But it really irritates me that:
- other companies with this tax deals pay almost nothing
- its unfair and destroys local competition i.e a Starbucks vs mom's coffee bar.
I'm from Scandinavia, and plenty of large US corporations pay zero taxes because of very complex arrangements. Regular people with smaller companies have to pay high taxes though.
It's called soft imperialism. The US / Transnational empire forces all countries to "open their markets", either via direct war, og in allied states, via soft power.
Then various firms like McKinsey or Goldman working more or less as extensions of the CIA sets up shops to takeover markets and siphon money from local markets towards a tiny US / Transnational elite.
It's a system that promotes "free markets" but is actually just rule by the VHNWI's.
In Europe in particular this power grab came especially after the clauses in the Marshal Plan that helped rebuild western europe after WW2, but in effect making them vassal states to the US.
So there is no "choice" here, that's why even in the richest northern European states american corporations pay zero taxes.
It's not just a US empire problem though - after a certain size companies just become above the law, just as with private equity for individuals, when a company can hire someone like Ernst & Young, Deloitte, PricewaterhouseCoopers etc. they can essentially just avoid taxes.
Yes, they ago against the "spirit of the law", but that's pretty much it.
What frustrates me is this feeling I have that tax laws being Byzantine is actually a "feature", not a bug. As in the tax laws were designed this way. Maybe via "soft power" applied on the politicians by "moneyed interests", I don't know.
But clearly, there seems to be much too little action done to put a stop to this given how much noise politicians make about how Google et al. should pay more taxes.
They just come up with absurd schemes which of course won't be implemented, or again, will be but with loopholes such that Mom & Pop's store will have to pay a lot but BigCorp's army of lawyers will be able to dance around them.
Do you think tax compliance is higher in small local businesses than large mega corps? Based on my experience in the US, tax fraud is much easier and more common with small businesses. Think about how many small shops don't even have a proper point of sales system, encourage cash, and hire under the table. Stackbucks would not be able to get away with that
> The agency [IRS] estimates that it collects $458 billion a year less in taxes from all Americans than the government is actually due. Most of that “tax gap” is income that goes unreported, and the biggest chunk of it, by far — $125 billion — is individual business income.
[0] https://www.nytimes.com/2016/06/16/business/smallbusiness/wh...
Here cash heavy businesses are rare and meaning the money is going through the banks. And as the money is moving through the banks it is pretty much impossible to have income that the local tax office would not see. And the banks are by law required to ask for proof of any irregular money moving in/from your account.
For retail/coffee shops/any direct to consumer business you have to pay VAT and thus are required to always print a receipt to the customer. This means you have to input the sales into the register and now it is in the books and thus really hard to not end up paying all the taxes.
Also companies get a part of the VAT back so they really really want to register the sale into their system or they are out of that (VAT is 24% for most stuff at the moment here in Finland)
Basically the only business where just plain not reporting taxes is still happens sometimes is small scale construction (ie you pay some guy to come and rebuild your bathroom etc).
The divide here is certainly not between the US and much of Europe. If anything, the US is far closer to the Nordics than much of Europe based on the statistics I could find [1] and my own anecdotes from living in Western/Central Europe.
> For retail/coffee shops/any direct to consumer business you have to pay VAT and thus are required to always print a receipt to the customer.
For what it's worth, this is true in every European country and every part of the US and Canada I've been to. Virtually any store with a physical location will have some PoS system that manages this, and mobile businesses that provide services (such as the construction you mentioned) increasingly do so as well.
[1] https://www.statista.com/chart/19868/share-of-cash-payments-...
These are typically cash heavy businesses ( as long as it is allowed ) and keeping revenue out of the books is as old as the Romans.
> Also companies get a part of the VAT back so they really really want to register the sale into their system or they are out of that (VAT is 24% for most stuff at the moment here in Finland)
Companies generally deduct all of the VAT on their expenses and it is not a fraction of the revenue. If the sum is negative, our IRS pays up.
Furthermore, in NL coffee is in the low bracket of VAT ( used to be 6%, is now 9% )
> Basically the only business where just plain not reporting taxes is still happens sometimes is small scale construction
I think you are pretty naive here.
Cash is used in less then 5% of transactions here in Finland (and it is roughly the same in the rest of Nordics last time I checked). Basically I have not carried any cash with me for the last 10 years or so. I am a bit of an extreme case but none of my friends carry any cash with them either these days. Having a cash only business here would just mean that people would not do business with you. If you go to a bar/restaurant/whatever and say "I want to pay" at the end the default is that they bring you the payment terminal.
> I think you are pretty naive here.
I am not that is just how it is here.
