136 Countries agree to minimum corporate tax rate

https://lite.cnn.com/en/article/h_ae2e1cd7c5997036404936c0eacc8356

by LinuxBender • 5 years ago

200 188 5 years ago

lite.cnn.com

oceliker2• 5 years ago

Official announcement: https://www.oecd.org/tax/international-community-strikes-a-g...

List of countries: https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-m...

cameronh90• 5 years ago

"The treaty will need to be ratified via a two-thirds majority in the US Senate, which is unlikely given that it allows foreign countries to tax US companies, the Eurasia Group analysts said."

So, it's not going to happen then?

zxcvbn40382• 5 years ago

Haha, I think you called it!

ko27• 5 years ago

It will, just like in Ireland. That's the beauty of this deal. It's blackmail basically. If the US does not pass it, other countries will tax the difference even on US profits (company just needs to have presence in the EU). US would be shooting itself in the foot, especially being the one to propose it originally. Also, I am pretty US is already above 15% corporate tax rate.

cgearhart3• 5 years ago

US would be shooting itself in the foot…

That’s very “on brand” for the US. All we need is a change in party running the White House to torpedo our own ideas. See also: TPP.

lovich4• 5 years ago

That’s not blackmail, that’s the cost of access to those countries markets. Much like you could ignore GDPR if you never intended to touch the European market.

You can’t claim blackmail because a club charges you a cover to enter the door

goodpoint3• 5 years ago

It's not blackmail nor extortion at all.

These are 136 countries finding in agreement, not one country imposing its willpower on the rest of the world using threats of force.

zozin• 5 years ago

Minimum tax rate 15%; tax loopholes unlimited!

bitshiftfaced• 5 years ago

For those like me who were confused by what's the deal with removing the "at least" 15% for Ireland:

The vast majority of companies will not be impacted by the proposed increase in the 12.5 per cent corporate tax rate, Taoiseach Micheál Martin had said earlier in relation to this point.
Speaking in Dublin ahead of a Cabinet meeting, he confirmed the Government’s intention was still to only apply the new 15 per cent rate to companies with turnovers of more than €750 million, in line with OECD proposals on the matter.

https://www.irishtimes.com/news/politics/ireland-s-corporate...

anonymousDan2• 5 years ago

The reason is we (quite reasonably) don't want to sign up to something and then have the goalposts shifted in a few years such that the minimum rate is increased again. Frankly I'm a bit annoyed we even signed up to this. If the US really cared about tax avoidance by their MNCs they could fix the problem tomorrow.

pavon2• 5 years ago

Would you mind elaborating your thoughts on the last bit? I don't pretend to be an expert on international corporate taxation, but in the case of Ireland it didn't sound like US companies are avoiding taxes in the US. All the complaints are about revenues earned outside of the US, which should be taxed outside of the US. So I can definitely see why the EU would be upset with Ireland's policies, and support participating in treaties to make the situation more fair, but it seems inappropriate for the US to unilaterally "fix" a disagreement that is largely between EU member nations.

ballenf• 5 years ago

Yeah, you have to wonder if the US cares more about this framework being in place and being able to dictate other countries policies more than actual tax rates.

walshemj2• 5 years ago

Why would the USA do this they are not losing any revenue over it.

klipt• 5 years ago

only apply the new 15 per cent rate to companies with turnovers of more than €750 million

So what stops a big corp from splitting itself into subsidiaries with turnover below that magic number?

ashconnor• 5 years ago

Pretty sure it's global revenues. That's the point of a global tax no?

Edit:

There are two pillars to this agreement. Pillar 1 will see a reallocation of a proportion of profits to the jurisdiction of the consumer. Pillar 2 will see the adoption of a new global minimum effective tax rate applying to multinationals with global revenues in excess of €750m

https://www.gov.ie/en/press-release/59812-ireland-joins-oecd...

zxcvbn40382• 5 years ago

They might agree to raise the rate to 15%, but in reality they will turn around and give tax credits, exemptions, or some other mechanism to bring the effective rate back down to whatever level brings in business.

