Deductions on personal taxes are intentional provisions to encourage certain types of saving/investment/giving. Weaknesses in tax treaties are not designed to encourage people to repatriate their profits to artificial entities in tax shelters.
Google pretending that sales are made in Ireland (and not by the revenue-targeted local salesperson selling local ads to local eyeballs) in order to enable them to deduct fictitious license fees owed to a subsidiary in Bermuda is not even in the same ballpark.
It's the equivalent of me donating most of my salary to a "charity" created for the purpose of paying my mortgage. I don't think many people here do that, or would consider it if their accountant suggested it.
The problem is with the laws. Poorly written, lazy or "bought-for" laws are being used exactly as they are worded. If you want better laws, you need to write better laws - not just hope that people will follow what each law intended.
For the people that claim that the tax loopholes are something that the companies lobby for - again - it's interesting that people are upset with the companies who lobby for this, rather than the fact that politicians are receiving the actual money.
The problem is not with the companies - it's with the politicians that allow money to influence themselves. It's laughable to me that politicians denounce "money in politics" with one hand and are busy recruiting, fundraising and accepting it on the other.
I agree it's pointless to blame companies. But it's also intellectually lazy to blame the tax code. What "paid for" "loopholes" are you talking about? Because tech company tax avoidance is based on taking advantage of straightforward principles of tax law. The double Irish, for example, takes advantage of the difference between the US view of corporate residency (country of incorporation) and the Irish view (country of control), along with the deductibility of licensing expenses. These aren't obscure loopholes written into tax codes by paid-for legislators. You can't have a tax code that taxes profits that doesn't allow deducting expenses, and there is no obviously right answer as to how you should define corporate residency for a transnational corporation.
If I operate in both countries, what's the process for me to tell the "other" country to "stick it, I'm using the other country's accounting and tax policies"?
* Politicians work for...us. They're also the one group that if they STOPPED their involvement in the "system" would cause lobbying to be pointless. Instead they fester an "us vs. them" attitude and hope
If I hired you to do a job and you took on a freelance job doing favors for your dinner buddy on work time and started ignoring your day job - you'd get fired so fast it's not even funny. Unfortunately, we don't treat congress members like that.
If I hired you to write code and never looked at a single line you wrote[1], but instead held performance reviews based on how well your personal marketing department tweeted...
1: quick, tell me the name of your representative, the name of the last bill they co-sponsored, and a few of the legal concepts that bill dealt with.
Yup, that's a pretty good point. Politicians don't work for us, they work for themselves. Our input is only to vote some of them in, and in aggregate, we vote based on the media impression they themselves orchestrate.
The deductions (or avoidance) is "legal" because it follows the letter of laws ... bought and paid for by companies which see 100:1, 1,000:1, or 1,000,000:1 returns on their lobbying "expenses" securing just this.
Until and unless money's influence is removed from politics, this will be the case.
You can't remove money from politics, the only reason politics exists is because government gets to decide who gets what money.
Not even the staunchest libertarian thinks the government would work with no revenue, or that politicians shouldn't be allowed to manage the money of the state.
The parent wasn't talking about the government allocating money, they were talking about government members being given money in exchange for influence. Sure, in both cases it's money, but you can remove one and still have the other.
I strongly suspect your first premise (that money cannot be removed from politics) is correct, though I disagree with your interpretation/rationale.
The point that financial wealth and political power are simply two (of several) dimensions of power means, though, that the influence of money on politics cannot be ignored.
Well, you said it yourself. The companies do lobby for loopholes, knowing they will be better off than other. As a results, the companies in question have at least the same share of blame as the politicians.
Blaming lobbyists for lobbying is like blaming ants for finding piles of sugar that are carelessly left around.
The government is supposed to consist of our better angels that act in a more ethical manner to a higher standard than the cogs just functioning in the system that the government creates.
If the government doesn't consist of these better angels, why do we give it such vast and sweeping powers to invade and control our lives?
