That's illegal for a person to do, but legal for these big companies. Don't blame the companies for exploiting loopholes. Blame the law. Fix the law.
Assuming general principals of US tax law, if you're already working as an independent contractor, you could legally set up a local company and an overseas company, have the local company bill the client, pay you a reasonable amount, and pay the overseas company the remainder for the use of its name (or whatever justification you like).
Your local company would have no net income, but may pay employer side taxes on your wages, and any minimum taxes on corporations in the local jurisdiction.
Your overseas company would have a net income, but you picked an overseas jurisdiction with low taxes, right?
You would have recognized income of the wages, and unrecognized capital gains in the overseas company. At such time as you take the money from the overseas company, that would be recognized as a capital gain.
At the end of the day, you have to run two companies, one in an unfamiliar jurisdiction, and you get to defer recognition of income and change the character of the income from normal income to capital gains. You may also have paid taxes to the overseas jurisdiction that I'm not sure qualifies for a foreign tax credit. It's a real gain, but it may not outweigh the costs.
If you're a direct employee of a company, it's also not an option, since you can't redirect your wages out of your recognized income.
A smaller scale example would be living life as a perpetual traveller°: an internet based entrepreneur who makes $200k a year and bases him/herself in a jurisdiction that does not tax income. Or who travels around between countries to avoid tax.
Instead of paying 40% tax on $200k (= $80k gone, poof) you put that in your pocket and use that to pay for travel expenses. "Going into tax exile" essentially ends up paying for itself, and then some. That is why companies (and individuals) participate in tax avoidance.
°: exception; this doesn't apply to Americans. You get to pay US taxes wherever you reside, above a certain income threshold.
That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.
> That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.
I believe you can run foreign companies from Thailand without having to pay tax there, as they have no CFC laws. So the example the poster above gave basically applies, but you would book all your income in ForeignCo and take a small salary in the Thai company from fees you charge ForeignCo. That's essentially a zero tax country then.
USA and Eritrea are unique in that they will tax your worldwide income even if you no longer live in those countries (are non-resident.) No other countries in the world have the brass balls to do that.
Alternatively you can give up your citizenship... I think very few people with US citizenship ever do that.
They essentially punish wealthy people (financially) for renouncing.
(Pretty sure Eritrea isn't collecting much from abroad..)
How many people are collecting income from a full time job while living in Canada anyways? Doesn't foreign income (vs. say capital gains) generally imply non residency?
Also, people who, say, commute from CA to the US on a daily basis will generally be exempt from Canadian taxes because the work is performed in the US (just an example, I have no idea whether you can commute from CA -> US on a daily basis)
It's not quite as magical as it seems though. If you retire in your 40s because of doing that, you'll need a lot more savings than you would at 65.
But to be fair there is a rather large exemption, around US$ 100,000 per year, the nuisance is that you have to file some tax forms anyway:
https://www.irs.gov/individuals/international-taxpayers/us-c...
https://www.americansabroad.org/us-taxes-abroad-for-dummies-...
>The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your EARNED income from US tax. For tax year 2016 (filing in 2017) this exclusion was $101,300.
For example, a Starbucks LLC in "NewTown","Small-EU-Country" is fine billing an "off-shore" company for the use of Starbucks name.
The same is not fine if you are opening a local coffee shop.
Different countries have different laws to combat the use of foreign companies, though. It might end up not being worth it because there are other costs associated with setting up an entity (e.g. some substance requirements)
Also, I'm not an expert on the subject, but I seem to recall reading that in some countries, corporate tax tricks like that don't work for one-person companies. It depends on how many full-time employees the company has.
I think it's ridiculous that big megacorps can eliminate huge parts of their tax burden while the regular Joe cannot. The system is overly complex and tilted in the favor of the rich and large companies. That's not what the people agreed to when they accepted a taxation system during and following the first world war.
The notion that these companies should only be beholden to the strictest letter of the law is nonsensical.
Right, they should be beholden to the letter when it benefits them and the spirit when it benefits them. Seriously -- you wouldn't want to live in a world where this isn't the case.
* Nobody should have a technicality in the letter result in fines and punishment when they were following the spirit in earnest.
* Similarly, nobody who takes care to follow the letter exactly should be punished even if it violates the spirit. Because otherwise people and companies have no clear way to know what is and isn't allowed.
It's only when someone is violating both the letter and the spirit that there are grounds for punishment.
I'd argue corporations specifically could do with some more fear of the stick, in the cases where they fall in a grey area.
I think that the letter of the law must be applied generously and sparingly - but the rapid expansion of egregious evasion should be addressed because it is having corrosive social effects that will compromise this attitude and the norms that underpin it.
Also having other things in play doesn't mean that this thing shouldn't be fixed...
A full tax case can easily run for 5 to 10 years, and the upside will be relatively limited. A lot has already been done in recent years and for a lot of EU companies the actual tax rate they pay has gone up with a few percentage points. But now most of the low hanging fruit is gone.
1) Reading newspapers and watching the news gives me the impression that there are large numbers of people who are not happy with the current social contract.
2) Speaking to people in and outside of my community informs me that there are many people who are not happy with the current social contract.
The line of reasoning I have is that there are simple ways that could readjust the flow of revenue and capital to enable the removal of many of the perceived injustices that other people cite when I speak with them or read of their experiences.
The companies may be acting legally, but the question is whether they are acting morally.
We generally expect that of people. Corporations are people, right?
There are plenty of rich assholes out there who would screw people over on a deal (for example, one well known New York real estate developer..)