Biden won’t remember anyway ;)

LeifCarrotson• 5 years ago

...it is now supported by all OECD and G20 countries. Four countries - Kenya, Nigeria, Pakistan and Sri Lanka - have not yet joined the agreement.

But this list:

https://en.wikipedia.org/wiki/List_of_sovereign_states

contains not 140 but 193 UN member states and 206 listed states.

Which are missing? Just to start, I don't see Algeria, Azerbaijan, Bangladesh, Bhutan, or Bolivia listed; to my knowledge those are ordinary nations like the four enumerated. Either it's not "all OECD" because those four are missing, or that list of four is very much incomplete. Or are they saying that those four support it but have not yet joined?

Either way, the hard part comes when individual countries have to legislate compliance with the treaty that their state departments have agreed to, and the really hard part comes when other countries have to collectively enforce the treaty when a signatory adds a loophole or ignores it...

realityking3• 5 years ago

OECD only has 38 members: https://en.m.wikipedia.org/wiki/OECD

The four countries mentioned are those that participated in the negotiation but are not signing the final agreement. Unfortunately the article doesn’t explain their objection.

swman2• 5 years ago

I'm no expert but let's say this happens- they'll just incorporate in Space, Moon, or Mars.

dragonwriter11• 5 years ago

they'll just incorporate in Space, Moon, or Mars.

Incorporation is a government act. It also is irrelevant if it is not recognized by the governments of the places where you try to do business.

swman2• 5 years ago

I was being cheeky considering big corporations always find a way to dodge taxes.

gnopgnip• 5 years ago

It doesn't matter as long as they have customers in the 136 countries that ratified it

motohagiography2• 5 years ago

While it may not pass in the US, this is bad news. The reason to do this is to collude to bar the exits to capital flight, and then impose exploitative policies that would not have been possible previously. Why wait for your economy to grow with supportive policy when you can just take from the people today? Humans are innovative, someone will find a new way to make more, and then you can take it from them again and give it to the few who keep you in power. This cynical logic is what makes revolutions inevitable, because this ruling view is that people are basically chattel. Words are just a way to part you from your stuff. We can dress it up as concern for others, but we all know that on these leveled playing fields, some are more equal than others. It is not the playing field that gets leveled, it's us.

warkdarrior• 5 years ago

True. As the recent Pandora Papers showed, there are a lot of innovative people who are forced to move their meager billions from country to country in order to avoid state oppression. /s

jessaustin2• 5 years ago

What was even more amazing about Pandora Papers is that no Americans were included. One almost suspects that in USA the billionaires don't have to worry about interference from the state!

MereInterest• 5 years ago

Humans are innovative, someone will find a new way to make more, and then you can take it from them again and give it to the few who keep you in power.

Which is exactly why preventing capital flight is important. Otherwise, exploitative business practices can take advantage of previously built infrastructure, hide away any profits resulting from use of that infrastructure, and then leave others holding the bill for the maintenance of that infrastructure.

clairity• 5 years ago

there may be ulterior motives by government actors against the power being amassed by multinational corporations, but the connection to increased popular suppression seems tenuous at best. we need to be shrinking the power and reach of any large organization relative to the individual, so this agreement can be seen as a net win in that regard. the 750MM cliff however, is ripe for abuse (e.g., split into multiple subsidiaries that are just shy of 750). tax rates need to be severely progressive and continuous to avoid such shenanigans.

smolder• 5 years ago

This is one of the too-rare cases where government is doing precisely what you said they aren't doing: leveling the playing field --increasing fairness, as opposed to giving sweetheart deals.

I have plenty of concerns with how my government is run and how their tax revenue is allocated, but tax avoidance is a basic problem of fairness and a problem to be solved.

motohagiography2• 5 years ago

From the perspective of a state, the rule of taxation is, "progressive, simple, enforceable: pick two." The US code gave up on simplicity and probably has 10% of GDP dedicated to dealing with the result.

