Pretty hype about this TBH. There is a long history of companies domiciling in say, Monaco, The Cayman Island, Panama etc to avoid taxes and regulations where they mainly operate. My understanding is that the current process in vogue for the mega cap companies is the "double irish dutch sandwich" https://www.investopedia.com/terms/d/double-irish-with-a-dut...
No one, including tax lawyers, will tell you with a straight face that this is the way things were expected/designed to work. All of these tax avoidance strategies are emergent properties of complex systems that are the result of uncoordinated action amongst individual actors that cannot be fixed without collective organization. I support this and 15% seems reasonable to me.
However this article is a little biased -- it's main contributor is a user called "Britishfinance" -- who appears to be a London based corporate shill to take the heat off the City of London being a tax haven.
It’s strange that you recognize new stable equilibriums emerging as unanticipated consequences of global capital liberalization but you advocate for trying to maintain a new unstable equilibrium instead of thinking about viable strategies that may work. As a piece of advice, if your solution requires 100% compliance by random nations in order for you to tax your own citizens/corporations, then your solution is squarely in the “hopes and dreams” bucket and I’d think at this point we had enough of that.
Instead, ask yourself why you can move funds so easily across borders and decide whether allowing these capital flows is a good idea or not. The inevitable cost of allowing them is tax arbitrage but it’s not close to the biggest cost - financial instability, trade deficits, a shrinking middle class and deindustrialization are much bigger costs, and are equally inevitable once you allow these cross border capital flows.
Does anyone know why this approach would be preferred over the use of VAT (Value added tax) instead of a corporate profit tax?
I recall a US presidential candidate in the most recent election cycle mentioning this as the solution to the current corporate tax avoidance problem. In fact it was a major part of his campaign.
I am not very knowledgeable of the downsides of a VAT approach and how it could be gamed, but what he seemed to say did make sense to me. The idea was to tax the value created in the location it was created. I suppose the way you could game that system was to somehow show that no (or very little) value was created in the US?
Would moving to taking a small percentage of revenue solve this? A federal sales tax that is included in the price of products that cannot be avoided. Sure the argument against this may be that they will just pass the increased costs down to the consumer, but why wouldn't the same would happen if the corporations start having to pay more taxes in general .. whether on their profits or on something else?
Here’s an idea. How about the government starts creating its own wealth and resources with investments in nationalized factories, farms ect with some of the wealth it has been given instead of relying on parasitically stealing it from the work of its citizens.
We don't actually need a global minimum tax to make the corporate income tax raise more revenue.
We just need to only record and recognize conveyance of deeds, titles, patents between domestic residents and domestically chartered corporations and eliminate deductions, depreciation, expensing for intangibles.
Federal income tax does not allow depreciation of land, IP and enclosures of ideas should be treated similar to land.
It is how it was designed to work, to an extent. The Dutch are very deliberately allowing foreign corporations to negotiate their corp tax rate with them, which benefits the Dutch and no one else. It's also a regressive tax
Would it really be that difficult for a big company like Google or Facebook to operate from a fleet of floating data centers in international waters utilizing dedicated satellites for connectivity? If you denounce your citizenship and do not declare a new nationality you are only bound by maritime law.
Offtopic, but what's the story on the usage of "hype" like this? I would have said "pretty hyped" but I feel like I've seen it a few times lately without the "d", enough that I no longer think it's just a typo. Is this the kids innovating again?
This is all just because we are afraid of the T word. A uniform tariff and matching currency export control achieves the same effect, and doesn't impose US hegemony on the rest of the wrold.
If they would just close the loop holes that allow things like having Apple, setup a subsidiary that licenses its own stuff back to itself so it can move profits around the world ... you'd solve this problem.
Make a rule, if you own >50% of a company, you can't buy trademarks, patents, whatever from yourself.
They don't even have to close the loophole. Just tell the US Apple Corporation (as an example) they can't proceed in their current court cases, as they are not the 'owner' of the IP, they are merely a licensee. Let them fight it in the court systems of the country where the IP is actually in.
Right now, these companies get all the tax/financial protection of another country, but all the legal protection of the US.
Imagine the EPIC vs Apple Battle, if they had to try it in another country, or even better, in every country that 'licences' apple's IP.. Lots more chances for losing.
