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> Once you set up a way to make it look like you owe the 2nd company tons of money, now your 1st company no longer is "profitable" and actually in debt losing m
by koolba 5y ago
> Once you set up a way to make it look like you owe the 2nd company tons of money, now your 1st company no longer is "profitable" and actually in debt losing money, which means it doesn't need to pay taxes on the massive profit it's making.
It’s called “transfer pricing” and it’s been going on for decades: https://en.wikipedia.org/wiki/Transfer_pricing https://en.wikipedia.org/wiki/Transfer_pricing
Short of a revenue (as opposed to income) corporate tax or VAT, it’s a very tricky problem to address. Maybe an excise tax on foreign remittances to match the highest corporate bracket.
Or you just scrap corporate tax entirely because it’s a terrible idea anyway.
- pkaye 5y ago> Or you just scrap corporate tax entirely because it’s a terrible idea anyway. If you scrap corporate tax would rich people hold all their wealth in corporations so as not to pay any personal income tax?
- draugadrotten 5y agoThe best way to "tax" the rich is to make them spend all their money. The more the rich consume, the more the less rich benefit. It's turtles all the way down after that. So please order that custom yacht now, all you HN unicorns.
- bsanr 5y agoWhat if the point of taxes is not simply to redirect and redistribute funding, but also to reduce economic activity and, by extension, emissions and inflation?
- durnygbur 5y ago> The best way to "tax" the rich is to make them spend all their money. What a catastrophic idea. Do you want economy tuned to the tastes of the vain, wasteful, and capricious? In such economy there is no car, real estate, mobile phone, or clothes for you.
- matkoniecz 5y agoNot at all! It only redistributes work toward what rich people want. Investing into something actually useful would be much better. Scenario A: yacht is bought - economy is redirected toward luxurious yacht building, people get paid to work on building a yacht Scenario B: investment into housing - economy is redirected toward house building, people get paid to build houses scenario A can be a good one only when this people would be unemployed and seeking a work otherwise. Or if you think that building luxurious yachts is more important than alternatives.
- hoseja 5y agoHere we see a trickle-down advocate in the wild, folks.
- namdnay 5y agoYou tax it when they take the money out to spend it on themselves
- judahmeek 5y agoThat would require a progressive, rather than moralistic, sales tax.
- salawat 5y agoExcept they don't. They create corporations to do it for them. As long as creating a legal fiction is a mere matter of having someone else do paperwork, you either need to extract tax from legal fictions, or kiss a big chunk of taxable activity goodbye.
- fighterpilot 5y agoI don't think that's accurate if we're talking about large publicly listed companies, the only way for shareholders to spend the money on themselves is to take it out via dividends or sell the stock for a capital gain.
- Nicholas_C 5y agoShareholders can take out a loan for spending money that uses the shares as collateral.
- fighterpilot 5y agoTo pay back the loan they need to sell the stock which is a capital gains event. The two main tax avoidance strategies would be people running and retiring overseas just before selling, or never selling and waiting for the cost basis to be reset upon their death.
- runT1ME 5y agoThis isn’t legal. A corporation that leases someone a car and a house is paying them a taxable income, regardless of it not being a cash income.
- judahmeek 5y agoYes, Yes, they would.
- toyg 5y agoIncidentally, this is the real reason why "Western" states are so hung-up on copyright enforcement: nevermind the movie bullshit, IP is a door throughout which profits can be arbitrarily shuffled around by the rich and the powerful. It creates a parallel reality where imaginary goods can be transferred from jurisdiction to jurisdiction, creating infinite possibilities for transfer pricing. And if anyone objects? Ahh, they clearly want to starve artists and creatives! It's genius, and we all go along with it because how can you hate art and imagination? It's such a fundamental side of human nature. By turning its output into pseudo-goods, we think we're moving up in the civilization scale, whereas we're just enabling a parasitical accumulation of capital.
- inertiatic 5y agoCan you explain how that works for someone ignorant like myself?
- SpicyLemonZest 5y agoIn general, every country you do business in will charge taxes based on the profit you make within that country. So what you do is: * Set up a company in the country where you'd like to pay taxes, and give it all of your intellectual property. * Set up subsidiaries in the countries where you don't want to pay taxes. Have them pay licensing fees to the first company for the IP, making sure to set the licensing fee high enough that the subsidiaries don't make much profit. * Now most of your profit lives in the first country, no matter how much business you do elsewhere.
- NaturalPhallacy 5y ago>intellectual property A concept invented by and for lawyers. Call it imaginary property.
- SpicyLemonZest 5y agoI don't think that it's productive to make up snarky names for concepts I don't like.
- sumedh 5y ago> Or you just scrap corporate tax entirely because it’s a terrible idea anyway. Then the owners will just get less salary but will have the corporation pay for their housing, transport food etc. How does that help in making the system fair?
- coredog64 5y agoIn the US, at least, the IRS takes a very dim view of this. Nearly all of it would be considered imputed income and would be taxable.
- triggercut 5y agoYou might be interested in the OECD's way to make blatant tax avoidance like the original comment a little harder. [https://www.oecd.org/tax/beps/ https://www.oecd.org/tax/beps/] Groups where the ultimate parent is responsible for roughly over 1Bn in revenue are required to submit Country By Country Reports covering all cross border transactions their details and their transfer pricing methodology, and, in many cases, the underlying documentation of those transactions (contracts, loan agreements etc.). These are digitally submitted via your local jurisdictions Tax authority and shared with all member countries. Companies as part of that group are required to lodge more detailed information at a local level on just their cross border transactions with others in the group. This allows for some level of check that information being reported is globally consistent between tax authorities, who are then able to identify and place controls on unwanted behaviours.
- toyg 5y agoIt should be noted this is framework is all very new. IIRC Country By Country reporting became compulsory in the UK only last year.
- naasking 5y ago> Short of a revenue (as opposed to income) corporate tax or VAT, it’s a very tricky problem to address There's another post in this thread about changing IP law itself to disincentivize these arrangements. Seems like a good idea.
- msh 5y agoWell the fix for this is to tax revenue, not profits.