Why Google has so much cash on its balance sheet
people.hbs.edu
people.hbs.edu
If the government still wants to encourage / discourage behavior then do grants / fines instead. Stop using the tax system for political purposes.
1) substitute your country of taxation here
This would make it hard for any b2b company. you can hire an accountant in house, as an employee (deductible, under your plan) or you can pay an external firm (say, a firm next door. small business accounting is usually done locally.) to do your taxes (not deductible under your plan, even though the accountant salaries are deductible to the accounting firm, the accounting firm fees you paid would not be deductible for you.)
This would make it doubly hard for those of us who spend most of their revenue on non-salary expenses and who are primarily b2b businesses. The thing is, I pay more for power/rackspace/bandwidth than I pay for salary, and that disparity will only increase as I scale up. For me, it'd be a double whammy, as not only would I get taxed on what I pay for power, (so I'd have to raise my rates) but my customers would have to pay those higher rates out of post-tax money.
This would probably be incentive enough to move my corporation abroad or shut down... I mean, a bunch of my customers are already outside the country, and while it wouldn't help my US customers pay me out of pre-tax dollars, it would mean that I could lower my rates by 35%.
Really, I think only taxing profits is great for growing companies. Right now, I live in California, an area with ridiculous taxes. but you know what? I don't really care, because I only have to pay taxes on profit, so worrying about my taxes being high is one of those "good problems to have" that I really only have to worry about once I start making a lot of money.
In fact, almost all large corporations keep one set of books using their internal accounting standards and another set of books using the federally-mandated standard in order to pay taxes.
Hollywood revenue hiding was done using their particularly-unfair internal accounting rules. However, those same companies then did, in fact, recognize that revenue correctly using the FASB when they had to pay takes to the IRS.
As long as all taxes have to be paid using a standard accounting system, there really isn't any way to hide profits except to ship them off to another country, like in this example.
My understanding of the most egregious creative accounting tricks was via shell/dummy corporations. Even if each of those corporations individually follows an accounting standard, the graft comes via many companies acting in concert. It would take someone investigating from the outside to matching all the involved companies together before the ploy was exposed.
(If Hollywood revenue hiding never got that advanced, then I blame Hollywood movies, and their fictional depictions of accounting practices.) (I'm not an accountant and this is out of curiosity.)
So, if I was actually true to what the intent would be (simple, trying not to double tax, simple (again), hard to weasel), it would seem I forgot the service sector pretty badly. So if it was: revenue - salary - services then I would be a lot closer. Verifying the services would probably be the biggest audit issue.
you're still driving out everyone who spends a large percentage of their revenue on equipment... actually, those people would probably respond by renting that equipment from foreigners.
for example, if you spend a lot of money on servers and power, etc... instead of owning servers in-house, you'd rent those servers from some guy in Canada or Mexico.
B2B is one problem.
Another is grocery stores and other biz that run on low profit margins but huge turnover.
Google wouldn't much notice a 5% revenue tax while 5% is well over Safeway's profits.
Multinational corporations hold cash in foreign subsidiaries to avoid paying taxes on profits, and would get taxed on those profits if they bring them back into the U.S. (repatriate the profits).
This study shows the following:
- Firms that face higher repatriation tax burdens hold higher levels of cash, hold this cash abroad, and hold this cash in affiliates that trigger high tax costs when repatriating earnings.
- Estimates indicate that a one standard deviation increase in the tax burden from repatriating foreign income is associated with a 7.9% increase in the ratio of cash to net assets.
Last time, it was sold as a "one time" deal. Of course, nothing was done to address the underlying systemic conditions.
I also wonder, a bit, what effect all that lowly taxed cash had on the broader economy. It sure didn't seem to go into any worthwhile domestic investments. (I'm being a bit flippant in this last comment, I concede.)