Specifically, the playing field is being leveled between nations by their colluding against competitive countries to prevent capital from leaving them when their policies become unbearable.

nybble41• 5 years ago

The reason to do this is to collude to bar the exits to capital flight, and then impose exploitative policies that would not have been possible previously.

Exactly! If a private organization tried something like this most major governments would be rushing to enforce anti-trust regulations against them. But when it's the governments colluding to set price floors, suddenly that's acceptable?

dragonwriter11• 5 years ago

The treaty will need to be ratified via a two-thirds majority in the US Senate

Says who? Just because the it is characterized as a treaty under international law doesn't mean it won't be implemented as a congressional-executive agreement [0] in US law, just like virtually every other important economic treaty in the last several decades.

Simple majorities in both houses is a lot easier than 2/3 in the Senate.

[0] https://legal-dictionary.thefreedictionary.com/Congressional...

fsckboy2• 5 years ago

thank you for teaching me something I didn't know.

no thank you for being a teeny bit snarky about it, as if everybody obviously should already know this.

oh, and a small correction, it's not the "treaty under international law" aspect that's bothersome, it's the skirting of the treaty provisions of the US Constitution that raises eyebrows.

dragonwriter11• 5 years ago

no thank you for being a teeny bit snarky about it, as if everybody obviously should already know this.

I was responding to the article text; anyone writing a news article speaking to the prospects for an international agreement coming into force in US law ought to have a basic understanding of how that actually happens in practice in US law.

it's the skirting of the treaty provisions of the US Constitution that raises eyebrows.

The treaty provision is a permissive mechanism that allows the President, with strong Senate support, to make agreements with foreign nations while bypassing the House of Representatives role in normal legislation.

It is not skirting that to make law within the scope of the legislative power through the normal Constitutional legislative process, just because the content of the legislation was agreed with foreign parties. The treaty power doesn't silently reduce the scope of the legislative power.

CheezeIt2• 5 years ago

Would it need 60% to get Senate cloture?

dragonwriter11• 5 years ago

Would it need 60% to get Senate cloture?

That depends on the applicable Senate rules (including any special one-time exceptions) at the moment when it is considered. Constitutionally, no, because supermajority cloture isn’t a Constitutional requirement (and, indeed, a key motivation for the Constitution was frustration with the effect of supermajority requirements in the Articles of Confederation making legislation impossible.)

EDIT: To summarize some of the downthread discussion: Assuming no special action, if brought up right now under the existing rules, “yes”.

mr_toad5• 5 years ago

Does the executive have the power to change tax rates? I thought that taxation was one area they have little control over.

hinkley• 5 years ago

@dang someone else posted this minutes prior to this post.

https://news.ycombinator.com/item?id=28801537

Same domain, different url format.

oceliker2• 5 years ago

Honestly I prefer this format much more. Basic HTML is better wherever I can find it.

jeffwask• 5 years ago

Finding out CNN has a lite mode was the best part of this post.

GDC74• 5 years ago

Misleading title, it's just for large multinationals.

There will be a revenue treshold of 890$ million

This is good news for startups! Cancel that, this is good news for the vast majority of unicorns as well.

It's still early because we have to wait and see what the loophole seekers are gonna find, but in any event, as it stands it looks like a good development for startups and VCs.

Loophole seekers are disgusting and dumb, they engineer solutions that save billions in taxes for multinationals but aren't paid proportionally. A genius in the transfer pricing dept. at one of the big 4 makes like an above average lawyer in NYC or LA.

They are more instrumental to the public company profits than the CEO in many instances.

president• 5 years ago

The cynic in me says it wouldn't have been agreed on if the loopholes weren't already baked in.

goodpoint3• 5 years ago

Nothing cynical, it's lobbying 101.

acd10j• 5 years ago

what will prevent an multinational to make dozens or hundreds of subsidiary with each having revenue threshold of $890 million ?

evgen2• 5 years ago

Oh wow! You found that ONE TRICK that governments HATE. Somehow thousands of legislators and economists around the world never, ever thought of that and are going to be completely fooled by a company that structures its revenues in this fashion. I am absolutely sure that will work...

imtringued• 5 years ago

I hope it means that there will be dozens or hundreds of additional CEOs.

