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Apparently it's also possible to address the issue of shifting corporate profits to tax-havens even without a large scale international agreement. Basically, c

Apparently it's also possible to address the issue of shifting corporate profits to tax-havens even without a large scale international agreement. Basically, corporations have one place money comes in and two places it comes out, like so: sales = expenses + profits If you tax the sales, then deduct the expenses, that leaves the incidence of the tax on the profits. But importantly, unlike profits, it's usually clear to which country a sale belongs to. Where this gets complicated is international borders, the solution there is to only deduct domestic expenses. At first this seems protectionist, but according to economists changes to the currency exchange rates eventually balance out the effect and it ends up trade neutral. This idea was actually seriously proposed as part of US tax reform a few years ago (and I saw some praise from both left/right leaning economists), but it got killed because some big companies were against it. It's called a border adjustment tax. [1] Even though the above is an interesting idea this recent attempt to come to an international agreement is probably also reasonable, since it should accomplish some of the same things and getting countries to agree to a headline number is probably more realistically achievable than in-depth reform (so it's likely solutions like this or nothing at least in the medium term). [1] https://en.wikipedia.org/wiki/Border-adjustment_tax https://en.wikipedia.org/wiki/Border-adjustment_tax

tastyfreeze 5y ago
An agreed upon international base tax rate is the wrong solution. This becomes a minimum wage for nations and removes the incentive to compete to be the home of corporate headquarters. Border adjustment tax removes the tax shelter loophole and strengthens the incentive to be a good place to headquarter a corporation.
- collaborative 5y ago
  Nations can still compete. Stability, rule of law, infrastructure investment, etc. Everything except letting companies use the country as a pirate's cave
  - gruez 5y ago
    >Nations can still compete. Stability, rule of law, infrastructure investment, etc. don't forget tax incentives. Sure, every country has to charge 15% tax, but if you domicile your country here we'll give you tax credits!
    - asteroidbelt 5y ago
      That would be obvious loophole, I guess these agreements explicitly prohibit it.
    - deleted 5y ago
      [deleted]
  - native_samples 5y ago
    But there are limits to how much of those are beneficial to companies. It's not like doubling the amount of them will double the number of companies you have, there are limits to ROI there. As long as their employees can get to work in the morning, aren't feeling unsafe, the courts aren't corrupt and so on, the corporate need for rule of law is rather limited, and too much rule of law can easily turn into abusive lawsuits or stifling regulation that nails down whatever the status quo happens to be at the time. As for generic infrastructure, most companies need roads, but other infrastructure is often handled by the private sector e.g. airports, ports, telecoms. Realistically lots of countries can meet this minimum bar and it doesn't require high tax rates to do so. The countries that have lower corporate tax rates than this new attempt at a minimum standard do have working rule of law, stability and infrastructure. They aren't Somalia. So it's unclear how much scope countries have to compete in this area. On the other hand, efficiency provides scope for more or less unlimited competition. Minimum global tax rates are pretty directly an attempt to end competition on the axis that is both very important and also has most scope for improvement.
  - trompetenaccoun 5y ago
    All these are a given in most developed countries. Corporations and funds aren't headquartered in Ireland for the great Irish infrastructure or because there is better rule of law there than in France. What many seem to be forgetting is the entire economical aspect of it. Economies are not all the same, some are stronger and some are weaker. Some are naturally attractive because of the talent pool, location, other businesses settled there, etc. Others aren't and might need to lower the tax rate to be able to compete. Adjusting the rate is an important economic tool for governments, losing this will cause some countries problems, the same way some countries in the Eurozone are now suffering serious consequences for giving up sovereignty over their currency and losing the ability to devalue it. A border adjustment tax theoretically avoids these problems and might be a much better choice for the smaller countries that aren't the US and don't dictate the rules.
- Jammub 5y ago
  The “incentive to compete” is currently “who has the lowest number and the least attentive auditors”
  - tastyfreeze 5y ago
    Right, that would continue to be true. However, now, a corporation can be headquartered in one country to have access to labor and shunt all profit through a subsidiary in a low tax country. They get the benefit of a skilled labor force without paying tax on the profits created by that labor. Fix the tax shelter problem and the incentive for countries becomes "make a labor force worth the tax rate or lower the tax rate".
- davvolun 5y ago
