Google Lowered Taxes by $2.4B Using European Subsidiaries
bloomberg.com
bloomberg.com
I feel comfortable in my position because corporations benefit directly and indirectly from infrastructure provided by all three levels of government; everything from roads to schools for their employees kids. A smart player would put money back into the public coffers so that people could be taken care of, not hoard it for the already-wealthy. Why? Because there needs to be a functioning middle class to buy your products (and click on your ads).
I'm reminded of Penn Jillette talking about how he rapes and murders exactly as much as he wants (eg. not at all) without needing a divine entity to tell him not to do those horrible things.
Exactly. And taxation is a prime example of that. Just because a racket gang decides to spend some of their proceedings for the betterment of society (in their or your definition of it) doesn't make their activities morally justified and certainly doesn't make anyone (be it person or corporation) morally obliged to pay up.
But you can also look at it as a free market choice - after all, this is a voluntary transaction, you buy services from the government (like schools, medical care, internal and external security, water treatment, electricity, and many others) and you pay for them with taxes. You can always refuse the deal if you don't like it - by renouncing your citizenship. ;).
Or do you feel there is room for subversion and disobedience in, say, social, law enforcement and immigration policies that just doesn't apply to tax policy?
I find this notion laughable, that a "moral compass" prevents individuals from attempting to lower their tax burden as much as corporations. Individuals are no different than corporations in the desire to avoid paying taxes. The difference is that the amounts are smaller, so they can't afford as many lawyers, and the tax laws are less complex, so generally fewer loopholes are available.
If it was advantageous for individuals to set up European subsidiaries for tax purposes, I guarantee everyone would be doing it, "moral compass" be damned.
Given game theory logic, I'll pretty much abuse any loopholes I think I can, but that doesn't mean I don't think we should change the rules of the game.
The "if it's legal, it's ok, morality be damned" attitude is antisocial - it's a danger to civilized world. Therefore everyone who wants to follow their moral code or at least likes civilization should not only refrain from abusing the rules, but actively shun people who game them. Cooperation is a superior solution, but a one that is unstable by itself and needs maintenance (i.e. enforcing the rules and setting up the expectation that defectors will be penalized).
Additionally, it's part of human nature to act in our own self-interest. Call it antisocial if you want, but it's part of us. We're people, not ants. Trying to fight against that desire is a losing battle.
Instead, the focus should be entirely on the system itself to create such tremendous disincentives for crime/cheating/etc that it's in our self interest to follow the law (e.g. the laws against theft and murder that you pointed out).
Google does plenty of charitable ventures that don't add any value for this reason and it makes sense.
A corporations bottom line is hurt when people have negative views of their company, product or practices. Individuals don't really have this amount of pressure. An individual can be immoral but legal and likely not lose their income. If people have a negative view of a corporation and choose not to purchase their product or use their service, the corporation suffers and therefore has an incentive to behave ethically.
The reason that Google and other companies can get away with these practices is that most people don't care enough to not use their product. They still find their value proposition attractive. The gains from the unethical behavior is less than the lost revenue from those that do care.
Personally, I am not concerned about their minimizing taxes as I believe that the government isn't a great steward of the taxes they collect and the extra revenue brought it would not have a positive effect.
That's in the judicial system best interest. A better society would be more impervious to being gamed.
To a certain degree that already happens. U2 are often disliked in Ireland because they have a Dutch tax set up, so they hardly pay any taxes in Ireland. People even sneak "Pay your taxes" ballons into concerts, like this one at Gastonbury ( http://www.theguardian.com/commentisfree/2011/jun/28/glaston... )
However, in the meantime, we can still send a clear message that the behaviour being engaged in is not desired. If words alone will not build enough momentum for change, then people could resort to civil disobedience. For example, Google is dependent on its advertising business, it would be trivial to "legally" damage this (for example, running bots that clicked on Google ads but did not purchase anything, inflating the cost of running ads without increasing revenue for those running them. Similar schemes would work for Facebook and others).
I'd hope it didn't come to that, but if companies can act without a moral compass, I don't see why the general population has to act any better.
Correct, I'd argue a functioning moral compass would keep a person from seeing it as a "burden" to begin with. Paying for what I take out and for the less fortunate (until it's my turn to be struck by misfortune) is not a burden, just like waiting in a queue until it's my turn is not an inconvenience. Being aware of the randomness of my own birth and having empathy doesn't require a moral compass, it requires intelligence; it leads to having a moral compass.
