Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion
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"The corporate income tax makes no sense whatsoever," said Robert Frank, a professor at Cornell. "We don't want to prevent Microsoft and General Motors ... from investing more and improving their product line," Baker said. "That's a good thing in my view."
Our economists said if you want to tax rich people as public policy, then tax rich people — tax the people who own corporations. But taxing the corporation itself is taxing the thing that really does create jobs.
In my personal opinion, the money does more good in Google's hands than in the government's hands.
Ok then: in my opinion my money is better in my hands, but I have a hard time convincing the IRS. My wife and my family agree with me too, by the way. Who is going to pay for the roads and the military and the......
Just because it goes somewhere, doesn't mean it goes to the right place.
The comment by the Cornell professor above also ignores a very simple fact: capital expenditures are tax deductible. The idea that taxation directly reduces the money available to invest in the company or hire workers is just factually incorrect. It may reduce those things indirectly, through deadweight losses in the economy, but tax law is structured so that capital expenditures and salaries are paid for with pre-tax dollars.
There is a strong fairness argument to taxing corporations the same as individuals: corporations are treated as separate persons for liability purposes, they should be taxed as separate persons for tax purposes.
If the business tax rate is different to the individual tax rate then this creates some distortions, but more importantly there is the issue of double taxation. In New Zealand dividends/drawings are treated as tax paid, i.e. the business has already paid tax on this income, so no further tax is due. In UK, and I think USA, the individual would be taxed again, hence there is a double taxation on business profits, which does seem kind of unfair.
Income tax is by it's nature a transaction tax: income is taxed when money changes hands. But that income is counted as income each time it changes hands, so that's not "double taxation." Say we have an economy with just you and me. I make $100. I'm taxed $20 (20%). I give you $80. You're taxed $16 (20%). Total income = $180. Total taxes paid = $36 (20% of $180).
The mistake is assuming that the corporation's money is the shareholder's money the minute the corporation makes it, i.e. that the corporation is a mere proxy for the shareholder. It's not. The corporation is a separate person. If the corporation incurs a liability (say one of its trucks runs someone over), it's not automatically the shareholder's liability, again because the corporation is a separate person. A dividend payment is no different than the payment between you and me in the example above. It's not "double taxed"--it's taxed each time it is counted as income, the same as every other payment.
There is a deep symmetry here between how income is treated between separate entities and how it is taxed between separate entities. Say we have a married couple. The husband stays at home and does housework, and the wife gives him a $1,000 a week allowance. If they divorce, but the husband still does the housework in return for $1,000, then GDP (i.e. the sum of national incomes) goes up by $1,000. This is the nature of the GDP calculation--when you break apart an internal transaction and make it a market transaction, GDP goes up without anything else changing. Taxation precisely mirrors this. The husband doesn't pay taxes on his $1,000 while he is married and part of the same taxable entity. It's not income to him. But if they divorce, it becomes income to him. GDP goes up and taxes go up by the same proportion.
This enables investors to take income when they want to in a very tax concessional way.
Even though capital expenditures are tax deductible, the returns from capital expenditure are being taxed at a higher rate. This makes consumption relatively more attractive to shareholders which is bad for economic growth. It's not about the money available to invest, it's about the incentives to invest that money.
Worse, profit is too intangible, and essentially all companies above a certain size hire teams of creative accountants to either 1. Create faux losses, or faux deferments. (See Hollywood). Or just locate abroad, see Google.
It's a tragedy of the commons. If you're not doing these things, you're at a competitive disadvantage.
Much better to tax wages, property, sales, etc. And of course, as progressively as possible.
Overly complicated or bureaucratic schemes never work.(Carbon tax, Trading), instead tax fossil fuels.
Edit: Perhaps Iand has already said this in a simpler manner:
"They are pointing out that they pay taxes on tangibles such as salaries, VAT and business rates. Corporation tax is based on the fungible concept of profit and really is unworkable."
Your average small business and even larger private companies can't afford to do this at all. Yes, they have the S-corp option available, but a C-corp paying 3% effective tax rate on its profits and its shareholders only paying a dividend tax is superior to being an S-corp and paying payroll taxes on your paycheck to yourself (required) and then personal income taxes on the rest.
39% corporate tax rate is really mind boggling IMO.
All taxes are distortionary. It's their nature. If you ignore the benefits gained from programs that tax dollars buy, all taxes are bad for the economy.
