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Why won’t the US tax unrepatriated foreign income of corporations like they do for people? One answer is that the only reason they can get away with citizens is that they are a captive audience. Renouncing your US citizenship is painful. Corporate re-headquatering isn’t so hard. Since a corporation can pick a home country, why would they pick the only country in the world that taxes money made both overseas and domestically?

It's not a question of picking a home country. If you operate in the US, you're subject to US laws. Give companies the choice of not operating here in the US at all or paying (at least) the US corporate tax rate on all profits either by paying the US or by paying some foreign government (which with double taxation would be credited towards US taxes owed).

Imagine if the EU also did this. It would go a damn long way to ending this absurd practice of offshoring profits.

So if you’re legitimately based in a country with low or no corporate income tax and you make $1 of profit in the US and $1b overseas, you pay the US tax on your entire income? Who would agree to that? It would also be a flagrant violation of world trade rules.

This is an example of where the perfect is the enemy of the good. The point here is to capture the (now) trillions of multinationals that are made almost exclusively in the developed world but aren't taxed anywhere near reasonably anywhere in the developed world.

Laws can be written to say things like "substantial operations" in the US. Software engineers tend to have a problem with the discretionary and subjective language that is common in the law. But such language would allow the likes of the IRS to capture most of the squirrelled trillions. And if some of it isn't who cares?

In case you're not from or familiar with the US system, there are countless examples of this. Take sales tax. By the US constitution, the Federal government has the right to tax interstate commerce. The states don't. This led to a problem in the Internet era where people were shopping online and Internet retailers were under no obligation to collect state sales taxes. Technically consumers were liable for them anyway (so-called "use taxes") but many never reported them.

Companies with a presence in the state however were obligated to collect those sales taxes as their presence made them subject to state laws. This is why if you shop from B&H or Adorama you only pay taxes if you live in the state of New York (NJ too for Adorama IIRC).

But some years ago the state of New York went after the likes of Amazon with a so-called "Amazon tax". Such a move by the states was inevitable and I believe now Amazon collects sales taxes everywhere. This puts them on the same footing as the likes of Walmart.

So there are still retailers around that are small enough they don't merit the Amazon treatment but who cares? The point was to get to a "good enough" solution rather than a perfect solution.

This isn't an issue of poor enforcement. Unlike the state sales tax problem, it's not that taxes that are legally owed not being paid. To go with your metaphor, you're proposing New York ask for some new tax for sales made in Oregon (which has no sales tax) if you have an office in New York because they think it's unfair that Oregon has no sales tax.

That some companies are getting low effective tax rates largely comes down to incompetent tax regulation in the EU and a few of its member states. If they really want that money so bad, they can change their laws. The US shouldn't try to take it until they do. If nothing else, when the EU does get around to fixing its laws it would be a nasty shock to the department of the treasury as that money stops flowing in.

Perfect isn’t enemy of the good. There is a perfectly good solution, don’t tax profits st the corporate level, tax them at the individual level.

If you eliminate corporate income tax and compensate by making captital gains and dividends ordinary income so you paid regular income tax rates on them, you’d encourage more US investment. There would be no repatriation or tax loophole issues. Hundreds of thousands of tax accountant accountants would be freed to work on actual value creating activities.

Apple shareholders lose 50-70% of dividend payouts to 5 layers of taxes. That’s true of the wealthy as well as the poor retirees on fixed incomes. Eliminating corporate taxes means the retirees pay very little tax while the wealthy still pay over 40% state and federal. That’s what progressivity should look like.

Oh wow, if we did that, then the EU and much of Asia would follow in retaliation. So companies operating in the USA would have to pay taxes to the USA, China, the EU, on all their worldwide income, insane.

Let’s not forget the problem that not all tax systems are very compatible, they all define income differently, some of them rely more on taxes that aren’t income based.

You can still avoid dual taxation, they would just pay tax on the max(all country with worldwide taxation).

This is why the USA introduced the housing exemption for individuals that lived in low tax but high cost of living places like Singapore and Switzerland. The max still doesn’t work out in the personal space, I can imagine it doesn’t work in the corporate space either.

There's already an established principle of double taxation treaties between countries so worst case the company would pay max((country.tax_rate for country in company.operating_countries)).

