[jkahn]

Global companies offshoring profits and not paying enough tax (in the eyes of many countries) was a hot topic at the last G20 summit in Brisbane.

This isn't limited to Facebook, as the article explains. The issue and background here is that when large companies operate globally, each country has its own local subsidiary, owned by the global entity. Money is made in each country by selling goods or services. How are the profits sent upstream to the parent company? By charging costs for goods; or license fees for services. As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't. This is also how companies shift profits to no- or low- tax jurisdictions. See: Apple and their large amounts of cash held outside of the USA.

With increased globalisation, this is an issue for many countries. In Australia, for example (where I live), the roll out and success of Uber means that the taxi company tax base will erode. If Uber shifts profits overseas, the Australian Government gets less tax but still has to provide the same level (or greater) services. Uber's a better service, we want it to succeed, but tax is needed for necessary services.

While companies continue to do this, the answer is information sharing between countries' tax offices and laws to ensure a certain amount of profits must stay on-shore, while not dis-incentivising multi-nationals from doing business in each country. As this already has political attention, I'd expect laws in most major countries to deal with this over the next 5 years.

But Facebook are taking the piss here.

[exDM69]

Apple is a particularly difficult case, because they control every link in the chain of supply from manufacturing to retail and pay less than 1% effective corporate tax from their profits. From every step of the supply chain.

It is very difficult, if not impossible, to compete with Apple without having a similar end-to-end control of manufacturing to retail. If a company has to purchase their products from a manufacturer or sell their product to a 3rd party for retail, they are losing to Apple because that flow of money can't be hidden from the tax man.

Europe is currently facing major financial issues and a significant portion of this is that money gets funneled away to the US (or offshore accounts of US corps) without the fair share of taxes of their profits left here.

[speleding]

The corporate tax rate in the US is actually higher than in many EU countries. The reverse is actually true, US companies choosing to base their "head quarters" in Ireland and the Netherlands.

[pjc50]

It's worse than that. The "HQ" is in Ireland, but pays "royalties" to an IP holding company in the Cayman Islands, which is where all the profits go, on which no tax is paid. This is the "double Irish" referred to in other comments.

Edit: note that you can just go and read the accounts for Facebook UK here: https://beta.companieshouse.gov.uk/company/06331310/filing-h...

A very important piece of information is left out of the article: what Facebook UK is paying in "license fees" to other parts of Facebook.

The accounts show £131m in "administrative expenses", of which I can account for £86m in staff costs from the same document. £35m of that is a "share based payments charge", which represents the accounting treatment of share options. Of course, the shares handed out are shares of the US parent and not the UK subsidiary.

131-86=£46m which isn't broken down further.

[protomyth]

Wasn't Monster Cable pulling some weird licensing arrangement like that? I know Toyota USA pays licensing to Toyota to avoid taxes in the US.

[WildUtah]

As for Toyota, Japan has the second highest corporate tax rate in the first world, after the USA. And until two years ago, Japan had the highest rates.

So I don't think Toyota was running the same schemes we see in tax havens.

[dragonwriter]

If (and I have no idea of this is true) Japan doesn't tax transfers from foreign subsidiaries to domestic parents, and the US allows transfers from domestic subsidiaries to foreign parents to be expensed, such an arrangement would avoid taxes entirely, making Japan's tax rates irrelevant.

[robk]

Those share based payments certainly get taxed when the employees exercise them, so the Exchequer sees a tasty tax base from that at least.

[ken47]

That may be true, but something something shareholder value trumps all.

[iheartmemcache]

So can some tax attorney (we used to have a few on here) or CPA/CA break down how exactly this happened and how other people with corporations can do similar things? If Apple isn't going to be paying their "fair share" (yeah, that's a contentious term I'm throwing around) might as well benefit from the money they spent on lobbying and do the same thing they're doing. I'm in that limbo region where Julius Baer won't approach me as a 25MM+ net-worth individual but I'd still like to minimize what I pay.

[MagnumOpus]

You need to have "intellectual property" of some sort (patents, brands for franchising, copyrighted software). You create a number of corporations - one that is tax resident in a tax haven like the Cayman Islands and domiciled in Ireland, one that is tax resident in Ireland, one in the Netherlands, and one in each country where you sell your goods or services.

You then go and hire a good tax accountant who has experience with the Double Irish tax dodge (look it up on Wikipedia), and Bob's your uncle. (Though a double irish is harder to create for new firms since 2015 - you might have to acquire a ready-made shell corporation.)

Of course all this only makes sense if you have profits in the tens or hundreds of millions, so that paying for the shell companies, your Irish headquarters, your tax accountants and your lawyers is cheaper than actually paying tax.

[gburt]

The part I don't understand is that the brand was developed in the US. Don't you have to transfer the IP at something approaching fair market value to the tax haven corporation? How could you possibly have the resources (in the haven, no less) to do this without loaning money (at interest?) backwards?

[msandford]

> Don't you have to transfer the IP at something approaching fair market value to the tax haven corporation?

So here's the deal. "Transfer pricing" is a thing, and it's what you're supposedly allowed to sell stuff at. https://en.wikipedia.org/wiki/Transfer_pricing

So if you sell something on the open market anywhere, you can't sell it to your foreign subsidiary or owner for too much more or less than the open market price. But things get dicey when you're talking IP: patents and trademarks don't trade on the open market but are absolutely vital for a subsidiary to be alive, right? Amazon isn't Amazon if it can't call itself "Amazon".