As someone who is intensely interested in how regional differences in people's education affect their political outlook, I sincerely want to ask you where you went to high school.
I realize that response sounds condescending and I'm trying to think off a way to make it sound not condescending, but I am failing. Your statement so strongly contradicts what I learned growing up that blinked in surprise and had to take a step back and reconsider a belief that I didn't realize I'd never questioned.
I went to high school near Albany, New York and we were taught that the framers of the constitution started their design from the premise that humans are flawed and corruptible and that they needed to build a system to counter that. Hence, checks and balances. I guess all of the reading I've done since then on the founding of the country has agreed with this, but I suspect if there was some that disagreed with it, I would have missed that.
Tax dodging is also against the spirit of the law, which is a direct result of companies lobbying for loopholes they can use. Said companies are the initiators, not the corrupt/dumb politicians (who are, of course, also to blame).
It's not "tax dodging", it's "tax avoidance", since what they've done is not only legal, but it's the expected and allowed behavior under tax law adjudication in the USA.
You misunderstand how tax laws work to think that there is some "spirit of the law" that individuals or corporate entities should be attempting to follow. There are simply the rules that must be followed and some wiggle room in how those rules are interpreted.
A "spirit" implies that there is some sort of equality between parties and a mutual understanding of something not quite written down. That's not the way that a judge views tax law. If the IRS can't clearly show how rules have been broken, then the IRS has no claim. The government/IRS write the rules and they're expected to write rules in a watertight fashion, not some vague "spirit of the agreement" fashion. If the government or IRS fails to do so, it's not viewed as the tax avoider's problem.
At the end of the day, tax accountants and tax attorneys are trained and paid to ensure that you (or your company) don't pay a penny more of taxes than are explicitly required by the law and it would be unethical for them to do otherwise.
>1 - Avoid (someone or something) by a sudden quick movement:
...
I know the US judiciary system works with the laws by the letter. And I know that examples like this prove again and again that it's not always the optimal way to do things.
Sometimes I wonder why people think USA is that different from Russia. Ethics are non-existent in both countries.
Sometimes I wonder why people think USA is that different from Russia. Ethics are non-existent in both countries.
You're confused about the greater ethical question here. The ethical question of whether or not a company should pay its "fair share" of taxes is below the ethical question of "How should laws be enforced by a Government that can use deadly force and incarceration to achieve its aims?"
The Government writes the laws and has all the power. It is absolutely incumbent upon the Government to make the laws clear and not try to enforce their whims based upon flimsy unwritten "spirit of the law" arguments.
Yes, it can be illegal. But it also can be legal. Therefore it's exactly what's Google done. I'm talking in normal English, not in American lawyers' English.
But sure, keep being an apologist and call people who blame, among other things, the actual source of the problems "confused". Oh wait, you don't seem to consider that a problem. You just shift the entirety of the blame on some theoretical "Government" entity, because that entity didn't think of every imaginable and unimaginable way one could circumvent a law, while still keeping the laws clear.
Then I'm sorry, we have nothing more to talk about.
"that entity didn't think of every imaginable and unimaginable way one could circumvent a law"
That is factually untrue of the loopholes exploited. Many of these loopholes were put in place explicitly to benefit the cronyists. Others have been in place for some time, but the lawmakers and the IRS don't want to fix them. Government has the power. They write the laws. They even make the rules regarding legal lobbying.
Blaming the corporations that legally lobby and follow the tax laws is like blaming a child who acts like a brat because his parents are crappy parents. You blame the rule makers and those in power a great deal more than you blame those who are just following the rules.
I'm not sure what your agenda is, but the problem is definitely the companies.
If they just paid their fair share with a little bit of mild tax dodging no-one would give a fuck. But they're taking the fucking piss at the moment, generating billions in revenue and then not paying for any of the infrastructure which is supporting their business.
Suppose there are two companies with the same business model, operating in the same countries etc. One files taxes "fairly" and one minimizes its tax burden as far as the law will allow. Which one do you think is going to be in business for longer? Which one would you buy shares in?