It's also worth noting that there has been and is a strong effort to harmonize accounting across countries (eg GAAP). Countries might tax differently but that really doesn't matter since you're just slicing up the same pie differently.

Don't get me wrong: this isn't simple. For one thing, once a company likes Apple gets into a position of choosing how to divide up $20B in taxes between countries, this gives them a lot of power. Countries will try and incentivize them to pay taxes to them instead of someone else.

Again there is precedent for this sort of thing and arrangements can be treated by the like of the EU or even the WTO as unfair tax subsidies. But it could get complicated. Like what if Ireland decides to exempt Apple from sales taxes and the UK decides to exempt Apple from payroll taxes to incentivize them to pay taxes their instead of somewhere else?

This is one reason why it'd be important to, at the same time, establish a minimum baseline for what taxes a multinational owes in each jurisdiction. The fact that a company can do billions of pounds in business in the UK and report all that income Ireland thus paying a few million pounds in taxes each year is ridiculous.

How about this for an idea: establish how much revenue comes from each country based on the source so if someone in UK hands you money then that money is attributed to the UK. Divide that by total global revenue and then at least that percentage of profit has to be taxed in that counry.

Double taxation in practice is unavoidable for every tax jurisdiction, which is why the USA tilts towards exemptions, exclusions rather than outright credits. It isn’t just the EU, it’s cambodia, Indonesia, India, etc...how are you going to manage 200 different taxation regimes in this new world order?

> Divide that by total global revenue and then at least that percentage of profit has to be taxed in that counry.

So companies like Amazon which are profitable domestically but are losing money overseas would pay taxes on profits from US sales to countries where they're losing money?

Presumably companies would just find ways to have high revenue and little to no profit in low tax countries.

>One answer is that the only reason they can get away with citizens is that they are a captive audience.

In addition to this, there's little citizens abroad can do to affect change in the US. Sure, we can vote; your "residence" for voting purposes is presumed to be where you last lived in the US. But say I write my Congressman about an issue that matters to me as one of his constituents who lives abroad? I'd probably safely guess I'm the only person who'd have done so within his district. I'd guess there are dozens of people in my situation in his district.

From across the US, there are estimated to be 3 to 6 million non-military American citizens living abroad. That's more than a number of states. Yet any hope of responsive representation is a fantasy.

Part of the hardship of deciding to live abroad, I suppose.

edit: State Dept. estimated 9 million abroad in 2016.

Maybe the USA and the UK should use the system France has where there are dedicated reps for expats

Interesting! I hadn't heard of that system before.

We still don't even have representation for the 680k people living in Washington DC, also more populous than a number of states. So sadly I'm not optimistic.

The 580k people of Wyoming have two senators and a house representative, while DC gets one non-voting representative. It's somewhat absurd.

Can we make it harder to re-headquarter?

No, it’s virtuslly impossible. And even if you could and eliminated foreign tax deferral, you’d be giving Samsung a hammer to crush Apple with. Can you imagine if Samsung keeping 80% of its profits while Apple shareholders lose 70% to Foreign, State, Federal and State & Federal Dividend taxes?

Samsung could invest more in more opportunities, while Apple would get eaten away.

Your Acme example is similar to a Dutch Sandwich[1]. Dutch Sandwich, the Double Irish, a Bermuda Black hole... if my accountant started using such slang I'd start referring to him as my consigliere.

[1] https://en.wikipedia.org/wiki/Dutch_Sandwich

They don’t have free reign to report income where they want, everything has to be justifiable to accountants and tax auditors.

The US already taxes corporate worldwide income. Eliminating the deferral would cause every US multinational corporation to move its parent company overseas. The tax advantages would be humongous.

The US already has the worst corporate income tax structure, not only one of the highest rates, but also taxing worldwide income. We should be making it better to attract more capital/jobs, not worse.

I'm totally for the spirit of your comment. However, taxing borrowing in general seems like an odd move to make, no? Wouldn't that put an undue burden on people who are just borrowing funds legitimately? What's particularly pernicious about the tax avoidance structure you described is that it doesn't seem like there's an easy way to create a rule that captures that case and doesn't ensnare ordinary businesses. Maybe i'm not understanding your point fully though.

My point was that each $1 borrowed could be treated as repatriating $1 of foreign profits. Companies already report foreign profits and the IRS can discriminate between foreign and domestic profits.

