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The first proposal of having a minimum corporate tax rate probably doesn't mean a lot because you to then start policing what subsidies governments give to effe

by cletus 5y ago

The first proposal of having a minimum corporate tax rate probably doesn't mean a lot because you to then start policing what subsidies governments give to effectively discount below 15%. The more interesting part is what I hope is the start of serious efforts to tackle profit-shifting, which is a name invented for "transfer pricing" because that is technically illegal. But it's the same thing. A good starting point is that if you book x% of your revenue in country A then country A should get to tax x% of your profit. Here's another part of this they should adopt: borrowing money should count as repatriating profits. In the era of zero interest rates debt is used to effectively defer taxes forever. There's no legitimate reason to allow entities to borrow money at near-zero interest rates instead of repatriating retained earnings.

einpoklum 5y ago
While it's true that corporate influence over governments may result in subsidies to effectively give a discount - it is less likely than you describe, because the taxation is international. To illustrate why that is, think about a state like Ireland. So far, Ireland has gotten corporations to be HQ'ed there, or pay taxes there, because the tax rate is only 12.5%. The detriment for Ireland has been minimal, if any, from that corporate presence. It _could_ have gotten more but that's just theoretical. If this goes into effect, then a corporation will no longer benefit as much from being Ireland-based: It will pay 12.5% corporate income tax annually, but will pay extra in other countries it's active in. Who's going to subsidize the extra 2.5%? Ireland? Technically possible, but it's unlikely for Irish politicians to subsidize the taxes a private corporation pays _elsewhere_. Showering a corporation with money to that extent requires corruption on a whole new level.
- atopuzov 5y ago
  It's not like MNCs in Ireland actually pay any tax anyway (various loopholes and agreements provided by the Irish government). To quote from [1] "the revelations shone a fresh spotlight on Irish tax policy that “has been designed precisely to facilitate this kind of avoidance”." [1] https://www.theguardian.com/world/2021/jun/03/microsoft-irish-subsidiary-paid-zero-corporate-tax-on-220bn-profit-last-year https://www.theguardian.com/world/2021/jun/03/microsoft-iris...
  - einpoklum 5y ago
    Oh, well, that's worse than I thought, but I think it basically bolsters my argument: A subsidy for them could not even be checked off against their tax contributions to the state's economy.
  - refurb 5y ago
    That’s not true at all. Your example is a special situation. https://www.irishtimes.com/business/economy/top-10-companies-now-pay-more-than-half-of-corporate-tax-1.4553695 https://www.irishtimes.com/business/economy/top-10-companies... The top 10 corporate tax payers, including Pfizer, Apple and Intel made up 50% of all corporate tax revenue in Ireland, $6B. Ireland has 4M people, that means the top 10 companies contribute $1500 for every man woman and child in Ireland. That’s a hell of a deal for the country.
    - einpoklum 5y ago
      > That’s a hell of a deal for the country. More of a Faustian deal...
sokoloff 5y ago
Transfer pricing is an accounting practice that is required by regulations to be computed/stated in many circumstances. Transfer pricing is not on its own an illegal practice as suggested above.
- intricatedetail 5y ago
  In the UK if an individual gets paid with a loan, then have to repay it within a tax year or otherwise pay tax on it as if it was regular income (disguised remuneration). This has actually been applied retrospectively and drove many people to bankruptcy. Why this cannot be applied to transfers between companies if they are related?
  - refurb 5y ago
    I’m not sure what you mean. Transfer pricing does happen within a tax year. A gizmo is 95% assembled in Country A with 50% tax rate. Company wants to sell that 95% gizmo for 10% of the actual price to their subsidiary in Country B with a 5% tax rate. Finish the product there then book 90% of the revenue in the low tax country. That’s transfer pricing. There are account regulations that define how that price is set. That said it’s hard with IP and other assets with less tangible value.

by cletus 5y ago

einpoklum 5y ago

While it's true that corporate influence over governments may result in subsidies to effectively give a discount - it is less likely than you describe, because the taxation is international. To illustrate why that is, think about a state like Ireland. So far, Ireland has gotten corporations to be HQ'ed there, or pay taxes there, because the tax rate is only 12.5%. The detriment for Ireland has been minimal, if any, from that corporate presence. It _could_ have gotten more but that's just theoretical. If this goes into effect, then a corporation will no longer benefit as much from being Ireland-based: It will pay 12.5% corporate income tax annually, but will pay extra in other countries it's active in. Who's going to subsidize the extra 2.5%? Ireland? Technically possible, but it's unlikely for Irish politicians to subsidize the taxes a private corporation pays _elsewhere_. Showering a corporation with money to that extent requires corruption on a whole new level.

atopuzov 5y ago
It's not like MNCs in Ireland actually pay any tax anyway (various loopholes and agreements provided by the Irish government). To quote from [1] "the revelations shone a fresh spotlight on Irish tax policy that “has been designed precisely to facilitate this kind of avoidance”." [1] https://www.theguardian.com/world/2021/jun/03/microsoft-irish-subsidiary-paid-zero-corporate-tax-on-220bn-profit-last-year https://www.theguardian.com/world/2021/jun/03/microsoft-iris...
- einpoklum 5y ago
  Oh, well, that's worse than I thought, but I think it basically bolsters my argument: A subsidy for them could not even be checked off against their tax contributions to the state's economy.
- refurb 5y ago
  That’s not true at all. Your example is a special situation. https://www.irishtimes.com/business/economy/top-10-companies-now-pay-more-than-half-of-corporate-tax-1.4553695 https://www.irishtimes.com/business/economy/top-10-companies... The top 10 corporate tax payers, including Pfizer, Apple and Intel made up 50% of all corporate tax revenue in Ireland, $6B. Ireland has 4M people, that means the top 10 companies contribute $1500 for every man woman and child in Ireland. That’s a hell of a deal for the country.
  - einpoklum 5y ago
    > That’s a hell of a deal for the country. More of a Faustian deal...

sokoloff 5y ago

Transfer pricing is an accounting practice that is required by regulations to be computed/stated in many circumstances. Transfer pricing is not on its own an illegal practice as suggested above.

intricatedetail 5y ago
In the UK if an individual gets paid with a loan, then have to repay it within a tax year or otherwise pay tax on it as if it was regular income (disguised remuneration). This has actually been applied retrospectively and drove many people to bankruptcy. Why this cannot be applied to transfers between companies if they are related?
- refurb 5y ago
  I’m not sure what you mean. Transfer pricing does happen within a tax year. A gizmo is 95% assembled in Country A with 50% tax rate. Company wants to sell that 95% gizmo for 10% of the actual price to their subsidiary in Country B with a 5% tax rate. Finish the product there then book 90% of the revenue in the low tax country. That’s transfer pricing. There are account regulations that define how that price is set. That said it’s hard with IP and other assets with less tangible value.