That you can find that "laughable" you owe to the fact that you were born and cared for as a baby, creating a lot of costs and work for a lot of people, none of which with anything but their moral compass humming gently as a compensation.
In practice taxes are used for all sorts of things which you may or may not agree with (e.g. foreign wars), and other things that you may agree with but maybe don't believe tax and government is the most efficient way to provide it.
The blasé assumption that tax == moral is just another form of the left wing assumption that people working for the state have a slight moral superiority over people working in the private sector (and who are therefore tainted by the desire for profit).
For some things, there aren't really any better options than paying taxes. Military spending comes to mind. For others, it's sort of an open question (roads and healthcare are cases where countries frequently strike different balances). For yet others, tax is obviously the wrong solution. Nobody these days thinks governments should be in the steel or coal businesses, except China.
Unfortunately the nature of tax is that it's rather hard to express your views about it outside of general elections.
So? You can't evade taxes for A but not B -- if you evade taxes, you are actually more likely to hit, say, orphans, than, say, big business or war profiteers.
I can't respond to "may". If you think there is a better way, humor me, though even then I don't see how one should be allowed to "have the cake and eat it", namely profit from the infrastructure upheld in no small part with taxes, but then not pay taxes because there are better ways. Then make business and be a citizen where it's done a better way, or try to change it where you are.
And yes, I'm aware that taxes get spent on all sorts of crappy things, that doesn't invalidate the general idea or the social contract, and just because I think "trying to minimize taxes whenever possible by all means" is always immoral, doesn't mean I think all taxes are moral in all instances.
> The blasé assumption that tax == moral is just another form of the left wing assumption that people working for the state have a slight moral superiority over people working in the private sector
Except I don't have that assumption, so it can't possibly be a form of that. That simply doesn't parse.
Though we could discuss the meaning of "profit". Someone who voluntarily reads stories to children with cancer does profit from that, too, and furthermore they are also considering the profit others have from that. So it's still a "desire for profit". Hey, even Jesus asked "what does it profit a man..", profit in itself apparently not the issue, but rather what profit, and at what costs to whom or at what point down the road. Profit, in my books, isn't just measured in the amount of money or land something nets, but in everything it involved to get there.
Corporations normally do not profit directly from infrastructure provided by governments. The people who make them up benefit from them a lot, but they pay taxes already. The primary infrastructure corporations specifically use a lot is the courts, and arguably, patent/copyright systems. But these are relatively cheap to administer, especially as courts can charge fees and the patent system is actually a profit centre for government (in the USA).
Everything else (roads, schools, health, etc) is all about people, not the abstract groups they sometimes form. We'd still need them even if there were no corporations.
When I said "may or may not agree with", I meant that many things governments do are somewhat controversial. Not that I expected anyone to write an essay on all of them :-)
Because that's what happens time and time again, from what I can tell when looking for information on that over the news I got to hear for all of my adult life. It has nothing to do with looking into a glass ball.
> Corporations normally do not profit directly from infrastructure provided by governments. The people who make them up benefit from them a lot, but they pay taxes already.
"Not directly", so? Without the people who need the infrastructure to live, there would be no corporations and no customers.
I guarantee you that you can't guarantee anything about what I and hundreds of millions of other people would or wouldn't be doing.
No, a smart player would let others do that, and avoid doing it themselves. Exactly what Google is doing.
I think you should be directing your ire at the overly-complex, full-of-holes tax code.
We should of course oppose Drone strikes (and all other forms of aggression). But don't use Drone strikes as a boogeyman to oppose all taxes. Without sufficient taxation government becomes underfunded and incapable of providing the services needed for the country to function. Where government falls short other groups will take over. When underfunded government institutions get replaced with unaccountable for-profit organizations the citizens are far worse off.
It's a permanent struggle to keep the powers that be in check. However when it comes to the government there are many checks and balances in place, and there is a lot of transparency so the citizenry can figure out what the government is doing if they care enough. All things considered, that's pretty good.
Huh, I know a lot of people who would disagree with you on that one - big time.
