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My spider sense is tingling - from an ignorant observer on the subject of corporate taxes, this seems wrong. As someone who isn't 100% ignorant about taxes in

by sbov 13y ago

My spider sense is tingling - from an ignorant observer on the subject of corporate taxes, this seems wrong. As someone who isn't 100% ignorant about taxes in general, I've noticed that there's a shitload of completely wrong information about taxes out there. It's amazing how many smart people are incredibly ignorant, and then spread that ignorance, about how taxes actually work. So I have to ask: Is this how it really works? At least for personal investments, IIRC you get some sort of foreign tax credit. From my initial searching, it seems like there's something similar for corporations.

gamblor956 13y ago
The corporate foreign tax credit is even more generous than the FTC available to individuals. They get credit for taxes paid on the dividends (i.e., withholding taxes) and in some cases for the foreign taxes the dividend-paying company paid on its income.
mikeyouse 13y ago
The whole idea of 'double-taxation' is a canard. That's another topic though. > Is this how it really works? At least for personal investments, IIRC you get some sort of foreign tax credit. Any money Apple pays to foreign governments as income tax on profits is included in the calculation of their domestic tax liability. So if Apple had $1B in overseas profits, paid 5% in Ireland as income tax, then wanted to repatriate the remainder to the US, the government would seek $300M in tax -- not the $350M that would be indicated by our 35% corporate income tax rate. People trotting out the 'double-taxation' nonsense are promoting the idea that Apple should be able to venue-shop for an ultra-low-tax locale to claim their profits, then be free-and-clear of their US obligations. Two more things worth mentioning: 1. The 'overseas' money typically isn't physically overseas. The money is in US banks, circulating as loans in the US economy, but is only overseas on an accounting ledger for tax purposes. This greatly blunts the potential impact of tax holidays. 2. If Apple takes out debt to fund operations purely to avoid repatriating money, the US taxpayer would then be subsidizing Apple even further. Interest on debt is a deductible expense, so that 2.5% per year Apple is paying, would be deducted from their income in the next tax year.
- AnthonyMouse 13y ago
  > So if Apple had $1B in overseas profits, paid 5% in Ireland as income tax, then wanted to repatriate the remainder to the US, the government would seek $30B in tax -- not the $35B that would be indicated by our 35% corporate income tax rate. That's not what double taxation is. Double taxation is that both corporate income and corporate dividends are taxed. Suppose a corporation makes $10/share in profit and wants to issue it as a dividend. First they would pay corporate 35% income tax on the profit and be left with $6.50/share, then if they issued a $6.50/share dividend, the shareholders would have to pay income tax on it again and be left with only $4.225 of the original $10. If a foreign government also extracted a cut then the money would be taxed thrice.
  - WildUtah 13y ago
    The corporate dividend tax paid by individuals tops out at 20% today, so the example total should be $5.20. States usually tax both corporate profits and dividends at 5-10% also, so that's another 10-20% but that's usually deductible against the other taxes. Expect to keep about $4.30 from the $10 profit, if it's distributed as dividends.
    - AnthonyMouse 13y ago
      The 20% rate only applies to qualified dividends. If you don't meet the qualifications (e.g. you don't satisfy the holding period requirements) the dividends are taxed at the higher ordinary income rate.
      - steveax 13y ago
        Depending of course on the top marginal rate of the beneficiary of the dividend.
  - mikeyouse 13y ago
    This is an even sillier definition of double taxation than I was giving you credit for. Dollars don't pay taxes, taxable entities do. A corporation is a separate legal entity that serves as the tax base. If it makes an income, it will pay a tax on that income. An individual is also a separate legal entity that serves as a tax base. If a corporation pays an individual dividends, then the individual will pay tax on the capital gains from their investment. How is this any different than when a company pays you an income. First, the Federal government taxes you, then the State government does, then come Payroll taxes, then any local taxes, then you have to pay property tax, then you have to pay sales tax. Each dollar is quintuple-taxed! Or more! edit: GWU PhD Law Professor spells it out better than I could: http://writ.lp.findlaw.com/buchanan/20030220.html http://writ.lp.findlaw.com/buchanan/20030220.html

by sbov 13y ago

gamblor956 13y ago

The corporate foreign tax credit is even more generous than the FTC available to individuals. They get credit for taxes paid on the dividends (i.e., withholding taxes) and in some cases for the foreign taxes the dividend-paying company paid on its income.

mikeyouse 13y ago

The whole idea of 'double-taxation' is a canard. That's another topic though. > Is this how it really works? At least for personal investments, IIRC you get some sort of foreign tax credit. Any money Apple pays to foreign governments as income tax on profits is included in the calculation of their domestic tax liability. So if Apple had $1B in overseas profits, paid 5% in Ireland as income tax, then wanted to repatriate the remainder to the US, the government would seek $300M in tax -- not the $350M that would be indicated by our 35% corporate income tax rate. People trotting out the 'double-taxation' nonsense are promoting the idea that Apple should be able to venue-shop for an ultra-low-tax locale to claim their profits, then be free-and-clear of their US obligations. Two more things worth mentioning: 1. The 'overseas' money typically isn't physically overseas. The money is in US banks, circulating as loans in the US economy, but is only overseas on an accounting ledger for tax purposes. This greatly blunts the potential impact of tax holidays. 2. If Apple takes out debt to fund operations purely to avoid repatriating money, the US taxpayer would then be subsidizing Apple even further. Interest on debt is a deductible expense, so that 2.5% per year Apple is paying, would be deducted from their income in the next tax year.

AnthonyMouse 13y ago
> So if Apple had $1B in overseas profits, paid 5% in Ireland as income tax, then wanted to repatriate the remainder to the US, the government would seek $30B in tax -- not the $35B that would be indicated by our 35% corporate income tax rate. That's not what double taxation is. Double taxation is that both corporate income and corporate dividends are taxed. Suppose a corporation makes $10/share in profit and wants to issue it as a dividend. First they would pay corporate 35% income tax on the profit and be left with $6.50/share, then if they issued a $6.50/share dividend, the shareholders would have to pay income tax on it again and be left with only $4.225 of the original $10. If a foreign government also extracted a cut then the money would be taxed thrice.
- WildUtah 13y ago
  The corporate dividend tax paid by individuals tops out at 20% today, so the example total should be $5.20. States usually tax both corporate profits and dividends at 5-10% also, so that's another 10-20% but that's usually deductible against the other taxes. Expect to keep about $4.30 from the $10 profit, if it's distributed as dividends.
  - AnthonyMouse 13y ago
    The 20% rate only applies to qualified dividends. If you don't meet the qualifications (e.g. you don't satisfy the holding period requirements) the dividends are taxed at the higher ordinary income rate.
    - steveax 13y ago
      Depending of course on the top marginal rate of the beneficiary of the dividend.
- mikeyouse 13y ago
  This is an even sillier definition of double taxation than I was giving you credit for. Dollars don't pay taxes, taxable entities do. A corporation is a separate legal entity that serves as the tax base. If it makes an income, it will pay a tax on that income. An individual is also a separate legal entity that serves as a tax base. If a corporation pays an individual dividends, then the individual will pay tax on the capital gains from their investment. How is this any different than when a company pays you an income. First, the Federal government taxes you, then the State government does, then come Payroll taxes, then any local taxes, then you have to pay property tax, then you have to pay sales tax. Each dollar is quintuple-taxed! Or more! edit: GWU PhD Law Professor spells it out better than I could: http://writ.lp.findlaw.com/buchanan/20030220.html http://writ.lp.findlaw.com/buchanan/20030220.html