Starbucks and Fiat Chrysler tax deals 'illegal' in Europe
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They moved their plant from Germany to Romania, got the "Company of the Year" award from the Romanian government and about two years later moved the factory again to an Asian country.
In the process they got two angry governments and now they are as they are.
While I don't fully understand the case with the Romanian plant and why it was shut down so soon, what Nokia is now has little to do with their plant management strategy (except that I think it was efficient as long as plants were needed) and everything to do with senior management's product decisions (not production management).
(FWIW, Nokia is currently a profitable company, just not in the phone terminal business.)
Ah, the tactical decisions. "We're not retreating, we're just advancing in a different direction."
Nokia's downfall was due to software issues, and certainly had nothing to do with improved efficiency thanks to production optimization.
Which itself was held at gunpoint by Moloch[0]. That's how it works - everyone has to play and lose because those who don't play lose first to those who do.
[0] - http://slatestarcodex.com/2014/07/30/meditations-on-moloch/
The problem is that countries refusing to compete with each other doesn't actually help all of them. Countries like Germany have strong infrastructure, high availability of qualified labor, etc. If Romania had the same taxes as Germany then who would expand into Romania?
And of course taking taxes off the table would just shift the issue to spending. If you required countries to have a uniform (presumably high) tax rate then they could just spend the money on things that encourage companies to expand there and you're right back to the same situation.
Countries compete with each other to attract capital. The only way to stop that is to prevent the movement of capital across national borders, which is a completely unrealistic bad idea.
Taxes are far from being the most meaningful factor, and governments dumb enough to offer such deals are acting disgracefully towards both their tax-paying citizenry and their EU partners who don't engage in this race to the bottom.
Of course there are many factors that go into it. What matters is how the country stacks up on balance.
Countries that stack up unfavorably have no financial capacity to address their shortcomings because you can't build infrastructure or education with no money and governments can't collect money with no tax base. What they can do is lower taxes to attract investment so they can get 5% of something instead of 30% of nothing.
Their primary alternative for attracting investment is to abandon safety and environmental regulations, which is not better.
AMD got to save money on the fab, Germany got long term economic investment in the former east. It was pretty much a win-win deal.
This is the very point of EU, so if we don't want that to happen, isn't the most logical step to disband EU immediately?
The EU can't work without US-style federalism and the erasure of national identities. So yes, it probably should be disbanded.
Edit: or at least abolish Luxembourg, which is a stupid statelet left over from the treaty of Utrecht: http://ftalphaville.ft.com/2015/10/21/2142483/the-case-again...
EU collects about 0.3 % of VAT revenue of each country, and about 0.7 % of GDB of each country as a membership fee (which is the largest source of income).
EU also keeps most of the import duties levied on non-EU products.
http://europa.eu/about-eu/basic-information/money/revenue-in...
It makes no sense to scrap the only hope for shaping Europe in a consensual and constructive way just because it isn't perfect yet. Otherwise it's national interests against national interests once again.
Turns out you don't need very many people to run a water bottling facility of this nature and most of it is automated.
I've heard similar for data centers. Huge tax breaks believing they'll bring in a lot of jobs. People in town train hoping to be employed. Maybe 50-100 people actually required.
Places need to do a better job researching how much job creation is actually going to come out of this tax breaks and subsidies.
These deals however just don't appear to provide any benefit to the areas affected, only to the companies. Is there a big pool of political contributions in countries like these? Do they have the equivalent of PACs and such?
That's not really the issue. The issue is that these were tax deals done behind closed doors between government and businesses rather than the government creating a tax policy for all that is transparent and applied uniformly and fairly to all businesses, they created a tax policy for all except a handful of companies that could get private deals.
And that usually leads to bad results after a while. Yes it makes sense to have tax policy that treats different businesses differently. And it makes sense for there to be some flexibility and to be able to negotiate on certain things in a transparent and fair manner (e.g. a business 'negotiating' over whether it applies for a sustainable energy tax benefit if it invests in a new green energy tech that happened to fall outside of the parameters of the sustainable energy programme the government created a few years ago when said tech didn't exist, there's some flexibility there to expand the programme for that particular company that makes sense. Such a negotiation fits with the aim of the tax programme, is transparent and will affect everyone equally who applies for it afterwards).
But simply negotiating some special tax rate just for you that doesn't apply to anyone else, in a backroom deal that isn't officially known to anyone else, that's shady and corrupt, the kind of practices you expect from poor countries struggling with institutional development.
How you actually spend the money (e.g. to improve the area affected) is another topic altogether. But in its first principle these tax deals made no sense.
If there is a favourable tax agreement for Starbucks in the Netherlands as a result, then there is no longer a level playing field between Starbucks coffee shops and others.
See this presentation[1], slide 12. Right from the horses mouth:
Reason 7 [to have a holding company in Holland]:
Fiscal climate: Very competitive tax climate from
its far-reaching tax treaty network to the
possibility to conclude socalled[sic] advance
tax rulings.
