6 ms·

So, let me see if I understand this: the US is going to bat for the big software companies who don't want to pay taxes in other countries, and yet I, an expat A

by beedogs 13y ago

So, let me see if I understand this: the US is going to bat for the big software companies who don't want to pay taxes in other countries, and yet I, an expat American, am expected to file an income tax return with the IRS every single year for my foreign earnings, which may be subject to dual-taxation if I make "too much." What a crock of shit.

dantheman 13y ago
Well I agree with you that the foreign earnings things completely crazy. Using one bad policy to argue against a good one is just as bad. This is a good move on the part of the US, what we also need is the ability to move corporate profit from foreign subsidiaries back into the US without facing tax.
- ezequiel-garzon 13y ago
  The moment you're trading in another country you must honor their laws and taxes. If the costs become too high and the margins too low you can always leave, or skip said country in the first place.
  - Silhouette 13y ago
    The moment you're trading in another country The difficulty is in defining what "trading in another country" actually means. If you sell a physical product, there are some unambiguous facts that can be considered: where was the product made, where did its components come from, where was it delivered, that kind of thing. If you're selling information, say an e-book or an MP3 download, things are slightly more ambiguous. If you're providing services of some kind, things get much more complicated, as anyone who has to deal with VAT in Europe can testify. There is a concept of the "place of supply", and trying to come up with a standard way of determining that place of supply that is both practical and reasonably fair to all concerned is still a work in progress. And that is just for sales taxes/VAT, where the parties involved tend to be obvious (someone paid money, and someone received it). With multinational business structures, where you might have revenues and expenses in many jurisdictions and somehow you have to decide how to balance everything up and declare profits, there's an entire extra layer of ambiguity to contend with.
    - danpat 13y ago
      For the US, IRS publications 515 and 519 clarify all that stuff. The IRS wants to tax "US Source Income", there are various criteria that define it. For goods sold from overseas and shipped to the US, it call comes down to "where it is sold", which is at the discretion of the seller. It can be at the customers end if that's convenient for you (but it rarely is). I worked for a Canadian company that sold niche hardware primarily into the US market. We were based entirely in Canada and just shipped to the US using UPS. We regularly had to convince US business buyers that they didn't need a W-9 from us, nor did they need to withhold taxes.
      - Silhouette 13y ago
        For the US, IRS publications 515 and 519 clarify all that stuff. The IRS wants to tax "US Source Income", there are various criteria that define it. Are we back to talking about sales or other revenue-based tax here? The major dispute we were originally talking about in this HN discussion was to do with where profits are declared and corporation tax or the equivalent is paid; I only mentioned the sales/VAT angle as an example of how easily tax rules can get complicated when you have to decide where some intangible thing happened.
- disputin 13y ago
  "This is a good move on the part of the US" - not in terms of foreign relations.
  - beedogs 13y ago
    They don't seem to care much about that lately, though.
- cmdkeen 13y ago
  You're missing a step though - which is that these corporations do everything possible to avoid paying the due tax on those foreign profits. I'm all in favour of getting to repatriate profits then - but taking the profits through a tax haven needs to be stopped first. Take Google in the UK for instance. They don't "sell" anything in the UK according to their tax returns, so claim every deal is actually finalised through Ireland and therefore subject to lower Irish taxes. So their UK tax is minimal despite making large profits from there. It provides a massive competitive advantage to companies large enough to full off these kind of operations. Google have possibly been caught out actually selling in the UK, but in most cases their conduct is legal - which is why the law needs changing. If you want to make money in France, the UK, Germany or wherever you should pay local taxes to those countries. It would be grand if those situations could be simplified and made accessible for digital goods (which are more likely to be sold cross border).
