> Firstly, the G7 want a global minimum tax rate so as to avoid a "race to the bottom" where countries can undercut each other with low tax rates.
> Secondly, the rules will aim to make companies pay tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits.
Good. It’s a shame that Biden had to back down from the initial 28% because of domestic opposition.
This is the problem with corporation tax generally. You can't really have a conversation about it in "normal" terms, that a journalist, politician or MOP can understand. It can only be understood via scenario plans and spreadsheets. It's a million little details. There is no "big picture."
The real important thing here is establishing the importance in preventing the race-to-the-bottom, so more important things like multinational carbon taxes, developing country capital controls, etc. are newly inside the Overton Window.
In practice, expanding national debt requires eurozone-wide unanimity. Ask Greece.
> expanding national debt
I feel the need to point out that currency debasement is a fundamentally different thing from taking out loans/issuing bonds/other debt. If anything, currency debasement reduces national debt in real terms, by devaluing the currency it's denominated in. I'm not especially clear on the situation, but I was under the impression that Greece's problem was that noone was willing to lend them money due to a expectation that they wouldn't be paying it back, not that they were prohibited from borrowing by EU law, but even that would be a different thing from being prohibited from printing money.
Debasement of gold happens because gold isn't printed. You need to dilute it in order to make more coins. In a gold currency system, it's the gold that's the "real" currency. Gold value rises and falls, but that's not debasement. The coins are debase. It's theoretically possible for a gold coin to be debased, but also worth more because the value of gold has increased by more than the coin has been diluted.
Euros and dollars aren't redeemable for anything, so debasement doesn't really mean anything.
In the Eurozone, when a national government runs a deficit (all of us, currently) then the ECB issues a loan. That money is then available for the government to spend. This is where Euros come from.
The ECB refused to loan/print money to the Greek government until they agreed to certain demands. Ireland, my country, did agree to the demands and the ECB made some euros for us to pay our banks with.
It works in a similar way in the US. The Federal Reserve Bank gives their government dollars, and they US government give them bonds in exchange... a loan. The Fed can then sell those bonds to anyone who wants them, or hold them.
The one unbreakable eurozone rule is no printing your own money. The "Greek Crisis" was a fear the Greece would try to issue its own bonds, which would trade at a different rate & effectively create their own separate euro... confusing everyone.
If anything you have to lend more money to Greece and only give the most productive companies/sections of the government access to loans, if Greece's GDP was 355 billion € in the past it can recover up to that old level.
Yes, there is the straight-jacketted neoliberal constitution that makes everything terrible, but that's separate. I really hope they can fix that.
PS: if I were to design a state I would make it a part of the constitution that laws must either be written with placeholder variables for any concrete numbers you'd want to put into them or specify only concrete values for those placeholders and nothing else. And no single vote can contain both kinds at once.
but even so, a zero- (e.g., a single tax rate) or quasi-first-order (like a limited number of tax brackets) model makes no sense, when we can much better fit the desired effect with a slightly higher-order function for only a small complexity trade-off. better fit means reducing the exploitation surface.
tangentially, this is a relevant application of basic linear algebra and calculus to civics, which could be used as concrete motivation in the high school education of those subjects.
It was in my second or third programming side job when I was asked by the ramshackle finance marketing upstarts I was working for if it was possible to implement the almighty Income Tax Table (in Access, obviously). I had heard scary things about that beast. A few minutes of googling (I think was already Google?) and I realized that the law in question defined a simple linear factor that increases at certain thresholds, with a tax-exmpt base per threshold to correct for any jumps. I was so disappointed! Not so much by a scary mad beast that turned out to be all tame and reasonable but by the professions of finance marketers and tax consultants who routinely acted as if it was some arbitrary monstrosity that could only be dealt with in a lookup table.
in this era of handheld supercomputers, we're well beyond having to manually multiply out the formulas anyway. and tax forms are already basically one long formula where you just plug in the variable values in a step-by-step manner (and usually have a computer do the math for you).
Broadly, you are not going to convince pure tax havens (eg Bermuda) to close tax loopholes. They don't even have corporate tax. You can do other things though.
Part of the problem here is that reporting is mixing up issues. It's not clear how (if at all) the MSFT-Bermuda shenanigans relate. The minimum tax rate hasn't been done yet, and may not be. What they do seem to have agreed on is some sort of joint accounting standards. Accounting standards define what counts or doesn't count as an expense, investment, etc.
Where that (may, we don't know yet) relate to the rest of 180+ countries is, for example: US accounting standards no longer recognize payments to (for eg) the Bermuda entity as an expense transaction.
When you are uncoordinated, discrepancies in these standards allow companies to pick and choose.