GDC74• 5 years ago

Public companies can't do that, unless they want to have at least as many tickers.

The 890 million treshold is calculated for the holding, not the subsidiaries

sbacic2• 5 years ago

I just hope the 750 million euro limit doesn't suddenly vanish "somewhere along the line" because "countries couldn't agree" and we end up with the whole Digital VAT Directive circus all over again - that is to say, that this minimal tax starts applying to small businesses it was never meant to apply to.

GDC74• 5 years ago

You mean raised? If they remove it then it means everbody has to pay it

keewee7• 5 years ago

Four countries that participated in the talks -- Kenya, Nigeria, Pakistan and Sri Lanka -- have not yet joined the agreement.

Why not?

lbriner• 5 years ago

I can only guess that they either have or might want to have in the future, some foreign companies come and base their businesses there to generate some much welcome money and jobs into the national economies.

They might also be suspicious of the motivations of the West.

jakozaur• 5 years ago

The problem is real, many big tech paid less than 1% on non-USA income.

This is likely one of the best agreements in decades. Will increase tax collection by decreasing incentive to avoid taxes. Little burrocracy, huge increase.

Previous mesh of transfer prices and other meassures added huge amount of burrocracy on a lot of companies, yet still did not make much difference for the biggest avoiders.

oh_sigh• 5 years ago

burrocracy

I always felt like we were being ruled by donkeys...

chosenbreed37• 5 years ago

I see what you did there :-)

jikbd• 5 years ago

It’s a common word play in Spanish; I’m not sure that it was intended in this case, though.

Aerroon6• 5 years ago

And why is it so important that businesses pay a high corporate tax rate? Isn't it enough to tax the money when it actually leaves the business? (Is paid out.)

Some economists say that corporate taxes distort capital allocation.[0] A minimum global tax rate removes the ability for a country to decide for themselves whether they want this or not. Estonia, for example, is worried that their tax system has to change as a result, because they don't charge a corporate tax on money that's reinvested or retained.

Edit: apparently Estonia is banking on an exemption for reinvestment.

[0] https://ec.europa.eu/economy_finance/publications/economic_p...

wolverine87614• 5 years ago

why is it so important that businesses pay a high corporate tax rate?

It's not a high rate; 15% is low - is there a lower income tax rate for any entity?

It's important because societies need money to operate, including many things on which businesses depend such infrastructure; a good legal system; a healthy, educated, and prosperous population; security; stable, well-regulated markets; etc. If they don't pay their share, then others must or societies lose valuable things.

Aa9C4xPz43Gg7k6• 5 years ago

For socialists it's never enough, money has to be taxed 10 times. And I'm not using it in the slur way that Americans usually do. There's a kind of thinking that believes that money belongs to the person who earned it. There's another kind of thinking that treats everything as communal (but managed by elite class at the top of the system), taking anything away from the pile is evil then.

closeparen• 5 years ago

A corporation successfully reinvesting its profits makes shareholders wealthier. People are concerned about how wealthy those shareholders are getting.

Personal income tax is not a solution for wealth inequality. The problem as stated is not what rich people are selling, it's what they own.

bin_bash• 5 years ago

Because billionaires never take the money out. They just take out loans using their assets as collateral. If they need to make payments they just take out more loans.

kapuasuite• 5 years ago

I don't see the point of the corporate tax at all unless people think the IRS would be incapable of auditing people that incorporate.

SeanLuke• 5 years ago

Are you fine with corporate personhood in other respects, but not this one?

jjtheblunt2• 5 years ago

many big tech paid less than 1% on non-USA income.

paid to whom?

