9 ms·

The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routi

by grellas 14y ago

The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles. The issue becomes almost formulaic. Given (1) rational actors, (2) freedom to choose and to structure business affairs using a multiplicity of entities for different purposes, (3) resources with which to hire and pay for the talent needed to sort out the tax issues and their complexities, (4) a business goal of maximizing after-tax profits, (5) a multiplicity of domiciles from which to choose, and (6) a ready means by which to direct resources from one domicile to another (as with digital assets), it inevitably follows that every sophisticated company meeting these criteria will avail itself of the tax avoidance/minimization strategies. As the article notes, it is perfectly legal and every big company does it (see, e.g., this similar write-up from a couple of years ago on Google's comparable tax strategies: http://news.ycombinator.com/item?id=1815195 http://news.ycombinator.com/item?id=1815195). Nothing, of course, stops a given company from voluntarily subjecting itself to higher tax rates by declining to follow this formula but why would it? Big companies will routinely want to avoid high taxes if they can. So too do small businesses. People may have social views that higher taxes are desirable but, as individual economic actors, they will seek to avoid them. This may be right or wrong but it is reality. This means that high-tax domiciles will have no choice but to continue to remain frustrated that they cannot have unchecked means of taxing their citizens. As long as people have freedom, governments have to strike a balance that people can live with. And that is not a bad thing.