For example ACME Inc. produces widgets with costs of 50 and revenue of 100 in the US. To avoid taxes, it also pays 50 in "licensing fees" to ACME Tax Heaven in the Cayman Islands, so that the profit in the US is 0.
If the payment to the Cayman Islands is not counted, then the taxable profit in the US becomes 50.
I see bigger problems with evasion and valuation. Evasion can be solved by coupling the wealth tax with enforcement of property rights. You own an offshore bank account, somebody steals from that offshore bank account, you show up in court to prosecute them, and the government says "I'm sorry, we don't have any record of your ownership of this bank account, and you have never paid taxes on it." Oops. Also makes logical sense, as the function of the state is to enforce property rights.
Valuation is tricky, as a lot of wealth-producing assets are illiquid and it's hard to pin a specific value on them in the absence of a specific transaction. The way LVTs handle this is through statistics: you know what comparable land sells, you know what improvements are on it, you can run a regression against all the features that impact valuation and subtract them out to get a reasonable estimate of the value of the land itself. Something similar could work for income-producing assets: you know all the cash flows from the asset (because you've been declaring your income, right?), you can do a discounted cash flow analysis that smooths them out and arrives at an estimate of the NPV of the asset under current cash flow & interest rate conditions.
It will then take slightly over 229 years until the multiplier has shrunk from 10,000 to 1,000.
After another 229 years the multiplier will have shrunk another order of magnitude, from 1,000 to 100. And it makes sense mathematically that if it shrinks an order of magnitude in the first 229 years then it will shrink another order of magnitude in the next 229 years.
https://www.wolframalpha.com/input/?i=y+%3D+10000+*+0.99%5Ex...
As a layperson this seems reasonable I think. But I also think there is no "right" or "wrong" in this case, and it will boil down to personal views.
For example I want a computer. If I pay for the computer as a private citizen, I have to pay income tax, social security on the money before I can spend it and then I have to pay VAT on the item.
Hamilton got too greedy here [1] and the setup wasn't the best, but you get the idea:
"Hamilton set up another Isle of Man company to purchase a €1.7m motorhome that he uses at racetracks. [..] He is contracted to Mercedes, with whom he secured his fourth world championship last month, via a Guernsey company."
See Hamilton doesn't get the money from Mercedes, his "Guernsey company" does. He doesn't own the motorhome, he owns the company that owns the motorhome. No VAT payed, no income tax payed. And the company he owns might be through several shell companies so no IRS knows what he owns. And when it knows, the company only makes losses (see Trump setup), so no taxes payed on owning the company either.
[1] https://www.theguardian.com/news/2017/nov/06/lewis-hamilton-...
https://www.loeb.com/en/insights/publications/2021/02/new-tr...
The only protection I would count on is if you were high up politically, like Putin or a Saudi prince.
Why HMRC does not do the same with companies using fake charges to hide profits? Those companies got huge competitive advantage over local small companies who cannot afford such creative accounting. So many businesses didn't happen because of that.
I think it's time HMRC doubled down and destroyed this gravy train.
I am sure we have clever people that would build a new Facebook, that is ethical and pays taxes.
Although one idea I was playing around with in my mind was around whether the tax could be made payable in public stock, provided that the voting rights are still assigned to the holder for a guaranteed minimum window (5 years?) that could extend pretty much indefinitely until the government chooses to close a position, e.g to pay for things.
I have no idea how good or bad an idea it is, but it's an idea.
E.g. what is this IP charge by Cayman company that belongs to you as well? NON DEDUCTIBLE.
For example, if an Australian mining company digs up iron ore and sells it to China, it would seem unnatural to tax the company's profits in China. Of course, China might impose tariffs or a sales tax, but the profits should be taxed in Australia.
A strange side effect of this would be that the law of one price on international markets would no longer hold. Imagine you manufactured a product for 10$ that you could either sell for 50$ in a country with a low profit tax of 15% or for 60$ in a country with a profit tax of 40%. Then the rational choice would be to sell it for 50$ in the low-tax country, because after taxes, you still get 44$, whereas in the high-tax country, you would only get 40$ after taxes.
Consequently, a destination-dependent profit tax will lead to lower prices for consumers in low-tax countries and higher prices for consumers in high-tax countries, essentially making the consumers pay for it just like with a sales tax or VAT.
Why is this necessary, if countries can just tax companies based on the money they made in their country?
Tax authorities already try to control for arbitrary cross country bills that try to shift profits (at least in some jurisdictions). The downside is more bureaucracy and unproductive friction of course.
It only makes sense with large amounts of profits to launder through such a system.
But the system is not fixed - people do start exploiting these arrangements, and once the number reaches critical levels they get whacked. An example in the UK was "employee benefit trusts", which were used by a lot of celebrities and footballers. https://www.rossmartin.co.uk/disguised-remuneration-zone/302...