  > This becomes a minimum wage for nations Why is that a problem? > removes the incentive to compete to be the home of corporate headquarters No, it shifts the means of incentives. It's no longer a race to the bottom tax rate. As I understand it, the problem with a border adjustment tax is implementation overhead; it would be expensive to audit. Noting that the IRS in the U.S. is not funded enough to investigate tax fraud as it is, this seems to be a major problem. You would also likely need foreign cooperation. There's no reason to believe a corporation headquartered in the U.S. needs to be truthful about their foreign revenue, and how would you know if they were without a foreign government's assistance. The problem with implementing a world-wide minimum tax rate is organization, getting all countries to agree and stand by it. This is something the world has been engaged in doing for around 100 years now. We've had failures (League of Nations) and successes. There's no guarantee of success, but importantly, tax havens can be isolated if 130+ countries agree to do so, until they follow suit. Basically, even if global minimum tax is not the optimal solution (which remains to be shown), it's better to have a sub-optimal solution that can be implemented than an optimal solution that's impossible.
  - tastyfreeze 5y ago
    Governments should earn their taxes the same as a person should earn their income. Governments "earn" their taxes by making the benefits of operating in a nation worth the tax. Price fixing and collusion is illegal for companies to practice. Being a government doesn't remove the deleterious effects of price fixing and collusion. An international base corporate tax rate makes nations not care if the tax rate is even worth it to businesses. If the tax rate isn't worth it then a business will close or just never start. Lets say that a corporation choosing a home nation is akin to you shopping for a good refrigerator. The refrigerator manufacturers don't like that one manufacturer is selling their equal quality fridges at 50% less than everyone else. There are two choices for manufacturers. Collude and fix the price of refrigerators or figure out what the 50% cut rate company is doing and try to compete. If the manufacturers choose collusion they can continue with business as usual without making improvements to cut cost or improve quality. But, they will cut cost, possibly sacrificing quality, as that is now the only way to increase revenue. The incentive to improve is removed and the risk of a refrigerator cabal outsider pricing at 50% increases. If the competitors instead choose to work on reducing cost or improving quality you as the consumer get cheaper higher quality fridges. Under the price fixing regime, when an outsider starts selling a fridge at 50% the fixed price the cabal either has to destroy them, bring them in the fold, or remove the price fixing. With price fixing an outsider will always arise. Competition is the only solution that doesn't destroy itself.
zizee 5y ago
This is an interesting concept, and worthy of including in the discussion, but you are presenting Border Adjustment Tax as if the results are a certainty. The Wikipedia article describes this as theoretical with quite a bit of uncertainty, and economists are far from concensus on what the outcomes would be. There are also definitely winners and losers in this system, so it's not so simple to say it the proposal was killed just because some big companies were against it.
- throwaway34241 5y ago
  Do you have any resources for how in-dispute the (eventual) currency adjustment part is? As you probably know, there is never 100% agreement among economists on anything, and no matter how narrow the opposition is you can often count on politically-motivated groups to find and promote it relentlessly. The main data I have is both Mankiw and Krugman (both highly eminent economists from different sides of the aisle) seemed to think it checked out (and the idea is over 20 years old at this point, so it's not that new). Krugman in particular got his Nobel on trade and, uh, is not normally inclined to say nice things about Republicans (this was proposed in the US as part of a Republican tax reform initiative). So that's enough for me to presume that the math is probably OK, although I admit I'm not capable of checking it myself, and it would be nice if a more comprehensive survey was available. If the currency adjustment does balance out I'm not sure who the (eventual) losers would be aside from internationals that profit-shift to low tax jurisdictions (which was the whole point). Of course if the currency adjustment wasn't immediate you could see winners/losers for some period. I'm sure there would be other transition costs, the tax system is already pretty complex and thinking about all the edge cases while switching between two completely different tax regimes seemed rather headache-inducing.
  - zizee 5y ago
    My comment was not arguing one way or another. Instead I was pointing out that the original wording of your top level comment might mislead people as it sounded like there was little doubt to the effectiveness of a Border Adjustment Tax, when in truth it has never been tried. Rereading your original post it now seems more reasonable. I don't know if that is because it has been edited, or because I am reading it in a new light. To be clear, I welcome the suggestion of trying new solutions. The current system is clearly broken.
toast0 5y ago
> But importantly, unlike profits, it's usually clear to which country a sale belongs to. Is it? If I order something from another country, does the sale belong to the sending country or the receiving country?
- shaicoleman 5y ago
  > Is it? If I order something from another country, does the sale belong to the sending country or the receiving country? The receiving country. This, for example is how the new EU VAT rules now work. https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce_en https://ec.europa.eu/taxation_customs/business/vat/vat-e-com...
- nine_k 5y ago
  I suppose it belongs to the country where the selling legal entity is registered.