  - nawitus 13y ago
    The problem with preventing the use of 'tax havens' is that there's no non-arbitrary way to decide if a company is truly using another country as a tax haven, or that they are actually using developers from another country. In the Google example, Google UK is clearly benefiting from the developers that work outside UK, therefore they should be able to pay 'brand fees' or whatnot to the 'main Google'. Of course in this case most of the development is not happening in Ireland, but how can you decide if the fees are reasonable or not? You'll either end up with a very complex tax code with loopholes (which is non-desirable), or you'll give arbitrary power to tax bureaucrats to enforce arbitrary taxes to certain companies (and this will in practise create non-just tax decisions and corruption).
    - cmdkeen 13y ago
      Google was possibly a poor example as they aren't just using the brand fees but claiming they don't actually "sell" anything in the UK at all. Despite having lots of people in their London officer with sales type titles on LinkedIn... I think the issue is that companies are currently able to get away with murder in terms of structuring debt and those brand type fees to funnel profits away. Some kind of "reasonableness" test certainly wouldn't go amiss when it comes to judging measures taken by companies. There's already a movement against measures taken solely for the purpose of tax avoidance.
foobarbazqux 13y ago
It's not dual taxation. The IRS deducts the foreign tax paid. So if the foreign country has a higher tax rate, you will never pay US tax. I'm not saying it's a great policy, but it isn't as bad as it sounds. You can always renounce your US citizenship - think of it as a maintenance fee. Yes, draconian.
- rorrr2 13y ago
  That's not true. In Switzerland there's a two year line of people waiting to renounce their US citizenships, because they get double taxed.
  - foobarbazqux 13y ago
    > There is a treaty between the United States and Switzerland to avoid double taxation on income, which means that taxes paid to Switzerland by a resident of this country must not necessarily be paid to the United States. In general, an American employed in Switzerland can expect to pay at least as much tax to the various Swiss government levels as he would have to if he were paying tax in the United States. http://bern.usembassy.gov/general_information.html http://bern.usembassy.gov/general_information.html
- gsb 13y ago
  There are also different treatments of capital gains, and phantom gains which arise only from shifts in exchange rates. For anyone of any means beyond their salary alone these both can lead to paying more combined tax to both countries than either would require individually. Thats dual taxation in my book. Phantom gains have been particularly bad in the last decade with the falling US dollar. In Australia, house prices in my area about doubled between 2002 and 2012, but with the change in exchange rates, the IRS calculates the gain as if the price had more than quadrupled!
  - foobarbazqux 13y ago
    I didn't realize this part, thanks.
- 13y ago
hkmurakami 13y ago
"too much" being $80k last I checked, where you have to pay US taxes on any amount exceeding the $80k. (or wait, it might be that you pay the difference between your US tax rate and the foreign tax rate...)
- flyinRyan 13y ago
  You're correct. If you're married and file joint I think that number is $130k. So if a dual income family makes $180 that means paying tax, a portion of which was made by someone who isn't and was never American. Even the Mafia was never so cheeky.
- rdouble 13y ago
  "too much" being $80k The foreign tax exclusion for a single person is $97,600 in 2013.