The other trick is to offer some kind of service that's difficult to precisely quantify like having an accounting or service center in one country that every foreign subsidiary is required to pay for. It might not be a reasonable price but the cost of auditing all the call center records to find out it's costing $3/minute (on average) for a particular US based company to outsource its support calls to somewhere instead of $0.10/minute is going to be very steep. Do this across a few different lines of corporate support and your profit hiding is accomplished.

[jkahn]

It's certainly not a level playing field when competing against a multinational like Apple. It's also hard for countries to enforce competition rules (e.g. Anti-dumping)..

[guard-of-terra]

Apple sells a huge number of physical devices - phones and tablets. They created a new market, and now governments are able to collect VAT and sometimes customs tariffs on all those smartphones. Why not let Apple have what's left?

[coldtea]

>Why not let Apple have what's left?

Because other businesses also create products that collect VAT and still pay their taxes. Why should Apple be any different?

To promote those that are big enough to avoid taxation to make them even bigger?

[newjersey]

Apple pays VAT and all the taxes it is legally obliged to pay. Don't blame Apple. They will pay the least amount they have to pay. Fix the loopholes.

[coldtea]

The loopholes exist because corporations like Apple (but even more so others), lobby for them to exist.

It's not like corporations are exploiting some totally neutral loophole they discovered -- those are there on purpose.

[znq]

Not trying to deny what you say is true, but just out of curiosity, is there any proof that Apple is doing this and how do implementations of this lobbyism look like? Just trying to understand how all this works.

[baldfat]

100% Right fix the laws. This is horrible and the Rich pay round 10% tax rate (They argue they pay so much? They pay a ton in taxes but in terms of percentage they pay less than most people)

Th

[kmkemp]

Except that the reason the loopholes exist is because of the lobbying of companies that take advantage of them.

[caskance]

The fact that companies are able to create loopholes via lobbying is the problem. When you accept corrupt government as an unchangeable fact of nature, you've already conceded defeat.

[crazy1van]

How can this loophole get fixed? My (admittedly minimal) understanding is that these companies don't have to pay taxes on the money until they repatriate it. From the perspective of countries like the US or UK, Apple earns very little in "profits" because they have expenses in licensing fees between their own companies that effectively pushes the profit to countries with very low corporate tax rates.

This all sounds sinister and it certainly is clever. But I don't see an easy way to fix it. I don't think a tax system where countries can tax profit that never enters its borders is viable. How would the UK feel if the Cayman Islands levied a tax on profit earned by UK companies?

[SixSigma]

The UK tax office has been trying to fix loopholes.since transfer pricing abuse and offshore trusts started in the 19thC.

Non-dom has taken about 100 years to be scrapped which was creatively spawned by the Vesteys

http://www.theguardian.com/uk-news/2015/jul/08/non-dom-tax-s...

[desas]

VAT is a tax paid by end consumers, its just collected by retailers.

[marrs]

But Apple are paying their taxes.

[coldtea]

No, they use every trick in the book not to, ending up paying less than your local frozen yogurt place (exaggerating a little, but still).

[fredoliveira]

See but they do pay their taxes. They just use loopholes to pay less taxes.

[geodel]

So the problem is existence of the book of tricks. Apple did not write it.

[adaml_623]

Because we have quadriplegics who need 24 hour care so they don't die. Just to choose one random example of why we choose to have a government that levies taxes and provides services.

[ahallock]

You don't choose anything (apart from some semblance of choice through voting). Stop using voluntary language for something that is compulsory. This isn't an argument against gov, but your reasoning about choice is after the fact.

[Frondo]

We do choose. We vote in a government that provides services for those people.

Do you think that if there were a society of people where a majority were callous enough to deny those extremely disabled their medical care, that they wouldn't just vote out the bums who gave them that care, and the new generation of politicians wouldn't then rewrite the laws?

[guard-of-terra]

Why not finance helping quadriplegics from increased VAT?

If it comes to that, why not finance helping quadriplegics from charity?

[byroot]

> Why not finance helping quadriplegics from increased VAT?

Because VAT, beside being a very effective tax (it's the biggest source of income of most countries), is the most unfair one.

Say a country have a 20% VAT

Low income household need to use the entirety of their income to survive (food, housing, etc). So effectively 20% of their income is collected as VAT.

Now a upper class household, let's say they save 25% of their income each month as retirement plans etc, and spend the rest.

They've been effectively taxed at 20% of 75% of they income, so their effective VAT rate was 15%.

While you often see very high income people advocate for flat rate tax instead of progressive tax, none of them have the nerve to propose a reversed progressive tax like VAT is, where poor people pay proportionally more than rich people.

[bluecalm]

You can mitigate that effect by some kind of basic income or return of paid VAT (you collect receipts or something and get the money back up to certain amount or 100% up to certain amount, 50% up to another step etc.). You can make VAT progressive this way.

[saiya-jin]

there is no enforceable way this would work. everybody would just pay some homeless/unemployed to buy him that expensive cool little thing, and give him 10 USD for the job. try to prevent that :)

at the end, poor people would become less poor, but only by screwing with system, and only very few of them. you can put some limits on who can buy what, but this will inevitably create a massive bureaucratic overhead, meaning another set of useless government jobs that create no added value, but draw cash steadily from treasury.

[forrestthewoods]

The best possible tax scheme for poor people would be a simple flat tax that is impossible for rich people to avoid.