"Just close the loophole" to me sounds like "just fix the bugs" in an API used by every person in the country. That would be an enormous undertaking, not something you "just do". Most likely many benign people rely on particular combinations of these rules such that changing them might have terrible consequences for them. And some loopholes are likely similar combinations of rules, and removing those might create others unexpectedly.
An expert weighing in on the specifics would be nice, since I'm just speaking in vague generalities b/c I don't actually know the specifics, I can only compare it to my experiences in software.
I'm also not arguing that it's not worth doing, just that it's probably not as easy as "just" doing it.
The problem isn't any specific rule or loophole, it's the immense complexity of the system. Removing the loophole they're using today doesn't fix the system, it just leads to corporations using other loopholes.
That's why putting in place a simple minimum tax is a good plan - if there's a complex system but an overarching rule that says regardless of any other rules, you must pay at minimum 15% of profits, then you at least can't avoid that minimum (I mean, except with clever classifications of what your profits are, but at least for the most part it's not feasible for most of the large companies, excepting some like Amazon, to claim that they make no profits).
It's very hard to avoid artificial self dealing between related entities. The OECD transfer pricing arm's length principle [0] is supposed to somewhat solve that.
The problem regarding transfer pricing is that the US, the Netherlands, Ireland, Luxemburg, plus most of the places generally reputed to be tax havens have holes in their law you can fly an Antonov AN-225 [1] through.
Most of the West treats transactions between companies and their disregarded subsidiaries as not occurring for tax purposes (i.e., the transactions are "disregarded").
They should expand that principle to simply disregard transactions between all members of a conglomerated or commonly owned group.
You then end up having FAANG setting a company called FAANG which each FAANG owns exactly 20% of the FANNG companies and the sole purpose was to relicensing trademarks patents or whatever.
At the end of the day moving profits around isn't illegal and I dont see how banning it solves that problem. As long as it is taxed somewhere, which is what all country cares.
I am concerned about two things seldom discussed by people who endorse increasing tax revenues in ways like this.
1) I don't like unelected, global, IGOs who have powers over citizens without citizens' consent, such as forcing a tax increase in tax havens which crushes local autonomy in those places. The US can do this by embargoing a tax haven.
Imagine if you are a resident and business owner in Monaco, etc., who is now facing an increase in corporate tax that is only necessary because the US decided to threaten sanctions against your country to make it less attractive to (ostensibly) US corporations. You could make a moral argument about what tax revenue should be but I don't think it's moralistic because of my next point.
2) No one ever discusses fiscal responsibility or whether tax revenue is well spent. The solution is always to increase taxes or to increase the power to collect taxes.
The fact that certain countries can endorse global rules dictating what constitutes a war crime is pretty frightening too. Who are you, Lovecraft? Does the mere concept of global politics scare you?
While I have never looked deeply into the topic of big business corporate taxes, I do share a strong suspicion that the corporate tax system is flawed, and would be supportive of reform in the system. Including international cooperation for solving this.
But the way they went about this is disappointing.
There should be a way to solve this that would still allow countries to compete in attracting businesses. They talk as if they want everybody to settle for mediocrity.
> Treasury Secretary Janet L. Yellen has warned that a global “race to the bottom” has been eating away at government revenues.
This literally sounds like something a cartel would say.
As a US taxpayer who sees the fraud, abuse, and general mismanagement of my tax money why would I willingly support the same government getting more?
It is incredibly depressing how little I get from the government vs how much they take from me. The entire system is a sham and I honestly don't want to support it anymore. I'm working as hard as I can to try and escape it at the earliest possible moment.
"Medoicrity" is countries around the world losing hundreds of billions of dollars per year in tax evasion and capital flight. A "cartel" in this case, meaning a (democratic) agreement between major economic blocs to put a floor on corporate tax, and sanction those who violate this, is precisely what you need.
It’s interesting to see a multinational standard to set a “standard” for taxation.
Seems odd to start with corporate income taxes as it seems pretty efficient to not tax corporations and encourage more distribution to individuals and tax there.
I remember in my microeconomics101 course how taxes on corporate profit are easy to squish around with tax deductible benefits that reduce profit (eg, country club dues are an expense, corporate jets are an expense, 5000 square foot offices are an expense). Since it’s hard to police these expenses, it’s more efficient to just push all profits to salary and dividends to individuals and tax there since there are so many fewer individual exemptions.
