't written properly.
- P_I_Staker 6y ago
  It's funny how that works as companies scale up. A relative owns a small business and needed to get rid of an employee. She wound up laying her off, and taking the insurance hit. She wasn't the best employee and there probably could have been an argument for causal firing, "I'm not going to just lie" is what she said. Many larger orgs would just try to go for a causal firing, so they can block the employee from receiving unemployment. It doesn't even matter if they're an otherwise decent employee. We'll save money so lets just lie, basically. It's pretty crushing to the individual, and IMO this practice should be abolished. This is totally anecdotal and plenty of small to medium businesses act shady, but it's interesting that things tend to get even shadier (lawful evil) as things scale up. Yet there's less at stake for the individual employees and more ability to "not be evil", without closing up shop.
lr4444lr 6y ago
Not that I defend it, but largely because non business entities don't have the concept of losses against which to deduct revenue, unless you actively trade equities. But I don't mean to just be pedantic about it: this really is the main reason. Summers' plea here strikes me as futile. He really thinks if the complex accounting were all laid out that it would lead to some mass awakening? I doubt it...
x87678r 6y ago
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Your intuition is wrong. There are lots of small business people that expense everything and pay negligible tax if any.
omgJustTest 6y ago
You would go to prison, because you didn't have a legal team to tie up the issue until the end of time. You can't save enough on your taxes to pay a team of lawyers.
Nasrudith 6y ago
The laws /are/ being enforced. Business taxation is based upon profit and has deductible expenses essentially to help avoid what happened with US Steel and not investing in their infastructure and then the world passed them by. If they actually spent or redistributed the parked money domestically without going through the proper channels they would be in deep shit. Similarly limits on capital travel hampers both foreign investment and international business expansion as it gets "routed around". IP expense transfers are the third piece and whatever was tried to do away with would result in giving up what the US already wins big on. It isn't a problem of enforcement. Every last piece is policy of the loophole is policy working by design.
tdullien 6y ago
For what it is worth: The OECD has made a lot of changes to their transfer pricing guidelines, and starting in 2018, individual countries have a lot of leeway in re-assigning profits to other jurisdictions. The effect is not fully felt yet because the new guidelines are not evenly applied, but a friend of mine (who spent most of the 2000s building aggressive tax structures for multinational pharma companies) has spent the last few years mostly unwinding the aggressive structures again, in reaction to the OECD changes. If you are interested in the details of this, Google "OECD BEPS transfer pricing"; it is quite a fascinating topic. On a side note: The same updated guidelines, when misapplied by an aggressive tax authority, can cause all sorts of headaches for fully-distributed, fully remote companies, and the extent how this can cause trouble is underappreciated by the startup scene.
rayiner 6y ago
Your intuition is incorrect. Almost nobody goes to jail for tax related crimes. The ones that do are folks like Wesley Snipes who just refuse to pay taxes period.
currymj 6y ago
they'd let you get away with it, you wouldn't go to prison. i'm pretty sure individuals used to take way more weird writeoffs. but mostly these have been closed over the years for individuals. the laws are generally enforced the problem is various companies and nations working very hard to make sure that loopholes in the tax code are preserved.
deleted 6y ago
[deleted]
908B64B197 6y ago
> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies? Because the tax code is relatively simple for W2 employees. Not so much for corporations. > "You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine." It gets doubly complicated once you cross borders, because transferring assets like that might be legal under some treaty between country A and B. Truth is, if society doesn't want these practices to be legal it has to write a tax code that doesn't make them legal.
greendestiny_re 6y ago
International companies are allowed to avoid taxes because governments wage war through infiltrating the supply chains of other countries and conquering them economically, with citizens shouldering the financial burden of the effort.
b20000 6y ago
Anyone can learn how accounting and taxes work and anyone can set up a company wherever they want in the world. IMHO a lot of these "they don't pay any taxes" statements come from not understanding how accounting and taxes work. There is nothing illegal about setting up a company to manage your IP and license it to your other companies and I don't see what's wrong with that, sorry.

gnicholas 6y ago

This is a case of economies of scale. A fairly wealthy person could save maybe $50,000 per year with the advice of the smartest tax lawyers and accountants in the world. But it would cost them $500,000 per year to pay for the structure to be created/updated. When I worked as a tax lawyer, we created structures and defended cases that saved our clients hundreds of millions of dollars. At this scale, paying for our services was a no-brainer. On top of that, big companies lobby lawmakers to make the tax system favorable to them. This makes sense for the same reason: paying a couple million dollars to create/maintain a provision that saves $100M/yr is a no-brainer. I'm not saying any of this is right or good (and I am no longer a tax lawyer; I now build tools that help people with disabilities). I'm just saying this is why it makes sense that companies can walk a fine line on taxes, save tons of money, and you and I cannot.