I've always felt your definition of "most unfair" to be a great fallacy. Yes poor people pay a higher percentage of their income. They also receive more in benefits than they give and the flat tax ensures the rich pay their share. The more complicated you make the system the more it will benefit the rich.

VAT is a net benefit for the poor. Making the whole system work that way, particularly in the face of globalization, is the best course of action. To declare it unfair is to cut off your nose to spite your face. In my opinion.

[oldmanjay]

Treating everyone the same blindly is the very essence of fair. It is, however, unjust by your sense of justice. There's a vast difference between the concepts.

[guard-of-terra]

VAT is already being collected, and Apple contributed to it enormously by creating new markets (like tablets).

That increase can be used to help quadriplegics.

[JupiterMoon]

Why not charity? Because then the people donating to charity will (at least try to) impose conditions. So only quadriplegics or a certain faith or with a certain set of circumstances with receive help. (See e.g. the concepts of the deserving/undeserving poor and moral judgements with charities helping the poor in the UK pre-1945.)

[bitJericho]

In the US we already have charities and they're not really taxed and if you donate to those charities, the money you donate is (generally) not taxed.

[phlo]

Stories like this make me question if corporate tax even makes sense. However well designed, a tax code with today's complexities is going to have holes. If a savings of even one per mill may mean millions, corporations are going to spend insane amounts of money to hire the best experts to use every last loophole.

Why don't we cut down everything to a couple of manageable groups that can be tightened down? I think the following set of taxes should capture mostly everything:

- Personal income including gifts, inheritances, capital gains, all on a set of progressive scales. This should include work benefits (like company cars) and probably include loans taken out.

- Use of public resources (property tax, vehicle registration tax, RF use...), taxed based on the specific usage (e.g. vehicle weight, or even kilometers driven).

- A consumption tax (VAT) could be added, although this doesn't seem necessary to me.

Thinking about this for a couple of minutes, I don't see any obvious problems. Applicability of the personal income tax would be a crucial point, and care would need to be taken to avoid loopholes. Why aren't tax systems as simple as that?

[legitster]

Someone put it best when they said "corporations may not have a heart, but they don't have a stomach either". Unlike people, corporations do not consume for the sake of consumption, instead they invest in assets. A tax on corporations is directly passed through to employees, customers, investors etc.

From what I understand, the actual proposed replacement for the corporate income tax is much simpler: eliminate it and replace it with a much more comprehensive capital gains tax. Then require companies to be much more forward with paying dividends.

[sbov]

Don't dividends get taxed at the residence of the person being paid the dividend?

The problem is that corporations use the infrastructure and resources of countries they operate in. So you would still have a situation of a multinational company using the resources of country X without necessarily paying any tax for using the resources of country X.

This is not sustainable.

[dennisgorelik]

Country can still tax usage of these resources.

For human resources: income tax on salaries, unemployment insurance, medical insurance etc.

For some materials: excise tax.

For real estate: property tax.

[jsprogrammer]

>Unlike people, corporations do not consume for the sake of consumption, instead they invest in assets.

Uh, what exactly is the difference between consuming and investing in assets? Most investment in assets is actually just a claim to consume some of the ROE.

Also, it's not clear to me how shifting cash flows into something makes an asset (or how a physical asset could directly benefit from increased cash flow [not sure how this is even possible; I can't pump FRN's into my car's gas tank]).

[bduerst]

What about the majority of companies that don't pay dividends? I agree that tax codes are complex and the international theater makes them hard to enforce, but most of the proposed replacements for corporate income tax are typically half-baked.

[phlo]

Either (as the parent comment proposes) force them to pay dividends. Or don't: in order to profit from the higher share price, investors either have to sell some of their shares (realizing their capital gains) or use them as collateral for a loan (which should be treated as a capital gains realization event).

[bduerst]

There are entire industries with thin margins (e.g. grocery, airline, blue collar services) that would be destroyed if you forced them to pay the same dividends as others.

Why are you fixating on share price? Now how are you going to tax LLC, LLP, etc.? Privately traded corps that don't have a market price?

[phlo]

As I said, forcing companies to pay dividends was the parent poster's idea. If anything like that were to be entertained, I'm sure the forced dividends would be in relation to the corporation's profit.

As for privately traded corps and partnerships: My proposal was to tax capital gains. This could be done at each realization event, and at that point your transaction will usually have a market price. If you are exchanging stock in two privately traded corps, some way to determine fair market value will have to be found, but that seems to be an edge case to me.

[walshemj]

Companies make use of education roads and other infrastructure and in the UK not having to provide health benefits.

[Cookingboy]

This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S.

Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.

This is a great idea to increase the wealth gap between developed countries and the rest of the world, for good or bad. Considering how many international conglomerates are American, European or Japanese.

Developing countries wouldn't stand a chance this way.

[Tsagadai]

A much simpler tax system would be to tax everyone like hedge fund fees. You pay 2% tax on all assets and 20% on profits those assets generate. Regardless of asset type (if it is worth money and can be traded, it gets taxed). Ditch everything else (especially regressive taxes like VATs) and keep a progressive income tax. This 'everyone' is individuals because someone, somewhere owns the assets.

Note that those are the pre-2008 hedge fund fees and the fees are presently less than that.

[jos3000]

The big problem with this is that, under a simple tax system, if a government wants to increase it's tax revenue it is extremely easy for voters to understand what is happening. Governments prefer to make complicated tax laws because they are easier to spin.