The issue is not all owners live within a country. So, in practice it’s significantly less efficient to tax people than companies even if in theory it’s beneficial.
Also, increasing employ income tax rates incentives the company to provide tax deductible benefits and lower salary. The actual solution is to make employee benefits non tax deductible. For example personal use of a Company Car by an employee is taxable to the employee as a non-cash fringe benefit, which is why company provided cars have become uncommon.
On the other hand, pushing too much the tax burden to one payer (corporation, shareholder, employee, consumer) creates strong incentives for tax optimization for that payer. If tax burden is spread over many different taxes will decrease profitability of dodging each individual tax.
Countries should get taxes back from a corporation at a ratio equivalent to their contributions of a corporations success/profits.
US has a good legal system, fairly educated population, market, etc. Most of these corps would not have made it in a country like Russia, or they would've been taken over in China etc. They need to pay their fair share back into the system that allowed them to thrive.
You will never close all the loopholes. It is impossible and the real people in power don't want it. High taxes, like in most of current society, will always mostly keep the poor poor and eliminate the middle class; politicians just dress it up as redistributing money from the rich.
I thought I remembered at some point (might have been more than a decade ago) that I heard that most economist thought that corporate income taxes were basically a bad idea? Is this no longer held as a valid belief?
Long term, I would almost prefer if we just moved to taxing people's assets. Maybe we can force corporations to basically pay out most of their profits to shareholders to avoid having them get too large?
> Tuesday's show presented the common-sense, no-nonsense Planet Money economic plan — backed by economists of all stripes, but probably toxic to any candidate that might endorse it.
> Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.
taxing people's assets is complicated as hell. How much is your house worth. And before you answer that question, have you been in a bubbly market? Quotes for houses in the place I've been have gone up by 10% in the last 4 months.
Now, suppose you have bought a house and suddenly all of your neighbors are rich. An appraiser comes to your place and suddenly you owe taxes and you basically get evicted from your home under a net-worth-taxation regime. 100% guarantee in your "ideal" situation, the rules will be abused to fuck over those with less clout.
Why would smaller countries who are looking for a competitive edge to attract business ever agree to this? It seems like this is really just in the interest of the US and other big incumbents that rely on large tax revenue already. But even within that group, enforcing such a minimum really has the effect of cementing the incumbents' hold on economic power. So why would any nations other than the US agree to this, when others stand to benefit by gaining economically at the cost of the US? Personally I also find the notion of a global order that prevents flight (of companies, capital, etc.) to be a bit dystopian. I don't want any power (a nation, or a coalition of nations) to have that kind of influence or authority, and this proposal doesn't give me good vibes.
Read the proposal: it doesn't matter whether small countries agree to it. The idea is that if any country levies less tax than the global minimum, the IRS will automatically charge the difference. i.e. if the global minimum is 15% and a company based in Luxembourg is paying only 5%, the IRS will levy an additional tax burden to bring it up to the minimum. No coordination or cooperation is required.
Without justifying whether or not this is a good thing to do, large countries have a lot of economic levers to use with smaller countries. (Tariffs, limiting foreign direct investment, etc)
Tax complexity is a function of rates. The higher rates go the more value any particular additional complexity has. Maybe this is a good idea and maybe it's not but to the extent rates are high it's going to be a disappointment as a way to increase revenue.
This article is very sparse on the actual technical details. How would the tax be distributed? What happens if one or a few countries get disillusioned and just stops participating? Isn't that somewhat the plot of the Star Wars prequels?
Is this similar to how the EU has minimum tax rates on businesses? Without recalling too many details, I recall Apple and Ireland being sued by the EU government for a sweetheart tax deal they put in place.
That was because Ireland only made this deal available to Apple, not because of low tax rates. In Estonia companies don't pay CIT unless they pay out dividends, for example.
To answer your question, this wouldn't create a new organization to collect a global tax. Instead it would give the IRS the authority to tax American companies (say, Google) an additional amount on their overseas earnings. So, if they paid 13% in Irish tax, but the American tax rate is %21, the IRS could charge them the gap (an additional 8%). This would be true in all countries that sign the agreement.