You can get as angry as you like at the companies, or the legislators, but in the end it's the system you need to be scrutinizing.
This is clearly nonsense, what serious competition does Google have in Europe? Or Apple? Apple are making billions in profits, they have no competitive need for lower prices!
Also this is an advantage only massive multinationals have, so again, complete nonsense as they're already past that stage.
But what is their fair share? The governments of Ireland, the Netherlands and Bermuda say they are paying their fair share. Other countries obviously disagree.
>The problem is definitely the companies. They're the ones exploiting the system.
Who implements the system? The politicians that you and I elect and the corporations buy off, right? So who's fault is it really, the people who exploit the system, the people in charge of that system, or the people who put faith in the system giving it power?
It's not that they're applying for an exemption or anything, they're doing crazy contortions to get this to work. It's an unintended consequence of the complexity of tax law that take a long time to fix.
If you could get away with murder because of a loophole, would you?
Say it would make a company more profitable, killing their rivals. Do they suddenly have a legal obligation to as a company to increase their profits?
Or do you behave ethically and within the spirit of the law, regardless of the law loophole?
So why is it ok to dodge the fiscal responsibility to contribute to the societies you are operating in?
> Google pretending that sales are made in Ireland (and not by the revenue-targeted local salesperson selling local ads to local eyeballs) in order to enable them to deduct fictitious license fees owed to a subsidiary in Bermuda is not even in the same ballpark.
The whole problem is that it isn't a tax on local sales. It isn't a tax on property or labor or consumption. It's a tax on income.
But income is revenue minus expenses. So the company in the US pays developers to make software which costs $99 and the company in Ireland pays $100 for the software. Then the company in Germany sells $1100 worth of advertising and pays $1099 to license the software from the company in Ireland. Which means the company in the US made $1, the company in Germany made $1 and the company in Ireland made $999.
The allocation of the income between the different subsidiaries is almost completely arbitrary so companies arrange to do it in the way that minimizes their taxes. If you don't want them to do this, tax something other than income.
> The allocation of the income between the different subsidiaries is almost completely arbitrary
Not quite. Each country has provisions in their tax code to assess the transfer pricing, and they tend to defend their tax intake quite aggressively. So much so, that e.g. in EU, the EU courts are often needed to reign in the tax collectors.
This is then headlined as "EU allows tax loopholes for Google" or whatever.
This of course only scratches the surface. A common keyword for the policies is "arm's length principle", which means that allocation of income is not determined by the company, but nor is it determined by the tax revenue activists which infuriates them. It is determined by a legal process - undoubtedly not always perfect, but certainly not arbitrarily decided by companies.
Too many people get their education about this from Internet memes.
> A common keyword for the policies is "arm's length principle", which means that allocation of income is not determined by the company, but nor is it determined by the tax revenue activists which infuriates them. It is determined by a legal process - undoubtedly not always perfect, but certainly not arbitrarily decided by companies.
It effectively is decided by companies though. Because arms length transactions have enough play in them.
It isn't a matter of saying "we license you all our intellectual property for $1 and then you license it to them over there for $1 Billion" because they don't actually need that. They only need the difference to wipe out their profits in jurisdictions with high taxes.
And they get to decide what transactions to engage in.
Here's a made up example which is probably about right. If you have capital and an idea you can pay a consultancy to write code implementing it, and the consultancy is going to pay out in salaries nearly as much as you pay them. Their profit margin is very small. On the other hand, once you have the copyright to some useful software and can then sell it to a billion people, the revenue is pretty much pure profit. If you then license that software through a reseller, the vast majority of the profit goes to the copyright owner, not the reseller. That's what everything legitimately looks like with arms length transactions. Because the person paying the consultancy and then licensing the software is the one risking their capital not knowing whether the enterprise will be a success, so they're the one who makes all the money.