wiz21c 6y ago
Maybe it's a little too much to ask, but are why are you "not saying any of this is right or good". Part of my brain wishes that law would actually mean justice but somehow, if I trust only what I know, I cleary cannot judge, as you do, if finance engineering is good or bad. I'd like to know what prevents you to choose if it's good or right (as person who have worked inside the business) thx
- gnicholas 6y ago
  I do have opinions about various tax provisions that I know well. But the topics I mentioned in my prior comment were not about a specific tax provision, or even tax policy generally. I was just stating the facts of life. It will always be the case that big companies will find it efficient to engage in certain revenue-producing activities that smaller companies/individuals will not. Just as I don't have feelings about laws of physics, I don't have any feelings about economies of scale. Lobbying is a bit different. Like most folks, the idea of 'lobbying' strikes me as wasteful/corrupt. But if you try to come up with a definition about what 'lobbying' is, and how you might try to restrict it, you realize that it is very difficult to do so without being underinclusive or overinclusive (or both!). So while I find the idea distasteful, I don't have any answers on how to 'fix' it.
  - sdoering 6y ago
    Thanks. What I love about the comments you make is twofold: - You clearly differentiate between opinion, observation and fact. - You don't try to find an easy answer. Thanks. Comments like these make me come back and read on HN.
    - gnicholas 6y ago
      My hobby [1] is helping people think clearly about media bias and filter bubbles, so I'm glad to hear that my comments come across as rational and balanced! 1: http://www.readacrosstheaisle.com http://www.readacrosstheaisle.com
      - animal_spirits 6y ago
        This is an interesting concept. I think this is a tool that I would use, however I don't have an iPhone and I don't use Chrome. Are there plans to release this as a Firefox addon?
  - yeahNo00 6y ago
    So you don’t have any emotional opinions on the work of others that has real effect on your life? Physicists can be wrong. Economists can be wrong. At some point technical nonsense becomes “imperfect people choosing.” A fix might simply be change tax laws? Kind of like how the billionaires changed them to be less distributed. But you don’t have feelings enough about economics being purposely wielded at scale to manipulate; let’s hope you’re still one of the privileged enough to be indifferent and comfortable in the future. popcorn Real-time meltdown of Pax Americana is pretty metal.
gizzlon 6y ago
> At this scale, paying for our services was a no-brainer. What? I don't think so. If money is the only thing they care about, sure. But is it? Should it be? And if breaking the spirit of the law is fine, shouldn't breaking the letter of the law be fine as well? As long as the risk is low enough.. </rant>
- CraneWorm 6y ago
  You either save the billions in taxes or cannot scale further because now you can't afford to compete with those that do. Also things sure do look different when you are at the helm. If you decide your company should pay more in taxes the board will probably vote you out on your ass.
- buran77 6y ago
  > if breaking the spirit of the law is fine, shouldn't breaking the letter of the law be fine as well? There's no law against breaking the spirit of the law. Breaking the spirit of the law will only get you tried in the court of public opinion. Breaking the letter will also go to a court of justice.
  - throwaway0a5e 6y ago
    One should read up on the judiciary system in their specific state before they start breaking the spirit of the law. In some states the judges are quasi-politicians with an implied mandate to rule how they think the people want them to rule. In others the judiciary is a system for evaluating the law and they see they consider it their mandate to enforce the law exactly as written, especially when it gives the legislature and the public the middle finger because that's the incentive for those groups to write and demand good law.
- NineStarPoint 6y ago
  The thing about capitalism is that companies that don’t do everything in their power to increase profit are at a disadvantage against those who do. Profit is the ability to invest more in R&D, attract more investors, scale faster, advertise more. Unless your consumers care enough to only support you if you pay taxes, or you can get substantially more productive employees by paying taxes, or some other advantage in the marketplace by paying taxes, paying taxes when your competition does not is an albatross around your neck. And if your morality creates enough albatrosses around your neck your company will either fold or be eternally small as your competitors without such restrictions have higher efficiency. So it’s a no-brainer in that any company that gets to the scale where spending millions on lawyers is appropriate is already of this mindset. This is why laws need to be crafted to not give companies the benefit of the doubt when it comes to acting in the best interest of society. Less because it is impossible for a company to be moral in a vacuum, but because if being immoral is allowed and advantageous inevitably the immoral company will out compete the moral one. (Of course it can be hard to agree on what moral is. Some say that taxes are immoral after all.)
harry8 6y ago
>this is why it makes sense that companies can walk a fine line on taxes, save tons of money, and you and I cannot. Nope, these are the reasons that cause the situation. This outcome does /not/ make sense nobody sane without a huge vested interest would design a system to achieve less tax paid when you earn more. It's entirely contrary to the intent and spirit of the tax code. This is not sensible. How to fix it? That's harder. Start with its a problem and morally and ethically wrong. It's really the only place to start from. I would say keep in mind two wrongs is not an improvement and unchecked government power is far worse than tax cheats but that does not change where this discussion should start.
- deleted 6y ago
  [deleted]
- chewz 6y ago
  > How to fix it? Make a tax code as simple as possible. So simple there is no room for interpretation.
