Why would Google not pay as little tax as possible?

http://eu.techcrunch.com/2009/12/21/why-would-google-not-pay-as-little-tax-as-possible/

by swombat • 17 years ago

43 52 17 years ago

eu.techcrunch.com

teralaser• 17 years ago

The Economist is up in arms with the new Britain "let's tax the rich too" , for instance -out of many articles- http://www.economist.com/opinion/displaystory.cfm?story_id=1...

electromagnetic2• 17 years ago

The rich should be taxed. After all, when the top 20% are taking over 80% of the money, they should be paying 80% of any nation's taxes too. If they're not, the system is unfairly biased to keeping the rich rich.

If you can pay $1 million in income tax in a single year, I figure you're doing fucking amazing out of life and it's where any entrepreneur should want to be in life.

chwolfe• 17 years ago

"when the top 20% are taking over 80% of the money" Who exactly are the rich "taking" money from in general? Creating wealth is not a zero-sum game. If you insert the word "earning" in the above phrase, the argument you present loses some luster.

jmillikin2• 17 years ago

    After all, when the top 20% are taking over 80% of the money

The current numbers for the US are actually something like:

    10% of the population controls 85% of the wealth.
    1% of the population controls 40% of the wealth.

Which, if anything, strengthens your point.

BrentRitterbeck2• 17 years ago

"If they're not, the system is unfairly biased to keeping the rich rich."

Is your solution to move the rich from being rich to being poor? The rich should stay rich. You don't punish the rich to bring the rest of society up.

pchristensen2• 17 years ago

I think you have the right idea but the wrong phrasing. If the top 20% are earning 80% of the wealth, they're getting 80% of the benefit of the country's system of laws, infrastructure, resources, etc and should pay accordingly.

That doesn't mean they should pay 80% though - in a world where people and capital can move, the price you can charge people and businesses to be in your country is subject to market pressure. And assuming proper pricing, markets are the best way to efficiently allocate scare resources.

anamax3• 17 years ago

> The rich should be taxed. After all, when the top 20% are taking over 80% of the money, they should be paying 80% of any nation's taxes too. If they're not, the system is unfairly biased to keeping the rich rich.

Actually, the US federal income tax rate is far more "progressive" than that. If you're at/below median income, you're probably not paying any federal income tax. (You are paying social security, but you get that money back with a decent return. The rich don't.)

lionhearted3• 17 years ago

When I learned of Nash Equilibriums, it changed the way I saw a variety of fields - government, business, advertising, and so on.

http://en.wikipedia.org/wiki/Nash_equilibrium

> In game theory, Nash equilibrium (named after John Forbes Nash, who proposed it) is a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy unilaterally.

It's fascinating stuff. Nash equilibriums are regarded as "stable" - no one will change what they do. Things tend to trend towards Nash Equilibriums and settle there until there's new technology.

Government legislation, including higher taxes, frequently breaks equilibrium. The new best solution for large players might be to divert earnings or leave the area they were doing business. Frequently, this results in the legislators getting angry and legislating more solutions.

One that immediately springs to mind is North Carolina and Amazon. North Carolina legislators were annoyed that Amazon customers in NC didn't pay sales tax because Amazon didn't have a presence there. They passed a law that made it so Amazon having affiliates there would count as them having a business presence, so Amazon would have to start charging their NC customers sales tax and remitting it to the NC government.

Amazon responded by canceling NC affiliates. This was the start of that email:

> We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.

Now, that obviously wasn't an NC legislator's intention. But it turned out to be the new stable best solution for Amazon. They must've done some math and decided that not charging sales tax in NC is important than letting affiliates with a NC address continue to participate in earning referral fees.

Too often legislators think people will accept their legislation and things will go according to their planned scenario. They don't stop and think, "How does this change people's incentives? What nasty secondary effects could come from this?" When the nasty secondary effects come, they either try to shame the organization in line (which doesn't usually work), or they pass even harsher legislation. You can see where this leads - it's not pleasant. Disrupt Nash equilibriums if you must, but do it with your eyes open that there could be some really nasty secondary effects to the process.

halo2• 17 years ago

Surely that works both ways? If the government isn't aware that companies are using a loophole to avoid tax or more companies start using loopholes to avoid tax then it isn't a Nash equilibrium either and the government will be pressured to react by introducing new legislation to remove that loophole.

