Comment by sideeffffect | Hacker News Reader

Comment by sideeffffect | Hacker News Reader

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This problem has a rather profound solution: Common Consolidated Corporate Tax Base

https://en.wikipedia.org/wiki/Common_Consolidated_Corporate_...

Companies should have never been taxed based on a virtual, and fundamentally nonsensical, figure as the location of their headquarters. They should be taxed based on substantial things, like (the location of) capital, labour and sales. This is what CCCTB establishes. States are still free to set the tax rate as they wish. It's just that then the companies can't escape with the turnover money to another state, essentially robbing the state where the profit was generated.

This is the most important tax legislation of this day. No other debate about taxes, like the rate itself, or harmonisation of the rates across states, makes sense before this gets implemented. The reason is that now the tax rate is evadable and only stifles local/small businesses who don't/can't cheat. Sadly, there are few states that are successfully blocking this: Netherlands, Ireland, Malta, etc. But I hope to see this one day.

> Companies should have never been taxed based on a virtual, and fundamentally nonsensical, figure as the location of their headquarters. They should be taxed based on substantial things, like (the location of) capital, labour and sales.

This is fundamentally the right answer, but don't underestimate the political difficulty in getting there.

Taxing "profits" in the location of the headquarters was always a seduction. You have an international company paying developers in California, manufacturing products in China, selling them in Germany, but if their headquarters is in France then France gets a cut of the profit from all of that whether they had anything to do with it or not. Very nice deal for France.

Until Ireland sets a lower rate and the company moves their headquarters there, and then the crying starts. No, it was a stupid way to tax from the start, not when they moved the headquarters to Ireland.

But you tax capital and labor and sales, well, the implications of that are different. Now if they have operations and employees where you are, they can't avoid the tax, except by moving out. But uh oh, if the taxes are too high they might do exactly that, so now you've got to worry about the rate again if you don't want to lose jobs to other countries. Or your people would have to accept lower salaries to keep that from happening. And on top of that if you lose the jobs you still lose the tax revenue.

The company also can't avoid taxes on sales if they want to sell to your people, but if the company wasn't in a monopolistic industry to begin with then it could easily be the customers paying most of those taxes and not the company.

So the taxes get paid, but so do the true costs of taxing things heavily. The free money everybody always wanted was never really available. And there may be some wailing and gnashing of teeth as people figure that out.

How can the tax ever be worse than a sale? Even if the tax is 100% on the profits from a sale it would still contribute to economies of scale at the production end of things thereby subsidizing all other units in countries with more favourable tax rates and increasing the profits in those countries.

> How can the tax ever be worse than a sale?

For one thing, sales taxes are on revenues rather than profits (because the entire price is profit to somebody, and otherwise you're giving incentive to corporate shell games again), and that means the tax could exceed the profit to the entity making the decision.

Also, any non-zero profits aren't necessarily better than the alternative, because the alternative is to deploy the same capital somewhere else. Your factory is producing as many widgets as it can for a unit cost of $5, France was paying $10, now with tax you're only seeing $7.50 of that, but people in Oregon (no sales tax) would pay $9.75 so it's now more profitable to sell to them instead. Or you could stop making widgets entirely and turn your factory into condos if that's now more profitable. For that to make sense the profit from widgets doesn't have to be zero, only less than what you can get from doing something else.

Meanwhile if the customer in France still wants the widget, they can get it, but they've got to pay enough so that the after-tax price is still ~$10. So in that case the company keeps making widgets and selling them to France but it's the customer eating the tax.

It was actually an intentional way to tax. The guy who set it up (Fritz Bolkestein apparently) did it this way deliberately, because:

1. It avoids endless arguments about where the profit is 'really' made, i.e. relative arguments about the value of labour vs capital vs equipment vs offices etc. However bad or stupid you think these arguments are, those would be far worse.

2. Corporation taxes are highly inefficient taxes to begin with. It puts countries in a form of competition that should drive corporation tax down to zero, which economists believe is a better state to be in.

https://www.forbes.com/sites/timworstall/2016/05/24/french-t...

