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Comment by guard-of-terra | Hacker News Reader

Apple sells a huge number of physical devices - phones and tablets. They created a new market, and now governments are able to collect VAT and sometimes customs tariffs on all those smartphones. Why not let Apple have what's left?

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>Why not let Apple have what's left?

Because other businesses also create products that collect VAT and still pay their taxes. Why should Apple be any different?

To promote those that are big enough to avoid taxation to make them even bigger?

Apple pays VAT and all the taxes it is legally obliged to pay. Don't blame Apple. They will pay the least amount they have to pay. Fix the loopholes.

The loopholes exist because corporations like Apple (but even more so others), lobby for them to exist.

It's not like corporations are exploiting some totally neutral loophole they discovered -- those are there on purpose.

Not trying to deny what you say is true, but just out of curiosity, is there any proof that Apple is doing this and how do implementations of this lobbyism look like? Just trying to understand how all this works.

Maybe it's because of coming from a European background, but this kind of questions are quite baffling for me. I know you mean well, but I find that the idea that corporations do this kind of thing doesn't need any more proof than the fact that the earth is round.

If one follows the news, there are constant reminders of this kind of lobbying going on (corporations asking for special treatment, especially when it comes to taxes) for a whole century. Besides a lot of this is done right out in the open. I mean coorporate lobbying was invented exactly for that -- to push governments for favorable laws, special treatment, laxer environmental and other protections, etc. On top of that, there are all kinds of under-the-table deals (with lots of them exposed frequently) with politicians and corporations.

That said, here are some pointers to the issue. First the general Wikipedia article:

A number of published studies showed lobbying expenditures can yield great financial returns. For example, a study of the 50 firms that spent the most on lobbying relative to their assets compared their financial performance against that of the S&P 500 in the stock market concluded that spending on lobbying was a "spectacular investment" yielding "blistering" returns comparable to a high-flying hedge fund, even despite the financial downturn of the past few years. A 2011 meta-analysis of previous research findings found a positive correlation between corporate political activity and firm performance. Finally, a 2009 study found that lobbying brought a substantial return on investment, as much as 22,000% in some cases. https://en.wikipedia.org/wiki/Lobbying#United_States

And the US specific one: https://en.wikipedia.org/wiki/Lobbying_in_the_United_States

The Atlantic: http://www.theatlantic.com/business/archive/2015/04/how-corp...

The Guardian: http://www.theguardian.com/politics/2014/mar/12/lobbying-10-...

National Review: http://www.nationalreview.com/article/421664/corporate-lobby...

Fortune: http://fortune.com/2015/09/04/lobbying-corporate-washington/

Economist: http://www.economist.com/node/21553020

Forbes: http://www.forbes.com/sites/chrisbarth/2011/12/14/29-compani...

Oxford University Press: http://www.amazon.com/The-Business-America-Lobbying-Corporat...

Lawrence Lessig: http://www.amazon.com/Republic-Lost-Money-Corrupts-Congress/...

The Influence Machine: The Influence Machine: The U.S. Chamber of Commerce and the Corporate Capture of American Life

Lobbying America: http://www.amazon.com/Lobbying-America-Politics-Business-Twe...

And those are "establishment" sources -- you'd get far better coverage in more outspoken and critical voices.

Regarding Apple in particular: http://www.theguardian.com/business/2015/jan/21/us-tech-tax-...

http://www.theguardian.com/technology/2014/sep/30/apple-repa...

One possible solution is making corporate lobbying illegal, with severe penalties, i.e. long prison sentences for those involved. Corporate lobbying corrupts democracy, so why should it be allowed to exist?

Then, simplify the tax system. The more complex a system is, the easier it is to game. If necessary, tax revenue instead of profits: if a widget is sold here, the company which sold it should be taxed here.

I agree with both ideas. Unfortunately for the thing to be fixed those passing laws should benefit from it being fixed -- but on the contrary they benefit for it being broken.

So, the first thing that should probably be fixed is: no campaign donations, at all.

Campain donations just let the politicians catering to the richer population get more advertising and marketing power.

I'd go as far as forbid all political / campaign advertising. If they want to convince, let them organically convince their local voters, then their state, and up to the whole party etc. Not with costly marketing, videos and large, costly, speaking appearances.

100% Right fix the laws. This is horrible and the Rich pay round 10% tax rate (They argue they pay so much? They pay a ton in taxes but in terms of percentage they pay less than most people)

Except that the reason the loopholes exist is because of the lobbying of companies that take advantage of them.

The fact that companies are able to create loopholes via lobbying is the problem. When you accept corrupt government as an unchangeable fact of nature, you've already conceded defeat.

or... you might become a realist, and maybe try to come up with solutions applicable in real world, on real people and real situations.

I'm not claiming I know what the solutions are. But I am damn sure theoretical solutions for theoretical situations tend to fail spectacularly in reality, no matter what topic they are about.

You could support Lawrence Lessig's presidential campaign.

I think you missed the part of parent comment about "realism".

Lawrence Lessig is a real person and thus my answer satisfies at least one of the criteria given.