All civilised countries need a welfare state. But it's hard to argue that this is not "big government" because unless you have a basic income (which nowhere does), all welfare systems require enormous bureaucracies to manage the flow of money, find and fight fraudulent claims, try to get people who are on welfare back off it again, follow up individual cases, gather statistics on the systems performance and so on. They need this because "people who clearly need it" is an unusably vague standard.
In practice, the standard figures I've seen for overheads of welfare spending are about 5-20%. According to this article, the USA Medicaid program has overheads of about 5% and food stamps is closer to 17%:
http://mediamatters.org/research/2005/09/21/limbaugh-dramati...
> This doesn't contribute at all to the problems of unaccountable and unchecked power.
The welfare state is pretty much the embodiment of unaccountable and unchecked power! The only time you can ever hold it to account is during elections and then it's competing with many other issues. The rest of the time it's run by unelected and often rather opaque bureaucracies!
Look, I am not arguing that welfare is bad. All countries need a safety net (although I note that most welfare spending, in the UK at least, is actually on pensions and not the safety net).
But just because we may like having such a thing doesn't mean we should be blind to its costs.
Final comment:
> When underfunded government institutions get replaced with unaccountable for-profit organizations the citizens are far worse off.
The vast majority of organisations I deal with in my daily life are for-profit organisations held to account through market power. Most things in my life (food, home, water, energy, heat, furniture, internet, etc) are provided by such organisations. There have been countries that tried it the other way around - all such things were provided by the state. That was called communism and it collapsed.
Google's illegal (because that's what it was) scheme got shut down, and the light touch regulation means it's hard to fine them, or even take them through court.
Too many people in this thread are claiming that what Google was doing is legal - it wasn't, which is why they've stopped doing it and repaid (albeit a tiny amount of) tax.
Here companies are rationally choosing ways to pay as low a tax burden as the laws allow. As they say, hate the game, not the player.
I simply don't agree when they allow a loophole and them complain about companies using the loophole. Same with corporate inversions. If we don't think it should happen then get some tax treaties in place and enforce it.
That's a false equivalency and and you should be smart enough to know it.
If that money ends up in government coffers it means some American is getting harassed somewhere, Mexican drug lord getting assault rifles, our phones being spied and wars on the other side of the globe. Less money in the hand of government under any pretext is a good thing.
There's a way for the U.S. to fix this and that is to cut the corporate tax rate in half. Watch the money come flowing back home.
But why should Google benefit from tax evasion at the expense of most smaller businesses, who pay the normal rate of tax?
If Google paid their share, that's $2.4 bn less everyone else would have to pay to maintain the same level of service.
Or you could use the money to fund an American CERN, for example. (Because no private company funds such long term research.)
You're assuming that because Google is being strategic in their tax planning that other people are getting hurt. This is similar to you having a good accountant who saves you money and thus are "cheating" the system because other people don't have as good of accountants.
Not to mention that it's easier than ever for small companies to operate multi-nationally.
If we want less government spending, we should directly reduce government spending. This roundabout way of reducing income to reduce spending does not work. This is why I cannot trust anyone who says they think Ronald Reagan was a good POTUS. They are clearly either stupid or they have a huge ax to grind.
As far as the current situation goes, the only reason we have this situation is because of our overreach. If we limit our taxation to transactions here in the US, we'd not have this problem. Who gave us the right to tax worldwide income anyway? Does any other country tax worldwide income?
That statement seems simple but isn't. For example, are you using the US definition of income (which specifically allows the deduction of certain expenses related to income-seeking activities)? Or are you using the plain English sense of "money coming in" (in accounting, the revenue number)?
If it's the former, you've already allowed lots of deductions in (raw materials, rent, utilities, salaries, sub-contracted labor, travel, etc), and for a sole proprietor or sub-S corporation, those are taken on the personal income tax return, schedule C.
Concretely, as an individual landlord, can I deduct the mortgage interest on my rental property, or the labor I paid to repaint and replace the carpets from normal wear and tear? Can I deduct the depreciation on the building, reflecting the fact that it "wears out over some characteristic useful life"? If not, why can the C-corp landlord right next to me do that and I can't?
If it's the latter (taxing all receipts), how do you treat businesses with low profit margins if you intend to tax them on revenue and disallow deductions for expenses?