So this wouldn't be taxing borrowing. If you had no foreign profits then you pay no taxes. The point here is that companies borrow are near-zero interest rates because it's MUCH cheaper than repatriating profits and paying 35% tax on them. I can't blame them for that either.

What I'm saying is that borrowing in lieu of repatriating profits basically is repatriating profits and should be taxed as such.

Ya, but I guess what i'm wondering is how you distinguish between a company who has 'legitimate' foreign profits and a US subsidiary that's taking out a legitimate loan vs. taking out a loan to avoid repatriating profits.

Why should there be a difference?

Well, if you don't distinguish...then you're just taxing a company who has a foreign subsidiary and takes out a loan. Which seems sort of arbitrary, no? You wouldn't want to tax that across the board for the same reason that you don't tax loans generally.

Why should any multinational base itself in the US under your proposal. Apple could shift HQ to Ireland or China or France or even Germany and net tens of billions a year more.

Apple doesn’t need to manufacture in the US. It doesn’t need to base most marketing/sales/finance in the US. It could leave just software and design in CA, and honestly report far lower US profits, and it wouldn’t owe the US another dime on foreign profits.

In fact, given 2/3s of their profits are international, they should do this now. Why pay the US an additional $10B a year in taxes on computers and phones made in China and shipped everywhere but the US?

Repatriation is the only thing preventing us from losing every large multinational corporation. Other countries corporate income tax systems are so much more attractive to companies and investors already.

Just stop taxing corporate income, it’s a corrosive tax that makes us poorer by driving off investment.

We get not only an foreign earned income e exemption on income up to $100k, but also a foreign tax credit. If you live in a country with higher taxes than the USA, you won’t owe USA income taxes. If you live somewhere like Switzerland, it can be a problem, but that is where you get to start using your housing deduction.

> My first problem is this: why exactly can't we treat companies the same way?

Under current tax law, US corporations pay taxes on any income generated in another country. There is of course a loophole with regards to re-investing profits, but in general, companies have a tax liability on any profit they make anywhere in the world.

In the article it talks about 3 different classifications of foreign income. Interest/Passive Income (has to have tax paid on it), non-reinvested income and re-invested (or promised to be) income. The 3rd category is the biggest loop hole, but the first 2 make a company pay taxes on that income to the US Treasury (after foreign tax credits). The third category basically is where all the deferred money sits - as long as the company promises it will be using that profit to invest in foreign parts of the company.

>...My first problem is this: why exactly can't we treat companies the same way? I would be all for a 20% corporate tax rate if it meant a tax on worldwide income with credits for any taxes paid to foreign governments... exactly like individuals are treated. Why isn't this on the table? Is it that hard?

Would you then also force Samsung to pay US taxes on all profits it made in Korea and elsewhere? The same for Huawei and the profits it makes in China? There are some obvious reasons why no other developed country in the world has a corporate tax system like the US. We should try to reform it, not actually make it worse.

> no other developed country in the world has a corporate tax system like the US.

Are you sure ? Most of the developed world tax resident individuals and corporates on worldwide income. US is only unique in taxing non-resident individuals. Very few developed nations have territorial taxation such as HK, SGP and Panama.

>...Most of the developed world tax resident individuals and corporates on worldwide income.

Yes, citizens are taxes on worldwide income, but not corporations.

>...US is only unique in taxing non-resident individuals.

The US and Eritrea.

>...Very few developed nations have territorial taxation such as HK, SGP and Panama.

I don't think that is correct:

>...As of 2012, 28 of the 34 current OECD member countries (82 percent) have adopted territorial tax systems that exempt 95-100 percent of qualifying dividends received from foreign affiliates resident in some or all countries. Twenty countries exempt 100 percent and eight exempt between 95 and 100 percent of qualifying foreign dividends.

>The number of current OECD member countries with territorial tax systems has doubled since 2000.

http://www.techceocouncil.org/clientuploads/reports/Report%2...

The ones who do tax worldwide income also have lower rates than the US.

>...Research by Reed College economist Kimberly Clausing [PDF] and others has found that high rates in the United States have had a measurable effect on encouraging firms to invest more in low-tax countries than they otherwise would have.

https://www.cfr.org/backgrounder/us-corporate-tax-reform

https://www.ntanet.org/NTJ/62/4/ntj-v62n04p703-25-multinatio...