robomartin 14y ago
There's also the very real and reasonable question of where capital might be used more efficiently. Having seen first-hand how government agencies make spending decisions it is my opinion that a huge percentage of tax dollars is wasted. Private industry is almost always far more efficient in allocating resources out of necessity. I have seen cases where government agencies pay double --or more-- what a private entity would pay for exactly the same product or service.
- pgisadickyup 14y ago
  http://bastiat.org/en/the_law.html http://bastiat.org/en/the_law.html
- ashconnor 14y ago
  It's a valid point. I think that there are a few reasons why this occurs. 1. Tax payers aren't as resilient as shareholders: 2. There's a psychological tendency to think that "this is not my money" leading to excessive spending. 3. The accountability isn't there. If a politician wastes taxpayer money then he's still a politician for the time being. But it's not always valid. Many government projects are carried out by private firms that aren't efficient. You just have to look at the NHS IT project here in the UK to see how £12 billion can be wasted by private firms.
  - ImprovedSilence 14y ago
    In private industry, you promoted and seen a valuable if you make money for the company. In the government, you are promoted and seen as a power player if you spend more money. There are lots of super-competitive A-types in govt work who will spend a million dollars just to get another feather in their programs hat.
    - notJim 14y ago
      This seems like you have an idealized vision of private industry. From what I've seen, politics and being friends with the right people is the determining factor in both fields.
      - chernevik 14y ago
        Private industry is ultimately disciplined by a marketplace. It can take a while, but managements seeking goals other than returns ultimately lead their companies into losses. The companies either improve or are bankrupted and their assets transferred to more capable managements. U.S. auto companies are an edifying exception.
    - 14y ago
timr 14y ago
"The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles." No, that's the conclusion you might draw if you choose to read the article through an extremely narrow filter where you start from the premise that the laws, as they stand, are sufficient and reasonable. If, instead, you look at the situation and wonder at the utter inefficiency of a tax system that allows some (but not all) corporations to move profits around on paper to avoid taxation -- but only if they spend money on creating fake offices and legal castles in the sky that don't contribute to productivity -- then you start to wonder if perhaps the situation can be changed. And that's an interesting discussion.
- pgisadickyup 14y ago
  http://bastiat.org/en/the_law.html http://bastiat.org/en/the_law.html
- notJim 14y ago
  I don't think your point and the point you quoted are actually at odds.
yequalsx 14y ago
Your first sentence of your last paragraph shows one of the problems with globalization. We have seen in the U.S. municipalities competing with each other to see who can give the most subsidies to large corporations. The effects have not been so desirable. Now we are seeing this played out on a grand, global scale. It's potentially a race to the bottom. I think globalization without a proper international regulating agency is a bad thing. It's great for the people who have the ability to move from one country to the next. Who can find the optimal place for them to live in. Most people don't have this luxury.
- chadmalik 14y ago
  There isn't a need for a single international treaty to deal with this. Simply levy import tariffs on products by companies who refuse to pay their fair share of taxes, or use slave labor, shoddy environmental practices, etc. The means is there and can be implemented tomorrow. What is lacking is the political push to make it happen.
- pgisadickyup 14y ago
  http://bastiat.org/en/the_law.html http://bastiat.org/en/the_law.html
- mattchew 14y ago
  > Most people don't have this luxury. Maybe one way to make globalization great for more people, is to make international mobility practical for more people.
  - yequalsx 14y ago
    Indeed. As it is mobility barriers partially serve to keep masses of people stuck and this could possibly lead to a new, modern form of feudalism.
- deleted 14y ago
  [deleted]
- RawData 14y ago
  > Most people don't have this luxury. Why not? Seriously. What's stopping anyone from doing this exact thing? Inertia...that's really all - when you get right down to it..
_delirium 14y ago
What's annoying to me is not that companies choose jurisdictions based on taxes, but that they get away with playing shell games to fake moving between jurisdictions entirely on paper, which also gives them an advantage over smaller companies and individuals that can't do that. I lived in California for some years. If it were possible for me to open a P.O. box (or even rent a small office) in Reno, book all my non-California-sourced income (e.g. AdSense) to the Reno P.O. box, and avoid California taxes, maybe I would've. But that's not legal; my attempt to produce a fake domicile in Nevada for tax purposes when I clearly lived ~11 months of the year in California would be correctly judged a sham. If I wanted to claim I'd moved to Reno for tax purposes, I'd have to actually move to Reno in real life, too. Yet Apple can do effectively do that, opening a sham office where no work is done, solely to dodge taxes, because the rules for individuals when it comes to those kinds of fake domiciles are much stricter than the rules for corporations are. If Apple actually moved its main operations and employees from Cupertino to Reno for tax reasons, that would be another matter entirely, and a more honest example of jurisdictional competition.
- byrneseyeview 14y ago
  The maneuver you describe is equivalent to incorporating in Delaware (or Nevada, I suppose). You can compound your wealth in the low-tax environment, but you will pay taxes when you try to transfer it to yourself. Just like Apple, in this case. Under the current legal regime, they have successfully deferred taxes, not evaded them. It's the same way I carefully evade sales taxes by saving some of my money instead of spending every paycheck.
  - _delirium 14y ago
    Afaik, incorporation in Delaware isn't usually tax-related; most Delaware corporations don't actually book their income in Delaware, but are registered there because of favorable corporate law and a business-friendly civil trial system. You're right on the deferral/transfer with regards to international income (e.g. income Apple books in Ireland and later uses to pay for something in Cupertino), but I don't believe Apple ever pays California income taxes on the income it books in Reno, even if it immediately turns around and uses that income to pay Cupertino salaries. There's no state-to-state equivalent of repatriating income.
temphn 14y ago
Exactly. And this extends down to the personal level. Elizabeth Warren, a millionaire Senatorial candidate who supports the Buffet Rule, nevertheless did not voluntary pay a higher tax rate: http://www.realclearpolitics.com/articles/2012/04/20/warren_says_she_did_not_pay_voluntary_higher_tax.html http://www.realclearpolitics.com/articles/2012/04/20/warren_... I think a number of people reading the article have the tacit impression that if the government taxed the money from Apple, that they would somehow benefit to a greater extent. But given that the US Government spends $11.5 billion more per day[1] than it receives in taxes, even seizing all of Apple's worldwide profits would just be a drop in the bucket. A separate question is why the New York Times has declared war on Apple. It looks like with the departure of Steve Jobs, the Times has started to treat Apple with the hostility normally reserved for Exxon, what with this article and the iEconomy series of articles. It would be interesting for a large technology company to turn the lens on many of the Times' own abusive practices, or the Times journalists' entitlement complex. It would be particularly interesting to look at the tax status of the pensions[2] which rather well-paid reporters like Charles Duhigg and David Kocienewski wish to keep receiving. [1] http://www.cbo.gov/sites/default/files/cbofiles/attachments/2012_02%20MBR.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... [2] http://www.huffingtonpost.com/2012/04/19/new-york-times-video-contract-negotiations-pensions_n_1438314.html http://www.huffingtonpost.com/2012/04/19/new-york-times-vide...
- redler 14y ago
  In the press, it seems like Apple went from years of being unmentionable without the term "beleaguered" straight to being a manipulative, dominant monopolist. The company has certainly undergone a striking and highly unlikely reversal, and perhaps that's a reason for the tonally confused seas. "Beleaguered Apple Inc. now the most profitable company on Earth".
  - greedo 14y ago
    Monopolist. Let's look at Apple's product lines and see: 1. MP3 players. Yep, they own the largest portion of this shrinking market. But their monopoly share doesn't seem to have hurt the customer; and in fact, I still can find numerous non-Apple MP3 players without much trouble. 2. Smartphones. Nope, not even 50% of the US, much less the worldwide market for smartphones. The fact that they are much better than their competition at extracting profits is immaterial. 3. Tablet Computers. Clearly a yes, but in any market segment that explodes like this one, you'll have market shares that swing wildly. Currently Apple dominates this segment; but it's not clear that they will retain a monopoly position. And again, I still can find numerous non-Apple tablets without much trouble. And I don't see any damage to the consumer. 4. Personal Computers (i.e notebooks and desktops). Clearly not a monopolist in this segment. 5. Software. LOL I do agree that Apple is going through a "striking and highly unlikely reversal" in terms of how it's portrayed in the media. Perhaps that's due to competitors not liking the fact that Apple is eating their lunch?