Imagine an airline with massive fixed costs, large variable costs, and slim profit margins. If I pay $1500 to fly round-trip to/from Europe and they make a $50 real-world profit on that, at what rate should they be taxed on the $1500 of revenue?
How much more expensive will groceries become when grocers are taxed at double figure percentages against current gross profits in low single-digit percentages? (And not only the end grocer is taxed thusly, but every step along the chain that isn't vertically integrated will also be taxed that way.) How much will we help the poor and middle class if grocery prices double or triple? Will we now see a bunch of complaints of how Walmart is cheating because they bought up a bunch of farms and other elements in the grocery supply chain or if Coke or General Mills open up supermarket chains (thus minimizing the number of times the revenue is taxed)?
40% tax essentially means people are working for government from January to May and get to keep only what they earn from June to December. I think that is not the way a free society should look like.
I am all for paying taxes to build roads and police and courts. But heck I am not sure why I should pay for other people's food stamps, medicare and wars in Iraq.
I doubt your local plumbing company has an HQ in Bermuda. Does the local convenience store license their IP through their subsidiary in Ireland? Has the taxi company a front office in Luxembourg?
The U.S. isn't failing to fund an American CERN for lack of money; it's failing to do so because it keeps electing Congresses on the promise of lower taxes.
Allot, the US spends about $100B on scientific research per year as far as Federal Funding goes (about 2/3rd's of it goes to "defense"), if you add up Google, Facebook, Apple, Intel, Starbucks and ever other corporation that is "evading" taxes by parking their profits off shore you can fund allot of research.
Just to put into perspective in 2015 NASA's budget was set to $18B(which was a spike of 7-8B over 2014 to develop Orion) so $2.4B is almost 15% of NASA's yearly budget, imagine what you could do if you only got 10 of the "big players" to play ball, heck $2.4B is about half the yearly budget of the National Science Foundation.
Google's research investment has huge returns (and benefits) for society. Government's spending is extremely dubious. I guess a good chunk of technology spending might be going on figuring out better ways to spy on us.
The ROI on Government research is orders of magnitude over what ever you think Google is getting in return. The US government funds more research than all of SV put together even if at much smaller funding, the USG also funds the research that no corporation would fund them selves as there is literally no way to capitalize it. I know that smack talking the government is fun but unless you want to go back to the dark ages never say that Google can fund research better.
Unfortunately, much as people wait to buy from a department store until there's a sale, the fact that the U.S. government has cut repatriation taxes in the past means corporations wait until it happens again. Nobody wants to be the sucker who doesn't buy on sale.
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.
Why not? If it was legal, why wouldn't you do it?
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.
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.
They're the ones exploiting the system.
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.
Also this is an advantage only massive multinationals have, so again, complete nonsense as they're already past that stage.
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?
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?
Not really. The IRS for one has open to them a very wide avenue of interpretation for many tax laws.
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.
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 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.
The problem is with the system composed of all of these parts.
* Lobbyists work for their companies.
* 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.
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.
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?
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.
Ah, I see why someone like you would think it's completely acceptable.
http://www.oxforddictionaries.com/definition/english/dodge
>dodge
>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.
http://www.macmillandictionary.com/us/dictionary/american/ta...
It's a technique that can be illegal. That's not what Google has done. Google has used tax avoidance.
More info on Tax Avoidance vs Evasion (which is what a Tax Dodge commonly refers to): https://www.translegal.com/legal-english-lessons/tax-avoidan...
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.
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 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 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.
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.
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.
But not Google...
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.
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.
[0] https://en.wikipedia.org/wiki/Pomperipossa_in_Monismania
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.
Well, that pretty much exists already.
But the claim that the laws are "completely ineffective" is unsubstantianted.
To be lawful, national tax regulations must be proportionate and specifically aimed at preventing "purely artificial arrangements".
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.
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.
[0] - https://www.irs.gov/irm/part25/irm_25-001-001.html#d0e299 (light emphasis mine)
[1] - That section numbering scheme itself gives a clue as to how complex the tax code is.
This is neither tax avoidance (though it made tax avoidance more effective indeed) nor tax evasion, in other words.
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.
As a random example of pointing out how the transfer pricing regimes work in different countries, see https://www2.deloitte.com/content/dam/Deloitte/global/Docume...
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.
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.
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.