  - apexalpha 6y ago
    Or do like Europe is finally starting: just tax revenue. They can suppress their 'profit' whichever way they want, they can't suppress their revenue in a given country. The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digital business models. https://home.kpmg/us/en/home/insights/2019/07/tnf-france-digital-services-tax-enacted.html#:~:text=The%20digital%20services%20tax%20is,more%20generally%2C%20digital%20business%20models https://home.kpmg/us/en/home/insights/2019/07/tnf-france-dig....
    - jlokier 6y ago
      > Or do like Europe is finally starting: just tax revenue. That rapidly turns into a disaster of consolidations and monopolies. You don't want that. Think about the difference between big company $BIG selling you the consumer a million Widgets for 10^9 currency units, versus 26 small companies $a..$z each selling to the next in a long supply chain which results in a million Widgets. In revenue taxation, big company $BIG pays 10^9∗$TAX_RATE. Whereas the 26 small companies pay something more like 26∗10^9∗$TAX_RATE because each time a company pays the next company, that's revenue for the next company. The difference in tax between those two scenarios is so enormous, that it would create enormous pressure for companies $a..$z to consolidate into a single company. Repeat this across the entire economy, and you have enormous pressure to consolidate everything into as few companies as possible.
hackeraccount 6y ago
This is why I've always been skeptical of high _income_ tax rates. First tax avoidance is at base a fixed cost. It's the price of a really tax lawyer (or at the extreme a couple of US Senators). If that fixed price is less then your tax bill only idiot pays the tax bill. The second reason is that I don't believe people view money fractionally - I think they look at it absolutely. For me am million dollars is a lot of money. For Bill Gates though a million dollars is ... a lot of money. It doesn't matter that he's a billionaire he's still not going to throw around a million dollars the same way I'd throw around the same fraction of my wealth that a million is to him. He still recognizes the absolute value of that money and he can still see it's potential to make things happen in the world just as I can see what a hundred dollars (or whatever my fractional equivalent is) can do in the world.
- srtjstjsj 6y ago
  Look at Bill Gates's house to see how obvious false that thesis is.
  - Zenbit_UX 6y ago
    Na, you're both wrong, GP for assuming he knows how a billionaire views a million dollars and you for your weak rebuttal that his home proves he doesn't value money. You both need to stop speculating about Bill Gates.
dastx 6y ago
When is the right time to consult a tax lawyer for an average person that is paid quite a bit above average?
vishnugupta 6y ago
> that saved our clients hundreds of millions of dollars. Could you elaborate, from your experience, what happened to these $$$? Do they sit in banks without being used or do they get get invested and recirculated in the economy? Also, given that just about every function of the US govt has been privatised, what would the US govt spend this money on? Spend it on defence (and channel the money back to private defense entities)? Pay off trade deficit? I'm not aware of US budget break down on expenditure side so any pointer would be great.
- nickpp 6y ago
  Money in banks ARE invested and circulated in the economy.
- pjc50 6y ago
  Spend it on? How about COVID relief? IIRC defense is about 20% of the US federal budget. About 40% of that (ie 8% of total federal spending) is paid to staff. In some ways it's the largest redistributive program. The trade deficit is private, it's an accounting summary between private importers and exporters. Nothing to "pay off".
costcopizza 6y ago
Out of curiosity, what kind of disability tools?
- gnicholas 6y ago
  My startup’s tech makes reading on screen easier. It is used by all types of readers, but is especially helpful popular among people with dyslexia, ADHD, vision impairment, and various chronic conditions. http://www.beelinereader.com http://www.beelinereader.com
Mumps 6y ago
This has been on my mind for quite a while: is there a way to set up saving structures like those of Big Corp to poor people - i.e. find a way for the people least able to pay tax to pay less of it. Would you mind chatting about your expertise here? Do you think there is any feasible way of generalizing these tax avoidance structures so that Joe and Jane can reap some of those sweet sweet loophole benefits as well?
- pjc50 6y ago
  There's usually a high fixed cost to them. The merely averagely rich have been taking advantage of them, but gradually the low-cost loopholes are closed, e.g. https://www.accountingweb.co.uk/any-answers/isle-of-man-tax-avoidance-scheme https://www.accountingweb.co.uk/any-answers/isle-of-man-tax-... Mind you, most actually poor people have a low tax incidence in the first place due to progressive tax rates.
  - leetcrew 6y ago
    sorry for the nitpick, but I don't think tax incidence [0] is the term you were looking for here. it's hard for poor people to take advantage of tax loopholes because they don't directly pay much tax after the standard deduction and (possibly) EITC. whether they bear the burden (ie, tax incidence) of taxes levied against other entities is controversial. [0] https://en.wikipedia.org/wiki/Tax_incidence https://en.wikipedia.org/wiki/Tax_incidence
api 6y ago
In practice this amounts to a regressive tax system.
tappio 6y ago
Economies or scale... How about just power? These companies have too many people in their pocket. When you have enough power you can get away with this. These companies, even if not paying taxes directly, are huge contributors of economy. You threaten them, and they threaten you back. Do you want them to take their 10,000 jobs somewhere else? It's not tax laws and enforcing them, just rather just too much power on too few people's hands.
stjohnswarts 6y ago
Do you have any input as to how they can be prevented from beating the system or do you think there will always be enough loop holes for them to get out of paying taxes because they essentially own the law makers?
neycoda 6y ago
That's all great for business and terrible for the public interest.

