US tech firms make eleventh-hour attempt to halt tax avoidance reforms

http://www.theguardian.com/business/2014/jan/19/tech-firms-attempt-halt-tax-avoidance-reforms

by tomgallard • 13 years ago

52 53 13 years ago

theguardian.com

dmk23• 13 years ago

Let's call these "reforms" for what they are - a shameless and unjustified money grab by the government.

nodata• 13 years ago

Can you explain your comment a little bit?

From the way I understand it, this is a way to get large companies to pay the same amount of tax as smaller companies.

alan_cx• 13 years ago

To me it reads like the usual right wing rhetoric, and that any tax collection is some form of evil socialism. Not quite sure how these people expect their flag waving military, for example, to be funded without the big corporation paying their fair share, but there you go.

Never understood why many Americans don't see paying tax as the ultimate act of patriotism, paying for the country they claim to love. They love the country, but resent paying for it. How does that work? Are they the ultimate freetards?

soup10• 13 years ago

Small companies(S corps and LLCs) don't pay corporate taxes. C corps pay a wide variety of taxes depending on where they earn their profits, how aggressively they working to minimize tax burden, and how hard their industry lobbyists work.

Certainly some companies pay far more and far less than their fair share. I'd wager the tech companies who generally have little in the way of physical presence where they earn revenue, and have towns and cities competing for the chance to host their offices and data centers, probably pay very little relatively.

Eye_of_Mordor6• 13 years ago

Is there any point in taxing companies at all - they provide jobs for tax payers.

lmm3• 13 years ago

Taxing their profits encourages them to spend any spare cash hiring more tax payers rather than sitting on it.

dalke4• 13 years ago

Obviously providing jobs for tax payers isn't unique to companies. I can pay for a nanny, chauffeur, and private cook even if I don't have a company. Since your logic is "X provides jobs so X shouldn't be taxed" then I shouldn't have to be taxed if I have any household staff, no?

That logic makes no sense. (If it makes sense to you, please elaborate. How many employees and how many FTEs does one need before this special exemption kicks in, and why that level?)

Now, by "company" I assume you mean "corporation." Corporations form for various reasons, the biggest being liability. Without it, shareholders could be sued individually.

This protection is worth something to the shareholders. I think it's perfectly reasonable that the state, which is the authority that grants companies the right to exist, should be able to extract something from the company - taxes and fees, for example - in order that the company may continue.

Do you think that corporations should exist without paying any fees to the state? If so, why should they get liability protection for free?

If the tax rate is too high, then people could switch from the corporate form of company to a sole proprietorship. A sole proprietor can have employees, and thus "provide jobs for tax payers", even though the business itself is not taxed separately from the proprietor's income.

Now, obviously there's a large set of trade-offs, and the example I gave - a switch to sole proprietorship - is too blunt. My point is that the idea that "provide jobs" necessarily implies "should not be taxed" is so simplistic that it more indicates a lack of understanding of why there are companies in the first place.

adaml_623• 13 years ago

Society has decided that companies should pay a corporate tax rates of 20% (UK), 35% (US), etc on profits.

Finally governments have noticed that these companies are shuffling money around (between countries normally) and are not paying anywhere close to those rates.

It's very sad that these companies do have a slim chance of fighting this kind of reform. Ideally they should just pull their heads in and concentrate on building wealth under a new slightly more sensible tax regime.

FireBeyond• 13 years ago

A slim chance? More than likely, unfortunately, they have an exceptional chance of fighting this kind of reform. I don't get a particular sentiment of anti-corporate perspective from either major party in either the US or UK.

mercurial3• 13 years ago

Suggesting that any leakage of tax revenues flowing from the complex corporate structures of digital groups is merely coincidental, the Digital Economy Group says: "Enterprises that employ digital communications models do not organise their business operations differently as a legal or tax matter."