What you call "weaknesses in tax treaties" are very often exactly though up as intentional provisions to encourage certain types of saving/investment/giving
In fact, it may be considered fiscally irresponsible not to do this. A CFO who wants to pay taxes is a liability, and if you have shares you should want them fired.
If a company intentionally does something that results in a financial loss they are liable to their investors this is how the market works.
And not just shareholders, but for employees, suppliers and everyone else the company deals with. Companies usually do not sit on the money, they invest it trying to make more money. Usually this investment is on salaries, but can also be on R&D, acquiring other companies, etc...
It always ends up on the fundamental question of who is better to determine how to spend money - the public or private sector.
In the US, you can contribute up to $5.5K per year (post-tax) into a Roth IRA. You will never pay taxes on any gains made as long as you withdraw after a certain age (56? 65? I can't remember).
Now the gov't phases out the allowed contribution based on income. If you make more than $117K but less than $132K per year (individual, it's probably changed since I last remember), the allowable contribution is scaled back. Anything over $132K per year and you can't make a contribution.
Now, the interesting thing is that you can make an IRA contribution and convert it to a Roth IRA with no income limits. Hence the "backdoor". Plenty of people do this. It's 100% legal and the IRA will tell you can do it if you call them.
Is it wrong to take advantage of it? I would say no.
If you want a good analogy on a "personal" level (even tho there isn't really one) is that if you would transfer all your property to an offshore trust and they pay yourself rent deducting the rental costs from your overall taxes under various schemes.
If a normal individual would play the same game they would be singled out for tax evasion, and while if you are wealthy enough you can hide behind off shore trusts and shell corporations you money is often tied down considerably more than the money of a multi-billion dollar corporation.
Google can't really move that money easily either if they want to move it into the US they'll have to pay taxes eventually but as long as they keep it offshore they can use that money for credit as well as actually pay out any debts they might have to presumably other multi-billion dollar corporations without having to pay taxes on it.
But what usually they do is either wait for a "bad" year or when they have enough carry over deductions to move their money back in without paying any taxes due to deductible or horde it until they'll get a good deal and only have to pay a fraction of the tax that they would've normally pay (and every couple of years you read that corp X has came to agreement with country Y to pay couple of billions in tax, what you often do not read is that amount is usually less than a quarter of what was actually due).
Now don't get me wrong Google isn't doing anything illegal, and unfortunately as a public company they are pretty much forced to do it because otherwise they open the selves to their investors because if a company "intentionally" waste a shitload of money it will have to answer to their investors and the board can kiss their positions and bonuses good bye.
The problem is that international taxation is complicated there isn't a single good international tax treaty and when you involve multiple jurisdictions you complicate things even further because even if the US will have a treaty to collect taxes from say an Irish subsidiary when it does not generate any taxable income in Ireland because it's in account debt to another subsidiary in Bermuda there's nothing you can do.
One of the "good" sides of the TTTP is that it actually gives (at least the US) quite substantial tax collecting provisions as well as limits the taxes that can be set on US goods, while this might help the US many of the other countries might get screwed over this because it doesn't necessarily works both ways.
Read the bottom part of my message again. Yes, the Roth IRA is meant as a savings vehicle, but not for high income earners (>$137K/yr).
However, the law is setup so that you can get around it by just putting your money into a regular IRA and converting it to a Roth. The gov't never intended for people to do that (since it gets around the income limit). However, it's completely legal.
Congress deliberately put an income cap on who can contribute to Roth IRAs. It's obviously there in the law and the intent is clear.
However, thanks to the conversion backdoor, high income earners can still contribute to Roth IRAs—against the intent of the law.
To me, this is exactly as moral as what corporations do to avoid taxes.
When you do a Roth conversion, that income has already been taxed once (either at the moment of conversion for a previously pre-tax account, or by virtue of funding it with already-taxed money). On all the money that was previously pre-tax (traditional IRA for example), the government gets its tax income now at the moment of Roth conversion instead of much later.
If the government or the individual would make the same investments, get the same return, and the tax rates would be the same, the government would get the same money either way. The problem is the government is running deficits and so isn't investing the money like a wealthy individual would and so isn't getting the same long-run tax income from it. This part is a spending problem, not a tax policy problem, IMO.