tastyfreeze 5y ago

An agreed upon international base tax rate is the wrong solution. This becomes a minimum wage for nations and removes the incentive to compete to be the home of corporate headquarters. Border adjustment tax removes the tax shelter loophole and strengthens the incentive to be a good place to headquarter a corporation.

collaborative 5y ago
Nations can still compete. Stability, rule of law, infrastructure investment, etc. Everything except letting companies use the country as a pirate's cave
- gruez 5y ago
  >Nations can still compete. Stability, rule of law, infrastructure investment, etc. don't forget tax incentives. Sure, every country has to charge 15% tax, but if you domicile your country here we'll give you tax credits!
  - asteroidbelt 5y ago
    That would be obvious loophole, I guess these agreements explicitly prohibit it.
  - deleted 5y ago
    [deleted]
- native_samples 5y ago
  But there are limits to how much of those are beneficial to companies. It's not like doubling the amount of them will double the number of companies you have, there are limits to ROI there. As long as their employees can get to work in the morning, aren't feeling unsafe, the courts aren't corrupt and so on, the corporate need for rule of law is rather limited, and too much rule of law can easily turn into abusive lawsuits or stifling regulation that nails down whatever the status quo happens to be at the time. As for generic infrastructure, most companies need roads, but other infrastructure is often handled by the private sector e.g. airports, ports, telecoms. Realistically lots of countries can meet this minimum bar and it doesn't require high tax rates to do so. The countries that have lower corporate tax rates than this new attempt at a minimum standard do have working rule of law, stability and infrastructure. They aren't Somalia. So it's unclear how much scope countries have to compete in this area. On the other hand, efficiency provides scope for more or less unlimited competition. Minimum global tax rates are pretty directly an attempt to end competition on the axis that is both very important and also has most scope for improvement.
- trompetenaccoun 5y ago
  All these are a given in most developed countries. Corporations and funds aren't headquartered in Ireland for the great Irish infrastructure or because there is better rule of law there than in France. What many seem to be forgetting is the entire economical aspect of it. Economies are not all the same, some are stronger and some are weaker. Some are naturally attractive because of the talent pool, location, other businesses settled there, etc. Others aren't and might need to lower the tax rate to be able to compete. Adjusting the rate is an important economic tool for governments, losing this will cause some countries problems, the same way some countries in the Eurozone are now suffering serious consequences for giving up sovereignty over their currency and losing the ability to devalue it. A border adjustment tax theoretically avoids these problems and might be a much better choice for the smaller countries that aren't the US and don't dictate the rules.
Jammub 5y ago
The “incentive to compete” is currently “who has the lowest number and the least attentive auditors”
- tastyfreeze 5y ago
  Right, that would continue to be true. However, now, a corporation can be headquartered in one country to have access to labor and shunt all profit through a subsidiary in a low tax country. They get the benefit of a skilled labor force without paying tax on the profits created by that labor. Fix the tax shelter problem and the incentive for countries becomes "make a labor force worth the tax rate or lower the tax rate".
davvolun 5y ago
> This becomes a minimum wage for nations Why is that a problem? > removes the incentive to compete to be the home of corporate headquarters No, it shifts the means of incentives. It's no longer a race to the bottom tax rate. As I understand it, the problem with a border adjustment tax is implementation overhead; it would be expensive to audit. Noting that the IRS in the U.S. is not funded enough to investigate tax fraud as it is, this seems to be a major problem. You would also likely need foreign cooperation. There's no reason to believe a corporation headquartered in the U.S. needs to be truthful about their foreign revenue, and how would you know if they were without a foreign government's assistance. The problem with implementing a world-wide minimum tax rate is organization, getting all countries to agree and stand by it. This is something the world has been engaged in doing for around 100 years now. We've had failures (League of Nations) and successes. There's no guarantee of success, but importantly, tax havens can be isolated if 130+ countries agree to do so, until they follow suit. Basically, even if global minimum tax is not the optimal solution (which remains to be shown), it's better to have a sub-optimal solution that can be implemented than an optimal solution that's impossible.
- tastyfreeze 5y ago
  Governments should earn their taxes the same as a person should earn their income. Governments "earn" their taxes by making the benefits of operating in a nation worth the tax. Price fixing and collusion is illegal for companies to practice. Being a government doesn't remove the deleterious effects of price fixing and collusion. An international base corporate tax rate makes nations not care if the tax rate is even worth it to businesses. If the tax rate isn't worth it then a business will close or just never start. Lets say that a corporation choosing a home nation is akin to you shopping for a good refrigerator. The refrigerator manufacturers don't like that one manufacturer is selling their equal quality fridges at 50% less than everyone else. There are two choices for manufacturers. Collude and fix the price of refrigerators or figure out what the 50% cut rate company is doing and try to compete. If the manufacturers choose collusion they can continue with business as usual without making improvements to cut cost or improve quality. But, they will cut cost, possibly sacrificing quality, as that is now the only way to increase revenue. The incentive to improve is removed and the risk of a refrigerator cabal outsider pricing at 50% increases. If the competitors instead choose to work on reducing cost or improving quality you as the consumer get cheaper higher quality fridges. Under the price fixing regime, when an outsider starts selling a fridge at 50% the fixed price the cabal either has to destroy them, bring them in the fold, or remove the price fixing. With price fixing an outsider will always arise. Competition is the only solution that doesn't destroy itself.