You need to be big enough to (a) pay for enough legal bulletproofing and (b) have political cover against the law going after you.
This at the same time happens frequently, but also some amount of intercompany shifts in profit are reasonable. Google Ireland might be the actual owner of the asset. Company ownership might be fuzzy as well - maybe foreign subsidiary is only partially owned by the parent and partially owned by another company. Drawing the line can be very hard. Do we make it so companies are not allowed to sell or transfer assets overseas?
Probably the best solution is a minimum tax worldwide. This reduces the incentives to shift profits around, since the tax rates are the same everywhere.
What matters is that because the savings are potentially huge, your BigCo is incentivized to reduce that tax exposure and they've got the legal and accounting workforce to find that optimization.
As for sales tax, I don't really know how it works in this situation.
My company is taxed on revenue (under the Washington State B&O tax scheme, and similar local tax schemes).
Taxing based on revenue is viable, it just needs to be done with a little more care up front.
For example, if a home builder is buying lumber directly from a wholesaler, they aren’t paying a sales tax. Whereas the revenue tax does catch a portion of that income.
Maybe you mean we should broaden the concept of sales tax, and apply it to all transactions? That would be closer to equivalent to a revenue based tax structure, and would probably end up looking very similar to the VAT tax structure in Europe.
I’m fine with a VAT tax, if we want to structure things that way. Honestly it’s a lot more paperwork to manage that way instead of revenue, but either works for me.
Assuming arguendo that a sales and revenue tax were equivalent, a revenue tax would be the much simpler way to manage tax collection. Why would you ever prefer a structure that creates a tax event for every transaction, to an equivalent one that creates a single tax event per business entity?
Give everyone an automatic refund of $X to make it non-regressive. This could be done as a monthly payment, an "advance refundable tax credit" like the stimulous payments.
I’m not sure why double taxation matters so much. If I get a salary then use some of that salary to get a haircut, the money is taxed twice but we think of this as normal.
Human W2 taxpayers are not able to write off expenses such as driving to work (or even a home office), yet these are clearly costs of doing business. Why should corporations get additional rights that aren’t afforded to humans?
For example, if you have one tax there is only one way to optimize it, if you have two taxes there are two ways to optimize it. As you add more taxes you are adding more room for loopholes. Solving the problem by taxing profit by country is just adding more room for loop holes.
I think the solution should be market based. Whatever rate google US gets from google Ireland should be available to any company and google Ireland should be forced to sell any services/ip to any company who requests it at that rate.
Doing anything else means the cost of the IP google Ireland charges to google US is made up.
I don't really see the whole "let's unmake ownership and property rights" thing being feasible, but I've been wrong before.
Wouldn't that make companies pay taxes in countries they are based in (as opposed to where they make money)?
Anyway this could be the push that the EU needed to start their own Silicon Valley.
I suppose a company could still move profit wherever they choose, but mostly likely inertia would keep it in place.
Given the combined market caps of Apple, Microsoft, and Amazon (~$5.6T) is larger than the national net worth of all but the four largest EU countries, I don’t think there’s a lack of motivation here.
Not sure where you got your info, but I'm afraid it seems inaccurate. The total wealth of the four largest EU nations, as of 2019, are as follows:
Germany: $14.7T
UK: $14.3T
France: $13.7T
Italy: $11.37T
This info is from a Credit Suisse report and is widely cited (https://en.wikipedia.org/wiki/List_of_countries_by_total_wea..., https://www.visualcapitalist.com/all-of-the-worlds-wealth-in..., etc).
By digging a bit into the US data, those numbers are, if anything conservative. According to the US Federal Reserve Bank, in 2014, the US had total assets of $270T and total liabilities of $146T for a net worth of $124T.
So those 4 not included.
No worries, it happens to all of us from time to time :)
As for why… the context is just that EU motivation was being discussed.
(Otherwise I would’ve said something like “Those three companies combined are valued more highly than the entire continent of Africa!”)
If an American SaaS company sells a product hosted in Ireland to a company in Britain, where was that money "made"?
This seems complicated because unlike sales tax, corporate tax is based on profit at the end of the year. It's much more complicated than sales tax. Companies would have to handle corporate tax code for up to 195 countries.
If the company doesn't declare a profit in France, is France going to audit them? They have no presence in France.
Multiply this issue for every country where customers reside. This is bad for consumers. Companies are going to choose which markets are big enough for it to be worth the additional burden. If you're from Canada, too bad; we don't sell to Canadians.
Australia and France have similar tax rates. This doesn't have much effect on how much tax the company pays; just how much goes to France.
We have already have sales tax, which is a much simpler system that taxes revenue, not profit.
