8 ms·

The new tax havens

20 points by slackgentoo 15y ago

bengtan 15y ago
Accompanying text: http://www.cbsnews.com/2102-18560_162-20046867.html http://www.cbsnews.com/2102-18560_162-20046867.html
justincormack 15y ago
Of course Google, Microsoft et al were telling Ireland the other month that they couldnt raise their rates or they would leave. There is too much power here. Aligning tax rates globally will be necessary, like the EU did in Europe. On the other hand if GE is paying 3.6% then some loopholes need closing. Remove the ways to avoid tax and you can cut the basic rate. That was the plan for the abortive Reagan tax simplification. Governments are too weak for all the pork barrelling loophole generation and then get screwed by this type of evasion. Drastic tax simplification should be back on the agenda, but is as unlikely as ever.
- jacques_chester 15y ago
  > Aligning tax rates globally will be necessary Yes. The US should lower its rates, not the other way around. The US can only get away with 35% because it's the largest economy in the world. edit: to downvoters, I'd prefer you gave a reply than just metaphorically shaking your head.
  - Luyt 15y ago
    I wonder why the government needs to impose 35% tax on companies. Could it have something to do with inefficiency?
- temphn 15y ago
  Even small governments generally have more financial resources than all but the very largest corporations. They also have militaries and police forces and can compel people within their borders at gunpoint. The only card the company really has to play is the ability to leave. Playing the "exit" card is a desperation move, but its importance can be seen by the fact that it was actually revoked in every communist country. This was the purpose of the Berlin Wall, for example: to stop the brain drain of the skilled and talented, and keep them in a country with a 100% tax rate (the abolition of private property = 100% tax). Therefore, it is somewhat arguable that governments are the "weak" ones here. Playing the exit card for MS or Google would cost them many millions and is a last resort.
jacques_chester 15y ago
Well there's a few things here. 1. Company directors have a duty to maximise profits. 2. Companies have no obligation to maximise, and every right to minimise, their taxes. 3. The USA has one of the highest corporate tax rates in the world, including double taxation of repatriated earnings. Is it any wonder companies are voting with their feet? The more you rely on US exceptionalism, the more you place it at risk. If you tie taxes to residency of officers, they'll start moving to the Bahamas, Europe, Australia, Singapore and the like. You'll turn yourselves into a branch office. Good luck with that.
- dalke 15y ago
  Regarding 3: The US also has a bunch of tax breaks and loopholes which most other countries do not have, leaving the _effective_ tax rate about the same as other industrialized countries. Which leads to US companies as being the best in how to avoid paying taxes. That's how GE managed to pay no US corporate taxes last year on $5.1 billion of US profit. (Rather, 7.4 percent but those are stored overseas and won't be taxed until "repatriated." And odds are they are holding out for another tax holiday where they can repatriate for free.)
  - jacques_chester 15y ago
    Mate, let me tell you, the USA does not have a monopoly on rent-seeking behaviour. That said, you have weak party discipline in Congress, which makes horse-trading inevitable. That and the separation of powers means that there is no incentive to run a sensible budget and every incentive to pork-barrel. I don't blame Americans. The US Constitution was state of the art when it was written. Australia has been lucky in that we got to see how it worked in practice before we wrote ours.
DanielBMarkham 15y ago
There is a lot of loaded language in that report, and I got the feeling that the reporter should have taken an economics class before doing it. It was like watching a ignorant economics student get lectured about reality and she not wanting to accept any of it. So, instead of pulling down a bunch of theory from the shelf and going over it, I'll just point out the obvious flaw: she believes that the country "owns" all the businesses inside of it and that by the companies acting in their own best interest, somehow they are cheating the rest of us. Most folks who have really thought about this realize that everybody acts in their own self interest and that government's role is to set things up so they grow and that a reasonable amount of money can be harvested to help fund things. At times it sounded to me like she wanted the country to be a prison: set up shop here and you can never go abroad. Paying a tax lawyer to make the best moves for your company was cheating. Etc. I am deeply troubled that people are using mental models of business that look at businesses like the corner shopkeeper when business doesn't work like that anymore. Business is increasingly location-independent. Ranting about how unfair all of this is? It's not going to change that fact. It's 2011. I can live in Aruba, have corporate offices in Switzerland, have officers scattered around the world, make things in a dozen countries, market on the net, and sell in a hundred countries. You're using a mental model that doesn't match up to reality. You'll never make progress like that. Never once did she mention that the United States double-taxes income where no other country in the world does - a critical part of the entire discussion. That omission alone should tell you how well-researched and thoughtful the piece was.