[vtlynch]

Ah yes governments always trying to make things too complicated!! Argh! Why cant we replace the govt with the private sector! They never do anything that would obscure or needlessly complicate things.

[wereHamster]

Not only govt, but private companies as well. Remember when the company behind the most widespread US tax software (can't remember its name) lobbied against simpler tax code? Why? It's simple, because it would cut into their sales!

Everybody who has something to lose will vote against a simpler system, doesn't matter whether its a private company or government.

[mike_hearn]

Governments make complicated tax laws because of constant attempts to make the tax system 'fair', where fairness is a pretty vague concept and can be interpreted many ways by different people and parties.

There are lots of economic arguments for very simple tax systems that prioritise revenue collection over other things. But a lot of people would see them as "unfair" and therefore unjust.

[yuliyp]

Oh come on. The taxes that 90% of people pay are perfectly clear. The exceptions only affect a very small minority of people (namely those with enough income to make it worth their while to care about exploiting the exceptions).

[rootlocus]

Security through obscurity? xD

[brandonmenc]

> Why aren't tax systems as simple as that?

cruft + tax payers writing law + tax collectors writing law

[kuschku]

So, in your system, how would a corporations profits be taxed? You have shown nothing like that, really.

And a direct property tax is also not a good idea, as then you tax people for having property, not for using their property.

[rstupek]

You shouldn't tax corporations as it is simply an indirect tax on individuals. A good way to hide a persons total tax rate by making part of it be included in the goods they purchase.

[alextgordon]

But this is not true, is it? Corporation tax is on profits. Companies price things at the price that maximises revenue. Since corporation tax does not affect revenue, it is not a variable in their pricing calculation.

A low corporation tax is valuable because it attracts foreign businesses, but that is necessarily zero-sum.

[phlo]

Sorry, I might not have made that point clear: they wouldn't be taxed at all. Not at the corporate level, that is.

As far as I can tell, money will exit corporations in three ways: 1) salary, 2) shares and 3) payments for goods/services, mostly to other corporations. Income and capital gains taxes will take care of 1 and 2. The company won't owe taxes, but whichever natural person receives the money will. As for 3, my proposed system would be captive: because it doesn't charge corporate taxes, corporations won't have any motivation to try and move their earnings to other corporations (as they couldn't be taxed any lower).

[bduerst]

This type of tax plan will incentivize wealth aggregation in corporations, while increasing the cost of employees and goods/services.

You want companies to spend, to increase economic cash flow and generate jobs, which is why existing corporate taxes are on net income, not revenue or costs.

[twoodfin]

Why would shareholders want a corporation to aggregate wealth?

[bduerst]

Investors want a return, and this new tax plan makes it more expensive to move money out of a corporation, even for regular operational expenses.

Corporate income tax today allows for companies to pay employees and buy goods/services without increased tax cost. It incentivizes cash flow into the economy and job generation by taxing whatever is left over (net income) after doing business.

[kuschku]

And how do I tax a shareholder living in US if I’m the UK government? I have no ability to do so.

[phlo]

One possibility might be to charge capital gains whenever shares are traded. Then require shares to only be traded at exchanges with an agreement to report trades (or anonymously collect capital gains and send them your way, for privacy). Another (probably worse) alternative might be not to tax them. The US will, and in exchange you get to tax UK shareholders of US companies.

[mike_hearn]

You don't. But then again why would you - that shareholder gets no services from the UK government so there's no moral case for them to pay tax to a foreign country.

[sbov]

I disagree. The company which operates in the UK benefits, so the shareholder - who actually owns a part of the company - does too.

[Cookingboy]

This doesn't solve the globalization problem. Say..an American company such as Walmart goes to a country, kill all their local competition with lower price, and make a ton of profit and then distribute them amongst Walmart shareholders in the U.S.

Sure those shareholders will pay cap gain or personal income, but now since you eliminated corporate tax completely, the net tax revenue of the country wal-mart operates in is no diminished.

This is a great idea to increase the wealth gap between U.S. and the rest of the world, for good or bad. Considering how many international conglomerates are U.S. based.

[sspiff]

> Global companies offshoring profits and not paying enough tax (in the eyes of many countries)

Also in the eyes of many citizens of those countries, not just the government trying to make the budget fit.

[jkahn]

Yes, agreed, which makes it much more likely that laws will get passed to collect this tax as it will probably have strong political and voter base support.

[sspiff]

The problem is that for many (smaller) countries, it's a race to the bottom. They want to attract companies that are huge compared to their "native" GDP or production capabilities, collect a little bit of tax from them, and maybe earn a whole lot more by creating (or maintaining) a financial services industry in their country.

It's hard to stop those countries from doing so, in the current framework of international trade and business. I don't know if a treaty limiting this kind of stuff is in the cards for the near future. And if it is, I'm not sure it would be signed or ratified by financial safe haven countries like Luxemburg, the Seychelles, Monaco or Belize.

[mrweasel]

>As the company chooses their own costs and license fees, they can effectively control in which entity they make a profit and which they don't.

I've only seen one really effective way around that suggested, but it's not without it's drawbacks. If a country taxes each sale of a service or product, then it's no longer possible to funnel money out of the country. It effectively eliminates companies that operate in a country for years with a fake lose.

The drawback is that it will potentially cost jobs and close business that could be profitable in the long term.