I ask because I have read that (for example) a U.S. company may pay the U.S. taxes of less than 1% on foreign income, but that's because that income was generated by (example) a German subsidiary which fully paid taxes in Germany, where it was earned.

Point is, taxes internationally are really a mess.

wolverine87614• 5 years ago

Perhaps you are unaware, but companies often shift revenue to countries where taxes are lower.

these narratives sometimes look scandalous when they're actually following tax laws of foreign countries "correctly".

It could be both; nobody said it was illegal. Following the law doesn't make something right - many horrible things are illegal; the law isn't designed as optimal behavior. And in many situations, they write the laws for themselves.

Regardless, clearly they need to pay their share, and their share is more than 1%.

dmw_ng• 5 years ago

This is a welcome step, but I'd expect the non-uniformity of accounting and taxation policies around the globe to still leave a huge amount of latitude for suitably sized companies.

stjohnswarts2• 5 years ago

Why should US corps pay taxes for money they make overseas? That should go to the countries that they're in. Few countries are as greedy as the USA when it comes to taxes. Ask any America working overseas who not only has to fight the locals on taxes and make sure they get their fair part, the USA IRS is always looking over their shoulder and they aren't in the USA making money. Ultimately the consumer has to pay for it as well so essentially the "money" gets taxed multiple times, when it's made, when it's sold, sometimes even when it's used, the money paid to employees is taxed, (cars, boats etc with annual taxes). It's insane.

triceratops• 5 years ago

Why should US corps pay taxes for money they make overseas?

Because US persons do as well.

the USA IRS is always looking over their shoulder and they aren't in the USA making money

No the IRS wants you to pay the difference between local taxes and US taxes, no matter where you live and work.

And, btw, this applies to any US person, not just US citizens. A green card holder or temporary worker in the US inherits a rental property from a relative? Pay taxes on the rental income. Never mind that that property never had anything to do with the US.

the "money" gets taxed multiple times

Yes, money does get taxed multiple times. I don't see how that matters.

johntiger1• 5 years ago

So they'll just move to the remaining ~50 countries that didn't

nicoffeine4• 5 years ago

"Alongside a minimum corporate tax rate, the pact includes provisions to ensure that multinational companies pay tax where they generate sales and profits, and not just where they have a physical presence. That could have major ramifications for tech companies such as Google and Amazon, which have amassed vast profits in countries where they pay relatively little tax."

I share your skepticism generally, but it seems like this agreement is a good step towards getting corporations to pay taxes. There's no point in starting a shell company in the Caymans if your taxes are paid based on where your products were purchased.

mr_toad5• 5 years ago

If I run an .io website selling services to the UK using AWS servers in Singapore and employ coders in India, where exactly do I generate revenue and profit?

Sounds like this could devolve into record-industry accounting.

wolverine87614• 5 years ago

You're imagining that major corporations will move to Sri Lanka? Moving from SV to Texas is considered bold, but try persuading employees to move out of the OECD, and then finding talent there.

Also, businesses actually benefit from and prefer to operate in a well-funded, well-regulated, free society. Those are the societies with freedom, customers, competent and fair legal systems, safety, money, infrastructure, etc. The corporation is part of the society they operate in - they aren't a customer of it, they are the makers of it (just like you and me). They have a stake in making it work well. That will be true wherever they go.

They might observe that most leading businesses were developed in wealthy countries (wealthy localities, even) where those businesses pay taxes - more taxes than now in the US, for the most part. Even in the US - what great industry has come out of a low-tax area? Oil doesn't count.

MR4D• 5 years ago

* the pact includes provisions to ensure that multinational companies pay tax where they generate sales and profits, and not just where they have a physical presence*

Will be interesting to see how Alibaba and other Chinese multinationals deal with this.

If they aren’t fully into this, then the whole thing will not work as intended.

wolverine87614• 5 years ago

Why not? If the Chinese government and the governments where they do business chose to enforce it, then the companies will be paying.

zsz• 5 years ago

China will be first in line for this, since it finances its own corporations already (meaning, any tax collected from party-controlled entities -- i.e. all of them -- is reinvested in the same, thus automatically conferring a competitive edge over foreign entities.