Hell of a coincidence, mate. They're incorporated in Ireland purely by accident, they would never threaten to leave at the slightest mention of "corporate tax increase", and what they really wanted to do all along was to move to the Scandinavian countries. They should all band together and get a stand-up comedy act going.

Claudus• 13 years ago

Personally, I'd rather that Google keep as much of their money as possible and continue to spend it as they see fit.

I believe that society benefits far more from a company like Google having and spending the money than any federal government.

justincormack2• 13 years ago

OK but shrink the government first. Then you can cut taxes. And cut them for everyone not just companies who can afford a Dutch sandwich.

wmt• 13 years ago

Good that you raise Google as an example!

As Google is currently paying almost no taxes, I'm curious that how and how much is Google spending its money to support stuff now supported by the federal government?

For instance, how much is Google paying to people living on federal welfare money, and as the current job markets are what they are, would they have to decide between starving and stealing to survive, or could they still survive with Google handouts?

Military spending is a huge portion of the federal budget. While it is ludicrous how much money is being burned in it, what kind of shape would be military be with the money Google & co are currently spending to support it?

Medicare and Medicaid also are big items in the federal budget. How much is Google spending to offer health care to people who cannot for whatever reason, e.g. disability, cannot pay for it?

techsupporter• 13 years ago

Awesome. I am very interested to read your round-estimate list of what items to cut from the Federal and state budgets (only the state where you live or have an active interest, just for brevity's sake). If you would, please provide either a dollar or percentage amount.

Bonus points if you can get to 10 items per entity that comprise at least 20% of either entity's budget.

(To reply to my own snark: "Just cut taxes" sounds great until you realize that SSI, Medicare, and the military are far and away our largest expenditures in at the federal level of the United States. In Texas, health care and education together account for 54% of the state budget. What to cut, indeed.)

gaius• 13 years ago

Google is here in the UK, but why? Well there is the educated workforce to hire, there is a stable business environment, there is infrastructure that works most of the time etc. Now they could go and set up somewhere there really is no tax to be paid, Somalia maybe, but how long would those "global business geniuses" last there? Not long. What would happen to a Google Bus in downtown Mogadishu?

Google and companies like it can only exist in the benign environment created by strong-ish national governments. Pretending otherwise is just foolish.

amirmc• 13 years ago

"Now they could go and set up somewhere there really is no tax to be paid ..."

This is pretty much what they do, with legal entities in different jurisdictions. Then they can move money around such that the 'profit' is always made in a low-tax environment. For example, I always found it amusing that the invoices for my Amazon purchases had anything to do with Luxembourg (a country with <600k people), until I learned more about how tax havens work. Especially, about the process of 'capturing the state'.

If anyone would like to read more about Tax Havens (aka Secrecy Jurisdictions) I thoroughly recommend the book Treasure Islands by Nicholas Shaxson [1]. (Disclosure: that's an affiliate link for my college's library).

[1] http://www.amazon.co.uk/Treasure-Islands-Havens-Stole-World/...

mempko• 13 years ago

Really? You don't want a democratic system dictating the spending on public and shared goods? Or you just don't believe in public and shared resources? Sounds like you want some kind of fascism maybe?

clavalle• 13 years ago

Not me.

Maybe I've seen too much big money fraud, but sometimes the combined weight of a very wealthy and powerful federal government is all we have separating the mostly civil society we have now to one where we are constantly being bilked by what amounts to mobsters.

I'll give you an example. The urine screening industry. Many players in that industry set up labs and then proceeded to give doctors, hospitals and clinics kickbacks for approving 'enhanced' urine tests for thousands of dollars rather than the dozens of dollars they used to cost.

The other players (insurance companies, honest competitors, the government) are slow to realize what's happening. Within a few years these unscrupulous companies have amassed a massive war chest.

Whistle blowers appear. They are sued into submission. Competitors complain. They are sued into submission. Insurance companies start to sue. They are sued in return. State level politicians are brought in as investors or otherwise paid so they can ride the gravy train. This gives insurance companies pause. In the mean time the owners and officers of these companies are still bilking all of us to the tune of hundreds of millions, maybe even billions of dollars.