So then they put the consultancy in the US, the copyright owner in Ireland and the resellers in the rest of the EU. The company in Ireland then makes all the money, just like arms length transactions say they should.
It's tax arbitrage. They say you have to pay a tax on profit, but capital generates profit. Money makes money. So the company puts their capital into a place with low taxes and then can legitimately say "we used that capital to make all this money."
It's literally an attempt to tax something that can be instantaneously moved anywhere in the world and then being shocked and amazed that as soon as the rate is lower somewhere else, that's where the money goes.
> Which means the company in the US made $1, the company in Germany made $1 and the company in Ireland made $999.
Any reasonable judge in their sound mind would find it to be a tax avoidance, because it is!
I'm very certain and can put my $100 on it, that US courts know thousands of cases where same scheme has been put in works and people in charge put behind bars.
Tax evasion is the thing where Al Capone makes a lot of money without reporting it to the IRS and goes to jail. Tax avoidance is the thing where Ford builds a plant in Chihuahua instead of Detroit in part because Mexico has lower taxes.
There is an obvious PR nightmare when the entity that makes all the profit is in a jurisdiction where they have hardly any operations, but seizing that as an opportunity to lambaste them in public does nothing to solve the actual problem.
The underlying problem is this: When Google buys something from Google, how do you determine when the seller should act like a monopoly or the buyer should act like a monopsony? If you can't answer that question in a way that can't be gamed then you can't in practice tax international corporate profit.
Exactly Google would be happy to ship the jobs overseas if they needed 'substantial' operations to take advantage of the tax code. Since workers pay most of the tax it's a double FU to the jurisdiction with high taxes
I would imagine that sort of thing falls under "transfer pricing" of which there are plenty of laws and regulations already.
If you have a company in the US, but parts are made in China, you can't have the US company pay $99 to their plant in China and claim only $1 in profit in the US. That issue was addressed a long time ago.
Yes, there are laws, they're completely ineffective. They need to end the fiction that subsidiaries of a multinational are in any way independent financially.
You see this claim, and at the same time you see the very same activists insist that there must be "country by country reporting" of independent financial country organisations.
Well, that pretty much exists already.
But the claim that the laws are "completely ineffective" is unsubstantianted.
What artificial arrangements? OECD countries in general and CJEC countries in particular have signed agreements that enforce tax rules such that the tax collecting authorities as a rule bypass any artificial arrangements.
To be lawful, national tax regulations must be proportionate and specifically aimed at preventing "purely artificial arrangements".
And there are very many kinds of tax avoidance. Apocryphically: at the time when Sweden's income taxes were on their most absurd levels [0], medical doctors would reduce their working hours because their marginal tax rate was well above 50 % and they got little in return for extra hours.
This was clearly tax avoidance, or course. Someone then noticed this and made a proposal to tackle it with a tax called "tax on income avoided by refusal to work".
That law didn't pass even in Sweden in 1970's. But clearly it was tax avoidance which thus was allowed to run rampant.
Tax avoidance is 100% legal. Tax evasion is what's illegal and they're not doing that here. Everything they're doing is by the book—there aren't any secrets to be found.
I don't know why you are convinced it is legal. Google and Apple are currently making settlements with pretty much every government in Europe. Apple may well have to pay Ireland several billion dollars in taxes because the deal they did is likely to be ruled illegal.
The difference is that tax avoidance is defined as legal and tax evasion defined as illegal (at least in the US). If it's a legal activity aimed at minimizing taxes, it's avoidance. Likewise, if it's avoidance, it's legal, and if it's not legal, it's not avoidance.
From the IRS manual, section 25.1.1.2.4 .1 & .2 [0] [1]
Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means. One who avoids tax does not conceal or misrepresent, but shapes and preplans events to reduce or eliminate tax liability within the parameters of the law.
Evasion involves some affirmative act to evade or defeat a tax, or payment of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.
If I move to Florida or Texas to escape paying state income tax on my earnings, that's avoidance. If I earned the money in Massachusetts and simply decide to not declare and pay tax on it, that's evasion.