The only reason I'm not doing Roth conversions is that I don't trust our government to stay solvent enough long enough to keep the deal that Roth withdrawals will be tax-free later. Instead, I keep my post-tax money in traditional brokerage accounts or other non-tax-advantaged vehicles where I'm more sure that the gains will only be taxed one more time, but where I keep the flexibility to invest and use the money.
At the very least it should show the fan boys that companies like Google, Microsoft, and Apple really do not give a shit about you. Its about profit, they are a corporation, stop idolizing corporations.
The company has never let more than 51% of the voting shares leave a very tight-knit group.
Whats also shocking is that the tech companies have billions of dollars sitting around doing nothing.
The money tech cos have 'sitting around' isn't actually idle. You can see what it's used for elsewhere in the thread.
Taxes are inherently the result of a specific government passing specific laws. I cant conceive any argument for some natural law prescribing a particular tax rate.
This is not a company who came out of nothing and created the TCP/IP protocols, the Internet, WWW, the billions of pages and information out there.
It's a company who is building on top of something society invested in. And is now trying to avoid paying that back to same said society.
Legally they have no obligations but morally from a company who used to claim "don't be evil" they do.
Right now Google is one of the leading companies in making work obsolete leaving a growing number of people without any chance of participating in the society because digitalization and automation two areas google is one of the key drivers of taking a lot of jobs out of the market.
So not only didn't Google create their company in isolation from society but on top of what society established they are also transforming how society works affecting a lot of people negatively.
This is not true with all companies but it's certainly true for Google.
Do you also agree that every company making cars should pay tax to the German government because Germany started the car industry?
No one is saying the obligation is one to one. But the argument that no matter what its always ok for a company to avoid paying taxes as if they created everything completely isolated from government is weak and have always been.
An individual like me can't.
They could vote based on something else but they are usually so concerned about a democrat/republican getting in that they'd rather vote for a republican/democrat.
When I buy ads (donate) I buy ads I buy for the Green Party in areas where they are splitting the left wing vote.
The best way I know of to influence government is to have professionals prepare my taxes, and to ensure the government follows the law to the letter. Voting is designed to limit the influence of the individual on politics while appearing to give people choice.
If we wanted government representative of the views of the people we'd just draw 500 names of citizens out of a hat.
Since outside Switzerland direct democracy does not exist, we get the representative version. Sure enough, companies can't vote, but technically neither can citizens. Not on individual matters.
What happens is that companies pay their congress-critters to vote for them. This has the added benefit that representatives can (and do!) propose legislation that not-quite-coincidentally would benefit the companies who already pay them in various forms.
I've said it before - we are currently pretty close to the original meaning of democracy. Democracy, as practiced by the city state of Athena, gave vote to free men, who made up 10-15% of their population[0]. In order to qualify a free man, you had to be an adult non-slave male who owned land. Or to put it another way: you had to have a vested interest in keeping the system suitably exclusive.
After all, if you are going to have a say in how the state is run and you have established business interests, you certainly wouldn't let any riff-raff in the decision-making process. Their interests would interfere with yours. And if given the vote, they could outnumber your faction.
That would be disastrous.
Perhaps its time to just ban humans from analogies...
Why?
Change the quite strong word "hate" to something less extreme and polarizing and then let's discus why it is OK, acceptable and not out right destructive to setup and use and actually benefit from those tax avoidance schemes?
Blame the game? The corporation?
Well, how about the small (or not soo small in case of CFOs) particles making up a corporation, the CFOs and their teams actually seeking and personally benefiting from those actions.
How comes these people are not to blame? Rules of Law ARE NOT the final instance of morality or of constructive social conduct... or are they? Only for the "rational agents", i guess.
The game is to blame, the gov/civil-organizations on almost all sides are to blame, the corporations are to blame, the individuals driving this are to blame, too.
ps: how "rational" is it for a corporation to avoid its share pay back to the society? It due time to close these morality-loopholes. Actually that's the only way, i think, to tackle these problems: a change in socially acceptable behavior because there is no way we can close all loopholes in all the laws. Those people (yes, people and not abstract 'corporations') in the end "should not want to" circumvent the tax-obligations.
It wouldn't be fair or logical to tax any multi-national as if it existed 100% in each country where it does business. So the question is how to write the rules such that a business's overall operation is taxed by each sovereign state in a way that is "fair" compared to the amount of operation / amount of benefit it is getting in each.