zizee 5y ago

This is an interesting concept, and worthy of including in the discussion, but you are presenting Border Adjustment Tax as if the results are a certainty. The Wikipedia article describes this as theoretical with quite a bit of uncertainty, and economists are far from concensus on what the outcomes would be. There are also definitely winners and losers in this system, so it's not so simple to say it the proposal was killed just because some big companies were against it.

throwaway34241 5y ago
Do you have any resources for how in-dispute the (eventual) currency adjustment part is? As you probably know, there is never 100% agreement among economists on anything, and no matter how narrow the opposition is you can often count on politically-motivated groups to find and promote it relentlessly. The main data I have is both Mankiw and Krugman (both highly eminent economists from different sides of the aisle) seemed to think it checked out (and the idea is over 20 years old at this point, so it's not that new). Krugman in particular got his Nobel on trade and, uh, is not normally inclined to say nice things about Republicans (this was proposed in the US as part of a Republican tax reform initiative). So that's enough for me to presume that the math is probably OK, although I admit I'm not capable of checking it myself, and it would be nice if a more comprehensive survey was available. If the currency adjustment does balance out I'm not sure who the (eventual) losers would be aside from internationals that profit-shift to low tax jurisdictions (which was the whole point). Of course if the currency adjustment wasn't immediate you could see winners/losers for some period. I'm sure there would be other transition costs, the tax system is already pretty complex and thinking about all the edge cases while switching between two completely different tax regimes seemed rather headache-inducing.
- zizee 5y ago
  My comment was not arguing one way or another. Instead I was pointing out that the original wording of your top level comment might mislead people as it sounded like there was little doubt to the effectiveness of a Border Adjustment Tax, when in truth it has never been tried. Rereading your original post it now seems more reasonable. I don't know if that is because it has been edited, or because I am reading it in a new light. To be clear, I welcome the suggestion of trying new solutions. The current system is clearly broken.

toast0 5y ago

> But importantly, unlike profits, it's usually clear to which country a sale belongs to. Is it? If I order something from another country, does the sale belong to the sending country or the receiving country?

shaicoleman 5y ago
> Is it? If I order something from another country, does the sale belong to the sending country or the receiving country? The receiving country. This, for example is how the new EU VAT rules now work. https://ec.europa.eu/taxation_customs/business/vat/vat-e-commerce_en https://ec.europa.eu/taxation_customs/business/vat/vat-e-com...
nine_k 5y ago
I suppose it belongs to the country where the selling legal entity is registered.