KKKKkkkk1• 5 years ago

I distinctly remember the claim that most economists (left and right) believe the optimal corporate tax rate is 0%, but I can't find the source for this. The argument is that the corporate tax is simply an indirect income tax, and so as an alternative to raising income taxes, all it does is to penalize entrepreneurs for incorporating their businesses.

jostmey• 5 years ago

Except some bosses use their business as personal assets. A personal jet is a good example

Aerroon6• 5 years ago

That is very much illegal though. If the jet is for personal use and the company isn't compensated for it then it's tax fraud.

walshemj2• 5 years ago

Ask yourself who pays these "economists"

russh• 5 years ago

Ask yourself, where does the money the corporations use to pay the tax come from?

wolverine87614• 5 years ago

most economists (left and right) believe the optimal corporate tax rate is 0%

Please provide some evidence, because I think only a narrow group of right-wing economists say that.

Taxes are generally applied where money is transacted, such as income and sales. For economic and legal purposes, corporations are entities just like people. They earn money, save it, pay it, invest it, etc. IME, they try to come up with every argument, sane or bizarre, to avoid contributing their share of taxes.

gruez5• 5 years ago

Please provide some evidence, because I think only a narrow group of right-wing economists say that.

https://www.npr.org/sections/money/2012/07/18/156928675/epis...

no transcript unfortunately, but the summary seems to be that economists across the political spectrum agrees with it.

edit: listened to the podcast. the relevant section is at around 12:30. the reasoning seems to be that corporate taxes discourages corporations from reinvesting their profits, and if want corporate taxes because corporations are mostly owned by rich people, you should tax them directly.

dragonwriter11• 5 years ago

I distinctly remember the claim that most economists (left and right) believe the optimal corporate tax rate is 0%

Optimal for what objective?

gruez5• 5 years ago

general efficiency? if you want to tax corporations because they're owned by rich people, tax the rich people directly. see: https://news.ycombinator.com/item?id=28804390

ur-whale• 5 years ago

Country level collusion.

Ugh.

snidane• 5 years ago

Welcome to the future where only big companies survive. As a small business you don't have means to avoid taxes. As a multinational corp you just invent research, marketing and other fictitious expenses between your branches and always come up with expenses close to incomes, paying 15% corporate tax of close to zero net profits You operate very efficiently in the market where other participants have to carry the 15% deadweight as they are unable to avoid it like you.

After certain rounds of Mergers and Acquisitions to achieve ever bigger economies of scale incentivized by the tax system we end up with a few single players per market, if not only a single one. Such bureaucracies become almost indistinguishable from state owned companies operated under soviet union.

How that ended up you can find in history textbooks.

wolverine87614• 5 years ago

The minimum applies only to large corporations.

dane-pgp• 5 years ago

So it turns out that "But corporations would just move somewhere else" wasn't a valid argument against raising corporation tax all along, and countries could have agreed this 100 years ago.

Now let's create a wealth tax using the same international approach. The treaty could say that each country should have a wealth tax of say 8%, with the first $100m being tax free. For comparison, the average US household has a net worth of $120k and pays $10k in taxes every year.

If a billionaire lives in a country that doesn't join the treaty, then the countries which have joined can refuse to allow that billionaire to travel to or through their territory, or own any assets in their jurisdiction.

phendrenad2• 5 years ago

Counter-intuitively, this will just entrench the rich even more. A tax that only affects large multinationals will just make it harder to become a large multinational. You'll see a big discontinuity in the graph of corporation size. There will be corporations that are large enough to absorb this tax, and corporations that are too small to qualify for it. The "activation energy" to get across the gap will be significant.

mikaeluman• 5 years ago

People pay taxes, not companies.

These taxes are poor, because they obscure who is really being taxed.