The problem with capital gains and corporate income tax is not (just) that they're bad for the economy, it's that they're de facto optional for multinational entities because of transfer pricing. Cash doesn't have a country, so anyone with more than one country just puts their cash in the country that takes the smallest piece of it.
Now we hear the cries of "but they made the money here" -- OK, sure. So make that the rule then, if that's what you care about. If you sell your product in a country, you pay its taxes. That's sales tax or VAT. If you make your money employing a country's workers, you pay its taxes. That's personal income tax.
If you like you can specify that the product tax will be paid by the seller and the labor tax will be paid by the employer. That may actually provide some amount of leverage to buyers and employees in price negotiations (to the extent it doesn't push sellers and employers toward other countries), but at the end of the day it is what it is: A tax that makes products more expensive or reduces the amount that employees bring home, but can't be avoided by sly accountants and tax lawyers if you still want to sell products or hire workers.
(Taxes are at heart, a disincentive, or more properly, a Price, to do the a certain thing.)
Nothing lasts forever. Eventually the profits will either be spent or escheat to the state when the last heir to a fortune dies without any descendants. And you can't very well benefit from having money if you never spend it.
>They are massively regressive.
This is trivial to fix. Send everyone a check for a fixed amount every month as a "tax refund" and the effective tax rate of those with less money to spend drops or becomes negative.
>It over-incentivizes "investing" money.
All taxes are distortionary. If you tax income then you under-incentivize investment. Why is over-borrowing and over-spending better than over-investing?
Would you care to elaborate as to what bearing your list of assumptions has on the issue? It wasn't clear from your post.
Yes and no. Nominally imposing the tax on the seller or employer is better for the buyer or employee -- it doesn't necessarily mean the seller won't be able to pass the tax on, but it helps. For example, if the employee is making minimum wage, the employer can't reduce their compensation by law, so imposing a labor tax on the employer will force them to eat it because they're not allowed to take it out of the employee's compensation. If the tax was nominally on the employee then it would instead come right out of their minimum wage paycheck. And the same goes for any other mechanism that tends to prevent employers from lowering wages: If you have an employment contract that specifies your compensation, you keep getting paid what you were agreed to be paid even if your employer now has to pay more taxes instead of you. If you have a trade union, the union is going to have a better shot at preventing a wage reduction than demanding raises to counteract a new tax, etc.
In the longer term, as employers have time to hire new employees with new contracts or refuse raises etc., the free market catches up with the tax changes. But that doesn't mean the tax is paid entirely by consumers and employees. If sellers could raise the price of their goods by the amount of a newly imposed VAT without reducing their sales then they would have done it already regardless. When the VAT is imposed industry-wide it allows some cover for price increases, but not by 100% of the tax amount except for in rare cases (such as where the profits in that industry were already legitimately non-existent and passing on the full tax is the only alternative to going out of business). In non-collusive markets the existing players will be fighting to keep prices close to where they were in order to retain as much of their existing sales volume as possible to keep their sunk cost infrastructure utilized, which will require them to eat a sizable chunk of the tax burden.
More to the point, how is that possibly worse than it is now, with international corporations nominally paying a tax on profits but then arranging to not have any profits in jurisdictions where taxes are high, and then subjecting local small businesses to the taxes avoided by their larger competitors?
In my opinion, companies should pay taxes but there is room for debate as to what percentage they should be forced to pay.
If this is your concern then the simple solution is to fund public highways with fuel taxes. (This theoretically allows taxpayers to "cheat" by buying more fuel efficient vehicles, but I think we can live with that incentive structure.)
A lack of cash is not what stops these companies from improving their product line. Apple is sitting on $100 billion (maybe somewhat less now that they're doing dividends?). Corporate taxes are not preventing Apple from employing more people, they have no need for more people. If Apple were taxed less, they would not hire more people.
I am highly skeptical of the claim that removing corporate taxes would create jobs in other sectors as well. Why would GM need to employ more people if their taxes were lowered? Consumer demand is unchanged, they don't suddenly need to pump out twice as many cars. Innovation and improvements on product lines don't come from the number of product designers a company has.
They agree that people on lower incomes have a high marginal propensity to spend, and a lower marginal propensity to save.
That's why there's a call to tax long-held reserves, rather than profits.
It seems to me that Google, especially being in California, is being...well, something close to evil by making sure they help out their local governments and people as little as legally possible.
I understand that their profits are higher each quarter because of this. I understand that's what shareholders demand. But why?! Can this attitude lead to anything except terrible news? I just don't get it.