Illegal tax evasion still happens but it is not done in the "lets just not put this transaction into our system" way. Most of it is just lying about deductible expenses after that is employing someone without an actual employment contract (and thus nobody is paying any taxes for anything on that). Small scale construction is the one field where the "I'll just take the money and write a fake receipt" is done in any meaningful amount here.
For the record the Finnish tax office collects somewhere between 92 to 96% of the tax revenue it should be receiving according to studies by them and the government. They believe they could get more but in their infinite wisdom every even slightly right leaning government in power has slashed their budgets (and thus less tax auditors) for the last couple decades even though every euro spent on the tax office budged brings in multiple times of that in tax revenue back (there is some limit where that is no longer the case but we are nowhere close to that)
How does one compile statistics on unregistered transactions?
I can't speak for anywhere but the UK, but yes 100%. Small businesses overall tax burden is much higher than large multinationals.
Of course plastering is a very labour intensive process and it would be easy to pay all of the guys cash in hand.
Another time I asked our plumber if she minded receiving a large amount of cash (which we'd been legally given by our grandparents) she said it made no difference, she would have to put it into her bank because she was applying for a mortgage.
Then there's the fact that large corporations intrinsically damage the marketplace by making it less fluid.
Unfortunately, I can't find any clear stats on what % of GDP is due to large corporations and set that next to their contribution via taxes. I suspect larger corporations pay relatively less taxes than smaller ones, but I don't know how to test that hypothesis - any ideas?
E.g. https://fivethirtyeight.com/features/big-business-is-getting... notes that the fortune 500 revenue rose gradually to reach around 75% of GDP in 2013, but obviously sum total national revenue is much higher than GDP, so that doesn't really say much...
The main point is that even if you are only paying (eg 35%) tax on ~70% of your income, you are still paying more than some of these multi-nationals that are paying 0% on 100% of the income.
UK story, but similar concept applies in The Netherlands: https://www.channel4.com/news/starbucks-coffee-income-tax-uk
Specifically: > Its nearest UK rival, Costa, recorded £377m sales last year, compared to Starbucks’s £398m in 2011, and its tax bill came to £15m, or 31 per cent of profits.
Costa is 100% not a mom and pop shop, they are a massive chain, like Starbucks.
This is why small businesses are the ones which get hurt the most by things like raising taxes, minimum wage etc. There’s a reason why Amazon, Walmart etc are all pushing for those things- they know they can find loop holes and can afford to pay a bit more whereas the small business competition can’t and will legally eliminate competition.
Also I am not a financial genius but is the author of the article trying to deceive the readers with this:?
> In 2019, Uber claimed $4.5 billion in global operating losses (excluding the US and China) for tax purposes — in reality, it brought in $5.8 billion in operating revenue, according to CICTAR, an Australia-based research group.
“in reality” usually means contradiction but losses and revenue are not proving contradictions.
My layman understanding of the tax evasion schemes is that there's nothing special about Ireland or the Netherlands. They're chosen due to other factors, like English proficiency, stable and well known legal framework - but the essence of the schemes could be done in nearly any western country.
Ireland specifically had a tax setup that allowed the creation of a "virtual" European Headquarters that was not in any tax jurisdiction that sales could be booked against.
What Ireland did differently was allow companies to offset huge amounts of tax with complex IP transfer agreements to offshore jurisdiacations (Bermuda primarily) - called the Double Irish.
And - more importantly - when this was "shut down" by the EU, there was another option called "Single Malt", which I believe is quasi shut down now or was meant to be in 2020. I'm not sure if there is a replacement but I imagine there is. You can read this all on the "Double Irish arrangement" on Wikipedia.
What Ireland has done differently is show multinational companies that even if the EU/whoever puts pressure on one scheme they will try and come up with another one. Personally, I think the tax loss is unjustifiable - I think Apple's EU corp tax rate was something like 0.002% or something. I don't have a problem with Ireland's aggressive 12.5% tax rate per se, but setting up schemes which deprives European states of corp tax revenue and charging far under <1% is not cool IMO.
It does seem that the US is finally fed up of this with the minimum corp tax proposals though.
The Dutch government has, for a long time, actively presented itself (euphemistically) as a great place for foreign business. They of course would not openly advertise that as a tax avoidance opportunity, but you do the match.
While I'm not sure if this still happens today, the Dutch IRS used to have "special arrangements" with many big companies, for which the details were notoriously never made public. I believe this mostly applied to companies with a physical presence within the country (therefore also impacting the local society and economy and used as rhetorical justification for these deals). Still, since these deals where made behind closed doors, who knows what they may have arranged with foreign multinationals.