Obviously tax havens would still exist, but they'd be harder for big multinationals (like American tech giants) to abuse.
> Does humanity really want an authority powerful enough to claim dominion over the entire planet?
I believe the word you're looking for there is /did/ not /does/. And the answer is for some, yes, for some, no, but regardless -- it happened for a variety of structural reasons (British Empire, Mongol Empire, etc).
Perhaps a more interesting question is whether such a dominion will work for the future. And for that, I'm not so sure. What's to say that we won't see some kind of three body system between India, China and the West? Not to mention what could happen as South America and Africa continue to ascend. I think the logistics of collecting a 15% global tax will be "interesting" to watch play out.
My two cent is that it’s just inevitable (and personally welcomed). Throughout the history, from tribes to today we have merged in bigger and bigger entities.
And pretending that we can live without a global authority, when supply chains are global, food market are global, most of what happens in politics has global effect is total nonsense IMO. We pretend we live in separate societies with entirely different rules when we are already operating like a single, global organism.
Well said. Each amount of money will find a "good" reason to be spent, so less money collected means less money wasted (or spent on weapons and armies).
The problem already exists in states though. There is a disproportionate number of companies headquartered in Delaware[0]. That's not really fair when most of the actual business is done in other states but Delaware is currently leading the tax rate race to the bottom within the US 50 states.
I love the "have the IRS take the difference", as if the IRS is some corporation that's just gonna stick it in their bank account or pay it to their shareholders
Thank God the US is taking charge of the GLOBAL finances. What could go wrong!?
This is ladder pulling. Who needs smaller countries competing on fiscal rates when all tech should be registered in Dellaware?
Note how it's a small 15% to start with. If this goes through and all the treaties are in place moving it to 25% should be much easier.
Maybe the US should investigate all the creative ways US corporations pay so little tax anywhere. It's a problem caused by US and US corporation and now they come to provide a solution.
They're fumbling around trying to find any way to get out of the messes they keep creating. Yet, no one dares to talk about the true underlying causes.
0xB31B1B|4 years ago
No one, including tax lawyers, will tell you with a straight face that this is the way things were expected/designed to work. All of these tax avoidance strategies are emergent properties of complex systems that are the result of uncoordinated action amongst individual actors that cannot be fixed without collective organization. I support this and 15% seems reasonable to me.
s_dev|4 years ago
You're understanding is outdated this mechanism is finished as of 2018.
https://en.wikipedia.org/wiki/Double_Irish_arrangement
However this article is a little biased -- it's main contributor is a user called "Britishfinance" -- who appears to be a London based corporate shill to take the heat off the City of London being a tax haven.
rsj_hn|4 years ago
Instead, ask yourself why you can move funds so easily across borders and decide whether allowing these capital flows is a good idea or not. The inevitable cost of allowing them is tax arbitrage but it’s not close to the biggest cost - financial instability, trade deficits, a shrinking middle class and deindustrialization are much bigger costs, and are equally inevitable once you allow these cross border capital flows.
mgolawala|4 years ago
I recall a US presidential candidate in the most recent election cycle mentioning this as the solution to the current corporate tax avoidance problem. In fact it was a major part of his campaign.
I am not very knowledgeable of the downsides of a VAT approach and how it could be gamed, but what he seemed to say did make sense to me. The idea was to tax the value created in the location it was created. I suppose the way you could game that system was to somehow show that no (or very little) value was created in the US?
Would moving to taking a small percentage of revenue solve this? A federal sales tax that is included in the price of products that cannot be avoided. Sure the argument against this may be that they will just pass the increased costs down to the consumer, but why wouldn't the same would happen if the corporations start having to pay more taxes in general .. whether on their profits or on something else?
suifbwish|4 years ago
visualradio|4 years ago
We just need to only record and recognize conveyance of deeds, titles, patents between domestic residents and domestically chartered corporations and eliminate deductions, depreciation, expensing for intangibles.
Federal income tax does not allow depreciation of land, IP and enclosures of ideas should be treated similar to land.
permo-w|4 years ago
jbverschoor|4 years ago
suifbwish|4 years ago
losvedir|4 years ago
treespace88|4 years ago
If your competitors are using these loopholes, you have to as well.
