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Companies Flee U.S. Tax System by Reincorporating Abroad
- tsaoutourpants 13y agoThis is what happens when you raise taxes to absurd levels. People leave -- especially the rich. If you have a company that provides products or services globally (instead of a business that requires a physical presence such as WalMart or a gas station), what incentive do you have to be based in America?
- pavel_lishin 13y agoAre tax levels absurd?
- socalnate1 13y agoUS Corporate tax rates are. So big companies with options do all sorts of insane dancing to avoid/reduce them, which leads to lower actual collections rates.
- midas007 13y ago40% US official vs 24% effective worldwide.
- ChuckMcM 13y agoThat is the wrong question, the correct question is "Given the state of the world, how can I minimize tax payments?" You see that question only works if the costs salaries of the accountants, the cost of a 'presence' in some foreign country, and other rules is more than offset by the savings in tax rate. It is easy to budget since its an annual thing, plan A we pay $X, plan B we pay $Y, select plan in (A, B) where the tax is lowest. What it means, in the absence of some pretty crazy laws, is that there is a ceiling on taxes.
- midas007 13y agoThe Decline of Corporate Income Tax Revenues (2003) http://www.cbpp.org/cms/index.cfm?fa=view&id=1311 http://www.cbpp.org/cms/index.cfm?fa=view&id=1311
- Detrus 13y agoThis is what happens when countries compete to provide the lowest tax rates in a globalized economy.
- raverbashing 13y agoHow would one define "absurd taxes"? But apart from that I agree, companies will shop for the best tax regimen possible.
- _delirium 13y agoOur taxes are twice the USA's [1], and people aren't fleeing. Maybe America is doing something else wrong? [1] Overall tax rates, taking total tax revenue as percentage of GDP. Some specific tax rates are lower or higher, though overall they trend higher.
- joelrunyon 13y agoWhat country are you in? Do you have a reference other than the KPMG link mentioned earlier in the thread? [1] Also, it's worth mentioning this is referring to where corporations are set up - not people. [1] https://news.ycombinator.com/item?id=7133781 https://news.ycombinator.com/item?id=7133781
- _delirium 13y agoDenmark (it's in my profile). Our overall taxes are pretty high, though our corporate taxes aren't particularly high. Partly depends on what you count as corporate taxes, since there is a large VAT, large energy taxes, large taxes on corporate vehicle registration, etc. But a good portion is via personal income tax.
- maxerickson 13y agoPeople are not fleeing the U.S. either. There is some small amount of emigration, but I doubt there is a net emigration of wealth.
- bronbron 13y ago> This is what happens when you raise taxes to absurd levels Wouldn't any amount above 0% be reason for a company to seek tax havens? With revenues in the billions, it seems like even a 1% tax rate would be more expensive than the cost of relocating that money.
- naterator 13y agoIs there a reason (honest question) why we have corporate taxes in the first place? Why not tax the money when it passes from the corporation to a physical person? Wouldn't that simplify things in many respects, and make evasion more difficult? And be good for American business?
- makhanko 13y agoHere is a good explanation why corporations are taxable: Corporations are participants of the economy and their profits depend on tax-financed public goods: healthy and educated workforces; good infrastructure; publicly enforced respect for contracts and property rights, and so on. When corporations avoid or evade tax, legally or illegally, they free ride on the backs of the rest of us. Stop taxing them, and you savagely undermine political community.
- masterleep 13y agoBecause Koch brothers!
- Crito 13y agoIf we're going to do that, we had better drop the corporate personhood bullshit at the same time.
- cortesoft 13y agoWe really shouldn't. I am a liberal in most ways, but corporate income taxes are a bad idea (in my opinion). Taxes really serve two purposes; to raise revenue and to encourage/discourage behavior. Corporate income taxes really do a bad job of the latter; if we only taxed the money when it is taken out as profit, we would do a better job of encouraging behavior we want.
- eli 13y agoI'm pretty sure you just described an S Corp, which isn't subject to corporate taxes (they "pass through" to the owners personal returns). Many small businesses already do this. But as with anything, there are pros and cons to S Corp vs C Corp vs LLC. Here's the first hit on google: http://www.forbes.com/sites/robertwood/2012/05/03/c-or-s-corporation-choice-is-critical-for-small-business/ http://www.forbes.com/sites/robertwood/2012/05/03/c-or-s-cor...
