(Side note: the alternative of taxing profits where the revenue is generated does not make much sense as this would be equivalent to a sales tax.)
For example, the subsidiary company might have ownership of a trademark, and the onshore company pays a ludicrous amount to license that trademark. The accounts show this as a cost for the onshore company, lowering its profits; whilst the offshore company makes a large profit. An example I've come across (but can't find/verify them at the moment) is pencils being bought from an oversea office for thousands of dollars each.
If corporations were charged based on location of costs rather than profits, as you suggest, I can imagine this being used the other way: almost all of a company's assets, from across the globe, are funnelled into an offshore division, in order to pay a ludicrous amount for some trivial local item (e.g. rent and security guard for their empty 1-room office).
PS: I think these sorts of tricks are the reason the article keeps using the phrase "tangible assets", rather than just "assets".
Certain cult classic movies that look like flops on paper. I always wonder if the money went down a subsidiary black hole to keep insiders happy.
[0] https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey....
[1] https://en.wikipedia.org/wiki/Double_Irish_arrangement#US_mu...
Doesn’t that mean Ireland is fucked in 2020?
That said, this isn't rocket science. As the article points out, it's simply an unwillingness by the host countries to hold multinationals who utilize tax havens to account.
If tax law provides the incentives, companies can do all sorts of gymnastics to obfuscate those two things. There is always a loophole if you look hard enough for it.
Pay workers where they live? Why not hire them through an offshore firm that pays them as international contractors?
Buy resources where they are produced? Buy the rights to the resources from an offshore company who owns the IP rights to the method of production.
These are convoluted examples but the point is, companies can always add a level of misdirection to fit within a loophole.
And sales taxes (vs. VAT) is a terrible idea overall, it is a tax on consumers, not on companies, as it only applies on the final sale to consumer.
Undoubtedly a sales tax can be regressive but don't those exceptions move it far enough into being a tax on discretionary purchases? There doesn't seem much anti-VAT feeling in the UK outside of occasional axe-grinding from the popular press.
For example, by placing their operations in a separate country with lower taxes and shipping from there. So you need income tax, sales/vat tax, and corporate taxes to prevent any gaps.
you are correct that sales tax is almost always regressive, but please be careful making this kind of "just so" argument regarding taxes. the place in the production pipeline where taxes are collected has almost nothing to do with who ultimately bears the burden of the tax. see https://en.wikipedia.org/wiki/Tax_incidence if you're interested in learning more.
But the issue with sales taxes is that it is applied on the final sale, which generate distortions when the products are being imported, or have a long supply chain spread across a country, as it is a tax on the consumer, the value is only capture at the consumer location, not along the supply chain (that's what I meant as a terrible idea).
https://tax.thomsonreuters.com/blog/onesource/sales-and-use-...
But between VAT and sales tax, I strongly oppose a pure sales tax, although I would be ok with VAT charging a final tax which is allocated to the consumer location (vs. the location of the business).
Pure VAT: taxed where value is generated.
Pure Sales: taxed where the consumer is based.
Mixed VAT-Sales: mostly taxed where the value is generated, plus where the consumer is based.
The mixed VAT-Sales model would generate a better allocation of tax funds across the entire supply chain, all the way to the consumer.
I think it's only when you have non perfect market condition (like monopoly, monopsony, captive company) that the real added value is not visible and where your idea of mixed taxes is needed. Do you think it make sense or do you something other in your mind?
So? That is a problem for necessities like food, housing. But not for advertising, phones and computers, gas, cars, etc...
Tax land.
But why this eagerness to tax them so much in the first place? Because of unfairness relative to smaller companies and employees who carry the whole burden of taxation and those tech giants pay close to zero.
In land based tax system you wouldn't collect much from large tech, but you wouldn't collect much from small businesses and employees either. Fairness achieved.
Now you might ask, wouldn't we be really short in tax revenues if we kept only land taxation? The answer is pretty surprising that it would likely collect even more revenue that current system based on sales tax, income, vat, etc., but I encourage the careful reader to study land based tax systems on their own to discover their simplicity and beauty.
I'll just hint that there is so much value stored in real estate (of which the biggest part is its location value, ie. land) that it dwarfs world stock and bond markets together. So just imagine making it a base for a tax.