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It's complicated. "Money they made in their country" is hard to define. Large companies abuse intangible assets to shift profits around, but it's hard to say at

• naveen99 5y ago
  A 100% license fee seems like a non arms length transaction at a non market rate.
  • eoo 5y ago
    Yep, this is just the introduction to these kinds of thing. Then, they start to get accountants in both countries to agree on what seems a reasonable rate, say 30%? And the other 70% can be delayed earnings or whatever, and then maybe they decide to reinvest it instead. The list of resources is bottomless and continuously increasing. What matters is that because the savings are potentially huge, your BigCo is incentivized to reduce that tax exposure and they've got the legal and accounting workforce to find that optimization.
• mediocregopher 5y ago
  Shod google not be taxed twice in this example? Once on the income made in the USA when they sold the actual thing, and once in Ireland when the Irish branch sold the thing to the USA branch? Not to mention sales tax....
  • H12 5y ago
    Google USA made zero profit on those sales due to the 100% licensing fee with Google Ireland, so there's no income to be taxed. Revenue and expenses are exactly equal. As for sales tax, I don't really know how it works in this situation.
  • reader_mode 5y ago
    You aren't paying taxes on revenue, you pay tax on profit
    • ncallaway 5y ago
      That’s a choice, and one we could change. My company is taxed on revenue (under the Washington State B&O tax scheme, and similar local tax schemes). Taxing based on revenue is viable, it just needs to be done with a little more care up front.
      • unreal37 5y ago
        Tax on revenue is just a sales tax on the consumer of that product or service. You might as just increase sales taxes and remove corporate taxes entirely.
        • ncallaway 5y ago
          In WA sales tax only applies to retail sales. Which means a revenue tax and a retail sales tax are not equivalent. For example, if a home builder is buying lumber directly from a wholesaler, they aren’t paying a sales tax. Whereas the revenue tax does catch a portion of that income. Maybe you mean we should broaden the concept of sales tax, and apply it to all transactions? That would be closer to equivalent to a revenue based tax structure, and would probably end up looking very similar to the VAT tax structure in Europe. I’m fine with a VAT tax, if we want to structure things that way. Honestly it’s a lot more paperwork to manage that way instead of revenue, but either works for me. Assuming arguendo that a sales and revenue tax were equivalent, a revenue tax would be the much simpler way to manage tax collection. Why would you ever prefer a structure that creates a tax event for every transaction, to an equivalent one that creates a single tax event per business entity?
• saddlerustle 5y ago
  What you're describing is a method of deferring taxation, not avoiding taxation. Google is a US publicly traded company so its profits ultimately belong to its shareholders, and it can only pay that out via the US.
  • unreal37 5y ago
    The company doesn't have an obligation to pay this money to their shareholders, ever. You might die (of old age) before you get your initial investment in Facebook shares back as dividends.
    • saddlerustle 5y ago
      If that was deemed likely, the company's shares wouldn't be worth anything. Facebook and Google routinely do share buybacks these days (which is equivalent to paying dividends)
      • gbear605 5y ago
        Shares, especially in big tech companies, are nowadays mostly valued as a commodity not for the dividend value. Even ignoring meme stocks like TSLA or GME, stocks like Facebook or Google are never going to pay back enough in dividends or buybacks to justify the price.
        • saddlerustle 5y ago
          While yes liquidity drives share prices over the short term, as a general rule that's nonsense. What do you think it means for them to be "valued as a commodity"? Why do you think shares have any value at all, or have any connection with company performance? Over just the past 3 years facebook has paid out almost $30 billion to shareholders through repurchases and has plans to pay out $25 billion more. That's the majority of what its market cap was just 8 years ago, and it's still a growing company. Do you think it does that just for the fun of it?
• amelius 5y ago
  > Probably the best solution is a minimum tax worldwide. Wouldn't that make companies pay taxes in countries they are based in (as opposed to where they make money)? Anyway this could be the push that the EU needed to start their own Silicon Valley.
  • obventio56 5y ago
    It removes the tax benefit of realizing profits abroad, which would likely bring revenue back to the market where it was earned. I suppose a company could still move profit wherever they choose, but mostly likely inertia would keep it in place.
  • WanderPanda 5y ago
    Do you really think something like the SV can be created top-down?
    • mantas 5y ago
      It takes time. But SV was kickstarted by gov investments.
  • addicted 5y ago
    If there is no benefit to moving around the income earned, companies would stick to declaring their income at the point of earning (so where they provided the services) because that would likely be the easiest, and would eliminate all sorts of currency based risks, transaction costs, etc.