I think by ignoring this and focusing solely on the legislators, you are exposing your biases.

lionhearted3• 17 years ago

> ...government will be pressured to react by introducing new legislation to remove that loophole.

That's the point right there - doing that would create more secondary effects. Let's say England says that if you have employees there, and make large profits, you have to pay high taxes.

The reason I focus on legislators is because they tend to be ignorant of secondary effects. Let's say they want Google to pay more taxes and want "close the loophole" as you say - how do they do that? There's law, they can't just write a letter to Google demanding taxes. So what will the law read? "The Fair Tax Burden in Cyberspace Act of 2010" - how would that theoretically read?

Well, maybe the first draft says that if you have staff in England over a certain amount, you have to claim corporate taxes there.

Well, maybe Google does the math, and decides it's not worth - and and lays off or transfers its English staff.

So a legislator gets furious, and writes the, "Anti-Cyber Laundering Protection Act of 2011", which mandates that if a website collects revenue from a country, it has to pay taxes, or the website is banned.

Do you see how this goes downhill really fast? Legislators don't consider that the actions they take won't always produce the results they want, and almost always have secondary consequences. Maybe this is much ado about nothing, but we could get another one of those scenarios here.

I will admit a bias though - I think Google does a better job providing for humanity and the people of England than the English government. And I say that despite the fact that I think the English government is one of the more sane and better run governments in the world - Google just does an absolutely incredibly job, they've produced far more amazing stuff in a shorter period of time than just about any government organization.

So yes, I have a bit of a bias in favor of great companies keeping their revenues instead of giving them over to bureaucracies, but that's not even the crux of this here. The crux is that by legislating, you create secondary effects, many of which are not positive, and the world would be better if legislators paid attention to that and thought things through more clearly.

pbiggar• 17 years ago

Well, if Google paid tax in the European country where they have the largest presence, they would pay it in ... Ireland. Just like they do now.

messel2• 17 years ago

International tax law begs to be hacked. It doesn't feel very rational due to the conflict of national interests.

jmtulloss• 17 years ago

I don't understand what you mean by this. There is no "international tax law", just national tax law. Britain's tax law happens to allow exactly what Google is doing.

The EU does have something that might be described as international tax law, but it's really EU tax law, where the EU is something very similar to a federalist nation.

crc324• 17 years ago

It was clear to me. He means laws regarding tax issues that cross national boundaries, for example "transfer pricing". He is saying that it is easy to exploit such laws. (Whether it is intentionally easy or not)

hussong• 17 years ago

"And yet the UK press and politicians, yesterday and today, have been up in arms that Google’s theoretical UK tax bill could have built hospitals and purchased helicopters for troops in Afganistan."

Theoretically, they could. But in the current economic situation they would more likely be spent on cash infusions or EU transfer payments to keep the Irish economy from collapsing. So, in the end, it doesn't make that much of a difference.

anigbrowl• 17 years ago

In some respects, the Irish economy is collapsing anyway. It would arguably be worse without the presence of multinationals attracted by the low corporation tax, but the sad fact is that having a multinational in your country doesn't necessarily mean all the best jobs they have to offer are going to be available to the workforce. In some cases they'll just up and go somewhere else when it becomes more economically attractive, as Dell did.

Being Irish myself, I have very mixed feelings about the country's corporate tax policy. It looked terribly smart a few years ago, but so did a lot of other fiscal and economic policies that seem pretty foolish in hindsight. The low-tax regime has come at the expense of higher and higher rates of personal income tax coupled with crippling unemployment.

gaius3• 17 years ago

This is why Ireland has always voted against EU expansion. It doesn't want to see all the money go to Eastern Europe.

It's funny, driving around Western Ireland, say Dingle, there are immaculate roads with EU flags on the signposts, then the money runs out and it's abruptly back to the crumbling ashphalt there was before (which is normal considering how sparsely populated and lightly traficked the area is... It just doesn't make economic sense to plough a lot of money into the roads there).

Why would Google not pay as little tax as possible?

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