This might be obvious to most people but it was a new way of thinking about it for me.
This is why Google can pretend it made most of its european money in Bermuda and not pay taxes on it.
How much this license is worth is the whole question. Some gov would like to say 0, so they can get a higher share of the tax, companies might say it is worth all their local income (so they pay 0 tax locally). The truth is probably in between.
Other issue might be that this IP often ends up being owned in a tax heaven, instead of the US which would be the logical owner.
Now, in order to manage that licensing activity (which can be very lucrative, but also requires specialized expertise and some risk), Google decides to set up a licensing division to manage all this.
In researching this, suppose they hypothesize that that IP labor and expertise is available in Ireland and decide to setup the IP licensing activity in Ireland. Google's Irish licensing division could negotiate a sub-licensable license from Google in US, then turn around and license it to Google (and perhaps other) companies around the world. Every player in that chain is creating value and it is perfectly proper for Google to create IP, to create a subsidiary to license that IP, and to license and deploy that IP in Spain; the question is "how much value did each entity contribute?"
Corporate taxes aside, I think the US is one of just 2 countries (the other being Eritrea) where you're taxes personally on the money you make based on your citizenship (not residency) no matter where you live. Stuff like that is why you're starting to see people give theirs up in favor of more favorable tax codes.
The way Google gets away by paying little corporate tax in USA is by loading up their US entity with tax-deductible expenses.
What is stopping IRS to say.... "Hold on. These tax-deductible expenses are bullshit, we don't accept them. Here is new tax assessment the way we see it"
IRS does this to small businesses all the time.
The alternative is arbitrary power, and that doesn't have a good history.
Side rant: The government shall keep public policy and tax policy separate. While we are at it, we shall prohibit state and local governments from doing these things as well. No, Maryland may not give a tax break to House of Cards. No, AnyTown USA may not give tax break to Walmart. If there is a reduction in tax, it should apply to everyone. Oh and yes, no special excise or stamp taxes either.
Yes, our tools in public policy will get blunt and there will be a very rough transition period. However, I think the end result will be worth it. It is definitely better than having these neo-cons in power while bitching and moaning about not being in power.
So if Walmart buys $1B worth of groceries and sells them for $1.05B they should pay $350 million in taxes on their $50 million profit???
Perhaps trying to simplify the tax code is fools gold just like rewriting production software from scratch. Sure it looks enticing but the devil is in the details.
What if we scale back my ambitions and limit the idea of no incentives, no deductions to individual income tax? Surely people would welcome a simplification that gets rid of all deductions and exclusions?
You can look at the Hong Kong tax system to see what simple looks like in this context (it's still not all that simple).
The basic problem here is not actually the details of the tax codes in different countries. The root problem is entirely political. Companies like Google, Facebook and Apple have lots of money and their products are sold in every country. Lots of governments very much want to spend more money without raising taxes on their own citizens, which means they need to raise taxes on foreigners instead. Thus it turns into a game where countries try to either find creative readings of their own tax laws, or try to publicly shame big companies into giving up more money. But played to its conclusion this game is zero sum: for one country to win, another must lose by an equal amount (once all the profits are being taxed).
That's a brilliant way to create a recession and also to destroy competition.
It would create a giant, massive subsidy to large corporations and heavily incentivize vertical integration. By taxing revenue at every stage, every company would scramble to move transactions out of the market (via mergers and acquisitions).
You'd also likely drive every small business in America out of business.
It also doesn't make any sense. Why should they local grocery store which made $10k profit on $10M in gross revenue pay way more taxes than a software company which made $450k profit on $1m in revenue?
My idea for no deductions and no exclusions was mostly directed at individuals.
If a shop buys something for $10 and sells it for $15, the value added is $5 and you pay a percentage of that as VAT.
What the parent proposes is that you pay a percentage of $15 as tax, and cannot deduct the cost of sales (no deductions, ever).
Each seller charges VAT rate on his output and passes the buyer a special invoice that indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output tax), consider the tax on the purchase invoices as input tax and can deduct the sum from their own VAT liability. The difference between output tax and input tax is paid to the government (or a refund is claimed, in the case of negative liability).