100% agree, and this has been very frustrating for me over the last decade or so. Elected reps (in the US, at least) are barely going through the motions of obscuring the quid pro quo any more, and it seems like nobody really cares.

How can this loophole get fixed? My (admittedly minimal) understanding is that these companies don't have to pay taxes on the money until they repatriate it. From the perspective of countries like the US or UK, Apple earns very little in "profits" because they have expenses in licensing fees between their own companies that effectively pushes the profit to countries with very low corporate tax rates.

This all sounds sinister and it certainly is clever. But I don't see an easy way to fix it. I don't think a tax system where countries can tax profit that never enters its borders is viable. How would the UK feel if the Cayman Islands levied a tax on profit earned by UK companies?

a very heavy handed approach that will almost certainly fail in the real world would be to tax corporate revenue, not profit. This is VERY invasive and I would not recommend it at all but I don't see an approach that is simple enough like this that does not require international co-operation.

In my simple mind, the failure is in defining profits. How do we define profit? The devil is probably in the details. *

If Wally's world buys widgets for $6B and sells them for $10B but then turns around and spends $5B on long term infrastructure, did they make a profit? Do they owe any taxes?

Something closer to home: Once we get into the details, it is very easy to get lost in there. When they spend $100 per hour to hire a consultant (programmer), does that count as capital expenditure? How?

I am not a lawyer and I am definitely not an accountant. I would imagine loopholes can be closed but it requires technical expertise that I lack.

* Perhaps only allow cross-border expenses to countries that honor a certain level of agreement?

PS: I am not so sure about taxing income in other countries. None of what I say applies to expatriating money from overseas. It only applies to monies a company makes in our country and tries to ship overseas. If Apple sells $100B worth of iPhones in the UK, should they pay corporate income tax on it in the US? Why not pay corporate tax on that in the UK?

How is taxing revenue more invasive than taxing profit? In the former scenario you have half as many things to audit than in the latter.

I think he means invasive as in it would affect companies' bottom lines more. Imagine something that primarily runs on a razor thin margin and makes up in volume and has $100M revenue and $5M profit, versus a company that has high margin and has $50M revenue and $5M profit. The first would be taxed much higher even though they have the same amount of profit.

Of course, because of the way companies can be structured, [Hollywood Accounting](https://en.wikipedia.org/wiki/Hollywood_accounting) is significant.

The UK tax office has been trying to fix loopholes.since transfer pricing abuse and offshore trusts started in the 19thC.

Non-dom has taken about 100 years to be scrapped which was creatively spawned by the Vesteys

http://www.theguardian.com/uk-news/2015/jul/08/non-dom-tax-s...

VAT is a tax paid by end consumers, its just collected by retailers.

But Apple are paying their taxes.

No, they use every trick in the book not to, ending up paying less than your local frozen yogurt place (exaggerating a little, but still).

See but they do pay their taxes. They just use loopholes to pay less taxes.

That's basically a distinction without meaning.

The whole reason for taxes is that it helps the collective -- sometimes at the expense of the individual.

Let me ask you then, do you think it's right that the tax burden is on those locally-run frozen yogurt places, over the extremely well-off multinationals like Apple? Is that the way you want to see the world run?

Of course I don't think it's right. I was only making the point of what they do is not skip paying taxes, but effectively trick the financial system into paying as little as they can.

I don't think he is saying that at all. Of course Apple is going to use every loophole they find. They are a business and that business is making money. The only way to fix it is to remove the loopholes.

>The only way to fix it is to remove the loopholes.

Or you know, to have the people running the business have a sense of ethics.

Well, yeah. Like, if your company is headquartered in Cupertino, maybe then act like it when tax time comes and pay your US and California taxes.

Setting up a nesting doll stack of shell corporations to dodge all that is, right now, legal, but is that the world I'd want to have a hand in building? Nope.

Ethically your responsibility is to the shareholders who have given you their money to invest, not to some random government.

The governments of the world aren't doing a good enough job with the money I'm already giving them for me to start thinking about donating more.

So the problem is existence of the book of tricks. Apple did not write it.

general principle was there before apple. but for sure they do cook a 'book' or two, as one of the most wealthy companies in the world, without any strong sense of morality (not saying lack of it, just usual corporation as many others).

If you can invest for example 500 millions USD in bribes to gain 5 billions per year in not paying taxes, that's a damn easy decision for some CEO. And those fictional 500 millions will get you quite far in these times, where lobbyists in capital cities in both EU and US are not even illegal (in my opinion should be shot in sight), but just part of daily life.

except apple (and companies like it) very much do "write the book" via lobbying.

Yes they did. they literally negotiated a deal with the Irish government to get the tax structure they wanted for their European operations.

Because we have quadriplegics who need 24 hour care so they don't die. Just to choose one random example of why we choose to have a government that levies taxes and provides services.

You don't choose anything (apart from some semblance of choice through voting). Stop using voluntary language for something that is compulsory. This isn't an argument against gov, but your reasoning about choice is after the fact.