Only the combined weight of the federal government with essentially all the time and money in the world, which has just now amassed enough evidence to go after some of the worst offenders, pose a threat to these people. Anything else is a mere nuisance.

Sometimes it is very, very good to have a counterweight to the power that can be bought.

benpbenp• 13 years ago

Wealth is meant for people. All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?

Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income, and that both would have to rise somewhat at the higher brackets to cover the lost income. But given that is the case, I honestly don't see any downside. Can anyone help?

justincormack2• 13 years ago

In theory that is true. But in practise a broader tax base, on income consumption and companies has some advantages. If we moved all taxes to income then the incentives for avoidance and evasion would become much higher. Companies can also not pay out for long periods eg Apple so there is a time aspect, and taxing shareholders when profits were made might not be popular.

Historically taxes were mostly about ease of collection. Putting everything on income would raise the big question of whether wealth not income taxes are fairer.

Right now the big win is massive simplification not changes in tax base.

pedrocr• 13 years ago

That depends on how you account for it reaching someone's pocket. With the current rules someone on a salary will pay tax the moment they earn the money. Someone that owns a company will instead pay himself a small salary and keep the cash inside the company earning interest before tax. But if you were really willing to reform the way corporate/personal taxes are done you could potentially fix that too.

cperciva• 13 years ago

Naturally I'd assume in that case that dividends would be taxed at the same rate as earned income

What you want is an "integrated" tax system like Canada has, where individuals receive "dividend tax credits" which are approximately equal to the taxes paid by the corporation.

All of a company's wealth is ultimately destined for somebody's pocket. Why can't we just tax it when it gets there, and abolish corporate taxes?

Compounding investment returns. If I loan you $1000 at 5% interest, I have to report $50/year of interest income on my tax return. Since I pay approximately 40% income tax (federal + provincial), I have an after-tax return of 3% compounding annually. If you abolish corporate income taxes, then I could have my company loan you the $1000 and receive the interest; it would then compound at 5% per year, and I would only pay income tax when the money is paid out to me as a dividend. In effect, you would be turning corporations into tax shelters.

Now, this isn't absolutely insurmountable; in fact, Canada already has different tax rates for "active business income" vs. investment income, and theoretically you could have a 0% rate on "active business income" and a 40% corporate tax rate on investment income (which would then create non-taxable dividends when finally paid out to individuals). But you'd still have the complication that "retain profits" produces a different taxation result than "pay out profits as dividends, then raise more funding a few years later".

Retric• 13 years ago

I would assume you would also like to tax foreign investors. Corporate taxes allow for this thus lowering your and every other US citizens taxes. Which is why there a 'good idea' and not just a meaningless exercise.

davidw• 13 years ago

That's a good point. On the other hand, 0 corporate taxes would lead to more investment by foreigners, and some of that investment would make its way into the local economy.

As to which effect is stronger, I have no idea!

don_draper• 13 years ago

Because much of what the government does it solely for corporations. Take the agency US AID. They are not a charity. I had lunch with a high level official and asked him what he did and he said mostly it was to help drum up business abroad for US corporations. They should pay for this service. I could go on about the DoD...

jotm• 13 years ago

no sheet. Of course, they do it to increase the number of business opportunities for US (and all other) companies. More people who play the game means more workers or buyers, means the economic show goes on...

netcan2• 13 years ago

Since this became such a public debate issue in Europe, I've actually more or less landed on the idea that maybe corporate taxes (taxing profits) are a lost battle. The only way to really combat it is for different countries to collude and perhaps sanction tax havens. Even then, I doubt they will be able to raise much tax.