[tomelders]

Great summary, I'd like to add

> while not dis-incentivising multi-nationals from doing business in each country

I'd argue that the incentive to do business in several countries is the profit they're making in those countries. No company is going to walk away from a company because they're being charge x% of tax on the money they earn. They might say they will, but they may as well be saying this...

"Because I don't want to pay you $1, I will reject the $5 this other person is going to give me."

[refurb]

Return on investment weighs heavily on most business decisions. If I invest $X, by the end of the year I'll get $X*(1+return%).

Since companies can't invest everywhere at the same time, they prioritize investments. A higher tax rate might mean investing in that country later, as there are other investments than have a higher immediate return.

I could see a situation where an investment was profitable, but so marginally profitable due to the tax rate that the investment was delayed effectively forever.

[im3w1l]

But interest rates are low so if you see an opportunity to earn money, you can borrow to seize that opportunity.

This assumes that when you scale up your organization, your costs scale up linearly. If it caused marginal wage to shoot through the roof, that could be a reason not to do it I guess.

[refurb]

Low interest rates solve the funds issue, but it's not the only limitation to scaling.

[tomelders]

The reality is - The UK has a relatively low corporation tax rate. In the UK they would still getting plenty of return on their investment if they paid corporation tax on the profits generated in the UK.

These academic arguments about tax don't hold much sway with me. 18% is a perfectly reasonable rate of corporation tax. Paying that tax ensures the long term viability of the British economy from which Facebook will earn even more profits. Not paying it is just leaching the nutrients out of the environment. It's a scorched earth policy and HMRC should be merciless in their punishment of it. And I use the word punishment intentionally.

[krotton]

Well, in hypothetical laissez-faire capitalism taxes would not be needed to provide infrastructure - Uber would just have to pay its fees for driving on private roads (etc.). This would drive prices up, but fairly divide the costs between the roads' users. Although I must admit I have no idea how things could look with purely digital companies like Facebook. I can think of local ISP-s charging the company for allowing access to the website, but that would probably become just an additional earning opportunity for them, without any noticeable positive influence on the local population.

[afarrell]

But you still need taxes to pay for courts, police, armies, etc.

Unless you are arguing the An-Cap thesis that these functions can be conducted by private entities. If you are, then congratulations: we're already living under your preferred system! It is just that for most territory, one company has seized monopolistic control of the territory, has called itself "the government", and no other companies have been formed to challenge it. Exceptions such as the West Bank where two companies are competing do exist.

[krotton]

I'm not an anarcho-capitalist, I'm just conducting a mental experiment to see how far state minimalism can go. I'm quite convinced we can (and probably should) limit the competences of current behemoth governments - what I don't know (and am therefore trying to discuss) is to what extent.

[afsina]

Just for the context, Anarcho capitalists believe that minimizing the government is not possible. For them, once a government is established, it always gets bigger.

From the `Impossibility of limiting the government` section of `What must be done`[1]

"Now, once the protection monopoly (government) is in place, a logic of its own is set in motion. Every monopolist takes advantage of his position. The price of protection will go up, and more importantly, the content of the law, that is the product quality, will be altered to the advantage of the monopolist and at the expense of others. Justice will be perverted, and the protector becomes increasingly an exploiter and an expropriator. More specifically, as the result of the territorial monopolization of protection, two tendencies are generated. First, a tendency towards the extensification of exploitation, and second, a tendency towards the intensification of exploitation."

[1] https://mises.org/library/what-must-be-done-0

[pjc50]

This arrangement collapses into monopoly very quickly. Facebook would bypass or buyout the local ISPs.

(A world of purely voluntary contracts and no compulsory purchase would never have got past the development of the railway or telegraph, so the whole prospect is ludicrous)

[afsina]

Not really. Monopolies are mostly created by the state. Either with crony capitalism, intellectual property laws or directly state controlled production. Besides, Laissez-faire capitalism can create large scale infrastructure, why do you claim otherwise?

[pjc50]

Standard Oil? If you're going to call that "crony capitalism", we're well into the same delusional territory as "true communism has never been tried".

[afsina]

Some disagree.

https://mises.org/library/100-years-myths-about-standard-oil

Crony capitalism is not at all "capitalism". It is an beast created by the state, through military spending, stimulation, infrastructure or the means of social wellfare. The more "militaristic" or "social" a government becomes the more leaches appear.

[collyw]

when was it tried?

[afsina]

Well, the ones tried were close enough. Soviets and the all eastern block, Cuba, Cambodia, China, North Korea. They all contained communist ideas such as common ownership, abolishing private property, central planning, and somewhat classless society. Apparently event the theory does not hold much weight as almost all collapsed or converted to some form of nationalist totalitarian regime. Perhaps once robots do all our jobs harvesting food and cleaning streets using power from endless battery fields, Marx's prophecy of inescapable history will be fulfilled.

[collyw]

I love it when an honest question gets downvoted on here.

[jkahn]

That's theoretical, whereas government and corporations deal with realities.

100% capitalism isn't practical and is unfair (e.g, to the poor and sick). What is a fair way to divide costs for road usage: time of use, miles driven, emissions, cost of vehicle, ability to pay? It's not an easy answer, and many are practically unenforceable. Hence, tax.

And for the record: I'm generally capitalist by economic viewpoint.

[krotton]

The way road usage costs are determined doesn't really matter - it's enforced by a mutually accepted contract. Yes, that's theoretical ;).

[funkyy]

Simple 1% revenue tax on companies with revenue of more than $15 million would fix the issue. No other taxes, just revenue one, no tax credits, no refunds. No hiding costs, no going offshore, no creative accounting. One tax on all revenues that will hit your account. This would also help to cut out all the middle man driving prices up and make the logistic chain quite small.