Do you take any deductions (i.e. the standard deduction, or itemizing)? By the reasoning of your post, that would make you "something close to evil."
I could set up my salary through some finance companies in europe that help you keep up to 85% of your salary, but I don't.
I see the danger in the system you mention that lots of money will go to niche organisations out of proportion with societies requirements. Better to pay taxes in the hope that they are distributed where they are most needed.
Speaking for myself, I enter deductions into the H&R Block program and watch the estimated payment. When the payment is something I think is reasonable, I stop entering deductions. So yes, I do send more than I have to.
(and often less, if they think they can get away with it)
Of course, it is not so easy to avoid tax as a salaried individual, which is why your comparison is failing. Somebody on PAYE (i.e. most people) can't create a clone of themselves in Ireland to pay their income tax there instead of the UK. If that option was available to individuals then I'm sure plenty would take it (assuming Irish income tax is lower, I have no idea). That is what the debate is about though: some entities have great flexibility and can avoid tax if they want, others (individuals of average means or less) don't have the choice to pay less.
On a side note, one point I've been stuck on is what to call the commentors above me. I know there's established language for it (parent, grandparent) but I have trouble using it right. Anyone know what I should have called the poster of the hypothetical, and the response that I responded to?
Assuming that this is entirely legal, I don't see how this is a problem in Google's behaviour. If there is a problem, it is in the tax code, and the Government has sole responsibility for that.
Making tax codes simpler would make it easier to not leave loopholes, but politics always seems to drive it in the other direction. Perhaps the need to avoid this kind of situation can be a good force in keeping tax codes simpler.
It's just more fun to yell about tax loopholes that corporations utilize, because big faceless corporations sound more evil than tax breaks that John and Jane benefit from.
But once you've established the deduction and people have already bought homes expecting it, they require its continued existence to be able to keep making the payments.
What they really ought to do is remove the deduction for new mortgages but not existing mortgages (or refinances of existing mortgages that don't increase the loan principal).
The result of this is that better off people underestimate how much direct government assistance they have received [1]. I won't comment on the potential political motivations for dividing up the welfare state in this way
[1] http://themonkeycage.org/blog/2011/02/08/the_invisible_ameri...
Also, even if it is not much of a win for the wealthy households, higher property prices generally mean higher rents so it disadvantages the class of people that rent. A similar argument applies to housing benefit in the uk, which is something you receive if you are poor (working or not). The recipient doesn't really see the money, but it helps to keep rents high so it's more of a 'landlords benefit', much like your mortgage deduction seems to be of more benefit to the banks than home owners.
The first problem you could address by capping the benefit somehow. The latter you cannot.
Or, if the government decides to tax everyone at 100%, but then gives out a series of "tax breaks" that lands everyone at their current tax level, is whatever government people get to keep welfare?
I don't want to go to far in the other direction. It's 100% possible for politicians to spend money via tax breaks. So neither worldview really works, but you have to have something between them.
I am defining a loophole as anything that the media are getting into a frenzy about that is perfectly legal. If one prefers that they weren't using some technique to minimise tax, then it [that technique] is a loophole. If this means that they've failed to "define a framework for computing net income as opposed to gross income" that works, then that's a loophole.
> In the corporate tax case, complexity also comes from trying to avoid taxing companies for profits that have nothing to do with American operations.
I don't see what has got to do with it. Clearly no jurisdiction can justifiably claim that it deserves tax revenue unless a company has operations there. If it has operations there, it falls under that jurisdiction's tax code. If the company can avoid paying some tax in any particular jurisdiction that one would like it to be paying, then the tax code of that jurisdiction is broken.
A city of 36,664 with a 16% unemployment and a per capita income of $24,800 paid its council men twice of what is the salary of the POTUS[1].
I am personally opposed to capital punishment but I would not mind the strictest possible sentence to these people other than a death sentence. Perhaps suspend their drivers' license and passport and make them pay some enormous amount of money (in addition to the money they took from the government) which they cannot wipe away with a bankruptcy.
The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is difficult to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
Many large corporations that hold large cash balances keep them offshore. Around 75% of Apple's large cash holdings are held offshore. They have already paid tax on that money. It is the US naturalization laws that are broken, and the perception that Google, Apple et al aren't paying taxes or somehow avoiding them.
The best thing the US Government could do would be to institute another repatriation tax holiday. There is precedent for it as happen in 2004. As much as a trillion dollars could make its way back into the US economy if a deal could be worked out - a private mini-stimulus that the economy of 2 years ago really needed.