by beedogs 13y ago

dantheman 13y ago

Well I agree with you that the foreign earnings things completely crazy. Using one bad policy to argue against a good one is just as bad. This is a good move on the part of the US, what we also need is the ability to move corporate profit from foreign subsidiaries back into the US without facing tax.

ezequiel-garzon 13y ago
The moment you're trading in another country you must honor their laws and taxes. If the costs become too high and the margins too low you can always leave, or skip said country in the first place.
- Silhouette 13y ago
  The moment you're trading in another country The difficulty is in defining what "trading in another country" actually means. If you sell a physical product, there are some unambiguous facts that can be considered: where was the product made, where did its components come from, where was it delivered, that kind of thing. If you're selling information, say an e-book or an MP3 download, things are slightly more ambiguous. If you're providing services of some kind, things get much more complicated, as anyone who has to deal with VAT in Europe can testify. There is a concept of the "place of supply", and trying to come up with a standard way of determining that place of supply that is both practical and reasonably fair to all concerned is still a work in progress. And that is just for sales taxes/VAT, where the parties involved tend to be obvious (someone paid money, and someone received it). With multinational business structures, where you might have revenues and expenses in many jurisdictions and somehow you have to decide how to balance everything up and declare profits, there's an entire extra layer of ambiguity to contend with.
  - danpat 13y ago
    For the US, IRS publications 515 and 519 clarify all that stuff. The IRS wants to tax "US Source Income", there are various criteria that define it. For goods sold from overseas and shipped to the US, it call comes down to "where it is sold", which is at the discretion of the seller. It can be at the customers end if that's convenient for you (but it rarely is). I worked for a Canadian company that sold niche hardware primarily into the US market. We were based entirely in Canada and just shipped to the US using UPS. We regularly had to convince US business buyers that they didn't need a W-9 from us, nor did they need to withhold taxes.
    - Silhouette 13y ago
      For the US, IRS publications 515 and 519 clarify all that stuff. The IRS wants to tax "US Source Income", there are various criteria that define it. Are we back to talking about sales or other revenue-based tax here? The major dispute we were originally talking about in this HN discussion was to do with where profits are declared and corporation tax or the equivalent is paid; I only mentioned the sales/VAT angle as an example of how easily tax rules can get complicated when you have to decide where some intangible thing happened.
disputin 13y ago
"This is a good move on the part of the US" - not in terms of foreign relations.
- beedogs 13y ago
  They don't seem to care much about that lately, though.
cmdkeen 13y ago
You're missing a step though - which is that these corporations do everything possible to avoid paying the due tax on those foreign profits. I'm all in favour of getting to repatriate profits then - but taking the profits through a tax haven needs to be stopped first. Take Google in the UK for instance. They don't "sell" anything in the UK according to their tax returns, so claim every deal is actually finalised through Ireland and therefore subject to lower Irish taxes. So their UK tax is minimal despite making large profits from there. It provides a massive competitive advantage to companies large enough to full off these kind of operations. Google have possibly been caught out actually selling in the UK, but in most cases their conduct is legal - which is why the law needs changing. If you want to make money in France, the UK, Germany or wherever you should pay local taxes to those countries. It would be grand if those situations could be simplified and made accessible for digital goods (which are more likely to be sold cross border).
- nawitus 13y ago
  The problem with preventing the use of 'tax havens' is that there's no non-arbitrary way to decide if a company is truly using another country as a tax haven, or that they are actually using developers from another country. In the Google example, Google UK is clearly benefiting from the developers that work outside UK, therefore they should be able to pay 'brand fees' or whatnot to the 'main Google'. Of course in this case most of the development is not happening in Ireland, but how can you decide if the fees are reasonable or not? You'll either end up with a very complex tax code with loopholes (which is non-desirable), or you'll give arbitrary power to tax bureaucrats to enforce arbitrary taxes to certain companies (and this will in practise create non-just tax decisions and corruption).
  - cmdkeen 13y ago
    Google was possibly a poor example as they aren't just using the brand fees but claiming they don't actually "sell" anything in the UK at all. Despite having lots of people in their London officer with sales type titles on LinkedIn... I think the issue is that companies are currently able to get away with murder in terms of structuring debt and those brand type fees to funnel profits away. Some kind of "reasonableness" test certainly wouldn't go amiss when it comes to judging measures taken by companies. There's already a movement against measures taken solely for the purpose of tax avoidance.

foobarbazqux 13y ago

It's not dual taxation. The IRS deducts the foreign tax paid. So if the foreign country has a higher tax rate, you will never pay US tax. I'm not saying it's a great policy, but it isn't as bad as it sounds. You can always renounce your US citizenship - think of it as a maintenance fee. Yes, draconian.

rorrr2 13y ago
That's not true. In Switzerland there's a two year line of people waiting to renounce their US citizenships, because they get double taxed.
- foobarbazqux 13y ago
  > There is a treaty between the United States and Switzerland to avoid double taxation on income, which means that taxes paid to Switzerland by a resident of this country must not necessarily be paid to the United States. In general, an American employed in Switzerland can expect to pay at least as much tax to the various Swiss government levels as he would have to if he were paying tax in the United States. http://bern.usembassy.gov/general_information.html http://bern.usembassy.gov/general_information.html
gsb 13y ago
There are also different treatments of capital gains, and phantom gains which arise only from shifts in exchange rates. For anyone of any means beyond their salary alone these both can lead to paying more combined tax to both countries than either would require individually. Thats dual taxation in my book. Phantom gains have been particularly bad in the last decade with the falling US dollar. In Australia, house prices in my area about doubled between 2002 and 2012, but with the change in exchange rates, the IRS calculates the gain as if the price had more than quadrupled!
- foobarbazqux 13y ago
  I didn't realize this part, thanks.
13y ago

hkmurakami 13y ago

"too much" being $80k last I checked, where you have to pay US taxes on any amount exceeding the $80k. (or wait, it might be that you pay the difference between your US tax rate and the foreign tax rate...)

flyinRyan 13y ago
You're correct. If you're married and file joint I think that number is $130k. So if a dual income family makes $180 that means paying tax, a portion of which was made by someone who isn't and was never American. Even the Mafia was never so cheeky.
rdouble 13y ago
"too much" being $80k The foreign tax exclusion for a single person is $97,600 in 2013.