Some countries want to experiment with this starting with foreign corporations, we will see.

[1123581321]

That would cause an immense consolidation as the 1% would be applied to the revenue of every country in a manufacturing/logistics chain and add up to a sizeable percentage of the final cost. More companies would take the Apple route and do as much as possible so that there would be fewer 'revenues' to tax per good made/service provided. Perhaps that is your goal.

[funkyy]

Goal would be to remove middle man and shell companies. When you look at the product offered by lets say Samsung, how many companies such a product would go after removing middle man, 5? Mine -> Parts Manufacturing -> Producer -> Distributor/Licensor -> Sales Point (Mine -> Some small manufacturer making simple parts -> Foxconn -> Samsung -> Shop in Vancouver). Thats 5% tax on whole product that will not have added sales tax anymore. Thats low, probably would lower the price of product by huge. And there is no tax credits etc so no place to exploit. As simple as that, so companies can focus on what is important, especially growing ones.

[joesb]

์So every broker company who makes profit on 0.05% transaction fee is going bankrupt, and no more high-volume low-profit business.

[funkyy]

I assume you write this as a bad thing?

Its better for economy if brokers would focus on long term trades. Also usually high-volume low-profit businesses are the ones that are arbitrating prices and often are just middle man. No need for that. There is a way around. Obviously there would be FEW businesses that would be affected and need to change the way they work, but this comes always with any tax changes.

Anyways, I said all revenue that hits your account. Brokers usually don't keep their money in bank accounts, but in investment accounts, right? Until the money hit their actual bank account they would pay null on trades. So they would pay tax on all withdrawals and payouts to customers.

[twoodfin]

I assume you write this as a bad thing?

I don't know about you, but I really like what Amazon provides to me, and am quite glad corporations like it aren't strangled by our tax code.

[funkyy]

If the whole chain of production and sales would be relieved from paying accountants and being charge stupid tax, then the overall prices would fall. You give me an example of Amazon. Would 3%* of overall cost added to the end product be higher than 3 companies sustaining their accounting teams going over taxes etc. + you required to pay sales tax? Revenue tax = no sales tax. Still think it would be more expensive?

1 very low tax to replace all the taxes from the producer to customer seems like much better option than being "not strangled" by current tax laws.

*3% assuming there is producer, distributor/owner and Amazon in the chain.

[crazy1van]

> Simple 1% revenue tax on companies with revenue of more than $15 million would fix the issue.

What country can levy this tax? Large companies like Apple have operations in lots of countries. Do they have to pay each one 1% of their raw revenue?

[funkyy]

Its the revenue got in that country. If Apple gets $300 Mil in revenue to their bank account generated in Canada they pay $3Million tax to the Canadian government, as simple as that. Its tax on revenues that company got to their bank account in the country where they operate. If they want then move the money to US and US would have same rules, they would end up paying another 1%. Total of 2% tax for transferring money from Canada to US for example does not sound that bad, huh? Thats the amount of money PayPal would charge for 1 transaction. And this is all, no hidden tricks - this would result in huge increase in revenues country would get and almost completely wiping out black market as such a low taxes are not worth to avoid for small businesses.

Poland is one of the few countries that already have this tax, but it is high now (I think around 20%) and optional. There is a lot of public discussion to drop it to between 0,5-1% on all revenues for all foreign owned companies making more than €15Mil/year. This got really popular after information that Google is reporting constant losses and not paying taxes despite ridiculous high revenues from local market.

[e12e]

You're saying I need to divide my $25 million revenue corporation into two?

[funkyy]

To go through the pain and cost of doing regular taxing and being on the mercy of tax office? Sure.

[raverbashing]

Well, how much Apple money stays outside of the US because it was paid there?

Also, how much VAT and other taxes are charged in an iPhone sold in Europe

Same for Facebook, their ads generate VAT. Their employees there pay income tax.

[tobltobs]

First we were told to be nice to the rich and give them tax reduction, because we will be all happy for the trickling down pennies. And now we are supposed to give the cooperation tax relief because there is money trickling down from the employees?

[caskance]

You're not "supposed" to do anything. If you want to raise tax, raise tax. Just keep in mind that this changes incentives for anyone who has to pay that tax. That's not a threat, it's a fact.

[tobltobs]

I do not want to raise taxes. I just want that everybody pays his taxes, because than we could lower taxes.

[caskance]

I haven't seen anyone claim that Facebook is failing to pay all the tax they are legally obligated to pay. Did you mean something else by "everybody pays his taxes?"

[tobltobs]

There are currently investigations in the EU if FB did fullfil the requirements to use the tax loopholes they are using. If not, FB did not pay the taxes they are obligated to pay.

[raverbashing]

Do you know what's even better? The rich taking their business somewhere else

Then the unions can cry foul about how the big bad companies wouldn't put up with their crap anymore

I'm sure in an ideal world everybody would be a public servant with no productivity goals but that has problems as well

[tobltobs]

Sorry, I do not get what you want to say.

[h909415]

>The rich taking their business somewhere else

They already did. That's the whole point of globalization.

[lsaferite]

As much as the minuscule corp tax bills infuriate me, my logical half laughs and says income tax is silly, just use sales tax.

I know we'll never pass something along the lines of FairTax, but I daydream about it all the time. And yes, I've heard all the arguments against it and I still think it's a much better solution than taxing income.