- Atropos 15y ago
  I agree with your view of what the realities are. But I don't see why should applaud them: What happens if a country like Switzerland or Singapore has a sustainable competitive advantage over the USA or Germany, that simply cannot be overcome? They can achieve some efficiencies by "freeloading" that bigger countries cannot match, for example Switzerland doesn't train enough doctors at their own universities but relies heavily on hiring doctors from Germany. If companies cannot compete, in the long term they goe bankrupt and disappear. But how would a country disappear? It's not like every citizen could simply move somewhere else. Also the correlation/causality is not entirely clear to me. Possibly countries are more succesful, because they have lower taxes. But at some point it could also be true that only countries that are already succesful are able to lower their rax rates so much.
jake_morrison 15y ago
This is such US-centric thinking. Foreign companies never even started in the US, so there is no question of them "leaving" or "paying their fair share". If US companies are going to be competitive, they have to get out. Otherwise, investors will just choose non-US companies. It's better to set up overseas to begin with, and save the trouble. Same thing with the US taxing citizens living abroad (unlike other countries). And so the IRS sticks its nose into every single financial transaction in the world in order to get money it doesn't deserve. The US government should just stop being so greedy and entitled.
rmc 15y ago
"Almost everybody is in Ireland," Sullivan said. "All the pharmaceutical companies, all the high tech companies. You're stupid if you're not in Ireland," he replied. And this is why it doesn't change These big companies are telling everyone, the US public, the Irish public, the Irish government that the low tax rate works. The goal of the low Irish corportion tax is exactly this. Create job in Ireland, bring companies to Ireland. (Ireland is currently almost bankrupt and needs an IMF/ECB loan. Everything is on the budgetry chopping board, income tax, vat, new property taxes, reductions in capital spending, reducing number of teachers per student, delaying the age at which children start school. Everything. Except the 12.5% corporate tax rate, the government parties (a centre left and centre right) view it as that important.)
- yummyfajitas 15y ago
  It sounds like the Irish government is behaving quite responsibly. Many other governments would be tempted to try to take a bigger piece of the pie from their corporations in order to get reelected, not realizing that they might be killing the goose that laid the golden egg. It sounds like the Irish have their collective heads on straight.
  - arethuza 15y ago
    I would strongly suggest learning more about the Irish financial crisis: http://en.wikipedia.org/wiki/2008%E2%80%932011_Irish_financial_crisis http://en.wikipedia.org/wiki/2008%E2%80%932011_Irish_financi... http://www.amazon.com/Ship-Fools-Stupidity-Corruption-Celtic/dp/1586488813 http://www.amazon.com/Ship-Fools-Stupidity-Corruption-Celtic... There were staggering levels of corruption and mismanagement both in the Irish government and within the Irish financial industry. I don't think you can look at the corporate tax rate independently from all of the other utterly crazy things that were going on there.
    - rmc 15y ago
      There were staggering levels of corruption and mismanagement both in the Irish government and within the Irish financial industry. Agreed. There was clearly very little banking regulation, and many private banks were let run wild, combine that with a massive property bubble (prices have falled nationwide by 50% since 2007), and a strong societal urge to get on the property market, and Ireland is in massive financial trouble.
etherael 15y ago
Serious question; What's the difference between price fixing and tax harmonisation?
- DennisP 15y ago
  Since governments make the laws, lots of things prohibited to private entities turn out to be legal when governments do them.
  - etherael 15y ago
    So, one is legal and one is not. Is that really the extent of it? This sounds like a pretty clear example of something that should probably be closed to all parties, gov included.
s1rech 15y ago
I think this 'tax amnesty' borders on extortion. So all these companies used every loophole they could find to pay lower taxes, and now they want to bring the booty back, and it has to be for free. Assuming this happens, what prevents them from doing the same thing again?
yalimgerger 15y ago
Speaking of low taxes, I think US companies are overlooking Turkey and the advantages it offers to tech companies. 1) no corporate tax 2) no income tax for employees All that is required is for the project to be approved as an R&D project. There is an incredible talent pool, solid infrastructre and a beautiful city waiting...I am just saying...:-)