  • ben_w 5y ago
    > Anyway this could be the push that the EU needed to start their own Silicon Valley. Given the combined market caps of Apple, Microsoft, and Amazon (~$5.6T) is larger than the national net worth of all but the four largest EU countries, I don’t think there’s a lack of motivation here.
    • rmah 5y ago
      [edit] "all but the four largest"... my bad, I misread. Not sure why comparing mega-corps to small nations has much value though. Not sure where you got your info, but I'm afraid it seems inaccurate. The total wealth of the four largest EU nations, as of 2019, are as follows: Germany: $14.7T UK: $14.3T France: $13.7T Italy: $11.37T Just FYI, the three wealthiest nations are: the US at $106T, China at $64T, and Japan at $25T. This info is from a Credit Suisse report and is widely cited (https://en.wikipedia.org/wiki/List_of_countries_by_total_wealth https://en.wikipedia.org/wiki/List_of_countries_by_total_wea..., https://www.visualcapitalist.com/all-of-the-worlds-wealth-in-one-visualization/ https://www.visualcapitalist.com/all-of-the-worlds-wealth-in..., etc). By digging a bit into the US data, those numbers are, if anything conservative. According to the US Federal Reserve Bank, in 2014, the US had total assets of $270T and total liabilities of $146T for a net worth of $124T.
• hervature 5y ago
  Except we already have a minimum tax worldwide - 0%. Perhaps every country should meet the others and offer 0% corporate tax. The solution isn't as simple as "minimum tax" as some places legitimately believe that corporate tax is not the most effective way to generate government profits (Wyoming and South Dakota at the state level).
  • ClumsyPilot 5y ago
    So I register a limited company, undertake all my work through it and keep my revenue, money and saving in that company, paying no tax on them. Then I have the company buy a car, laptop and every other possible expence I can get away with placing on company. You've solved nothing
    • hervature 5y ago
      I didn't claim to solve anything. Merely that a world wide corporate tax rate isn't as simple as everyone thinks. For what it's worth, a corporate tax rate doesn't prevent you from doing what you suggest. In fact, you are encouraged to do so to avoid the tax.
  • a1369209993 5y ago
    Actually, we don't - there is no legal/treaty reason why a government could not offer a negative corporate income tax rate (at least in the lowest N-1 tax brackets), and we may actually see that if corporate abuse of political processes is allowed to continue far enough.
    • hervature 5y ago
      You are saying that we could theoretically lower the minimum. As it stands, the minimum is 0%.
      • a1369209993 5y ago
        No, I'm saying that "this value is not allowed to go below X" is different from "the lowest current value happens to be X" and we have the latter, not the former.
• mohanmcgeek 5y ago
  > Google Ireland charges Google USA a license fee of 100% of the revenue they made. This can be solved by placing a duty on large cross border IP fee transactions. US is the country that's opposed to putting tariff on IP
  • 542458 5y ago
    There are lots of legitimate high-value cross border IP transfers, and since the US creates a lot of valuable IP it makes perfect sense that they’d oppose this.
    • bonzini 5y ago
      But why do intra-company IP transfers have to be treated as actually moving money?
      • 542458 5y ago
        Two reasons: they’re not always actually intra company. Apple and Apple Ireland are different companies - and while intuitively it feels like you can just lump them together, it’s often much more complicated than that. Second, because it is actually moving money. If I’m a Canadian software company that does most of its sales in the US through an American subsidiary (not uncommon), the way it works is the American subsidiary pays the Canadian company back for the sales of the Canadian company’s IP. Otherwise the money would never get back to Canada and the developers wouldn’t get paid! Furthermore, would be silly and tax-suboptimal to ignore the IP-money-flow and treat the Canadian company as nearly pure loss while treating the American one as nearly pure profit.
        • bonzini 5y ago
          One is a wholly owned subsidiaries of the other. It's not of course a sufficient condition, but I m sure it's possible to distinguish the relationship between Apple and Apple Ireland from that between say Dell and EMC, or IBM and Red Hat, or the daughter companies of conglomerates like Berkshire Hathaway. > Otherwise the money would never get back to Canada and I wouldn’t be able to pay my developers! It doesn't have to be paid for the right to sell the IP. You can just move all revenue back into headquarters' coffers, and use it to finance the various cost centers. Just write the law so that it cannot be called a sale.
• mohanmcgeek 5y ago
  > Probably the best solution is a minimum tax worldwide. I saw a similar comment earlier this week. I don't understand why first world people think developing countries would agree to this minimum tax and not undercut them on day 1 to attract investments and jobs. There are no global tax authorities. Nobody is going to enforce these things. Even this G7 treaty is going to be a mess in practice because multilateral treaties are flawed like that.