Nothing particularly unusual or illegal about this.
So they have been "avoiding" tax - but there is nothing illegal about that, or from my perspective, particularly immoral about it.
£6M in corporate income tax, which is only one of many taxes (and usually the smallest component) that a corporation pays.
For eg. they would have collected a 20% VAT (consumption tax in the rest of the world) - which is another £80M, a 13.8% national insurance contribution, which would work out to be approx another £40M, and then on top of that a payroll tax.
I am not familiar with the other payroll tax rates in the UK but it is similar in most other countries - the three or four different tiers. In the USA payroll taxes are 5-6x larger than corporate income taxes. Add them up for Google in the UK and you get to £130-140M contributed from a gross of £395M - a very different story to the headline figures that are being argued.
edit: forget the figures, I don't know the UK tax system enough to even guesstimate, but the tl;dr is that corporate income tax is the smallest of a number of tax components that a corporation pays and arguing by taking out corporate income tax figures alone is misleading. This is the point that Google attempted to make.
I'd also argue that it is employees who pay income tax - not the employer (even with PAYE meaning that employees don't see that money).
Consumer VAT and consumer income tax are not tax paid by a company, and it's disingenuous to suggest that 'a corporation pays'. They merely collect them from the customer/employee for the government, it's not as if the corporation contributes anything on top of that. They do contribute to NI as you mention, and local business rates on property in the UK at least, but the vast majority of revenues can escape taxation, and I don't think customer VAT, and employee IT can be considered paid by the employer, they are paid by the customer or employee.
There are of course many benefits to having a company setting up in your country (the aforementioned VAT and income tax receipts from the employees, rates, and jobs generated), but companies offshoring profits and shopping for tax jurisdictions by setting up fake subsidiaries whose sole purpose is to evade tax is a huge problem for all western countries, and not one they can address with current tax law. That's the reason that many receipts in Europe nowadays bear the legend 'S.a.r.l, Luxembourg'. All major corporations from Apple, to Amazon, to Google do this to some extent, and it results in tiny countries like Luxemburg collecting huge amounts of tax (in proportion to their size, and the true number of business who truly transact business there (as opposed to claiming they do)), simply because they're willing to give corporations the lowest international rate,and let them set up shell companies to funnel online revenue through the tax haven.
I'm sure you'd like the money to be "repatriated" to the US, but I'd like just some of it to stick around in the UK and Europe to pay for roads, schools, hospitals (and nuclear submarines) first.
Saying they've paid anything in the "local tax jurisdiction[s]" isn't quite true. In most cases they've passed through Ireland and the Netherlands, even if the income is from other European countries. In most cases they haven't paid any corporation tax at all on the profits made in the local countries.
Take Starbucks in the UK as an example. They had sales of £400m but paid £0 corporation tax by ensuring the company didn't make a profit in the UK. It paid various license fees to foreign sister companies, and even purchased its coffee from Starbucks Switzerland to help offset profits. £0 profit in the UK, £0 corporation tax due.
> The reason they are kept offshore is because if the funds were naturalized back in the USA they would be double-taxed. It is really hard to argue that Google should pay local taxes once where a product is sold and then pay taxes again on that same money when it is transferred back to the USA.
They wouldn't be double taxed, the USA have double tax treaties with many countries. The reason they keep it off shore is because they're waiting for one of those amnesties that would allow them to bring the cash home to the US and pay far less than they would have outside the amnesty.
Example with no amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues by using "license fee", loan or other perfectly legal schemes.
Google move money from Ireland to Bermuda tax free.
Google move money back into the US and pay (to the US) the difference between tax due originally and tax already paid (in Ireland).
Net result is Google pay the standard 35% (or whatever it is in the US) tax on the money. It's just a chunk of it goes to Ireland rather than the US.
Example with amnesty:-
Google pay 12.5% corporation tax in Ireland on European Revenues.
Google move money from Ireland to Bermuda.
US announce amnesty rate of 5.625% and Google moves money back to the US paying a total of 18.125%. That's a whole lot less than 35%.
It's exactly those amnesties that mean large US corporations can do this. Without them there would be little reason to hoard money offshore as it could never get back to the US without the full amount of tax having to have been paid on it.
The trouble is that there is no advantage to bringing the money back. If you have your money in Bermuda, you can still invest it. You can buy securities, or you can loan it back to your sister companies in higher tax jurisdictions, and then the interest they pay you on it is generally tax deductible in the higher tax jurisdiction. The loan gives you all the benefits of having the money with none of the taxes. In that way they do bring the money back -- they just don't pay the taxes.