> Sadly, there are few states that are successfully blocking this: Netherlands, Ireland, Malta, etc.

I.e the ones benefiting from the current regime, and to lose in the reformed one.

I'm Dutch and ashamed we are in these lists. Regular folks in The Netherlands don't really benefit too. Can't find it now, but I read a study some time ago that without our current tax paradise regulations we'd be better off. I suspect these things are mostly kept in place by enterprises and people in higher positions who successfully lobby the politicians.

> essentially robbing the state where the profit was generated.

It's a very interesting line of thinking when a company that produces new value and makes money by providing the value to the customers by voluntary transactions (and regardless their location) somehow is considered a robber of the state that produces nothing.

It's a very interesting line of thinking when a government that allows a company to incorporate, protects the company's physical and intellectual property by force and with a large legal apparatus, enforces the company's contracts, trains the company's workers, is somehow considered a robber when they ask the company to pay taxes.

> trains the company's workers

How much of these products are designed and built in these Europeans countries though?

> allows a company to incorporate

Leaving aside cases of companies that actually have legal entities in a location (such as Apple), the comment that started this sub-thread was about companies that don't necessarily have any nexus in a location, and just provide services to people regardless of where those people are.

$13b seem to me an outrageous bill for those services. Could we see an itemized bill to make sure we are not overpaying the state? Or is it more like they have the monopoly of violence and we have to pay whatever they want or else?

> Or is it more like they have the monopoly of violence and we have to pay whatever they want or else?

You have to switch we and they. We are not Apple, but we are the people of a state.

I too have to pay whatever taxes the state determines, so I think "we" is the right pronoun here.

Who is "asking" and who is "taking" in the scenario you mention? The whole notion of "allowing to incorporate", in terms of basic freedoms that a modern society is supposed to maintain and protect, contradicts with the freedom of peaceful assembly and the freedom of association with others, including the right to form and to join trade unions. This form of right should never require a sanction from a state.

Nothing is created in a vacuum, the state produced customers in good health to live long enough to buy shit, enough spare cash to afford it, and enough infrastructure to get it to them as well as educated enough to use it which is the reason that "value" exists at all.

You both formulate good arguments. Nonetheless, there are many countries where one could argue that the customers and infrastructure that make any business viable and profitable exist in spite of the state, and not because of it, rendering taxes a vile theft to benefit a very select group of people with no intention of doing any good with it. In which case, they would be impoverishing society as much as tax-evading companies.

Those companies only exist at this enormous scale because of the societies (I.e. nation-states) that grew them. They rely on literal tons of state infrastructure and decades-worth of long-term state programs/planning that foster their growth, and that of the customers who buy their stuff.

Oh yes, the state infrastructure, the one that was built by other private companies and paid for by the money taken from other private companies and individuals. Before there is a state there is an individual acting on their own volition to organise the environment around, and to achieve something in their life, without needing a sanction from a state.

No, huge companies exists because large accumulations of capital put to productive uses allow for better economies of scale, producing better and cheaper services and products, which the public benefits from. Our overgrown states don't foster innovation and wealth, but hinder it.

Who do you think founded SV (and thus Apple) initially?

To address only a tiny sliver of that massively one-sided view of yours: At least in many European countries, publicly-funded universities train the scientific, engineering and managerial talent these corporations need.

Of course, the states take so many taxes from its citizens that most of them cannot afford private education or healthcare, they are forced to the monopolistic public services, which are usually more expensive than their private counterparts. I'm not arguing that the states don't give us anything in return for the massive taxes they force upon us, but that what the society as a whole gets in return is much less than what they would get if the state let them had their money instead to spend as they saw fit.

There is another poison pill hidden in the public services: because they look free to the economically untrained eye people tend to overuse and overconsume them. That's why you see so many college graduates in careers that end up having no work use, thus becoming wasted human capital. If people had to pay for their education they would see the costs up front and be more efficient with their decisions.