Britain. If corporations want to pretend that (for example) China has the authority to restrict what users in China see on foreign websites (cf recent Bing tank man mess, among many others), they can apply the same reasoning to tax liability.
Then I have the company buy a car, laptop and every other possible expence I can get away with placing on company. You've solved nothing
This can be solved by placing a duty on large cross border IP fee transactions.
US is the country that's opposed to putting tariff on IP
Second, because it is actually moving money. If I’m a Canadian software company that does most of its sales in the US through an American subsidiary (not uncommon), the way it works is the American subsidiary pays the Canadian company back for the sales of the Canadian company’s IP. Otherwise the money would never get back to Canada and the developers wouldn’t get paid! Furthermore, would be silly and tax-suboptimal to ignore the IP-money-flow and treat the Canadian company as nearly pure loss while treating the American one as nearly pure profit.
> Otherwise the money would never get back to Canada and I wouldn’t be able to pay my developers!
It doesn't have to be paid for the right to sell the IP. You can just move all revenue back into headquarters' coffers, and use it to finance the various cost centers. Just write the law so that it cannot be called a sale.
So it's actually moving money! And you need a reason to move money from one company (in the US) to another (in Canada). Call it sale, call it IP licensing...
The context was "If I’m a Canadian software company that does most of its sales in the US through an American subsidiary (not uncommon), the way it works is the American subsidiary pays the Canadian company back for the sales of the Canadian company’s IP."
The IP production occurs in Canada where the R&D departments exist and salaries have to be paid and the US subsidiary company pays to the Canadian parent company.
They cannot just "move all revenue back into headquarters' coffers."
By forcing all revenue to go through a single point (the headquarters) it's much harder to establish fake licensing like Apple Ireland's.
But I don't think that the meaning of "forcing all revenue to go through a single point" is clear at all.
From the point of view of most countries sending money out to Cupertino wouldn't be an improvement over sending it to Cork if that still means that they don't get to tax it.
You can see their filings here: https://core.cro.ie/e-commerce/company/112189
Google Ireland takes payment directly. Unless they've changed recently, all non-US adwords invoices are paid to here.
Repatriation to pay dividends is fairly moot, since they don't pay dividends. Maybe this is one of the reasons buybacks are preferred.
As for how the money gets to Ireland, most of Apple's non-US operations are subsidiaries of Apple Ireland. For illustration, there's this (somewhat outdated) graph of the revenue flows on wikipedia: https://upload.wikimedia.org/wikipedia/commons/a/a5/Apple%27...
You're right. I was wrong. There is no IP licensing payment from the US entity to Ireland.
IP licensing happens between 3rd party countries and Ireland. Irish tax law (to our great pride) gives IP licensing revenue tax exemption. It doesn't count as revenue for tax purposes. Once here, it can be transferred to a proper tax haven like Bermuda. Since its tax free, it doesn't matter that Ireland (like everyone) doesn't recognise the transaction to Bermuda as a legitimate expense. It didn't count as revenue anyway.
I guess that invoicing to Ireland is neither here nor there, just more convenient when the money needs to come here anyway.
Once the cash is in Bermuda, the game is done. The Bermuda company can hold it, buy shares, etc. This is why Apple (And MSFT) have moved all their IP to Ireland though.
https://en.wikipedia.org/wiki/Double_Irish_arrangement
Here's the good bit:
Without such IP, if Microsoft charged a German end-customer, say $100, for Microsoft Office, a profit of circa $95 (as the cost to Microsoft for copies of Microsoft Office is small) would be realised in Germany, and German tax payable. With such IP, Microsoft can additionally charge Microsoft Germany $95 in IP royalty payments on each copy of Microsoft Office, ensuring that its German profits are zero. The $95 is paid to the location in which the IP is legally housed. Microsoft would prefer to house this IP in a tax haven; however, higher-tax locations like Germany do not sign full tax treaties with tax havens, and would not accept the IP charged from a tax haven as deductible against German taxation. The Double Irish fixes this problem.[8][9]
The Double Irish enables the IP to be charged-out from Ireland, which has a large global network of full bilateral tax treaties.[g] The Double Irish enables the hypothetical $95, which was sent from Germany to Ireland, to be sent-on to a tax haven like Bermuda, without incurring any Irish taxation.
A Bermuda subsidiary can't repurchase shares in the US parent company without booking those profits in the US.
- Avoid paying corporate tax at a higher rate than in the US, and
- Defer paying corporate tax, often for decades, until theres a more favourable tax situation in the US, or a better opportunity to reinvest their capital comes up.
At the end of the day the profits belong to the shareholders and the only way to return the money to shareholders is by paying US corporate tax. Shareholders usually don't mind these arrangements because the tax savings is often more than the cost of capital having the money sitting unproductively.