[tobltobs]

A sale tax only system would be a nice gift for the wealthy.

[lsaferite]

I did say something along the lines of FairTax. They proposed a yearly 'prebate' check of the taxes paid on base level spending. That is to combat the regressive tax situation.

[plouc]

Could you develop? I am genuinely curious.

[PeterisP]

If you're paid $100 in cash as wages and use it to buy food and pay rent, then your effective tax rate is equal to the sales tax rate.

If you or your company is earning $1m in profit, and use half of that for spending and buying goods (that are taxed by sales tax) and the other half to buy revenue-producing assets - shares of other companies, real estate, bonds - then half of your income isn't taxed at all, your effective tax rate is twice as small as the tax rate on poor people.

This introduces an even stronger rich-get-richer mechanic to the society, as accumulating wealth generation (not just wealth) is tax-free.

[raverbashing]

That's easy to explain (although it might be tricky).

The marginal value of money decreases as the absolute value increases.

Getting a raise from $1k per month to $2k per month is more significant than from $2k to $3k

Meaning that if you earn more, you'll usually save more.

So now stuff is taxed at 50% (VAT or Sales tax), so everything will cost more, but it will be easier for the rich to afford it, because of no income tax, and harder for those with less income (their income tax was not high to begin with)

[wlievens]

Give every citizen a yearly vat tax credit?

[tobltobs]

If you have a low income and need all the money to buy food you get taxed on 100% of your income. If you have a lot of income and can save or invest 90% you only get taxed on 10% of your income.

[lsaferite]

If you are low income and they give everyone a tax refund on the first 30k or so of spending, then you perhaps pay 0% in taxes while the person spending over 30k starts paying a tax.

[mattmanser]

If I didn't buy an iPhone, I'd buy a different phone. The VAT would still be there. If I didn't use Facebook I'd be using a different image sharing service, or chat service, or whatever. The VAT would still be there.

Because I have a budget to spend on entertainment, and various companies compete for that budget.

We pay those taxes, Facebook/Apple doesn't 'generate' anything, that money would be spent on a different entertainment. We pay income taxes, if we didn't work for Facebook/Apple, we would have to find a different job, perhaps start our own company, etc.

I want to make this super clear. Those taxes, including income taxes, are our contributions, not Facebook's. The citizens are generating that money. If Facebook didn't exist, there would be a company filling that void with an alternative entertainment which VAT would still be charged on.

Now, on the flip-side, it's not entirely zero-sum and Facebook does increase the overall wealth. They are generating new markets, new growth, etc.

But is it by the percentage of money its extracting from the local economy? Of course not. And worse still, that money's sitting in an offshore account somewhere, not even flowing back into the US economy, because they're waiting for a tax break. So instead of doing what it's supposed to do, which is spur more growth, it's doing the worst thing it can, which is being excluded from the world economy.

[raverbashing]

Yes, VAT is payed 'by the consumer', and if people weren't buying Apple phones they would be buying something else, fair enough.

I just find it funny how the solution to lack of money is always wanting to squeeze more taxes from the companies and people instead of optimizing goverment spending (optimizing, not cutting)

Ah of course, living withing your means is now called 'austerity' and it's bad because?

[icebraining]

And worse still, that money's sitting in an offshore account somewhere, not even flowing back into the US economy, because they're waiting for a tax break. So instead of doing what it's supposed to do, which is spur more growth, it's doing the worst thing it can, which is being excluded from the world economy.

Not really. "New Data Show Corporate Offshore Funds Not “Trapped” Abroad: Nearly Half of So-Called “Offshore” Funds Already in the United States": http://www.hsgac.senate.gov/subcommittees/investigations/med...

[joesb]

That even makes more valid point that since VAT in Europe is European customer's contribution, it should stay in Europe.

[guard-of-terra]

Before Apple did iPhone, modern mass-market smartphones didn't exist and VAT from old-school smartphones was probably 10% of what it is today.

Before Apple did iPad, VAT from tablet sales was virtually zero.

I think you should tax what is easy and straightforward to tax; not aim for a "perfectly fair taxes".

Anyway, it shoud be good to you that you are paying taxes and not Apple. Next time Apple wants to ban phones with square screens, you tell them to back off because they don't pay taxes. You should get a voice here and you should to get your message straight. If you can't - blame your government and work towards digital democracy.

[o0-0o]

I beleive you mean 'bane' and not 'boon'. Check out an old goldminer's reference. :)

[smt88]

> provide the same level (or greater) services

I don't agree with that in all cases, and I particularly don't agree related to Uber.

When I lived in NYC, I often called "311" to complain about taxi-driver misconduct. This was the only outlet, and you really only did it because you wanted to feel better. There were never any direct consequences that you knew of.

If you consider the decreased cost of operating the 311 service, as well as lower taxi-related crime, less drunk driving, etc., I'd guess that a government would spend less when Uber had replaced all traditional taxi services.

(You can also think of Uber as redistribution of wealth from wealthier to less wealthy, since riders will usually be wealthier than drivers. In that case, Uber makes tax revenue go up, since poorer people usually pay more in taxes.)

Edit: Clarified some language, since no one seemed to have understood anything I said the first time.

[jkahn]

That's not what I mean. I'm talking about what the tax money collected gets spent on by government - roads, healthcare, infrastructure, aged pensions.