What's happening to some of the multi-nationals is that their attempts at structuring their affairs are being judged on the wrong side of the line. While it may not be being called evasion legally in all cases, it's exceeded the bounds of avoidance, resulting in settlements.
The tax code is so complex, and prosecuting would be very expensive. That does not mean that the techniques being used are legal. Mostly people just get asked to pay the tax back with penalties rather than prosecute. But I would not assume it is all clearly legal.
That is a bit different. European rules forbid State help to corporations, and the EU ruled that some special tax agreements between states and Apple/Google were indistinguishable from State help.
This is neither tax avoidance (though it made tax avoidance more effective indeed) nor tax evasion, in other words.
>It's the equivalent of me donating most of my salary to a "charity" created for the purpose of paying my mortgage. I don't think many people here do that, or would consider it if their accountant suggested it.
Some tax planning is clearly legal, and is an expected use of the tax laws.
Some tax planning is clearly illegal. People are hiding money and evading tax.
There is a grey area in between. People use tax laws in unexpected ways. Their accountants and lawyers claim this new planning is legal. The tax authorities claim it isn't. To find out if it's actually illegal it gets tested in court, except no-one wants that. Companies don't want it because lawyers are expensive. Tax authorities don't want it because lawyers are even more expensive for them and it looks terrible if they fail in court. So some weird deal is made. The company repays a trivial amount of tax, some rule gets added or taken away to make it clearer that the tax plan is unlawful.
So, here, a big company can do it because spending many thousands on lawyers and tax accountants means they save hundreds of thousands, millions, billions, on the tax bill.
I can't afford the tax accountant, so those schemes usually are not available to me. And as soon as enough people start using them the laws change, sometimes leaving me in a tricky situation.
How could the double Irish arrangement possibly be considered a grey area? It's incredibly well know, and many of the richest companies use it. I'm pretty sure that if it were truly a legal grey area, there would be court cases testing it, which there aren't to my knowledge.
The double Irish was created by Apple's tax lawyers. It is well known because of that. It has been ruled illegal I think now and Apple is no longer using it. Apple are lobbying hard not to pay billions of back taxes in Ireland as their deals with the government to not pay tax are likely to be ruled illegal by the EU.
>> It's the equivalent of me donating most of my salary to a
>> "charity" created for the purpose of paying my mortgage. I
>> don't think many people here do that, or would consider it
>> if their accountant suggested it.
Not even close. But, actually people do that. Your example is off-base, because they pay tax on the fair market value of the rent they don't pay as if that missing rent were income.
What do you think the Bill & Melinda Gates Foundation is? The Clinton Foundation? Donations to purchase buildings at Universities? Donations to your favorite charity? Donations to get annuities?
This is something that many people and corporations do. It sounds like you enjoy it personally, but not when other people do it with greater amounts of money.
Ah, I see that my comment could be read that way. What I meant was the construct of donations for deductions and later benefit is what those foundations do.
Furthermore, given enough money involved, there are a variety of advantages to creating an entity like a foundation. No, it won't cover clearly personal expenses like a mortgage; that would be clearly illegal. But it can write off salaries, travel, entertainment, etc. related to the operation of the foundation in a way that would be difficult for an individual.
> Deductions on personal taxes are intentional provisions to encourage certain types of saving/investment/giving. Weaknesses in tax treaties are not designed to encourage people to repatriate their profits to artificial entities in tax shelters.
What you call "weaknesses in tax treaties" are very often exactly though up as intentional provisions to encourage certain types of saving/investment/giving
Google pretending that sales are made in Ireland (and not by the revenue-targeted local salesperson selling local ads to local eyeballs) in order to enable them to deduct fictitious license fees owed to a subsidiary in Bermuda is not even in the same ballpark.
It's the equivalent of me donating most of my salary to a "charity" created for the purpose of paying my mortgage. I don't think many people here do that, or would consider it if their accountant suggested it.