These tax deals usually take the form of a fixed tax guarantee: the company agrees to place their holding company in the Netherlands and pay X euros in tax for the next N years (2 to 5), regardless of their actual revenue or profit. For the Dutch government this is just free tax revenue and if they don't make a sweetheart deal with the multinational the holding company would end up in Luxembourg or Ireland instead. This way the multinational can make the countries fight for the most preposterously low offer.
[1]: https://www.rijksoverheid.nl/binaries/rijksoverheid/document...
PS: If your corporate tax rate is zero, then your country is often better off discouraging foreign investment.
Here is the HMRC specifically warning against this exact scheme and telling you they will tax all your money later and fine you:
https://www.gov.uk/government/publications/spotlight-26-cont...
So definitely not in the UK.
If I'm running a successful company and need to build a new plant, why shouldn't I seek out the best deal I can get?
The main problem with this sort of "competition" is these tax breaks for big companies creates a very unfair competition for small companies, which doesn't operate on the required scale to profit from them.
After N years and M thousands of jobs created, MamaCorp decides that performing some production process in PoorCountry is much cheaper, so it decides to leave... unless VeryLowTaxCountry keeps the taxes very low. At that point, it's not anymore such a good deal (if you're HSBC, you even get a free pass for doing any crime you prefer, without going to jail).
This, not taking into account, let's say, that MamaCorp sets up a subsidiary in VeryHighTaxCountry, with very high profits. That profits though, are entirely funneled to the shell company in VeryLowTaxCountry, so that it pays no taxes in VeryHighTaxCountry and little taxes in VeryLowTaxCountry.
I'm mixing concepts here, but let's not forget that MamaCorps have a huge leverage because of their capitals, and because of their creative accounting strategies too, so deals like this need to be analyzed with extreme care and doubt.
IMO tax breaks like these are completely backwards most of the time. A huge corporation like Starbucks has entire departments dedicated to doing their taxes and finding loop holes to save money. The last thing they need is to pay less tax to begin with. If anybody is going to get a break, it should be small business owners.
The one place tax break incentives make sense are for large, one off things like a big manufacturing plant, where there will only be one (or just a few) of them, and getting it in your country or state is a big win. But there's really no reason I can see to incentive putting coffee shops on every other corner.
In the end, you can recover the same money by taxing dividends and income accordingly, and it's far more difficult to hide those (a person's residency is less ambiguous than a corporation; and while you can try to play games, with proper enforcement you will end up in jail for doing it).
Of course any politician will get castigated for suggesting removing the tax entirely, but that's just politics and not sound economic policy.
Don't forget VAT. People think of VAT as a consumption tax and corporate income tax as an income tax, but they're essentially the same thing because one entity's consumption is the next one's income. The primary difference between them is what happens at the jurisdictional border and that difference is why VAT is collectable and corporate income tax isn't.
OTOH, I don't think you achieve the same result with taxing dividends. First, I assume you mean capital gains or any income from investment. Just like corporation tax, this is full of loopholes, avoidance strategies and illegal but undetected non-payment. The latter moreso.
The crux of the matter is that when you have a greater control over ownership structures and the like, you can work around whatever definitions tax law puts in place.
I suspect that a clean fix of corporate tax, if it can be found at all, will be find in fundamentals of corporate law like the definition of a corporation and its rights. When it comes down to it, the legal entities that make up Google and incur (or don't) tax liabilities are pretty different from the entity in reality. All the transactions, fees and such between those "companies" are a lie.
The U.S. government could perfectly well fund itself by taxing only the income of its residents, who are the ones benefiting from its sovereignty. You could argue that foreign investors are benefiting as well, but only in a way (capital investment) that also directly benefits U.S. businesses and investors, which in turn will pay more salary, dividend, and capital gains taxes.
That business is still benefiting quite a bit from being in the US. They're employing workers that were educated by the US education system, they're sending goods and services on roads built and maintained in the US, and they're benefiting from police, fire, and emergency medical services provided in the US. Quit pretending that a company is an island.
"The U.S. government could perfectly well fund itself by taxing only the income of its residents, who are the ones benefiting from its sovereignty."
As I just pointed out, that's not true. The German investor is benefiting quite a bit from the services the US is providing to the business they're investing in.
"but only in a way (capital investment) that also directly benefits U.S. businesses and investors, which in turn will pay more salary, dividend, and capital gains taxes."
Not if all investors suddenly are overseas.
> a person's residency is less ambiguous than a corporation
Lol, the opposite is actually true. A corporation is required to have a legal address, without which it simply doesn't exist; a person can have "no fixed abode" and still exist just fine. In fact, a favourite tax-dodging trick is to be officially registered as living on a boat, or not spending more than a certain amount of time in any country.
> with proper enforcement you will end up in jail for doing it
That's very unlikely, when you directly or indirectly influence most people making the rules... which you always do, if you're rich, regardless of age or country.
Property tax is independent of corporate income tax. Moreover, putting income-generating assets in the hands of a corporation to avoid personal income tax is what happens today (the corporation is just incorporated overseas), so no change there.