We do choose. We vote in a government that provides services for those people.

Do you think that if there were a society of people where a majority were callous enough to deny those extremely disabled their medical care, that they wouldn't just vote out the bums who gave them that care, and the new generation of politicians wouldn't then rewrite the laws?

Why not finance helping quadriplegics from increased VAT?

If it comes to that, why not finance helping quadriplegics from charity?

> Why not finance helping quadriplegics from increased VAT?

Because VAT, beside being a very effective tax (it's the biggest source of income of most countries), is the most unfair one.

Say a country have a 20% VAT

Low income household need to use the entirety of their income to survive (food, housing, etc). So effectively 20% of their income is collected as VAT.

Now a upper class household, let's say they save 25% of their income each month as retirement plans etc, and spend the rest.

They've been effectively taxed at 20% of 75% of they income, so their effective VAT rate was 15%.

While you often see very high income people advocate for flat rate tax instead of progressive tax, none of them have the nerve to propose a reversed progressive tax like VAT is, where poor people pay proportionally more than rich people.

You can mitigate that effect by some kind of basic income or return of paid VAT (you collect receipts or something and get the money back up to certain amount or 100% up to certain amount, 50% up to another step etc.). You can make VAT progressive this way.

there is no enforceable way this would work. everybody would just pay some homeless/unemployed to buy him that expensive cool little thing, and give him 10 USD for the job. try to prevent that :)

at the end, poor people would become less poor, but only by screwing with system, and only very few of them. you can put some limits on who can buy what, but this will inevitably create a massive bureaucratic overhead, meaning another set of useless government jobs that create no added value, but draw cash steadily from treasury.

The best possible tax scheme for poor people would be a simple flat tax that is impossible for rich people to avoid.

I've always felt your definition of "most unfair" to be a great fallacy. Yes poor people pay a higher percentage of their income. They also receive more in benefits than they give and the flat tax ensures the rich pay their share. The more complicated you make the system the more it will benefit the rich.

VAT is a net benefit for the poor. Making the whole system work that way, particularly in the face of globalization, is the best course of action. To declare it unfair is to cut off your nose to spite your face. In my opinion.

>The best possible tax scheme for poor people would be a simple flat tax that is impossible for rich people to avoid.

You're looking at the wrong end of the telescope. It's really not that difficult to look at a tax table and cross-reference your income, so a flat tax is a very minor improvement.

Where every tax system gets tripped up is in determining what qualifies as income. People who manage to avoid taxes aren't somehow lowering their rates; they're getting inflows of money excluded from the "income" accounting box.

It's not an easy problem to deal with, either - states have been trying for centuries. Most of the write-offs individuals and corporations take are perfectly reasonable for some situations and very much abused in others. As you try to prevent abuse you end up with a tax code that's so complicated there are more ambiguous "gray areas" for people to take advantage.

The best possible tax scheme for poor people would be a wealth tax. Make it a flat wealth tax, and I'm with you: 10% (or whatever) of what you possess, into the community coffers every year. Don't muck around with income, it's too easy to game.

Some of us initially poor but nouveau-rich would like to retire before we're old, you know. A wealth tax makes that much harder than it already is. You would also kill property ownership by all but the ultra-rich who have enough assets elsewhere to make up the continuous drainage because home appreciation does not grow that fast.

Wealth tax is obviously (I think!) the best kind of tax but the problem with it is it's hard to collect (you would need to assess wealth of everyone and that is a problem).

So if I start my own company I have to give away 10% of that company every year? Because I own shares in my company. And those shares have value. Which contribute to my wealth. That seems terrible!

I don't see how a wealth tax is a good idea at all. If you could recommend a good article that argues why it's good and how it would work I'd love to read it.

Please consider what kind of behaviour you would encourage. If wealth erodes every year then this strongly disincentives long term thinking and rewards business ventures which give quick cash and then burn out, like strip mining, and punishes planning for the future like pensions.

You want your tax system to reward long term thinking, not punish it.

I don't understand why it would encourage what you are predicting. If you "quickly cash out and burn" then you pay a tax on it as well. My argument for wealth tax is that people with most wealth are the ones with the strongest interest to keep the country stable and nice place to live in.

Treating everyone the same blindly is the very essence of fair. It is, however, unjust by your sense of justice. There's a vast difference between the concepts.

You're also assuming a specific sense of justice - you're assuming that the utility of money is linear. (That is, giving up $10 is the same to someone earning minimum wage and to someone earning $150k).

You can hold that view - but recognize that it is a specific view, not an essential definition of fairness.

VAT is already being collected, and Apple contributed to it enormously by creating new markets (like tablets).

That increase can be used to help quadriplegics.

Why not charity? Because then the people donating to charity will (at least try to) impose conditions. So only quadriplegics or a certain faith or with a certain set of circumstances with receive help. (See e.g. the concepts of the deserving/undeserving poor and moral judgements with charities helping the poor in the UK pre-1945.)

In the US we already have charities and they're not really taxed and if you donate to those charities, the money you donate is (generally) not taxed.

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