20 points by slackgentoo 15y ago

Accompanying text: http://www.cbsnews.com/2102-18560_162-20046867.html http://www.cbsnews.com/2102-18560_162-20046867.html

justincormack 15y ago

Of course Google, Microsoft et al were telling Ireland the other month that they couldnt raise their rates or they would leave. There is too much power here. Aligning tax rates globally will be necessary, like the EU did in Europe. On the other hand if GE is paying 3.6% then some loopholes need closing. Remove the ways to avoid tax and you can cut the basic rate. That was the plan for the abortive Reagan tax simplification. Governments are too weak for all the pork barrelling loophole generation and then get screwed by this type of evasion. Drastic tax simplification should be back on the agenda, but is as unlikely as ever.

jacques_chester 15y ago
> Aligning tax rates globally will be necessary Yes. The US should lower its rates, not the other way around. The US can only get away with 35% because it's the largest economy in the world. edit: to downvoters, I'd prefer you gave a reply than just metaphorically shaking your head.
- Luyt 15y ago
  I wonder why the government needs to impose 35% tax on companies. Could it have something to do with inefficiency?
temphn 15y ago
Even small governments generally have more financial resources than all but the very largest corporations. They also have militaries and police forces and can compel people within their borders at gunpoint. The only card the company really has to play is the ability to leave. Playing the "exit" card is a desperation move, but its importance can be seen by the fact that it was actually revoked in every communist country. This was the purpose of the Berlin Wall, for example: to stop the brain drain of the skilled and talented, and keep them in a country with a 100% tax rate (the abolition of private property = 100% tax). Therefore, it is somewhat arguable that governments are the "weak" ones here. Playing the exit card for MS or Google would cost them many millions and is a last resort.

jacques_chester 15y ago

Well there's a few things here. 1. Company directors have a duty to maximise profits. 2. Companies have no obligation to maximise, and every right to minimise, their taxes. 3. The USA has one of the highest corporate tax rates in the world, including double taxation of repatriated earnings. Is it any wonder companies are voting with their feet? The more you rely on US exceptionalism, the more you place it at risk. If you tie taxes to residency of officers, they'll start moving to the Bahamas, Europe, Australia, Singapore and the like. You'll turn yourselves into a branch office. Good luck with that.

dalke 15y ago
Regarding 3: The US also has a bunch of tax breaks and loopholes which most other countries do not have, leaving the _effective_ tax rate about the same as other industrialized countries. Which leads to US companies as being the best in how to avoid paying taxes. That's how GE managed to pay no US corporate taxes last year on $5.1 billion of US profit. (Rather, 7.4 percent but those are stored overseas and won't be taxed until "repatriated." And odds are they are holding out for another tax holiday where they can repatriate for free.)
- jacques_chester 15y ago
  Mate, let me tell you, the USA does not have a monopoly on rent-seeking behaviour. That said, you have weak party discipline in Congress, which makes horse-trading inevitable. That and the separation of powers means that there is no incentive to run a sensible budget and every incentive to pork-barrel. I don't blame Americans. The US Constitution was state of the art when it was written. Australia has been lucky in that we got to see how it worked in practice before we wrote ours.

DanielBMarkham 15y ago

There is a lot of loaded language in that report, and I got the feeling that the reporter should have taken an economics class before doing it. It was like watching a ignorant economics student get lectured about reality and she not wanting to accept any of it. So, instead of pulling down a bunch of theory from the shelf and going over it, I'll just point out the obvious flaw: she believes that the country "owns" all the businesses inside of it and that by the companies acting in their own best interest, somehow they are cheating the rest of us. Most folks who have really thought about this realize that everybody acts in their own self interest and that government's role is to set things up so they grow and that a reasonable amount of money can be harvested to help fund things. At times it sounded to me like she wanted the country to be a prison: set up shop here and you can never go abroad. Paying a tax lawyer to make the best moves for your company was cheating. Etc. I am deeply troubled that people are using mental models of business that look at businesses like the corner shopkeeper when business doesn't work like that anymore. Business is increasingly location-independent. Ranting about how unfair all of this is? It's not going to change that fact. It's 2011. I can live in Aruba, have corporate offices in Switzerland, have officers scattered around the world, make things in a dozen countries, market on the net, and sell in a hundred countries. You're using a mental model that doesn't match up to reality. You'll never make progress like that. Never once did she mention that the United States double-taxes income where no other country in the world does - a critical part of the entire discussion. That omission alone should tell you how well-researched and thoughtful the piece was.