- jstalin 13y agoAs an example, Apple has $100 billion parked in offshore subsidiaries that it refuses to repatriate to the US because the full 35% tax rate would apply. If the US were more tax competitive, this sort of thing wouldn't be happening. http://www.huffingtonpost.com/2013/04/24/apple-debt-offshore-cash_n_3142063.html http://www.huffingtonpost.com/2013/04/24/apple-debt-offshore... [EDIT: fixed to read $100 billion, not million]
- grej 13y agojust wanted to note, that's 100 Billion (yes, with a B).
- jstalin 13y agoThanks, fixed.
- Nursie 13y agoOf course. Tax competition is obviously the answer, not companies paying fair taxes in the countries where profits are generated. How silly of me...
- forrestthewoods 13y agoUse/VAT taxes are considered regressive and therefore hurtful, bad, and evil with respect towards lower classes. The great irony is that by avoiding such taxes it hurts the poor and enriches the rich. Tragic.
- deleted 13y ago[deleted]
- Retric 13y agoThe tax rate could be 5% or 15% and they would do the same thing. (Edit: If the US lowered there tax rate to 5% ireland would lower theirs to below that to keep the extra income flowing.) The advantage is they can gain compound interest and or cover overseas losses with money that would otherwise be taxed so there is no reason no to do it. Add to that the occasional tax holiday and companies would be stupid to bring money to the US they don't have to because keeping money overseas is one of the easiest tax loopholes to exploit.
- codereflection 13y agoAs an American, this looks like a short list of companies to boycott. I don't want anything to do with companies trying to get out of paying their fair share of taxes in the US.
- joelrunyon 13y agoI never understood this. They're trying to pay less tax - they're doing it legally & as far as we know not "evading" anything. You do the same thing on your tax returns to pay as little tax as possible (or get as big a refund as possible). Why is it worse when a corporation does it?
- _delirium 13y agoI don't evade taxes by setting up shell persons in various companies. I would look down on someone who did. Actually I do know someone who maintains a fake residence for tax purposes, and I do look down on her (a wealthy heiress who didn't want to pay inheritance taxes).
- joelrunyon 13y ago"Evading" taxes is disingenuous as these are completely legal methods. You're implying they're doing something illegal. Would you rather not have the ability to incorporate your business wherever you like and only be locked down to one country with no other choices?
- _delirium 13y agoNo, I'm not implying they're doing something illegal, merely slimy. I would rather people didn't try to avoid paying their fair share to the society they live in. And I won't give such people my business, if I know about it and can help it. They can play the game, and suffering opprobrium for their actions is a valid rule of the game. If you're talking about only what's legal, it's legal for me to blacklist them, blacklist their employees socially, and to encourage others to blacklist them too.
- jstalin 13y agoFor comparison - global corporate tax rates: http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/corporate-tax-rates-table.aspx http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-res...
- joelrunyon 13y agoQuick scan shows that the US is 2nd only to UAE in tax rates. Did I miss something?
- SeanLuke 13y agoThese are official tax rates, not effective tax rates, which makes the whole thing disingenuous. AFAIK, the effective tax rate for the US puts it near the very bottom, just above tax havens.
- tanzam75 13y agoIn addition, most of those other countries charge VAT. The whole point of VAT is to reduce tax evasion by charging tax at every step of the production chain. Thus, countries with VAT tend to have lower corporate tax rates, because they have replaced part of the corporate tax with VAT. American corporate + sales tax rates are substantially lower than the equivalent corporate + VAT rates in most developed countries.
- joelrunyon 13y agoAs it gets easier & easier for smaller companies & individuals to setup international businesses, I think this is going to happen on a major scale outside of mega-corporations.
- benjohnson 13y agoAbout 10K of my income is from resold web hosting - the numbers actually pan out for me to open a business in Ireland and keep it open for about $1500 per year + $1000 in IE taxes to duck about $3500 in US taxes. If I only spend the profits outside of the US (in the form of vacations), it would work.
- sokoloff 13y agoAssuming you are a US citizen, you're taxed on your worldwide income. So, you have to figure a way to make that trip abroad not a vacation (personally taxable fringe benefit). It would be perfectly legal for your Irish company to hold a board meeting in Ireland and compensate the ordinary and reasonable expenses for attending. Clearly, that would not be a vacation. ;)
- nieksand 13y agoAs of a few years ago, the USA is the only G20 nation that taxes corporations on their overseas earnings. (Japan was the last other holdout).
- joelrunyon 13y agoI think it's also the only other country in the world besides Eritrea that still forces citizens to pay tax based on citizenship rather than residence.
- twic 13y agoOf the sixteen companies in the table, four have moved to the UK, and three to UK overseas territories. Doesn't say much for our tax regime, does it?