akira2501 6y ago

> Companies making many billions of dollars paying no taxes. I feel like if that's the case, then you shouldn't expect the US Government to participate in the enforcement of your patent. You licensed in some tax haven? Then adjudicate it in that same tax haven, we want no part of your disputes over it.

gnicholas 6y ago
There are actually some traps for the unwary at the intersection of tax optimization and patent enforcement. For example, if you aren't careful in how you offshore your patents and file your patent lawsuits, you can be ineligible for 'lost profits' as a measure of damages. This is hugely impactful because the 'lost profits' method can generate much greater payouts than the 'reasonable royalty' method. This isn't motivated by the sentiment you express, but it nonetheless illustrates that companies that are aggressive on taxes can end up getting bitten in other arenas.

MattGaiser 6y ago

The IRS tries and loses. https://www.propublica.org/article/ultrawealthy-taxes-irs-internal-revenue-service-global-high-wealth-audits https://www.propublica.org/article/ultrawealthy-taxes-irs-in...

srtjstjsj 6y ago
Because the legislature ties IRS hands behind their back.

Zarath 6y ago

If you are upper middle class it is possible to pay zero taxes. Between tax loss harvesting, 401ks, opportunity zones, and LLC formation, a citizen can legally pay no taxes some years. It's a bit of a learning curve but none of the mechanics are particularly difficult.

bagels 6y ago
Where can we learn how to do this?
- triceratops 6y ago
  Here's one case study: https://www.gocurrycracker.com/never-pay-taxes-again/ https://www.gocurrycracker.com/never-pay-taxes-again/
  - berdario 6y ago
    "Once income and spending exceed this level, taxes must be paid. Unless… Unless that income comes from qualified dividends or long-term capital gains. In this case, a married couple can have $24,400 a year in income AND $78,750 in investment income, TAX-FREE" If you can get 78k$ yearly investment income from index funds, you already have a net worth of several million $, and you're thus already among the people that don't need to work (or you had some incredible luck for smaller investments)
    - lotsofpulp 6y ago
      But according to that link, all you have to do is choose leisure over labor* *and have $5M+ in assets
      - sokoloff 6y ago
        Closer to $2M will do it with a low risk of portfolio failure, $2.5M will do it with almost no risk of failure.
    - 6y ago

closeparen 6y ago

If it's a real loophole, the government is out of luck; best it can do is remove it next year. When the money flowing through a corporation actually makes someone rich, it becomes his personal income. It's not clear that corporations paying their own taxes is even a good idea vs. collecting the same revenue through higher marginal tax rates on the beneficial owners.

wolco2 6y ago
Expensives can be hidden at the corporate level but used personally. The company plane can be used for both personal/business and those are hard to separate.
- gnicholas 6y ago
  There are actually very detailed rules about how personal use of corporate planes needs to be reported for both tax purposes and shareholder reporting purposes. Even if a plane is already going from City A to City B for business purposes, if the CEO brings a spouse along for personal reasons, there can be reporting consequences. Of course, this only matters if the company is under sufficient scrutiny to actually report such details.
  - srtjstjsj 6y ago
    Donald Trump deducts all his personal expenses from his businesses because he claims his personal lifestyle is a marketing program for his businesses.
hugh-avherald 6y ago
Tax loopholes can generally be closed retrospectively.
- gnicholas 6y ago
  At least in the US, there are constitutional issues created by changing tax laws with retroactive effect.

jusssi 6y ago

An alternative to attempting to tax companies, is to tax people. There is no company that would just exist to forever eat money away from the public. Eventually they intend to pay the profits to a real person (either in money, or other benefits). Taxing that dividend or salary transaction might be simple enough to just work. And you have a real person to put to jail when the taxes were avoided.

gnicholas 6y ago
This could work, but it would have to be reconciled with the existing basis step-up at death, which is a key part of our intergenerational personal tax system. If you only taxed people when there is a dividend or salary payment, a savvy CEO of a private company could follow the tax advice of "borrow, buy, die". Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. Then when the CEO dies, the loans are repaid out of the estate. And the basis in the remaining shares is stepped up when passed to heirs. So while you can get rid of corporate taxation, the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime.
- jusssi 6y ago
  > Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank. > Then when the CEO dies, the loans are repaid out of the estate. And at this point, income is raised out of the company and would become taxable. At least where I live, the estate of a natural person pays taxes for their income like a living natural person. > the tax treatment of natural persons at death means that folks could greatly reduce the amount of income realized during their lifetime But they'd still pay the taxes eventually. I don't see this as a huge issue. If the society can't wait to get their the taxes (IMHO a nation state should plan for timeframes longer than a single lifetime), they can use the same trick to get a loan from the bank with the future tax income as collateral.

Cthulhu_ 6y ago

> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies? I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes. I could be wrong. I'm just reminded of people like the Google founders who humblebragged about only earning $1 / year in salary. They still became multi-billionaires off of stocks. In my country, assets are taxed by a percentage of a percentage (they tax estimated return on investment, which is ridiculous if you only have a savings account that nowadays has either no interest or even negative interest). I think there should be an additional tax on any money or assets moving out of said investment account. Because that's how rich people do it; they hardly pay any taxes because they have hardly any taxable income or assets. They put their house into a corporation or foundation, funnel any cash they need through various shell organizations and tax havens, etc.

goatinaboat 6y ago
I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes. This is a common trick in the UK, or at least it was before the IR35 crackdown. Programmers, sportsmen, celebrities, even politicians and civil servants would run single-person companies and get their salaries paid to them. Then those companies in turn would pay them in dividends.
- deleted 6y ago
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- youngtaff 6y ago
  The saving is more from a National Insurance perspective than an income tax one as income tax is paid on dividends (and dividends come out of profit after tax) Only first 2k of dividends is tax free, then its 7.5% within the basic earnings band, and 32.5% in the higher band. This is from funds that have already had 19% corporation tax applied to them. Of course anything paid as dividends doesn't attract either employees or employers National Insurance so there's a saving there, and adding a spouse or partner as a director allows the income and dividends to be split so reducing tax. Merging National Insurance into Income Tax is one way to start addressing the issue also simplifies administration work (for companies and government) but you'd get the political issue of tax increases on pensioners savings. Fundamentally we need to start treating earned (salary) and un-earned (interest, dividends) income the same from a tax point of view

martin8412 6y ago

Well, you can blame the US governments for it being needed in the first place. If you're an American company operating in another country, you get to pay taxes twice on the same money. In the country where you sold the product, and in the US due to their worldwide taxation.

a_imho 6y ago

When people do it, it is tax avoidance. At scale it is tax optimization. Call it disruption if you will. These tax shenanigans would stop if laws were enforced. Those who could enforce them have no interest to do so.