> Lol, the opposite is actually true. A corporation is required to have a legal address, without which it simply doesn't exist
He's using the wrong word. It isn't that a corporation's address is ambiguous, it's that it's arbitrary. You can incorporate your business in whichever jurisdiction has the most favorable taxes. You can't file your personal taxes there unless you actually live and have citizenship there.
> In fact, a favourite tax-dodging trick is to be officially registered as living on a boat, or not spending more than a certain amount of time in any country.
Which is clearly illegal unless you actually do. And I don't think that works in the US since US personal income tax is collected from everyone with US citizenship regardless of residency.
Politically, it's very much not, at least not anymore. As we said, property is now a concept almost entirely linked to companies, on the scale we're talking about. Very few people directly own the personal corporate jets they fly around in (this is just an example, please don't nitpick -- you can replace it with pretty much any item of significant value you can think of, with very few exceptions).
> You can incorporate your business in whichever jurisdiction has the most favorable taxes. You can't file your personal taxes there unless you actually live and have citizenship there.
That's unfortunately not the case. The UK has non-dom arrangements for non-citizens spending significant time there; most countries will have something similar -- the only exception being the US, which can sort-of strong-arm its own citizens because of its exceptional power and reach. In most cases, the global elite can shop around for their preferred residency, Montecarlo being the pioneer in this sort of market.
> [living on a boat] is clearly illegal unless you actually do.
Unless you're famous enough that authorities can easily clock the time you spend here or there, determining where you live X days per year in this day and age is extremely difficult.
This is why a lot of famous people move to Montecarlo then have to eventually switch back: unlike your average industrialist, they're very easy to keep track of, being a small elite with entire industries dedicated to tracking their movements and publicise them. Why did they think of moving to Montecarlo in the first place? Because that's perfectly normal among the "regularly rich".
> And I don't think that works in the US
Yes, the US is an exception. Most other countries accomodate this exception in their legal code, because their interest is to attract wealthy US citizens to their shores. You cannot extend this norm to all countries, nor would it be likely to survive the day the US stopped to be the dominant superpower it currently is.
- Shopping for preferred residency is not what this is about -- if you actually live in Monte Carlo, it only stands to reason that you would be paying taxes in Monte Carlo.
- This exact time clocking actually happens everywhere all the time (e.g. take Florida residency as an example, or US tax residency for that matter)
And property tax still has nothing to do with corporate income tax, so I don't know what you're talking about.
> Unless you're famous enough that authorities can easily clock the time you spend here or there, determining where you live X days per year in this day and age is extremely difficult.
Not difficult, just expensive. But this is not rocket science: Probably someone who makes more than $100,000 annually and claims to live on a boat, doesn't. So make the fine higher than the cost of the surveillance and go bust all the liars and make back your costs.
In different countries, which totally destroys this idea.
The Mediterranean countries badly needed to inflate their currencies to alleviate their crippling debt burden. Germany on the other hand wanted a strong currency. Because they all had the same currency only of those two parties could win. That was Germany and we still see the repercussions in the southern Europe.
They cannot even account for most of their own spending[1], so they should definitely NOT be given more power.
For the union to work the richer nations must accept lower standards of living which is completely wrong (unless you are one of the poorer states).
The migration issue is a welcome demonstration of the farce. Rules, such as the Schengen agreement, are broken unilaterally and the views of the people are ignored.
The European Union is a post-democratic state.[2]
[1] - http://www.telegraph.co.uk/news/worldnews/europe/eu/9657673/...
[2] - http://www.breitbart.com/london/2015/10/13/dont-take-mandate...
This may be a small step in getting global players to play fairer, but from what I can tell this is still cheating the system and depriving countries and their citizens of badly needed tax income. All while competing unfairly with smaller non-global companies.
I don't get why the EU still hasn't managed to get this under control.
Example: I used to live in Denmark, where the healthcare system is run by the government, and now I live in the USA, where it isn't. For me, the Danish system was far more user-friendly.
My idea of "fair" would be to make taxes porportionate to the extent to which public infrastructures of a country are used. That may be easier to achieve through fees than through taxes, which would come closer to your idea of taxing revenues.
But I agree that using market cap is not a good basis for taxation. Most companies don't even have a market cap as they are not publicly traded. And among those that do it would hurt the most innovative companies disproportionatly.
Companies would start paying dividends way too early to keep the share price low instead of investing and growing the business. Tesla has a market cap of $27bn. They would pay more than half of what GM pays in taxes if market cap was used as a basis.
I'd rather they use that money to keep innovating and tax them later on when they make a real profit and use a greater share of public infrastructures.
I think it's probably a "more fair" alternative to the current state of things. And perhaps worthy of being part of the discussion.
Can I get taxed on my profits and not just revenues? It would be nice if I wasn't paying so many taxes just for having a place to live.
Employee wages are taxed weekly / monthly both income tax and national insurance (which are used for social welfare etc.) and employers contribute to national insurance - these could be reported.
We give companies limited debt liability in exchange for the social good they perform through their activities, a concept introduced in the 19thC.
It is announced daily on the news the value of the stock exchanges, I don't think it is entirely crazy to do the same for contributions to the society that bears the cost of default.