Beyond that, the arrangement essentially turns corporate income tax into a corporate dividend/buyback tax. Dividends are always much lower than profits, and many companies don't do them at all.
>> the only way to return the money to shareholders is by paying US corporate tax
"Return" is somewhat ambiguous here. Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way. Many don't.. eg Berkshire.
The parts that bother me most here is (a) all the wasted effort going into what is essentially a silly ritual. If we had to explain this to aliens, they'd bucket it into the same category that they use for whatever pharaonic priests. were up to. and (b) the unfairness. A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free. If a farmer buys more land, its an investment. It isn't an expense. If Apple buys land, its effectively expensed.
I'm not sure exactly what you mean by this
> Dividends are always much lower than profits, and many companies don't do them at all.
Dividends are lower than profits only for companies that have opportunities to reinvest profits into growth. For companies that don't, in principal, you'd expect dividends to be exactly profits.
> Shareholders already own those profits, and cash is reflected pretty directly in share prices. They don't necessarily have to "return" value this way.
There's large opportunity cost to shareholders for companies to hold onto cash, which is usually in low-risk investments, compared to how that shareholder would invest it themselves. That's what I mean by cost-of-capital.
> Many don't.. eg Berkshire.
This is a bit of a special case because Berkshires core business is making investment decisions (and doing so through a holding company is itself tax advantaged). When the day comes the value of Berkshire companies consistently underperforms the market, shareholders will absolutely demand Berkshire start distributing profits instead of making investment decisions on their behalf.
> A small, unsophisticated company doesn't get to (eg) reinvest its profits tax free.
It absolutely can reinvest its profits tax free! It just can't build up a long-term cash pile tax free.
I mean that they could have just paid royalties to the US entity, avoiding Ireland and Bermuda.
Beyond that, you're taking a very naive, textbook approach. Tomorrow never comes, in the sense that you are talking about. Tax deferral should be thought of like an accounting equivalent of equilibrium in economics. It's never reached, but affects how some things work in the present. Dividends<profit isn't explained by the accounting point you made, it's accounted for that way. It actually doesn't require any explanation. It's simply true empirically. In many cases, companies don't pay dividends. Berkshire is one such company. There are other ways, many using less legible, more complex structures to do so.
Berkshire's "special case" is not arbitrary. They're structured in such a way for tax advantage. Restructuring can happen, as do rule changes. One of the reasons why tomorrow never comes.
>> It (small, simple company) absolutely can reinvest its profits tax free!
Ask a farmer what happens when they buy land. Ask a store what happens when they increase stock. This is emphatically untrue. If it were, we wouldn't call this an income tax. We'd call it a dividend tax.
As with the first point, if the tax was intentionally applied only to dividends, there would be no need for shenanigans. Apple & MSFT could be housing their cash where they are actually headquartered.
I don't have any opinion on corporate tax generally. IMO, the whole thing advantages financial & software firms unfairly, relative to companies that need to make real capital investments in order to grow. I do have an opinion on the fairness of it.
I saw a similar comment earlier this week. I don't understand why first world people think developing countries would agree to this minimum tax and not undercut them on day 1 to attract investments and jobs.
There are no global tax authorities. Nobody is going to enforce these things. Even this G7 treaty is going to be a mess in practice because multilateral treaties are flawed like that.
Within the EU, (or EEA perhaps) I vaguely recall there's some restriction against penalising for things like this, as long as the other nation is also a member state. (Since viewed as a whole, 'one EU', it should be fine, I suppose.) Struggling for the right words ro search though.
It doesn’t become effective until the G20, or at least G7, pass it. Part of the law would be automatic tariffs against non-participants. That leaves non-signatories with a choice between compliance and economic decimation.
I also disagree that the developing world is that much of a problem. Currently, in the developing world, money flows to places like the U.S. Virgin Islands, Bermuda, etc. While I'm sure they are not the only places that could act like as tax havens, there's probably a limit. Multinationals probably aren't going to want to relocate their headquarters to a developing country like Egypt for a variety of reasons like language, currency, corruption, weaker property laws, ease of moving cash, etc. Tax havens could also be disabled with tools like sanctions on a G7 or G20 basis. Bermuda doesn't want to play ball? Sure, then the G20 banks and governments will not allow their citizens to deal with Bermuda.
As other people have said, the goal isn't to prevent this from happening, it's to make it too risky or expensive to justify as opposed to just paying corporate tax on profits without shifting them.
I have an even easier solution, and it doesn't require an International Tax Police or Global Government. Lower taxes. Perhaps even eliminate them. There are many ways to achieve this such as eliminating government pensions, removing entitlements, and cutting defense spending and foreign aid. Instead of robbing Apple or Google to buy F35's and ship cash to the Middle East, perhaps we could cut them a break to hire and build things in the USA.