Atropos 15y ago
I agree with your view of what the realities are. But I don't see why should applaud them: What happens if a country like Switzerland or Singapore has a sustainable competitive advantage over the USA or Germany, that simply cannot be overcome? They can achieve some efficiencies by "freeloading" that bigger countries cannot match, for example Switzerland doesn't train enough doctors at their own universities but relies heavily on hiring doctors from Germany. If companies cannot compete, in the long term they goe bankrupt and disappear. But how would a country disappear? It's not like every citizen could simply move somewhere else. Also the correlation/causality is not entirely clear to me. Possibly countries are more succesful, because they have lower taxes. But at some point it could also be true that only countries that are already succesful are able to lower their rax rates so much.

jake_morrison 15y ago

This is such US-centric thinking. Foreign companies never even started in the US, so there is no question of them "leaving" or "paying their fair share". If US companies are going to be competitive, they have to get out. Otherwise, investors will just choose non-US companies. It's better to set up overseas to begin with, and save the trouble. Same thing with the US taxing citizens living abroad (unlike other countries). And so the IRS sticks its nose into every single financial transaction in the world in order to get money it doesn't deserve. The US government should just stop being so greedy and entitled.

rmc 15y ago

"Almost everybody is in Ireland," Sullivan said. "All the pharmaceutical companies, all the high tech companies. You're stupid if you're not in Ireland," he replied. And this is why it doesn't change These big companies are telling everyone, the US public, the Irish public, the Irish government that the low tax rate works. The goal of the low Irish corportion tax is exactly this. Create job in Ireland, bring companies to Ireland. (Ireland is currently almost bankrupt and needs an IMF/ECB loan. Everything is on the budgetry chopping board, income tax, vat, new property taxes, reductions in capital spending, reducing number of teachers per student, delaying the age at which children start school. Everything. Except the 12.5% corporate tax rate, the government parties (a centre left and centre right) view it as that important.)

yummyfajitas 15y ago
It sounds like the Irish government is behaving quite responsibly. Many other governments would be tempted to try to take a bigger piece of the pie from their corporations in order to get reelected, not realizing that they might be killing the goose that laid the golden egg. It sounds like the Irish have their collective heads on straight.
- arethuza 15y ago
  I would strongly suggest learning more about the Irish financial crisis: http://en.wikipedia.org/wiki/2008%E2%80%932011_Irish_financial_crisis http://en.wikipedia.org/wiki/2008%E2%80%932011_Irish_financi... http://www.amazon.com/Ship-Fools-Stupidity-Corruption-Celtic/dp/1586488813 http://www.amazon.com/Ship-Fools-Stupidity-Corruption-Celtic... There were staggering levels of corruption and mismanagement both in the Irish government and within the Irish financial industry. I don't think you can look at the corporate tax rate independently from all of the other utterly crazy things that were going on there.
  - rmc 15y ago
    There were staggering levels of corruption and mismanagement both in the Irish government and within the Irish financial industry. Agreed. There was clearly very little banking regulation, and many private banks were let run wild, combine that with a massive property bubble (prices have falled nationwide by 50% since 2007), and a strong societal urge to get on the property market, and Ireland is in massive financial trouble.

etherael 15y ago

Serious question; What's the difference between price fixing and tax harmonisation?

DennisP 15y ago
Since governments make the laws, lots of things prohibited to private entities turn out to be legal when governments do them.
- etherael 15y ago
  So, one is legal and one is not. Is that really the extent of it? This sounds like a pretty clear example of something that should probably be closed to all parties, gov included.

s1rech 15y ago

I think this 'tax amnesty' borders on extortion. So all these companies used every loophole they could find to pay lower taxes, and now they want to bring the booty back, and it has to be for free. Assuming this happens, what prevents them from doing the same thing again?

yalimgerger 15y ago

Speaking of low taxes, I think US companies are overlooking Turkey and the advantages it offers to tech companies. 1) no corporate tax 2) no income tax for employees All that is required is for the project to be approved as an R&D project. There is an incredible talent pool, solid infrastructre and a beautiful city waiting...I am just saying...:-)