DanBC 6y ago

> Why isn't the same standard applied to rich companies? Prosecuting you is cheap and easy. Prosecuting a multinational billion dollar company is expensive and difficult. One of the reasons it's difficult is that they're not (usually) outright evading tax. They're avoiding tax. The law is what's written, but also how that's interpreted by the courts. Sometimes the courts have not yet decided how to interpret a bit of the written law, and so companies will continue to use those bits in interesting ways. Finally, some places have a "light touch" approach to regulation and they use courts as a measure of last resort, for the worst offenders. Everyone else will be persuaded to change their tax affairs. One consequence of this is that courts only rule on the obvious stuff, and we don't build up case law for the gray areas that get used in tax avoidance schemes. I agree it's baffling that we let them get away with it. In the UK we think there are between £30bn and £120bn in tax that's evaded, avoided, or uncollected.

arethuza 6y ago
That's because there is so much effort highlighting benefit fraud - even though that is estimated to be about £2.3 billion a year. Edit: Just for the record I'm against benefit fraud and tax evasion.

chrismcb 6y ago

If you found a cute gotcha, then you would do just fine. You would get thrown in jail if you lied, or didn't have the cute gotcha. But the odds that you find a loophole like that, that you could take advantage of, is fairly slim

ponker 6y ago

Well look at the Sacklers. Kill 500,000 people and you pay a $225 million fine out of the $8 billion you made from their deaths. Kill 10 people and they give you a lethal injection.

lordgrenville 6y ago

Earlier this year I read the book The Chickenshit Club on the advice of someone on here. It has a lot of interesting information but I didn't agree with the author's summary, basically: "prosecutors are cowardly and don't fight cases that don't look easily winnable. They should be braver and go for the highest-profile cases to make a statement". This seems wrong to me because a) litigating a complex, lengthy case and losing is a huge waste of public funds (it isn't a deterrent if the defendants know they can hire expensive lawyers and get off) and b) it can often be counterproductive, since it leads judges to set precedents which make their work harder in future. One regulatory ideas I thought of was a salary cap on criminal defence attorneys (lawyers can make as much money as they want in civil law, but letting the wealthy hire a different league of lawyers in criminal cases is a huge distortion of justice). This is all more about actual crimes than violating the spirit of the law, but maybe the same could apply to tax law. (I feel like there must be a flaw with this, would be happy to hear what it is.) (Wrote more about the book here: https://www.goodreads.com/review/show/3507224023 https://www.goodreads.com/review/show/3507224023)

rapht 6y ago
The flaw is simple: you'll end up with only having as criminal defence attorneys those people who didn't succeed at being civil case attorneys, as everyone will prefer to earn more money with mostly the same training. So you won't have any outstanding criminal defence attorneys, which is equivalent to undermining the rights of those of need to defend themselves in criminal cases. If you want to go this way, you have to go for the full-fledged solution: either the defendant choses their attorney (at a capped price) or an attorney shall be selected at random among all attorneys registered with the bar and must take charge of the case, the only exception being if they have a valid conflict of interest in that case.
- lordgrenville 6y ago
  But prosecutor salaries are (more or less) fixed, so if you let defence attorneys earn the same as prosecutors I don't think this harms the right of the defendant. You have a right to a reasonably good lawyer, but not to be defended by the most brilliant legal mind on earth who could get anybody acquited. The randomisation suggestion sounds good too.

lordnacho 6y ago

I'd go further than this and make a positive case. If we want the free market to work, business models need to be clear. We want people to see a successful business and say "hey, I can do that better". Part of that is transparent accounts, and part of that is transparent ownership. Would also help againt some of the more egregious frauds we've seen in recent years. Some of them would have gotten caught if they'd just had more eyes on them, and you get more eyes if things are transparent.

rapht 6y ago

Tax loopholes (and tax lawyers) exist only because there is sufficient complexity in the tax system/tax code. This is because the tax system actually has 2 conflicting uses: (i) collect revenue for the gov't and (ii) create incentives/disincentives that are meant to push taxpayers in ways that are deemed beneficial, be it to the economy or to certain policy like environment, housing, etc. If you drop (ii) you can end up with an extremely simple tax code as most of the tax code complexities deal with those incentives/disincentives. So the question is: to what extent can you do away with (ii), or more generally with tax code complexity?