The compound effect of a revenue tax along a supply chain would result in huge inflation in products with long supply chains (food and consumer goods) and relatively little effect on things like services and high margin businesses.
So what about taxes themselves? My largest federal tax deduction is my state taxes.
No, you couldn't. The very point of deductions is that deducted costs are not earned dollars.
If you can't deduct cost of doing business, all taxation reverts to taxing sales, and the economy is really very, very different from now. No one has ever got that to work, anywhere.
They then don't pay the tax in the US because something something.
If you'd like them to pay tax on what they sell, then you should be charging a sales tax, a value added tax, or a receipts tax, not an income tax.
In a case where the IP was created in country X and later sold to a company in country Y, is country X owed a continuing taxation revenue stream after the sale closes (and any taxes due related to the sale are paid/accounted for)?
I might be wrong, but I think that's how it works, and if it is, that means a lot of the money is not "earned outside their domicile" quite as much as you'd think.
Exactly, the European Union was originally conceived as a 'common market' but individual countries can set their own corporate tax levels.
Google have had a lot of bad press here although most of it is badly misinformed. The bar for accuracy of reporting is generally set quite low for American companies operating in the UK.
Don't hate the player, hate the game.
See the '5 whys' for why we should look deeper: https://en.wikipedia.org/wiki/5_Whys
IMO, the strongest possible evidence that you could find is that someone else was willing to pay more at that time. You won't find that, so you'll be making a necessarily weaker argument about what the fair price "ought to have been".
But don't try it at home - for you, me and every other regular Joe Doe or small-business owner, this would be labelled as "tax avoidance".
- Tax planning: within the spirit of the law
- Tax avoidance: within the letter of the law
- Tax evasion: unlawful
Voters are consumers, and I don't think politicians have a lot of leverage against those corporations. If they hit corporations, consumers will complain. Even in a global economy, I don't think nations are enough organized to fight multinationals, since they might defend the corporation or their home country. Maybe the goal of the TPP is to fix exactly just that, to lay some ground rules about taxes, but if it fails, it will show how nations are unable to collect taxes.
That's my greatest fear, that people become dependent on corporations, so much that they would side with them. Today I'm sure people prefer their iPhone and internet than firemen, police, an administration, etc.
Hate the game, not the player.
Also, lots of US companies use this overseas cash as collateral to take out low-interest debt from inside the US to fund US expansion (again, because those issuing the cheap debt know that Google etc * could * pay it off if necessary, it's just dumb to pay the 35% if you don't have to).
Please, take this down to -4.
If I’m said fund and a shareholder in a company, if I notice management paying excessive taxes somewhere, I will intervene and force them to reduce taxes as much as legally possible.
Why would a corporation account for irrelevancies?
A pension fund isn't really a typical corporation; it's more of a holding facility. If a Canadian pension corporation thinks that common services and infrastructure are irrelevant, they probably aren't going to be around vey long, as their civilization crumbles.
Why would a US pension fund care about paying tax in France? I could understand why it matters if they paid tax in the US (even though a CA based fund probably wouldn’t care about contributing in NY), but what do they have to gain by overpaying tax in France?
>Why would a US pension fund care about paying tax in France?
As you said, they may have a controlling stake in businesses there.
Tax evasion is about lying to the government so you don't have to pay the taxes you should. Tax avoidance is about changing your behavior in order to reduce your tax burden based on what the government has chosen to incentivize.
This makes me fucking sick. Google is a beautocratic monolith and doesn't deserve to be subsidized by the people. They should pay the government in full so we can finally get back to making progress.
I don't want to suggest Google would spend all that money on hammers(as this was largely a myth) but they certainly won't be spending it protecting the american people. Google should do the right thing here and pay up.
Almost 3400[0] people die from terrorism, if you include people in the middle east directly interacting with terrorists as well as domestic terrorism and also actual instances of terrorism. Does google really think 463billion is enough to protect America?
Leave the decision making to the people who are qualified cyber security is a big deal and I need a group with a success record to protect me.
</satire>
Edit: Made it clear this was in jest. While I regularly state we incur risk using google for everything pretty obvious it is a net good and even from a non-financial return on value, i would invest my taxes in google.
[0]http://www.cnn.com/2015/10/02/us/oregon-shooting-terrorism-g...
Never mind the fact that this is representative of EU disfunction, not Google "being evil".