Modern tax systems are diverse by design: sales tax/VAT. Excise/sin taxes, income taxes, CGT, employer taxes, etc. The mix is designed to reduce volatility. It's also designed to max out tax revenue while avoid damaging the economy by discouraging things like labour, savings, or other important activities too much. The effective maximum revenue for a country to collect in taxes appears to be somewhere in the 35%-45% of GDP range. After that diminishing returns on taxes kick in. Most euro countries are taxing (or rather spending) near that max. So, they can't afford to let corporate taxes.

Problem is that corporate tax is unavoidably problematic. Large multinationals can arrange their activities (not just their paperwork) depending on taxes. I doubt an single country want to create a tax the ensures large companies avoid setting up local subsidiaries within their borders. The end result is a different set of rules for the large and/or sophisticated that is more lenient than the rules on small companies.

Personally, I would rather see corporate tax abolished than see it applied in such a way that it discriminates against small companies.

vinceguidry• 13 years ago

Except if you don't tax profits, you're forced to tax consumption instead, forcing consumers to bear a larger than fair share of the tax burden.

It's really hard to properly tax corporations because they have the resources and the motivation to really fight back. But we shouldn't stop trying.

netcan2• 13 years ago

Sure, but this is more rhetoric than practicality. Whether you tax profits, salaries or consumption, you are taking it away from people. Often the same people.

ihsw• 13 years ago

The only way to really combat it is for different countries to collude and perhaps sanction tax havens.

Sounds like textbook prisoner's dilemma -- if they betray each-other then they both lose, but there's still a chance that they could betray their opponent without being betrayed themselves.

It seems to me that international law is riddled with subtleties where the general rule is "cheat effectively" rather than "don't cheat."

peteretep• 13 years ago

    > The only way to really combat it is for different
    > countries to collude and perhaps sanction tax havens.
    > Even then, I doubt they will be able to raise much tax.

I wonder if the US (and probably only the US has the clout, but perhaps US + EU) that any company doing business there has to show they had paid corporate tax on all profit worldwide of up to 20%. Doesn't matter who they paid it to, but if they paid any less than that, they owe the remainder to the IRS, as a cost of doing business in the US. Could that work?

pointernil• 13 years ago

Well, maybe it is time to admit that "the market" and its players are not a homogenous mass and as Colin Crouch (of Post-Democracy fame) puts it (paraphrasing):

there is the market and acting outside of it and mostly by different rules there are the multinational big enterprises/corporations.

Why should NOT different tax rules apply them?

Is this an idea easily translated into laws? Probably not. Doable for sure.

Btw, please do not "combine" those Mega-Corps with small companies... they are not the same and will not be in the future; it only helps to drive certain unrealistic fears benefiting those lobbying and looking FOR the loop holes around the world.

SilkRoadie• 13 years ago

In the UK many leading retail groups have called for reform, highlighting what they see as unfair tax advantages afforded to multinationals such as Amazon by outdated tax treaties.

Currently Amazon pay very little corporation tax in many of the countries they operate in which gives them an unfair tax advange against local competition. This allows them to set lower prices and trade more efficently..

In Amazon's case it would seem like closing some tax loop holes to get them to pay their share would help level the playing field and potentially increase competition between Amazon and regional stores. This can only be a good thing.

The one worry though would be how changing the tax system would affect smaller tech companies. Companies which serve multiple countries with low staff could be caught out by increased tax or just technical / accounting costs if you suddenly need to track and file taxes for every country you have customers in.

doctorwho2• 13 years ago

Just waiting for the founding of "Techlandia" where a big corporation (or several) form their own country and abolish all tax laws. Maybe they buy up some land, maybe they sponsor a country in trouble and take it over. As their own country they would make all the rules. All their employees live in Techlandia and pay no income tax. No more annual filings. No more tax audits. No more whiny politicians coming with their hands out. All infrastructure costs: roads, power, water, sewage and possibly even housing are borne by the corporations for their employees (who live there). They have their own national bank and keep ALL of their profits. Workers retire with huge cash hoards and live wherever the hell they please, like kings.

US tech firms make eleventh-hour attempt to halt tax avoidance reforms

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