That's irrelevant; Google USA made a gross profit of X G$ and should be taxed accordingly. If they want to claim some of that as a tax-deductable business expense, the burden of proof[0] is on them to demonstrate that it's a legitimate business expense.
0: If accused of tax evasion, the burden of proof would on the IRS to demonstrate that they intentionally misreported and should suffer criminal penalties, but if they're innocent, they still owe back taxes plus nominal interest.
(Edit: In case it wasn't obvious, I'm talking about what the law should require, not what laws paid for by corporations currently do.)
They've done this, repeatedly. The laws as written (US, UK, many other countries) make this a completely legitimate business expense.
So, what should the law require? How would you create a law that prevents this from being a legitimate business expense but doesn't eliminate other things that would be broadly agreed as being OK?
Simplify the tax code and there will be no loop holes.
You are supposed to be able to prove that the deal between your different international entities is an arms-length agreement. That is to say that the revenue sharing agreement is similar to what would be negotiated between unrelated companies.
In order to do that you are supposed to be able to show evidence that the deal is similar to other deals in your industry and such.
I don’t know how Google would get away with a licence fee of 100% under those laws so I kind of doubt that that is what they have in place.
However, let’s say they have a 30/70 split with 70% going to the IP holder (Ireland company) and 30% going to the selling agent (USA company).
Now it’s in the best interest of the company to attribute as many of the expenses of providing the service to the USA company so that we can get its profit down to zero. The profit margin of the US company might be 0% (so no tax) while the profit margin of the Ireland company is near 100%.
Take Apple selling phones in the UK. Is the money made in the UK, where the phones are sold? Maybe part of it (selling phones), but Apple enjoys a large premium over Android, and that's more debatable. Was the money made in Taiwan, where iPhones are made? Or in California, where iPhone was invented? Personally, I don't really see why UK would tax Apple more than Android makers, simply because Apple (from California) was more inventive... while the profits were realized in the UK, they weren't created in the UK.
Now something like this is bound to come, from the new treaty, to all G7 countries, which hopefully means it will trickle down to the G20 at the least.
The main issue is not rules on sales though - it's cracking down on profit-shifting masqueraded as IP transfers and licensing. Hopefully that too is being cracked down on.
Apple revenues in the UK was about $2B. Which means Apple is already paying $360mil in GST tax to the UK gov. Apple also paid some amount of wage, income, real-estate and other taxes.
Let's imagine companies had to pay income tax on a pro-rated, point-of-sales basis. Thus, apple's pre-tax income for the UK would be 2/274 * 67 = $500M. At a 20% income tax rate, this would net the UK gov an additional $100M.
This is why they want this sort of thing. It has nothing to do with fairness. The US gov is generally opposed to pro-rating profits based on location of sales. Because the US tax code allows companies to effectively deduct foreign taxes from net income, income taxes paid overseas has the effect of reducing income tax paid to the US gov.
No, GST is a VAT (in fact, the UK’s is called a VAT, not a GST), which is not the same as a revenue tax.
The end result is, the consumer pays VAT which is 20% of the price (i.e. 20% of the revenue), and the tax is spread out evenly across the whole production supply chain, weighted by the amount of added value by each company in the chain.
Does Apple makes its money in the US, where the company is headquartered and listed? Does it make it in China, where products are manufactured? Does it make it wherever people buy the stuff. Ireland, where the IP is "located."
Since corporate tax is an income tax, it's taxed on profit... the not of revenue and expenses. Revenues and expenses are accrued everywhere. The entity booking them is arbitrary.
When someone in a small town in some part of the world goes to one of the branches instead of a local independent coffee house - isn't it a large part due to the branding of the company? the coffee is just a commodity costing a few pennies - all the value is made by the brand and the recipe owned by the company in the low tax country.
I don't actually know why exactly a revenue tax isn't more popular, say 1% revenue versus supposed 30% profit tax. (As if any corporation actually pays that tax rate).
Small companies end up paying a higher effective tax rate than larger more integrated companies and it discourages companies from specializing in what they are good at, neither of which is conducive to a robust and vibrant economy.
I think in either case big companies aren't going to be challenged much, the trick is what will be the better outcome for the countries and society as a whole.
You are misrepresenting the situation. A 28% global minimum was never on the table. 28% was Biden's proposed domestic rate (which to your point, he is backing down from). But these are two separate rates so we should be clear what we are discussing here.
The question is: how can anyone seriously support tax rates that high? After a certain level, more than half your time is spent working for the government - failure to pay means fines and possible jail time. This is serfdom.
Higher corporate tax rates should not be applauded by anyone. Higher corporate tax rates invariably increase cost of living because companies can simply raise prices to compensate. If all of your competitors have to pay the same (higher) tax rates as you, the correct game theoretic move is for everyone to simply bake the higher tax rates into the price of their products/services.