by grellas 14y ago

robomartin 14y ago

There's also the very real and reasonable question of where capital might be used more efficiently. Having seen first-hand how government agencies make spending decisions it is my opinion that a huge percentage of tax dollars is wasted. Private industry is almost always far more efficient in allocating resources out of necessity. I have seen cases where government agencies pay double --or more-- what a private entity would pay for exactly the same product or service.

pgisadickyup 14y ago
http://bastiat.org/en/the_law.html http://bastiat.org/en/the_law.html
ashconnor 14y ago
It's a valid point. I think that there are a few reasons why this occurs. 1. Tax payers aren't as resilient as shareholders: 2. There's a psychological tendency to think that "this is not my money" leading to excessive spending. 3. The accountability isn't there. If a politician wastes taxpayer money then he's still a politician for the time being. But it's not always valid. Many government projects are carried out by private firms that aren't efficient. You just have to look at the NHS IT project here in the UK to see how £12 billion can be wasted by private firms.
- ImprovedSilence 14y ago
  In private industry, you promoted and seen a valuable if you make money for the company. In the government, you are promoted and seen as a power player if you spend more money. There are lots of super-competitive A-types in govt work who will spend a million dollars just to get another feather in their programs hat.
  - notJim 14y ago
    This seems like you have an idealized vision of private industry. From what I've seen, politics and being friends with the right people is the determining factor in both fields.
    - chernevik 14y ago
      Private industry is ultimately disciplined by a marketplace. It can take a while, but managements seeking goals other than returns ultimately lead their companies into losses. The companies either improve or are bankrupted and their assets transferred to more capable managements. U.S. auto companies are an edifying exception.
  - 14y ago

timr 14y ago

"The implied but never fully-articulated point of this article is that high-tax domiciles resent it when rational actors having a choice in the matter will routinely structure their business affairs to incur tax to the maximum extent possible in low-tax as opposed to high-tax domiciles." No, that's the conclusion you might draw if you choose to read the article through an extremely narrow filter where you start from the premise that the laws, as they stand, are sufficient and reasonable. If, instead, you look at the situation and wonder at the utter inefficiency of a tax system that allows some (but not all) corporations to move profits around on paper to avoid taxation -- but only if they spend money on creating fake offices and legal castles in the sky that don't contribute to productivity -- then you start to wonder if perhaps the situation can be changed. And that's an interesting discussion.

pgisadickyup 14y ago
http://bastiat.org/en/the_law.html http://bastiat.org/en/the_law.html
notJim 14y ago
I don't think your point and the point you quoted are actually at odds.

yequalsx 14y ago

Your first sentence of your last paragraph shows one of the problems with globalization. We have seen in the U.S. municipalities competing with each other to see who can give the most subsidies to large corporations. The effects have not been so desirable. Now we are seeing this played out on a grand, global scale. It's potentially a race to the bottom. I think globalization without a proper international regulating agency is a bad thing. It's great for the people who have the ability to move from one country to the next. Who can find the optimal place for them to live in. Most people don't have this luxury.

chadmalik 14y ago
There isn't a need for a single international treaty to deal with this. Simply levy import tariffs on products by companies who refuse to pay their fair share of taxes, or use slave labor, shoddy environmental practices, etc. The means is there and can be implemented tomorrow. What is lacking is the political push to make it happen.
pgisadickyup 14y ago
http://bastiat.org/en/the_law.html http://bastiat.org/en/the_law.html
mattchew 14y ago
> Most people don't have this luxury. Maybe one way to make globalization great for more people, is to make international mobility practical for more people.
- yequalsx 14y ago
  Indeed. As it is mobility barriers partially serve to keep masses of people stuck and this could possibly lead to a new, modern form of feudalism.
deleted 14y ago
[deleted]
RawData 14y ago
> Most people don't have this luxury. Why not? Seriously. What's stopping anyone from doing this exact thing? Inertia...that's really all - when you get right down to it..