Is it the owners? The employees? The consumers? Most likely the last two groups.

jgalt212• 5 years ago

In theory, you are correct. However, if companies don't pay taxes, then they build up huge cash hoards, and the stock price goes up and the execs (who get paid in shares) don't pay taxes. why? because they never sell, and just take out loans against their ginormous paper gains. And if they do sell, they pay lower capital gains rates for share-based instead of cash-based compensation.

csomar3• 5 years ago

What you are saying doesn't make any sense. The take-a-loan against your shares will work until you have to stop at some point or you die and your estate is taxed...

akudha• 5 years ago

Just text on the page, loads immediately! No stupid ads, auto playing audio/video, nagging popups.... This is how the internet should be. Joy to read.

codesuki• 5 years ago

wow, unrelated to the article content, but... I was on the page and thought 'how come there is so little noise on this page and I can focus on the text?' Didn't know there is a 'lite' CNN. I wish the internet would be like that again.

throwaway342414• 5 years ago

Apparently it's also possible to address the issue of shifting corporate profits to tax-havens even without a large scale international agreement, using what's called a border-adjustment tax. [1]

Basically, corporations have one place money comes in and two places it comes out, like so:

sales = expenses + profits

If you tax the sales, then deduct the expenses, that leaves the incidence of the tax on the profits. But importantly, unlike profits, it's usually clear to which country a sale belongs to.

Where this gets complicated is international borders, the solution there is to only deduct domestic expenses. At first that seems protectionist, but apparently changes to the currency exchange rates eventually balance out the effect and it ends up trade neutral.

This idea was actually seriously proposed a few years ago as part of a Republican tax reform initiative, and even economists like Paul Krugman seemed to think it checked out (who has a Nobel on trade, but is normally on the other side of the aisle). In the end it lost momentum after some big companies opposed it.

Even though that's maybe more ideal, just going for an agreement also seems reasonable since it's probably more achievable than in-depth reform (so it's likely solutions like this or nothing at least in the medium term).

[1] https://en.wikipedia.org/wiki/Border-adjustment_tax

wanderingmind3• 5 years ago

If corporates have freedoms like individuals, they must also be taxed like individuals on the total revenues. I don't get to deduct my day to day expenses before paying income tax, why should a corporation be able to deduct it's expenses for tax.

cjalmeida• 5 years ago

Because it’s bad overall. It pushes for large monolithic corporations instead of specialized companies.

Also, you do get to deduct expense when doing value adding business activities. Just incorporate. Likewise corporations can’t deduct (loopholes aside) “leisure activities”

throwaway342414• 5 years ago

The practical reason is that this would penalize smaller companies working together over large, vertically integrated ones. If company A sells an item for $10 and buys $8 in parts from company B, who buys $6 in parts from company C, the total taxed amount will be $10+8+6 = $24, while a totally vertically integrated company would only pay tax on $10.

You can get around that by only taxing the value added ($10-$8 etc) which is a VAT tax and a popular way for countries to raise revenue.

The bigger issue is companies transact with consumers, workers, and shareholders. But when you have a tax, what matters is really what transaction you tax and not which side of the transaction pays the tax. For example, payroll and income taxes both reduce wages. If you tax revenue, that's basically taxing the transaction from consumer->company, so that tax (VATs, sales taxes, etc) falls on the consumers.

White_Wolf• 5 years ago

Wouldn't a % taxation at source be more effective in retaining money inside the borders?

Tbh some people here do have a decent point. A private individual can't deduct rent and such. One could argue those are neede to keep working.

throwaway342414• 5 years ago

Wouldn't a % taxation at source be more effective in retaining money inside the borders?