Almost all forms of taxation ultimately impact the middle class in one way or another, either directly or indirectly. So while nobody is "seriously arguing" for, say, a 70% top marginal tax rate, it's easy to get there when you actually look at the entire tax burden across all levels of government, including price increases caused by higher tax rates.
You mean, for people right? I have never heard about any place that taxes anywhere near 50% of a corporation revenue, but yeah, it's not rare to find places that tax more than 50% of a worker's income (all taxes in, if you are talking exclusively about income tax, I never heard about it either).
Why do corporations need lower taxes than individuals?
Individuals don't move as much. So they are in a much worse negotiation position.
Moreover, capital gains taxes are lower than income taxes because they roughly account for inflation - capital gains are typically incurred on long-term appreciation on assets, and if you're holding something for, say, 10 years at 2% annual inflation you're talking about 21% inflation. So if you have a 21% capital gains rate and a 21% rate of inflation, your effective "tax" rate is really more like 42%.
This is one reason why higher corporate tax rates are generally considered to be a poor economic choice - additionally, corporations can relocate, restructure, and do all number of things to minimize taxable income, and are strongly motivated to do so as rates increase. So you don't even ultimately collect much in additional taxes this way.
Oh, and higher corporate tax rates also raise the price of the goods and services they produce, which is reflected in substantial cost-of-living increases for low and middle-income individuals. That's why it's good politics but bad economics to target corporate taxes in this way.
Edit: Why do people put up with it? Because of the progressive tax system. If my choices are a) earn $517k b) earn $1m but get taxed 37% on everything over $518k, I know what I'm picking. (Numbers come from the 2020 US tax brackets)
[0] https://www.taxpolicycenter.org/statistics/historical-highes...
[0] https://www.latimes.com/business/la-fi-nocera-tax-avoidance-...
It's a compromise/balance and as we know of many taxes - easier to raise them than to get them inplace too start with.
Biggest issue in all this would be that it will need the weight of those supporting it to peer-pressure the other countries to join. So Ireland, Luxenburg and other corporate tax over-friendly countries need to come onboard and that will be easier to achieve with a lower bar of 15% than to go in hard at 28%.
Also when negotiating, there are always compromises and by going in high at 28%, left a lot of room to compromise had he gone in at 15% inititialy and with 15%, whilst far from what people demand, it is better than currently and good foundation start.
Far more important though is the second aspect: "Secondly, the rules will aim to make companies pay tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits."
That is far more important IMHO as currently see countries seeing their taxes due being off-shored and lost - that in itself is the bigger issue and this addresses that aspect.
Why cant US pass laws banning companies registered in tax haven countries to operate in the US?
Tax havens require the complicity of larger, more powerful states to exist. They are by no means inevitable.
It’s easier to have rules against countries with less credibility, but then again, you risk making things complicated for Seychelles, Curaçao, St-Martins. It’s easier to define a minimum tax so that they don’t have to pick between tourism and tax optimisation.
So those countries need to decide if they want to support legitimate activities or legitimate activities with fair tax policy approved by the US.
If they dont like US's demands they can stop trading with US but we know they are not going to do that.
Something like that, anyway.
Except the reason it's not done today is because back in the 90s, people argued that it's not possible to tell if/when services/IP crossed borders because there's no fixed port of entry.
(They were making this argument because software CDs were subject to import duties but downloads were not and that they were unfair)
Today it's still the case and services/IT are not subject to duties.. but I think large licensing agreements like this should definitely attract import duties
IRS: Hey Google, you said you made this much money, so you owe us tax.
Google: No, see, here we paid it to Google Ireland as IP license fees, so we in fact made $0
IRS: Great, you owe us duty on that payment
He can always change his mind. Plus--I have a weird feeling Biden would't mind putting off spending trillions on a nebulus bill right now. Of course he won't admit it publically.
This presupposes that maximizing revenue to the state is itself beneficial.
28% is a ridiculous minimum to try and impose on the ENTIRE WORLD. You have to be quite clueless about taxation worldwide to think this has a snowflake in hell chance of passing at all. "Domestic opposition" is not a factor at all.
It's about time people started to elect leaders who can get shit done in the frameworks that exist to get shit done, instead of trying (and failing) to destroy such frameworks.
Give him credit for agreeing. Don't give him credit for creating.
If computer chip manufacturers decided to create a floor price for their products that would be collusion and bad for consumers. Same here. It’s bad for citizens of a country.
You damn know some developing country is going to be told “nah, sorry, can’t lower your corporate tax rate too low to spur investment, those jobs are staying in developed countries”.