_delirium 14y ago

What's annoying to me is not that companies choose jurisdictions based on taxes, but that they get away with playing shell games to fake moving between jurisdictions entirely on paper, which also gives them an advantage over smaller companies and individuals that can't do that. I lived in California for some years. If it were possible for me to open a P.O. box (or even rent a small office) in Reno, book all my non-California-sourced income (e.g. AdSense) to the Reno P.O. box, and avoid California taxes, maybe I would've. But that's not legal; my attempt to produce a fake domicile in Nevada for tax purposes when I clearly lived ~11 months of the year in California would be correctly judged a sham. If I wanted to claim I'd moved to Reno for tax purposes, I'd have to actually move to Reno in real life, too. Yet Apple can do effectively do that, opening a sham office where no work is done, solely to dodge taxes, because the rules for individuals when it comes to those kinds of fake domiciles are much stricter than the rules for corporations are. If Apple actually moved its main operations and employees from Cupertino to Reno for tax reasons, that would be another matter entirely, and a more honest example of jurisdictional competition.

byrneseyeview 14y ago
The maneuver you describe is equivalent to incorporating in Delaware (or Nevada, I suppose). You can compound your wealth in the low-tax environment, but you will pay taxes when you try to transfer it to yourself. Just like Apple, in this case. Under the current legal regime, they have successfully deferred taxes, not evaded them. It's the same way I carefully evade sales taxes by saving some of my money instead of spending every paycheck.
- _delirium 14y ago
  Afaik, incorporation in Delaware isn't usually tax-related; most Delaware corporations don't actually book their income in Delaware, but are registered there because of favorable corporate law and a business-friendly civil trial system. You're right on the deferral/transfer with regards to international income (e.g. income Apple books in Ireland and later uses to pay for something in Cupertino), but I don't believe Apple ever pays California income taxes on the income it books in Reno, even if it immediately turns around and uses that income to pay Cupertino salaries. There's no state-to-state equivalent of repatriating income.

temphn 14y ago

Exactly. And this extends down to the personal level. Elizabeth Warren, a millionaire Senatorial candidate who supports the Buffet Rule, nevertheless did not voluntary pay a higher tax rate: http://www.realclearpolitics.com/articles/2012/04/20/warren_says_she_did_not_pay_voluntary_higher_tax.html http://www.realclearpolitics.com/articles/2012/04/20/warren_... I think a number of people reading the article have the tacit impression that if the government taxed the money from Apple, that they would somehow benefit to a greater extent. But given that the US Government spends $11.5 billion more per day[1] than it receives in taxes, even seizing all of Apple's worldwide profits would just be a drop in the bucket. A separate question is why the New York Times has declared war on Apple. It looks like with the departure of Steve Jobs, the Times has started to treat Apple with the hostility normally reserved for Exxon, what with this article and the iEconomy series of articles. It would be interesting for a large technology company to turn the lens on many of the Times' own abusive practices, or the Times journalists' entitlement complex. It would be particularly interesting to look at the tax status of the pensions[2] which rather well-paid reporters like Charles Duhigg and David Kocienewski wish to keep receiving. [1] http://www.cbo.gov/sites/default/files/cbofiles/attachments/2012_02%20MBR.pdf http://www.cbo.gov/sites/default/files/cbofiles/attachments/... [2] http://www.huffingtonpost.com/2012/04/19/new-york-times-video-contract-negotiations-pensions_n_1438314.html http://www.huffingtonpost.com/2012/04/19/new-york-times-vide...

redler 14y ago
In the press, it seems like Apple went from years of being unmentionable without the term "beleaguered" straight to being a manipulative, dominant monopolist. The company has certainly undergone a striking and highly unlikely reversal, and perhaps that's a reason for the tonally confused seas. "Beleaguered Apple Inc. now the most profitable company on Earth".
- greedo 14y ago
  Monopolist. Let's look at Apple's product lines and see: 1. MP3 players. Yep, they own the largest portion of this shrinking market. But their monopoly share doesn't seem to have hurt the customer; and in fact, I still can find numerous non-Apple MP3 players without much trouble. 2. Smartphones. Nope, not even 50% of the US, much less the worldwide market for smartphones. The fact that they are much better than their competition at extracting profits is immaterial. 3. Tablet Computers. Clearly a yes, but in any market segment that explodes like this one, you'll have market shares that swing wildly. Currently Apple dominates this segment; but it's not clear that they will retain a monopoly position. And again, I still can find numerous non-Apple tablets without much trouble. And I don't see any damage to the consumer. 4. Personal Computers (i.e notebooks and desktops). Clearly not a monopolist in this segment. 5. Software. LOL I do agree that Apple is going through a "striking and highly unlikely reversal" in terms of how it's portrayed in the media. Perhaps that's due to competitors not liking the fact that Apple is eating their lunch?