It’s the individuals that shield their wealth by using international corporations that stand to lose the most.
dnautics|4 years ago
rayiner|4 years ago
codeecan|4 years ago
Make a rule, if you own >50% of a company, you can't buy trademarks, patents, whatever from yourself.
briffle|4 years ago
Right now, these companies get all the tax/financial protection of another country, but all the legal protection of the US.
Imagine the EPIC vs Apple Battle, if they had to try it in another country, or even better, in every country that 'licences' apple's IP.. Lots more chances for losing.
cle|4 years ago
An expert weighing in on the specifics would be nice, since I'm just speaking in vague generalities b/c I don't actually know the specifics, I can only compare it to my experiences in software.
I'm also not arguing that it's not worth doing, just that it's probably not as easy as "just" doing it.
Andrex|4 years ago
https://www.hollywoodreporter.com/business/business-news/fox...
awillen|4 years ago
That's why putting in place a simple minimum tax is a good plan - if there's a complex system but an overarching rule that says regardless of any other rules, you must pay at minimum 15% of profits, then you at least can't avoid that minimum (I mean, except with clever classifications of what your profits are, but at least for the most part it's not feasible for most of the large companies, excepting some like Amazon, to claim that they make no profits).
markvdb|4 years ago
The problem regarding transfer pricing is that the US, the Netherlands, Ireland, Luxemburg, plus most of the places generally reputed to be tax havens have holes in their law you can fly an Antonov AN-225 [1] through.
[0] https://www.oecd-ilibrary.org/taxation/oecd-transfer-pricing...
[1] https://en.wikipedia.org/wiki/Antonov_An-225_Mriya
gamblor956|4 years ago
They should expand that principle to simply disregard transactions between all members of a conglomerated or commonly owned group.
ksec|4 years ago
At the end of the day moving profits around isn't illegal and I dont see how banning it solves that problem. As long as it is taxed somewhere, which is what all country cares.
lefty2|4 years ago
onetimeusename|4 years ago
1) I don't like unelected, global, IGOs who have powers over citizens without citizens' consent, such as forcing a tax increase in tax havens which crushes local autonomy in those places. The US can do this by embargoing a tax haven.
Imagine if you are a resident and business owner in Monaco, etc., who is now facing an increase in corporate tax that is only necessary because the US decided to threaten sanctions against your country to make it less attractive to (ostensibly) US corporations. You could make a moral argument about what tax revenue should be but I don't think it's moralistic because of my next point.
2) No one ever discusses fiscal responsibility or whether tax revenue is well spent. The solution is always to increase taxes or to increase the power to collect taxes.
anm89|4 years ago
randomopining|4 years ago
criddell|4 years ago
anm89|4 years ago
PoignardAzur|4 years ago
If you want to look at a case of aggressive US extraterritorialism, FATCA is a lot more egregious.
listless|4 years ago
pie420|4 years ago
adamsvystun|4 years ago
But the way they went about this is disappointing.
There should be a way to solve this that would still allow countries to compete in attracting businesses. They talk as if they want everybody to settle for mediocrity.
> Treasury Secretary Janet L. Yellen has warned that a global “race to the bottom” has been eating away at government revenues.
This literally sounds like something a cartel would say.
zionic|4 years ago
It is incredibly depressing how little I get from the government vs how much they take from me. The entire system is a sham and I honestly don't want to support it anymore. I'm working as hard as I can to try and escape it at the earliest possible moment.
andrepd|4 years ago
prepend|4 years ago
Seems odd to start with corporate income taxes as it seems pretty efficient to not tax corporations and encourage more distribution to individuals and tax there.
I remember in my microeconomics101 course how taxes on corporate profit are easy to squish around with tax deductible benefits that reduce profit (eg, country club dues are an expense, corporate jets are an expense, 5000 square foot offices are an expense). Since it’s hard to police these expenses, it’s more efficient to just push all profits to salary and dividends to individuals and tax there since there are so many fewer individual exemptions.