If you're talking about taxing revenue and not deducting expenses like wages etc, yes that's basically how VATs work and they're very popular and can raise a lot of money. The main difference is that falls on consumers and not just shareholders.

trhway• 5 years ago

[1] https://en.wikipedia.org/wiki/Border-adjustment_tax

basically it shifts the tax burden from multinationals onto the domestic consumers (and domestic producers for domestic market) and increases the tax on otherwise cheap foreign import like from China. No wonder the initiative didn't make it - while the government and multinationals are always happy to hit the consumers, that one is really too much.

the solution there is to only deduct domestic expenses

it does nothing. A multinational will always be able to shift franchise fees, IP property leases, etc. so that would become "domestic expenses" where it will reduce the taxes most.

Global approach like the minimum tax rate is an adult step of recognition of reality of the borders being borders only for small players.

throwaway342414• 5 years ago

increases the tax on otherwise cheap foreign import like from China

The domestic currency is supposed to appreciate in value in proportion to the tax, so for example 1 US dollar buying 20% more Yuan, which cancels out a 20% tax (although I have to admit this is not as intuitive as the other parts, so I'm trusting the economists to do the math there). I'm not sure if the Yuan specifically is a good example, since the Chinese government controls the exchange rate politics might be more important than economics there.

and domestic producers for domestic market

If you have a pure domestic business, wouldn't you just deduct your domestic expenses and pay tax on what's left over? That's basically what happens now, so I don't see how it would make a difference.

A multinational will always be able to shift franchise fees, IP property leases, etc. so that would become "domestic expenses" where it will reduce the taxes most.

You could set up a domestic subsidiary, but now that subsidiary will have to pay the tax. If it's not a domestic subsidiary, then you have to pay the tax (since you can't deduct it). I get that in the current system it's very easy to do these things, but can you explain in a little more detail how this would work with the border tax?

franciscop• 5 years ago

The treaty will need to be ratified via a two-thirds majority in the US Senate, which is unlikely given that it allows foreign countries to tax US companies, the Eurasia Group analysts said. An alternative could be "another major tax bill," but the United States is unlikely to consider that until 2025, they added.

How is this possibly true? The vote that the US takes should not affect what a company (wherever it is from) is being charged by e.g. France while doing business in France, that'd be up to local laws, right? Passing it in the US should only allow the US to tax international companies there, but they'd not get a say in other country's taxes?

Unless I'm misunderstanding it and it's the international treaty itself that needs to be approved locally (does that even make sense, having been approved already?), and not local laws based on the treaty.

MichaelZuo• 5 years ago

In your example US and French companies in France would have to abide whatever rules are in France whereas US and French companies in the US would have to abide whatever rules are in the US. As it has always been.

Any cross border treaty provisions, or provisions relying on multi party agreement will be ineffective in the case of the French-US relationship until both sides harmonize. Depending on how the treaty is structured it may be that none of the provisions can enter into force until all provisions are able to. And various other possible complications can change the dynamic too of course.

Renaud• 5 years ago

I think they mean that if a company in France manages to shuttle back its profits to the US, then it will need to be taxed 15% there as least.

International corporations routinely avoid tax in one country by having charging large fees to the foreign entity for instance, leaving little local profit to be taxed.

nsonha3• 5 years ago

I've never understood the argument for corporate tax. If you are after the super rich, then tax the super rich with income tax. Taxing companies just mean you makes it harder to do business, and whatever that entails.

neilwilson2• 5 years ago

Taxing companies is what you need to do - since they would otherwise engage the people that you need for the public service you want to provide.

Having said that the corporate tax is the worst way of doing that. Far better just to tax companies for using certain types of employee so they don't use that type of employee that much.

Which then leaves some of those types of employees unemployed by the private sector. At which point the public sector can hire them instead.

All straightforward once you realise tax has nothing to do with money or funding and everything to do with releasing people from the private sector so they can be hired by the public sector.

nsonha3• 5 years ago

I've never heard of this argument and can't say it makes sense. "releasing people from the private sector" just mean removing jobs (and maybe bussiness activities)

I doubt the jobs lost will be offset by the public sector and creating public jobs isn't incentivized in a free market. More public jobs just means tax money allocated more poorly any won't guarantee improved public services.

136 Countries agree to minimum corporate tax rate

Related Stories