Hacker News Reader

Comment by bko | Hacker News Reader

> its unfair and destroys local competition i.e a Starbucks vs mom's coffee bar.

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...

View on HN

American banking and tax system is archaic and really inefficient when compared to some places in Europe (especially the nordics).

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).

> Here cash heavy businesses are rare

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-...

> 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.

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.

> 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.

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)

> Cash is used in less then 5% of transactions here in Finland

How does one compile statistics on unregistered transactions?

>Do you think tax compliance is higher in small local businesses than large mega corps?

I can't speak for anywhere but the UK, but yes 100%. Small businesses overall tax burden is much higher than large multinationals.

That can be true while tax evasion is rife. There can't be too many reasons our plasterer expected £4000 worth of work paid in cash. Any honest business would worry about the costs involved in handling that much cash.

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.

Focusing on tax compliance is misleading; because tax avoidance is legal. The point is that BEPS techniques allow businesses to have lower than average tax burdens - the fact that they can do it without fraud makes it worse not better, because there is less disincentive.

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...

To some extent this is true. It is easier to slide cash under the table to the owner, that said, most cafes where I live are not "mom and pop only" shops. They have employees, even if only a few, and thus tend to have POS etc. It is _very_ uncommon in The Netherlands to not have a POS in except in some market stalls. Almost everyone accepts PIN, and increasingly few people carry cash at all.

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.

It's more like capacity for legal tax avoidance is greater with megacoorps than with Mom & Pop.

Starbucks doesn't need to resort to fraud to effectively pay 0% tax.

it's not fraud as in "tax evasion" it's 100% legal albeit morally bankrupt "tax avoidance". the problem is that if you grow a company to a certain size the only way to compete is to be part of this rigged system. not a single fortune-500 company that is in the top 500 because they don't use thick layers of shell companies. the strategy is always to squeeze the supply end and the demand end while scooping the profits in the middle (the low-tax jurisdiction).

I do have to ask...why is it morally bankrupt? Do you go out of your way to pay more tax than is legally required? If not, are you morally bankrupt? Of course not. Tax laws are the rules of the game. If you don't like the rules, change them (democracy and all) and enjoy the positive and negative consequences as they unfold.

I think it's morally bankrupt because a direct analogy would be that it's not OK to bully someone unless you're strong enough that there won't be any repercussions.

right if you're a small company and you pay 0% tax you're probably getting shut down and owner is having some legal problems when they investigate you, if you're big enough you might get a small fine or maybe just have investigation dropped.

Not really. The main problem is that if you are small, you most likely don’t have expensive accountants who will find every possible way to find legal loop holes to reduce our tax burden plus you don’t have the political connections to lobbying for certain exclusions or deals by the politicians.

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.

Framing this as an excercise in acquiring expensive accountants is missing the forest for the trees. Large corporations have such immense power that they can bend the legislation and receive special treatment from governments that smaller shops just can't. See all the tax breaks apple will be getting now, all the incentives programs that Amazon was shopping for when building HQ2.

The main problem is that there are such legal loopholes.

Agreed. Unfortunately I don't see that going away. Politicians don't write bills - lobbyists do.

Reply on news.ycombinator.com