Retric|4 years ago
Also, increasing employ income tax rates incentives the company to provide tax deductible benefits and lower salary. The actual solution is to make employee benefits non tax deductible. For example personal use of a Company Car by an employee is taxable to the employee as a non-cash fringe benefit, which is why company provided cars have become uncommon.
wkrsz|4 years ago
trdtaylor1|4 years ago
randomopining|4 years ago
US has a good legal system, fairly educated population, market, etc. Most of these corps would not have made it in a country like Russia, or they would've been taken over in China etc. They need to pay their fair share back into the system that allowed them to thrive.
gher-shyu3i|4 years ago
ajkdhcb2|4 years ago
permo-w|4 years ago
stephen_cagle|4 years ago
Long term, I would almost prefer if we just moved to taxing people's assets. Maybe we can force corporations to basically pay out most of their profits to shareholders to avoid having them get too large?
rayiner|4 years ago
> Tuesday's show presented the common-sense, no-nonsense Planet Money economic plan — backed by economists of all stripes, but probably toxic to any candidate that might endorse it.
> Three: Eliminate the corporate income tax. Completely. If companies reinvest the money into their businesses, that's good. Don't tax companies in an effort to tax rich people.
dnautics|4 years ago
Now, suppose you have bought a house and suddenly all of your neighbors are rich. An appraiser comes to your place and suddenly you owe taxes and you basically get evicted from your home under a net-worth-taxation regime. 100% guarantee in your "ideal" situation, the rules will be abused to fuck over those with less clout.
missedthecue|4 years ago
permo-w|4 years ago
throwawaysea|4 years ago
Analemma_|4 years ago
mattmanser|4 years ago
mathattack|4 years ago
hackeraccount|4 years ago
spacephysics|4 years ago
permo-w|4 years ago
HWR_14|4 years ago
isbvhodnvemrwvn|4 years ago
the_optimist|4 years ago
Literal global rule. Some would call that overreach.
alexpetralia|4 years ago
permo-w|4 years ago
permo-w|4 years ago
gotoeleven|4 years ago
nostromo|4 years ago
Bloomberg has a better write up: https://www.bloomberg.com/news/articles/2021-04-08/plans-for...
To answer your question, this wouldn't create a new organization to collect a global tax. Instead it would give the IRS the authority to tax American companies (say, Google) an additional amount on their overseas earnings. So, if they paid 13% in Irish tax, but the American tax rate is %21, the IRS could charge them the gap (an additional 8%). This would be true in all countries that sign the agreement.
Obviously tax havens would still exist, but they'd be harder for big multinationals (like American tech giants) to abuse.
karmasimida|4 years ago
The current system isn't working anyway
yowlingcat|4 years ago
I believe the word you're looking for there is /did/ not /does/. And the answer is for some, yes, for some, no, but regardless -- it happened for a variety of structural reasons (British Empire, Mongol Empire, etc).
Perhaps a more interesting question is whether such a dominion will work for the future. And for that, I'm not so sure. What's to say that we won't see some kind of three body system between India, China and the West? Not to mention what could happen as South America and Africa continue to ascend. I think the logistics of collecting a 15% global tax will be "interesting" to watch play out.
nerdponx|4 years ago
Also, this isn't a single authority, this is one authority asking other authorities to all agree on something.
CPLNTN|4 years ago
unknown|4 years ago
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disposekinetics|4 years ago
belatw|4 years ago
justinzollars|4 years ago
option|4 years ago
ramtatatam|4 years ago
moate|4 years ago
paul_f|4 years ago
jimbob45|4 years ago
[0]https://www.mentalfloss.com/article/76951/why-are-so-many-us...
permo-w|4 years ago
thegreatpeter|4 years ago
hellow0rldz|4 years ago
This is ladder pulling. Who needs smaller countries competing on fiscal rates when all tech should be registered in Dellaware?
Note how it's a small 15% to start with. If this goes through and all the treaties are in place moving it to 25% should be much easier.
Maybe the US should investigate all the creative ways US corporations pay so little tax anywhere. It's a problem caused by US and US corporation and now they come to provide a solution.
germinalphrase|4 years ago
Shouldn’t the responsibility for US corporate problems be (presumably) addressed by the US government? I’m not understanding your point here.
rationalData|4 years ago
[deleted]
known|4 years ago
[deleted]
Proven|4 years ago
[deleted]
TOSSAWAY_1|4 years ago
LatteLazy|4 years ago
Of course they'll need to close the US/UK buy back loophole...
unknown|4 years ago
[deleted]
gher-shyu3i|4 years ago
maneesh|4 years ago