srtjstjsj 6y ago
No, the tax system is complex because businesses are synthetic entities that can be arbitrarily complex. This is because corporations are allowed to exist unchecked since the 19th century. Return to the original intention of corporations, that they must be chartered and regulated in order to preserve their exemption from human individual law, and most of the problem goes away.
- WJW 6y ago
  That is a very charitable interpretation of the original intention of corporations. For all intents and purposes, the earliest corporations were the shipping companies in Holland and England of the 16- and 1700s that were made to distribute the risk of colonial trading operations. Chartering and regulation came much later, when the various governmental structures of the time recognized the vast profits that were being made and decided to use their standing armies to get some of that money for themselves. The earliest corporate law is only from ~1798, almost 2 centuries after the founding of the VOC. The original intention of corporations was to make more money for their owners and that is pretty much still the case. Chartering and regulation were introduced later, to curb the worst excesses of human greed. Arguably, this very discussion thread and the push by governments to curtail tax evasion is proof of that ongoing process.
cywick 6y ago
> Tax loopholes (and tax lawyers) exist only because there is sufficient complexity in the tax system/tax code. I don't think this is entirely correct. Even if there were no deductions and no other complexities, and the corporate income tax was simply based on "all revenue minus all costs", a company could still reduce or even eliminate its tax burden entirely by simply paying IP licensing costs to a different company located in a tax haven.

kortilla 6y ago

> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies? The same standards do apply, the loopholes just don’t really exist down at a normal individual income level. Calling it a “loophole” is a bit of a misnomer as well since it’s just the regular law. Being a subsidiary of another company is extremely common and isolating particular resources into subsidiaries with exclusive licensing/usage agreements for liability/accounting/ownership/management purposes is extremely common. > These tax shenanigans would stop if laws were enforced. Again, the laws are enforced. Tax avoidance schemes operate within the bounds of the law. It sounds like you’re confusing with “tax evasion”, which is illegal and is enforced.

srtjstjsj 6y ago
Tax evasion is rarely enforced, because the IRS was defunded.

lucideer 6y ago

> These tax shenanigans would stop if laws were enforced. At the end of it all, laws are enforced by the judiciary. The judiciary (similarly to politicians) are human people, and each individual's interpretation of what is law will vary. Probably the biggest example of the difficulty of enforcement is the Irish Apple case[0]. The European Commission carried out a two-year investigation that found Apple avoided paying €13 billion in taxes to the Irish state. The Irish state rejected the Commission's findings and appealed the findings to the European General Court (EGC). And the EGC found in favour of the Irish state (and Apple). Does this count as laws being enforced? [0] https://en.wikipedia.org/wiki/EU_illegal_state_aid_case_against_Apple_in_Ireland#Appeal_(2016%E2%80%932020) https://en.wikipedia.org/wiki/EU_illegal_state_aid_case_agai...

nicolas_t 6y ago

> I read about tax avoidance schemes like corporate inversions or sending all your patents to a company in some tax free haven and licensing your patents from your company for all your profits, and so on, and it makes me really mad. Companies making many billions of dollars paying no taxes. This used to be a typical loophole but is being closed by the OECD, a lot of tax havens are now taxing royalties differently. 10 years ago after reading up on this, I've decided that it was only fair for me to read up and try the same methods. I didn't see why I should pay high taxes when the richest in my country didn't. It's not overly difficult to do this completely legally (that's the difference between tax avoidance and tax evasion), it's not an issue of the laws being enforced, it's mostly that there are many countries in the world and some have an incentive to compete on tax law. So, you can do a lot while still being completely legal (it's easier though if you are willing to move and live in different countries and if you're not american but still possible otherwise). In the last 5 years, the OECD has been fighting against this and forced a lot of tax havens to change their laws. From my read of the texts and has someone who has been impacted by this, it doesn't really make avoiding tax impossible just more expensive, meaning it's increasingly difficult and costly for a single person who is middle class like me to do it but still relatively easy for big corporations with an army of accountants to do it. I'm not sure that's really an improvement.

srtjstjsj 6y ago
It's insane that a nation delegates its sovereignty to others. There's no reason to allow subjects to shop around for better tax rates, except corruption.

pibechorro 6y ago

The laws have always and will always favor those with capital. Its naive to think otherwise. There will always be loopholes, resources to fight it, go lobby a d bribe. The "corruption" is a feature, not a bug. If you truly want go get rid of the assymetry, then the answer is not more regulations and extractions, but less across the board. Fund the services without relying on taxes to income, not only will it be fair for you and mc.corp, it will also create efficient market incentives and eliminate the vectors for corruption when there is nothing to gain.

IG_Semmelweiss 6y ago
Only if power is concentrated as it is today. Concentration of power in congress is a feature, not a bug. You can remove concentration of power and simply aee corruption/bribe/lobbying dissappear overnight See my post above for how to do this with 3 simple laws

indymike 6y ago

"You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine." Seems like this is a bit on the difficult to enforce side. Incidentally, profit is what is taxed, so the easy way to avoid tax is to simply not be profitable. Individuals pay tax on all of our income from interest and employment so this difference always feels somewhat unfair. The very laws that allow companies to avoid paying income tax are usually created as incentives: do this (HQ in Ireland), and in trade, you get to pay less in tax. The C suite and lawyers are usually guilty of meticulously obeying the law, which really makes the whole thing feel even more unfair. Reality is that the system is working as coded, but there are bugs in the code.

amelius 6y ago

Yes, and then there are countries with secret tax discounts for large multinationals. These tax discounts should really be subsidies, and open to the public to view. Proper accounting is where fairness starts.