  • ben_w 5y ago
    It’s like fixing bugs in software: I don’t expect any given proposal to solve everything or to close every loophole and workaround, but it’s still important to put continuous effort into trying.
  • xxpor 5y ago
    The US would sanction them, and then they'd be screwed.
    • throwaway894345 5y ago
      Why don’t countries do this already? E.g., most European countries and presumably the US dislike that Ireland undercuts corp tax, so why don’t they penalize corporations who operate in their borders but are headquartered in a country that doesn’t have agreeable tax laws?
      • OJFord 5y ago
        Well they sometimes do (e.g. fine them) but at a scale where it matters these are companies that also have leverage - if Amazon responded 'Ehhh we might stop delivering to the UK then, Brexit is already an expense, with this too ...' and then the Government is the government that lost/banned/there-is-no-good-spin Amazon. Within the EU, (or EEA perhaps) I vaguely recall there's some restriction against penalising for things like this, as long as the other nation is also a member state. (Since viewed as a whole, 'one EU', it should be fine, I suppose.) Struggling for the right words ro search though.
      • 5y ago
• oceanplexian 5y ago
  > It's complicated. "Money they made in their country" is hard to define. Large companies abuse intangible assets to shift profits around, but it's hard to say at what point abuse starts. For example, Google USA sells advertising to its clients. But, the assets it is selling are actually owned by Google Ireland. Google Ireland charges Google USA a license fee of 100% of the revenue they made. Suddenly, Google USA has net profit of 0 and Google Ireland has a large net profit. I have an even easier solution, and it doesn't require an International Tax Police or Global Government. Lower taxes. Perhaps even eliminate them. There are many ways to achieve this such as eliminating government pensions, removing entitlements, and cutting defense spending and foreign aid. Instead of robbing Apple or Google to buy F35's and ship cash to the Middle East, perhaps we could cut them a break to hire and build things in the USA.
• a1369209993 5y ago
  > Google Ireland charges Google USA a license fee of 100% of the revenue they made. Suddenly, Google USA has net profit of 0 and Google Ireland has a large net profit. That's irrelevant; Google USA made a gross profit of X G$ and should be taxed accordingly. If they want to claim some of that as a tax-deductable business expense, the burden of proof[0] is on them to demonstrate that it's a legitimate business expense. 0: If accused of tax evasion, the burden of proof would on the IRS to demonstrate that they intentionally misreported and should suffer criminal penalties, but if they're innocent, they still owe back taxes plus nominal interest. (Edit: In case it wasn't obvious, I'm talking about what the law should require, not what laws paid for by corporations currently do.)
  • PaulDavisThe1st 5y ago
    > Google USA made a gross profit of X G$ and should be taxed accordingly. If they want to claim some of that as a tax-deductable business expense, the burden of proof[0] is on them to demonstrate that it's a legitimate business expense. They've done this, repeatedly. The laws as written (US, UK, many other countries) make this a completely legitimate business expense. So, what should the law require? How would you create a law that prevents this from being a legitimate business expense but doesn't eliminate other things that would be broadly agreed as being OK?
• pirate787 5y ago
  This is a terrible solution because it eliminates tax competition between states. The corporate tax rate should be zero-- that is the best solution, as it would free up all of this ridiculous accounting and financial compliance machinery for actual productive uses. Corporate profits are already taxed at the individual owner-level as a capital gain or dividend. The corporate income tax is grand-standing political tax with no basis in science or economics.
  • imtringued 5y ago
    I agree. Taxing personal income is better, taxing land is even better. Simplify the tax code and there will be no loop holes.
• lazyeye 5y ago
  Could they create a special category for the clearly profitable tech titans where they are taxed simply on local turnover regardless of whatever legal accounting bullshit they use to avoid paying tax?
• Negitivefrags 5y ago
  In theory this is fixed by the the laws around “Transfer Pricing”. You are supposed to be able to prove that the deal between your different international entities is an arms-length agreement. That is to say that the revenue sharing agreement is similar to what would be negotiated between unrelated companies. In order to do that you are supposed to be able to show evidence that the deal is similar to other deals in your industry and such. I don’t know how Google would get away with a licence fee of 100% under those laws so I kind of doubt that that is what they have in place. However, let’s say they have a 30/70 split with 70% going to the IP holder (Ireland company) and 30% going to the selling agent (USA company). Now it’s in the best interest of the company to attribute as many of the expenses of providing the service to the USA company so that we can get its profit down to zero. The profit margin of the US company might be 0% (so no tax) while the profit margin of the Ireland company is near 100%.