3 ms·

If you make 100$ and spend 150$, you have revenue of 100$, no profit and a debt of 50$. So you'd have to pay taxes on the 100$ from your -50$.

emn13 5y ago
Assuming you (or the corporation) have no money - yes. That's exactly how it works for individuals, and how it should work for corporations too; they would need to take a loan (or dip into capital) to cover the 50$ loss, and would then similarly need to cover whatever tax was on revenue. Obviously taxes on revenue would not need to be as high as on profit to generate the same tax income, so for most businesses this is fine - but low margin businesses would need to raise prices slightly. On the other hand, if large corporations actually payed their share, income taxes would likely be lower, and it would be easier for smaller competitors to compete with larger corporations that can afford to profit-shift. It would also be hell of a lot simpler, because all those crazy shell company incentives go away, and it's also much clearer what's deductible (not a whole lot).
- JI00912 5y ago
  > Obviously taxes on revenue would not need to be as high as on profit to generate the same tax income No income has been generated by a business running at a loss. You had a number of things. Now you have less. Nothing was generated. You can distribute all you want, but you have less all of the time. > It would also be hell of a lot simpler, because all those crazy shell company incentives go away There's nothing wrong with shell companies. If you want to do anything, you have to register a business. It's just lazy journalism.
  - emn13 5y ago
    As an individual, if you spend more in a year than you earn, are you still required to pay taxes? Of course. Whether or not a corporation is profitable is not relevant. A corporation that is consistently loss making may fold slightly more quickly - that sounds like a good thing. But a corporation that has any control over its prices yet has low margins shouldn't be troubled by this - other competitors are likely in the same boat. Taxing revenue instead of profit encourages high-margin businesses, which is fine by me; and it doesn't subsidize loss making - also, fine by me. Shell companies aren't hugely problematic, but they are problematic. Problem #1: every extra corporation is problematic, because of the built in risk-collectivization - i.e. excess profit is privatized, but excess risk is protected by bankruptcy. Having networks of cooperating corporations can make it easier to push losses onto others, which incentivizes worse than zero-sum economic behavior. Problem #2: complexity. Complexity is bad; it simply introduces friction, and unforeseen consequences. Notably, stuff like the double irish with a dutch sandwich not only required various limitations in irish and dutch law, but also the ability to create arbitrary corporations. Each law taken by itself seems reasonable, but the interactions in combination with the complexity that shell companies enable allows for undesirable consequences. Problem #3: Lack of transparency. It's easier to hide fraud or simple unwanted behavior when things get complicated, or even when things involve multiple jurisdictions. Economic actors - i.e. us - don't behave randomly, we look for opportunities. And people will take opportunities that are to the detriment of society, whether entirely legal or not. The ability to see those problems is critical to being able to mitigate their consequences, or solve them outright. So yes, I do think shell companies have an intrinsic cost. I'm not sure what your background is, but to pick a simile - it's kind of like the cost of lock-free multithreading - it may appear to work, but the chaos can hide bugs that are hard to find, and hard to pin down, and fixing one may introduce another. Having decent, comprehensible abstractions helps, but legal systems aren't easily engineered top-down like that; they're evolved in each jurisdiction separately, and piece by piece, with lots of input from the very bad actors that are abusing the loopholes. It's unlikely we'll find ideal "abstractions" in that world if they even exist; so keeping things as comprehensible and simple as possible is a boon. Shell companies without actual economic value represent complexity and are thus bad.

emn13 5y ago

Assuming you (or the corporation) have no money - yes. That's exactly how it works for individuals, and how it should work for corporations too; they would need to take a loan (or dip into capital) to cover the 50$ loss, and would then similarly need to cover whatever tax was on revenue. Obviously taxes on revenue would not need to be as high as on profit to generate the same tax income, so for most businesses this is fine - but low margin businesses would need to raise prices slightly. On the other hand, if large corporations actually payed their share, income taxes would likely be lower, and it would be easier for smaller competitors to compete with larger corporations that can afford to profit-shift. It would also be hell of a lot simpler, because all those crazy shell company incentives go away, and it's also much clearer what's deductible (not a whole lot).

JI00912 5y ago
> Obviously taxes on revenue would not need to be as high as on profit to generate the same tax income No income has been generated by a business running at a loss. You had a number of things. Now you have less. Nothing was generated. You can distribute all you want, but you have less all of the time. > It would also be hell of a lot simpler, because all those crazy shell company incentives go away There's nothing wrong with shell companies. If you want to do anything, you have to register a business. It's just lazy journalism.
- emn13 5y ago
  As an individual, if you spend more in a year than you earn, are you still required to pay taxes? Of course. Whether or not a corporation is profitable is not relevant. A corporation that is consistently loss making may fold slightly more quickly - that sounds like a good thing. But a corporation that has any control over its prices yet has low margins shouldn't be troubled by this - other competitors are likely in the same boat. Taxing revenue instead of profit encourages high-margin businesses, which is fine by me; and it doesn't subsidize loss making - also, fine by me. Shell companies aren't hugely problematic, but they are problematic. Problem #1: every extra corporation is problematic, because of the built in risk-collectivization - i.e. excess profit is privatized, but excess risk is protected by bankruptcy. Having networks of cooperating corporations can make it easier to push losses onto others, which incentivizes worse than zero-sum economic behavior. Problem #2: complexity. Complexity is bad; it simply introduces friction, and unforeseen consequences. Notably, stuff like the double irish with a dutch sandwich not only required various limitations in irish and dutch law, but also the ability to create arbitrary corporations. Each law taken by itself seems reasonable, but the interactions in combination with the complexity that shell companies enable allows for undesirable consequences. Problem #3: Lack of transparency. It's easier to hide fraud or simple unwanted behavior when things get complicated, or even when things involve multiple jurisdictions. Economic actors - i.e. us - don't behave randomly, we look for opportunities. And people will take opportunities that are to the detriment of society, whether entirely legal or not. The ability to see those problems is critical to being able to mitigate their consequences, or solve them outright. So yes, I do think shell companies have an intrinsic cost. I'm not sure what your background is, but to pick a simile - it's kind of like the cost of lock-free multithreading - it may appear to work, but the chaos can hide bugs that are hard to find, and hard to pin down, and fixing one may introduce another. Having decent, comprehensible abstractions helps, but legal systems aren't easily engineered top-down like that; they're evolved in each jurisdiction separately, and piece by piece, with lots of input from the very bad actors that are abusing the loopholes. It's unlikely we'll find ideal "abstractions" in that world if they even exist; so keeping things as comprehensible and simple as possible is a boon. Shell companies without actual economic value represent complexity and are thus bad.