deleted 6y ago

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pa7x1 6y ago

This tax shenanigans happen because we have built an absurdly complex tax framework which can be gamed/abused with economies of scale. The solution is to streamline the tax framework as to make its implementation almost unavoidable. Long-story short, my bet is: - Sales tax (VAT) - Inflation - UBI Sales tax is far less gameable as it's linked to concrete economic activity. It also has the benefit of tracking the added value produced by an economy (it has the right properties as a tax). It has a problem though, it's regressive, see last point. Every economic activity should be included (e.g. stocks should have a VAT; you sell stock you collect VAT, you buy stocks, you pay VAT). Some progressiveness may be included by using different VAT rates for different products, to be done judiciously. Inflation is a fantastic tax, very hard to game as it's quite pervasive and taxes the accumulation of capital so it tends to be distributive, anti-regressive. Cash sitting idle does nothing for the economy so disincentivizing it makes sense. This doesn't mean that inflation has to be high (the usual moderately low and positive that economists aim for may be reasonable), just that inflation should be seen as the taxation mechanism for the accumulation of capital. And we shouldn't reduce it to a single number for the entire economy but understand how inflation is evolving in the different parts of the economy to make sure monetary and fiscal policy are hitting the targets. UBI, fixes the regressiveness of VAT. UBI is not too different from having a lowest tax-free income bracket or even negative-tax income bracket if you prefer to look at it that way. UBI can also help hit the right inflation rates in consumer products which we have been having great trouble achieving through conventional central bank policies. I think this mix is far less gameable, tracks better the size of the economy, places the right incentives and disincentives and will survive better the ongoing economic transformations (good luck taxing income when most of the economic output is produced by computers).

srtjstjsj 6y ago
Sales tax is extreme regressive, more than UBI can handle. Unless you are proposing a 50% sales tax and a progressive UBI?
- pa7x1 6y ago
  Sales tax would be the only conventional tax in the scheme proposed. So it would need to be as high as needed to fit the public government spending. In some EU countries that would be above 50%, in the US may be roughly 40%. That may seem like a lot but averaged it would be the same than the average tax payer paid before, except more evenly distributed so likely median tax payer would be benefited. UBI by itself is progressive, a simple flat UBI creates a progressive effective rate. You can tweak the numbers to obtain your desired target tax curve; increasing or decreasing UBI, having different VATs for different products. As John Von Neumann said, "with 3 parameters I can draw an elephant and with 4 I can make it wiggle its trunk". There is enough free parameters to make the taxation more or less progressive. I'm not prescribing those details because I think there should be ample room for fine-tuning. What size government spending should have in an economy and how progressive should a tax system be are questions that different countries have answered differently and you find success and failure all across the spectrum. So I consider it a transversal issue. My focus is on efficiency, resiliency to abuses/gameability and economic incentives.

0goel0 6y ago

You should read https://www.huffpost.com/highline/article/white-collar-crime/ https://www.huffpost.com/highline/article/white-collar-crime... Some excerpts (it's a great, long piece. Read it all): "In 2017, researchers estimated that fraud by America’s largest corporations cost Americans up to $360 billion annually between 1996 and 2004. That’s roughly two decades’ worth of street crime every single year." "Even though auditing millionaires and billionaires is one of the most cost-effective government activities imaginable—an independent report estimated in 2014 that it yielded up to $4,545 in recovered revenue per hour of staff time—the IRS investigated the returns of just 3 percent of American millionaires in 2017." "It is, as one of those high-priced lawyers might say, improbable that these demographic and economic facts exert no influence whatsoever on judges' rulings. In a 2012 review of sentencing data in Florida, researchers found that “high-status” white collar criminals, such as doctors scamming Medicaid, were 98.7 percent less likely to receive prison terms than welfare fraudsters. A 2015 study found that judges showed increasing mercy as fraud offenders moved up the income scale: Criminals who stole more than $400 million got sentences that were less than half of the minimum recommended by federal guidelines. Criminals who stole $5,000 or less served sentences well over the minimum." "The only thing that consistently worked was to combine them— warnings from government agencies, surveillance of the worst actors, harsher punishments for repeat offenders and, yes, at the top of the ladder, criminal prosecutions for corporations that refused to shape up. This is hardly some exotic, untested concept. When it comes to every other form of crime, law enforcement agencies are perfectly comfortable cracking down on offenses at every level. This is the country that invented three-strikes laws and “broken windows” policing. When it comes to street gangs and drug distribution networks, the criminal justice system has no problem simplifying complex criminal liability questions into four simple words: You should have known. "

Nasrudith 6y ago
First off tax avoidance isn't fraud even given such shenanigans. They really do have offshore corporate offices in those countries. If they tried faking paperwork and really kept it in a corporate bank account? Actual fraud. There is a reason for that - said strict criminal liability is broken it just breaks single lives and horrifyingly can be ignored. But break an entire systems and that leads to instability. Take a complex economy with byzatine rules - either you have selective enforcement and effectively a dictatorship with extra steps or it is applied mercilessly across the board. Given the added risk to investments unsurprisingly many would choose to get the hell out of there. Really the answer should be to do away with strict liability bullcrap.

ipython 6y ago

It gets very complicated at the high levels of tax compliance. I am part of a company who had paid a specialized company to set up a tax advantaged structure in a foreign country several years ago in order to avoid capital gains tax. The tax treaty document between the US and this country was over 100 pages long. When it came time to actually take the tax advantages on a return, we decided to figure out what the risks were of being audited and potential penalties. We engaged several tax experts to give their opinion. What ensued was eye opening. We received wildly different opinions depending on the expert. The entire case hinged upon how one line in that 100+ page document could be interpreted. At the end of the day you are subject to the mercy of the IRS. For a large corporation, you may be able to afford the litigation (or avoid it all together as you could proactively play to the court of public opinion). For us, we decided to fire the tax consultant and pay the tax. It was - for us - a very large sum, several million dollars. Ultimately the “laws” are less like a set of rules and more a set of malleable guidelines. People who say, “oh I can just take whatever loopholes I’ve been given” don’t understand the sheer complexity and ambiguity of the tax code. While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation.