I see health insurance on the same level as other health related services guaranteed by the society, coming out of your taxes. Sure, many people don't need health insurance right now, but many people don't need the fire department without having their house on fire, but they still accept that their taxes are funding the fire department.

As you said, these are "monopolistic public services", so for me it doesn't make sense not to have healthy people insured. The more healthy people are insured, the lower premiums are payed by everyone, and in case of crisis, no one gets left behind.

Yes, this is true. Thus Somalia's ascendant tech scene. No pesky state to get in the way of innovation.

There need to be law and order, either by a minimal but efficient state or by private enterprises. Somalia has neither.

Doesn't the state provide roads for Amazon, and schools for the children of kids employed at the subsidiaries of Apple? I know there are a lot of details in which "state" (of all the bureaucracies) does that, but is Europe somehow exempt from that arrangement? Is your concern with the EU taking this action instead of Ireland? Isn't that going to be a race to the bottom, where "states" try to out do each other in tax breaks? And, if the cynicism is warranted, aren't lowly paid civic employees going to be outgunned by high paid corporate lobbyists in the end?

The state doesn't provide roads and services on its own, it neither has the required qulification for building them nor posseses funds to sponsor the required effort. Firstly, it needs to take money from somewhere where a money-represented value already exists in the world and then use it to pay for the work of qualified individuals, that tend to self-organise in private entities. The work always is done and the value always is created by individuals. In a transparent world the state wouldn't be able to claim ownership of any results of the work sponsored by money taken from other private entities with a help of the "or else" incantation.

Ok. If we take that further, the state isn't claiming credit for anything, it's people claiming it on behalf of a magical idea, right?

Are there examples of what you are describing happening in the world?

> Doesn't the state provide roads for Amazon

Amazon is already paying for using the roads, since they are by large toll-roads.

I haven't done the math on that kind of infrastructure project. I would be very curious (and open minded) about seeing an analysis of how payment for roads plays out, especially with toll roads.

In the Portland, OR area (where I live) there are zero toll roads. Maybe that's why I am biased to feeling like state funding these projects is necessary. If Amazon (and anyone else that uses them) were paying for them, perhaps I would think differently.

The roads in Oregon are paid by a fuel and or license tax. Thus everyone that uses them weather it be commercial or personal pays for them not the state. When you consider the recently failed joint OR-Wa bridge project you get to see what happens when state bureaucracy is in control.

That's a good point. But, isn't it necessary to have the state instituting those taxes?

Gas is much cheaper in other states, I wonder how they pay for the same roads.

I actually always viewed the failure of the bridge project as a sign that people won over bureaucrats. I felt like it would add a lot of traffic congestion and not solve problems the right way. I would like to read more about what you are suggesting, do you have any links that speak to your viewpoint?

We both know that "robbery" was a figure of speech, but for the sake of the discussion, I can rephrase it another way.

Whether state(s) should be in the business of "producing things" is for another debate, but it's not controversial to claim that they should be in the business of taxing things.

Now, you can go about taxation the stupid way, collecting unreasonable amount of money from the wrong people/companies for the wrong things. Or you can do it the smart way. CCCTB is the smart way.

I'm not that I'm against making money. But making money should be taxed, preferably the smart way.

The problem is more fundamental: corporate profits are easy to move, and make a poor practical target for taxation. Corporations are free to optimize their structure for tax purposes, so there's nothing stopping the surplus cashflow from returning as bond coupons, intellectual property rent payments, or whatever other clever thing that doesn't book "profits" in the taxing jurisdiction.

Like, as a concrete example, suppose you're an American who owns some car washes in France. $15m in sales, $10m in costs, $5m profit. You could do an equity-for-debt swap, and own the exact same assets in the form of bonds that pay $3m per year and a more indebted company with a $2m per year profit. Poof, you've just moved $3m of European profits and transformed it into $3m of American interest income. Maybe not the best idea, but if you live in the right jurisdiction...

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