Even if they brought it back through the tax amnesty, what happens then? They've now got an extra billion dollars they didn't pay taxes on, so now they go out and invest it and the returns are taxable in the higher tax jurisdiction. Who thinks they're that stupid, when the alternative is to invest the money in the exact same investments but have the profits go to the sister company in the lower tax jurisdiction?
With the 2004 amnesty - you are right - but there are a few things you can't do with offshore funds - which is why this time Cisco, Apple and the big pharma co's are lobbying for an amnesty
You can't do acquisitions, you can't do a share buyback and you can't pay a dividend.
If you are managing smaller reserves it makes sense to leave it offshore - but with larger reserves such as with Apple investors want you to do more with it (they want to _get paid_)
If they hold stock in a company whose share price has appreciated as a result of accumulating undistributed profits and they want money, they can always sell some of their shares.
And are you sure they can't do acquisitions? What stops them borrowing the acquisition money from their sister company, or doing the merger for stock?
1. Companies are not necessarily double-taxed on foreign profits when they enter the US - they can actually claim a foreign tax credit to offset their US taxes. See here: http://www.irs.gov/pub/irs-soi/06itcorptaxsnap.pdf. There are issues with this - you cannot have a tax credit that results in a refund - but it is not a given that all profits are double-taxed.
2. Google (along with a lot of other companies) utilizes the so-called "Double Irish" (http://en.wikipedia.org/wiki/Double_Irish_arrangement) - and this, specifically, is a tax avoidance strategy. Thus, it is a misrepresentation to say that they are not avoiding taxes. Granted, they have passed through one local tax jurisdiction (Ireland) on their way to Bermuda, but that means that a lot of other countries, in addition to the US, do not get access to the taxes from companies that are operating in their countries.
3. US companies are already holding enormous amounts of cash on their books - but that hasn't lead to large-scale increased capital spend.
4. On 2004: the argument then (as now) was that these funds would result in jobs and new capital being spent. But that didn't happen. Instead most of the money was just paid out in dividends which really only affects, a big scale, people in the 1-2% incomes who get a lot or most of their income from dividends.
Comments welcome!
Considering that over 50% of Google's revenues are non-US, I personally find appalling how they avoid paying little-to-no taxes in other countries. Here are the self-proclaimed "don't do evil" and "down with Wall St." institutions acting as "vampire squids".
On the point of why would tech companies want to do this instead of helping the community, I argue it may actually help California. Instead of doing the responsible thing and moving the firm to somewhere with a lower state corporate tax rate, the firm can simply avoid taxes. This keeps employees in the area contributing to state income and property taxes. In a world or multinationals, I am not certain corporate income taxes make sense.
These tax systems also apply to the smallest of startups operating online. Its just that Google can afford the best advice and are the biggest target.
My concern is that further changes to tax laws that are aimed at Google and Apple could end up affecting smaller companies and startups as collateral damage.
Google and Apple will wriggle their way out of any changes to transfer pricing laws, as they usually always do, while small startups and businesses might not.
Ultimately, I want corporations to be as profitable as possible, because that is good for our economy. Profitable companies buy and sell goods, hire individuals, the usual talking points. If we want to give more money to public education, increase income/capital gains tax (e.g. individuals)...not corporate tax.
Besides, you can make the case that only a small portion of the taxes Google pays actually improves the roads or public education. A large percentage will go towards things like defense research, healthcare, bridges in Alaska, any number of things that have no bearing on Google at all.
(I'm not a Google apologist, this would apply to any company.)
Collecting a portion of their profit just because it's another place to add a tax doesn't seem to make sense. Imagine Google compared to a trucking company. Google makes 100x the profit of this particular trucking company. Does Google add 100x the wear and tear on roads that the trucking company does? Why should they be liable for a larger portion of maintenance on said roads simply because they have a larger profit?
What if they spirit all of that money out of the country to somewhere else? Surely it benefits the host country more to tax profits rather than just let them escape entirely?
I'll freely admit my knowledge of corporate finance falls apart somewhere around here.
A dollar spent on Google's self-driving cars program will improve transport in California more than a dollar spent on resurfacing highways; a dollar spent on removing SEO spam from search results will improve education in California more than a dollar spent on paper textbooks full of lies sold by corrupt monopolies; and a dollar spent on developing Android will improve smartphones more than a dollar spent adjudicating pointless patent cases filed by patent pirates like Apple and Intellectual Ventures to eliminate competition.