The problem with having any confidential deals, is that it becomes impossible to know what goes on as a whole (until a whistle-blower may steps forward). It doesn't mean there is any conspiracy going on, just that it becomes impossible (or at least really hard) to rule it out. History does have something to teach about what usually happens when opportunities for abuse are readily available, without much public scrutiny.
To drive this point a little further: Dutch citizens were relatively recently confronted with how their IRS turned out to not be quite the impeccable (or even legally operating) agency it is supposed to be. With that in mind, only God (and the IRS itself) knows what the agency exactly does with multinational corporation. I'd say they certainly lost the benefit of a doubt by now.
As long as there are tax differences between jurisdictions and means to shift profits (but e.g. within the EU those are a given as part of the single market), this problem isn't going away.
I think the problem is in the whole concept of taxing profit, rather than revenue.
What you described certainly plays a role too. But it is not what I was pointing at.
What I wrote is no doubt speculative and only meant as contextual background. Still, here we have a country that literally wrote the book on capitalism. Which "just so happens" to be a popular tax haven for big multinational corporations. When in addition to that, the country's IRS has (or at least used to have) a "discretionary authority" to make secret arrangements, I sincerely wonder how much faith it takes to hold on to the idea that their role as a tax haven is just an inherent consequence of how profit tax works (or how companies can be creative with their bookkeeping).
The Dutch generally have a good reputation, but a lot of that might have more to do with their wealth (for those who own it, because over 1/3 of the country's population actually balances around the poverty line), clever PR and keeping the doors to their kitchen firmly shut. Strictly in accordance with their laws, of course.
https://en.wikipedia.org/wiki/Double_Irish_arrangement
And there are quite a few other analysis of tax havens, including specifically an analysis by zucman in 2018 (which is specifically interesting because it looks not at qualitative interpretations or total corporate profit, but at BEPS specifically https://en.wikipedia.org/wiki/Tax_haven#Tax_haven_lists or https://en.wikipedia.org/wiki/Gabriel_Zucman#Zucman-T%C3%B8r...
To summarize wikipedia here; it's convenient to distinguish between conduit OFCs (i.e. countries that make it relatively easy to pass profits through) and sink OFCs (i.e. countries where the profits end up in with low or no taxes). And his interpretation (in 2018) according to wikipedia: "Research published by Zucman, Tørsløv and Wier in June 2018, showed that Ireland is the largest corporate tax haven in the world, even larger than the entire Caribbean corporate tax haven system.[4][5][6] This research also showed that tax disputes between high–tax jurisdictions and corporate tax havens are extremely rare, and that tax disputes really only occur between high–tax jurisdictions.[16]"
However, it's notable that the conduits are fairly large: "Ireland, Singapore, Switzerland, the Netherlands, and the United Kingdom"; whereas the sinks are a little more unusual: "British Virgin Islands, Luxemburg, Hong Kong, Jersey, Bermuda".
Much of this research is a little old however, and political will does seem to exist to change things; e.g. https://en.wikipedia.org/wiki/Multilateral_Convention_to_Imp... has entered into force in most places except greece and hungary where it will in july 2021 (and the United States isn't a party, oddly enough, but then again this would have been a Trump era decision, so perhaps that's not unexpected).
Whatever the current status; it surely can't harm to keep up the pressure on the Netherlands, Ireland and Luxembourg given their status as EU members. Given the significant role of British oversees territories, ironically I suspect that Brexit will help reduce tax-avoidance - after all, without the UK protecting their interests, it's unlikely jurisdictions like Jersey or the British Virgin Islands will be able to escape the current restrictions as they had been before.
Nevertheless, I think it's worth remembering that much of this focuses on outright tax avoidance, yet which tax rates are considered "low" is itself a choice - and here too the Irish rate is quite low: https://taxfoundation.org/2021-corporate-tax-rates-in-europe..., so even without outright BEPS, it's still a kind of tax haven within the EU. Frankly, the existance of differing corporate tax rates in a single market sounds problematic to me, but hey...
Ireland, the Netherlands & co are fully aware of these tax loopholes, even if we give them the benefit of the doubt that they were not originally intentional. They like the arrangement because it gives them a tiny - compared tot he dodged taxes - tax benefit for basically free.
Well, if I remember correctly, the Dutch government enabled avoiding something to the tune of 30-40 billion euros last year. The benefits for the Dutch treasury were something like 24 million. Yes, you read that right - even though I probably got the exact numbers wrong, this is the order of magnitude we're talking about.
No.
Its not well known, but large multinationals actually get ("opinions", "guidance", etc.) from their tax authorities ahead of the implementation of a tax scheme.
The polemic in the press is that the tax authorities 'uncovered' a scheme. This is more-often not the case.