908B64B197 6y ago
> Ultimately the “laws” are less like a set of rules and more a set of malleable guidelines. People who say, “oh I can just take whatever loopholes I’ve been given” don’t understand the sheer complexity and ambiguity of the tax code. I wonder if it's laziness or by design. > While I’m disappointed that we “lost” that money (one could argue it wasn’t ours to begin with), and disappointed that others are morally flexible enough or big enough to get away with it, I am left with the feeling that we did the right thing for the country as a whole. I am sad that more companies and individuals don’t consider that in their moral calculation. That's the thing: Moral should never come into play. If it does, that means the law wasn't written properly.
P_I_Staker 6y ago
It's funny how that works as companies scale up. A relative owns a small business and needed to get rid of an employee. She wound up laying her off, and taking the insurance hit. She wasn't the best employee and there probably could have been an argument for causal firing, "I'm not going to just lie" is what she said. Many larger orgs would just try to go for a causal firing, so they can block the employee from receiving unemployment. It doesn't even matter if they're an otherwise decent employee. We'll save money so lets just lie, basically. It's pretty crushing to the individual, and IMO this practice should be abolished. This is totally anecdotal and plenty of small to medium businesses act shady, but it's interesting that things tend to get even shadier (lawful evil) as things scale up. Yet there's less at stake for the individual employees and more ability to "not be evil", without closing up shop.

lr4444lr 6y ago

Not that I defend it, but largely because non business entities don't have the concept of losses against which to deduct revenue, unless you actively trade equities. But I don't mean to just be pedantic about it: this really is the main reason. Summers' plea here strikes me as futile. He really thinks if the complex accounting were all laid out that it would lead to some mass awakening? I doubt it...

x87678r 6y ago

> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Your intuition is wrong. There are lots of small business people that expense everything and pay negligible tax if any.

omgJustTest 6y ago

You would go to prison, because you didn't have a legal team to tie up the issue until the end of time. You can't save enough on your taxes to pay a team of lawyers.

Nasrudith 6y ago

The laws /are/ being enforced. Business taxation is based upon profit and has deductible expenses essentially to help avoid what happened with US Steel and not investing in their infastructure and then the world passed them by. If they actually spent or redistributed the parked money domestically without going through the proper channels they would be in deep shit. Similarly limits on capital travel hampers both foreign investment and international business expansion as it gets "routed around". IP expense transfers are the third piece and whatever was tried to do away with would result in giving up what the US already wins big on. It isn't a problem of enforcement. Every last piece is policy of the loophole is policy working by design.

tdullien 6y ago

For what it is worth: The OECD has made a lot of changes to their transfer pricing guidelines, and starting in 2018, individual countries have a lot of leeway in re-assigning profits to other jurisdictions. The effect is not fully felt yet because the new guidelines are not evenly applied, but a friend of mine (who spent most of the 2000s building aggressive tax structures for multinational pharma companies) has spent the last few years mostly unwinding the aggressive structures again, in reaction to the OECD changes. If you are interested in the details of this, Google "OECD BEPS transfer pricing"; it is quite a fascinating topic. On a side note: The same updated guidelines, when misapplied by an aggressive tax authority, can cause all sorts of headaches for fully-distributed, fully remote companies, and the extent how this can cause trouble is underappreciated by the startup scene.

rayiner 6y ago

Your intuition is incorrect. Almost nobody goes to jail for tax related crimes. The ones that do are folks like Wesley Snipes who just refuse to pay taxes period.

currymj 6y ago

they'd let you get away with it, you wouldn't go to prison. i'm pretty sure individuals used to take way more weird writeoffs. but mostly these have been closed over the years for individuals. the laws are generally enforced the problem is various companies and nations working very hard to make sure that loopholes in the tax code are preserved.

deleted 6y ago

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908B64B197 6y ago

> My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some loophole, I would go to prison. Why isn't the same standard applied to rich companies? Because the tax code is relatively simple for W2 employees. Not so much for corporations. > "You're technically owned by an Irish company you invented to avoid taxes? Cool. The c-suite plus your accountants are going to prison for the next five years and we're seizing the X billion you actually owe plus a punitive fine." It gets doubly complicated once you cross borders, because transferring assets like that might be legal under some treaty between country A and B. Truth is, if society doesn't want these practices to be legal it has to write a tax code that doesn't make them legal.

greendestiny_re 6y ago

International companies are allowed to avoid taxes because governments wage war through infiltrating the supply chains of other countries and conquering them economically, with citizens shouldering the financial burden of the effort.

b20000 6y ago

Anyone can learn how accounting and taxes work and anyone can set up a company wherever they want in the world. IMHO a lot of these "they don't pay any taxes" statements come from not understanding how accounting and taxes work. There is nothing illegal about setting up a company to manage your IP and license it to your other companies and I don't see what's wrong with that, sorry.