It's easy to forget that the legacy brand countries with the extremely high tax rates and absurd conditions like citizenship based taxation in the most abhorrent cases internationally are the exception, not the rule. Their residents with their political biases make up the majority of participants in forums like this, and this contributes to the perception that their regime is enormously more widely adopted than it actually is, but if you look at the actual numbers by the actual areas that's just not the case.
And worst case scenario then you have crypto, where it goes from the legally difficult realm into the technically impossible realm.
This is just a fight they're guaranteed to lose on a long enough timeline.
I am also sceptical of your claim that jurisdictions like Georgia and Malaysia are "less prone to leverage" - their proximity to large adversaries actually makes them more dependent on soft-power diplomacy to maintain big friends.
Obviously the likes of Russia and China might not play ball - but they have much bigger issues to worry about, from a capitalistic perspective. You put your money into China, you can't pull it out ever again; you put your money into Russia, and tomorrow it might well be Putin's money.
Estonia will be a useful barometer to keep an eye on for this in the future, but since their tax rate is actually basically in line with this floor anyway it may well be that this just doesn't affect them at all.
> their proximity to large adversaries actually makes them more dependent on soft-power diplomacy to maintain big friends.
Georgia already has recent experience with such relationships not keeping the bear at bay so may well view the extra capital from remaining an attractive tax friendly jurisdiction as more useful than bowing to parties who have already failed them in the recent past.
Malaysia seems even less likely to buckle to the "international order" as they have neither the cultural homogeneity nor the magnitude of the threat that Georgia has.
> You put your money into China, you can't pull it out ever again; you put your money into Russia, and tomorrow it might well be Putin's money.
When what your money gets you is absolutely nothing, one parasite is just as bad as another in the long run, it just becomes a question of which one costs you more. Russia and China have to restrain themselves in the looting sector less and less to the extent that their US & EU competition go all out in order to look like better alternatives.
And then, there's the implications of an extortion war across the global economy providing capital flight impetus to push the cryptosphere to obscene heights and complete inability to tax in a worst case scenario.
I think the fundamental fact of the issue will remain that as long as it's a forced payment not linked at all to delivery or quality of goods or services, all rational parties will be forever motivated to avoid it to the maximum extent possible, as it resolves to nothing more complex than "burning money" given what it actually buys you.
Time will tell I guess.
Considering how the west interacted with the Crimea takeover I'm pretty sure these countries have realized by now that the west doesn't really care about their protection.
In what way? How is life for anyone in say Ireland or the Netherlands or the Bahamas materially different than, say, 20 years ago? Are they not allowed to travel somewhere? Obtain visas? Purchase goods and services from abroad? Are airlines refusing to land there? Even a single example of this "ruthless isolation" would be nice to show, otherwise, I suspect this is more of a dream sequence than a description of reality.
Second, this argument only makes sense if you think tax competition leads to “innovation” in tax policy, but it’s not clear why that would be the case. Almost any kind of tax structure is jurisdictional and would be undone by zero-sum competition between countries.
Third, would this hurt developing countries? Right now this is a voluntary agreement between developed countries to achieve a common goal, so that complaint isn’t super relevant. Think of multilateral tariff reduction agreements —- it’s often a good idea to unilaterally put up tariffs if everyone else lowers them, which can result in a high-tariff equilibrium even if each player would like lower global tariffs. Multilateral agreements are the way to achieve the collectively desired outcome that can’t be achieved in a decentralized way.
But a global minimum tax could be also be a good idea for lower income countries, if it’s not set too high. Typically the economic incentives are there to locate especially production in the developing world. If all developing countries had the same minimum tax, then companies couldn’t play developing countries off one another to get lower tax. Lower income countries would reap more gains from globalization and have more funds to eg invest in infrastructure and development.
Second, the innovation isn’t in the tax policy, it’s in the use of the tax revenue. If I come up with a less bureaucratic and less costly administrative process for companies, why shouldn’t I pass the along if I want to?
Third, the implementation goal is global. That’s been stated by Biden.
And I’m guessing the lower income countries will suffer. You want to pay t a similar tax rate for the US for say Myanmar? Abundant corruption, questionable private property rights, untrustworthy courts?
Not sure I understand what you’re saying on (ii). I think you’re saying that if countries have to compete for business, then, holding fixed their statutory tax rate, they have an incentive to improve bureaucratic efficiency to increase resources available (given the statutory tax rate). But I think the issue is you get competition on the statutory rate, which pushes rates towards zero. I actually think a minimum tax which binds and hence constrains the statutory rate could provide a great incentive along the lines youre talking about to optimize bureaucracy.
On (iii), I’m guessing a minimum tax wouldn’t bind in countries willing to explicitly expropriate FDI. Also having a minimum could limit the scope to vary effective rates for individual companies as carrots / sticks, which if anything could reduce corruption.