If industry X was paying $100mm tax, and industry Y disrupts and replaces that, while paying only $20mm tax, the government needs to find $80 million to replace that tax shortfall.

Nothing to do with taxi related services...

[smt88]

And what I was saying is that industry Y might save the government money as well. The net effect might be that the government has more money.

To continue using Uber as an example, not only do they potentially decrease the costs of operating the government (see my reasoning above), they're also still paying local employees. Those employees will spend their Uber revenue and pay taxes, just as taxi drivers would.

Further, Uber makes it easier to move physical objects around in an economy. That should generally make the economy more efficient, which could also help to swing the balance in favor of a net positive effect.

All I was saying from the beginning is that it's not always true that an international company replacing local companies is creating a net decrease in government income.

[kuschku]

Uber is in every way reducing tax income.

Old model: The taxi company spends 100% of its income in the state, meaning the state collects 100% of the taxes of the costs.

Uber model: Uber spends next to nothing in the state, so the state gets less.

Uber still uses the same governmental resources, uber drivers earn less than the taxi drivers (less income, less taxes), and have less money to spend (economy shrinks, less taxes).

Uber makes the economy less efficient, as more money ends up in the US than in local businesses.

[smt88]

> Uber still uses the same governmental resources

No, it doesn't, at least not in the US. It uses fewer government resources, although I don't have the data to say how significant of a difference it is.

[kuschku]

How does it use fewer resources? It drives on the same roads, uses the same infrastructure, and costs the taxpayer the same.

If you consider the taxpayer paying the bill because uber doesn’t insure properly, it costs even more.

[username223]

> they're also still paying local employees. Those employees will spend their Uber revenue and pay taxes, just as taxi drivers would.

This is drifting off-topic, but it's worth noting that Uber's short-term plan is to somewhat reduce the wages of people who drive taxis (or "share rides," as they call it), and greatly reduce the tax cities collect on that activity. Their long-term plan is robot cars with no paid drivers.

[mlrtime]

The government only needs to find $80mm if the disrupted industry consumes the same resources. If somehow the disrupted industry does not (efficiency, other tax base), government does not need the revenue. It is incomprehensible to some people that government should let go of funding.

[guard-of-terra]

Tax regular car drivers more. There's simply no reason why taxi users should (indirectly) foot that bill more than car owners. If your tax were set up on assumption that taxi is a premium service, time to rethink it.

[blowski]

Uber can only exist in a society with a detailed and rigorously applied legal code, decent transport infrastructure, and wealthy citizens. I'm sure there are more requirements.

As Uber benefits from public spending on these things, they should also contribute to their upkeep.

[smt88]

> detailed and rigorously applied legal code

Not sure this one is a necessity. Uber is growing in China and India, and both of those places have legal systems and levels of corruption that shock those of us in the US learning about them for the first time.

I agree that Uber should contribute to the upkeep, but I was just doing an absolute comparison between Uber and taxi companies.

[kuschku]

Eh, look at Germany: We had like 5 or 6 different uber-like businesses already competing before uber even was a thing.

The only reason uber even ever made profit in some German cities was by refusing to buy insurance and thereby being cheaper than the competitors.

[nathanvanfleet]

You have a lot of problems with your argument.

If you have a local taxi company, you make tax money from that company. If it's at least in your country, you make tax money from that company. If the support employees are in your city/country, you make tax money from those people.

So if the company is not from your country, and their support/offices/profits all go somewhere else, it's a loss for you (as a city or country) because before you got to make more money from the local taxi companies. Which you would hopefully use to pay for different services (not sure why you think 311 is the only conceivable cost here).

And honestly, you think rich people pay more taxes? Sorry, it's just not the case. 1 person making 100x more than an average person is going to pay less net taxes and will buy fewer things (even if it's more expensive stuff) than 100 people.

[aianus]

> 1 person making 100x more than an average person is going to pay less net taxes and will buy fewer things (even if it's more expensive stuff) than 100 people.

This just isn't true at all.

The top 1% of earners in the US pay more tax than the bottom 90% combined. Sometimes rich people pay a smaller percentage of their income than less-rich people but in absolute terms poor people and middle class constitute a minority of the tax base.

[anjc]

...he was talking about net income and personal expenditure. You're talking about income tax. They're different things. 1 person will buy less than 100 people.

Incidentally, the top 1% pay more tax, in absolute terms, because they earn more than everybody else. What's your point? That's how percentages and progressive taxation works.

[rstupek]

Its not necessarily true that 1 person will SPEND less than 100 people.

[smt88]

You have completely misunderstood everything I said.

I understand that tax revenue goes down when Uber replaces local taxi companies. I'm not arguing with that.

However, Uber can possibly decrease the costs of running the government (police, 311, and possibly others). We can't know for sure without specific numbers, but it's possible that Uber saves a government more money than it removes by avoiding taxes.

And I wasn't saying that rich people pay more taxes. I was saying that rich people using Uber is a redistribution of income, since the rider is almost always wealthier than the driver.

[SixSigma]

You could call it "increased globalisation" but abusing transfer pricing was invented by the Vestey Brothers in the late 19th Century when they began importing beef from Argentina. They also invented the abuse of the offshore trust.

The legislative arms race that evolved was the UK tax office trying to tax the Vesteys, who went on to be one of the UK's wealthiest dynasties.

More info here: http://m.francisclark.co.uk/news-views/blog/the-vestey-broth...

Plus ça change, plus c'est la même chose

[sneak]

Necessary services?

“There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.” —Heinlein