And then there's the benefit to the rest of the world outside California.
And then there's the fact that a third of your tax money goes to the military, whose mission is to make the world a shittier place for everyone outside the US.
I'm not a huge fan of Google (see http://lists.canonical.org/pipermail/kragen-tol/2011-August/...) but in a competition with the US and California governments for cost-effective ways to use dollars to improve the world, Google wins hands down.
Say California closes tax loopholes. Then all California companies are placed on an equal footing. But they're now at a disadvantage to non-California companies that don't pay taxes.
Usually higher/simpler taxes will be the better solution. The higher the level they're applied at, the better, as far as the companies are concerned.
Recall that Amazon has been pushing for Federal rules on state sales taxes. Absent those, it's been simpler for amazon to fight paying taxes rather than set up a compliance system and pay taxes on a state by state basis.
But here is the rub, what if the Government spends the money you gave them on an all expense paid trip for themselves to Las Vegas where they ran up big bills at strip clubs and on luxury suites? How do you feel about that?
How about the Greek people, their economy in flames, their country ruined, where "not paying taxes is a national pastime" according to The Economist.
The insight you are missing is that when "your" opinion of the government's fiscal policy is destroyed by abuse, "you" feel completely justified in exploiting all the legal ways to not give them any more money than you have to.
It is hard for an individual to fix government it is easy for an individual to minimize their tax burden. So people take the easy way out.
This is not really true. There are many ways to make money without expending much effort. Example: capital gains. By simply having a lot of money, I can invest this and make a solid profit...and be taxed in a lower bracket.
It has no bearing on effort expended. In fact, you can easily argue that "More Effort = More Money" has a very definite ceiling which you can't cross. At some point, you have to start leveraging other assets (money, employees, etc).
Taxing based on the amount of income earned is really the only sensible way to tax. You can't tax "effort"
But wonder if you are arguing that earning money through non-manual labor is 'effortless' ?
This could use some clarification:
" By simply having a lot of money, I can invest this and make a solid profit...and be taxed in a lower bracket."
Is there some magic money pool somewhere that I can put a million dollars into and count on it to make a "solid profit" ? What is a 'solid profit' ? Is it inflation + 4%? 5%? 10%?
People have told me that programming takes no effort, they say "Oh yeah, you just go in there and type in some stuff and make a word processor or something and then sell that again and again for $100, its like printing your own money!" I realize that they don't understand what programming involves in terms of making a living at it.
For the last 15 years or so I've had the opportunity to manage the funds that I rolled over from a 401K as a 'self managed IRA'. I haven't found making that money 'grow' either easy or effortless. Rather it has been very much a challenge.
During the dot-com frenzy I knew people who mortgaged their houses to raise capital that they were going to 'make money hand over fist' with. But I don't know any of them where that turned out to be the best use of that capital. Not definitive I know but it made me cautious.
That's one of the reasons wages and investment are treated differently: your effort can be wasted in either case, but with investment you can also lose your capital.
In regards to investing, nearly everyone is best off just investing in an index fund of the entire market.
In regards to government expenditures, I'd say generally, it makes sense morally to reduce your tax as low as possible, and than donate that amount to charity, research, or whatnot, not just because government wastes money, but because they use money to engage in horrific activities such as the Iraq War.
This is the wrong perspective. They're working toward maximizing their profits, not minimizing their benefit to the state.
$1 billion of taxes into the state does not even come close to producing $1 billion of benefit to themselves. Considering how much money gets distributed to parts of the state hundreds of miles away and how inefficiently (and sometimes wasted) the government handles money, it's probably fractions of a penny on the dollar that they actually get back in some benefit.
Is it worth it to you to avoid taxes? Yep. Even if it means that your local school where your children actually go to gets a bit less money, you save a couple thousand dollars and the school misses out on a hundred bucks. The impact on you personally is beyond negligible.
"Google said it complies with all tax rules, and its investment in various European countries helps their economies. In the U.K., “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, California-based company said in a statement..."
Everybody contributes to the economy, not just entities like Google, and they pay a higher tax rate for the income they derive through that contribution. Bringing these issues up is asking for double credit.
I can bet they can manage pay no VAT (because this is a compensated tax, you deduce what you spend...).
I may agree: corp. tax may be unworkable but saying "we are honest, we contribute to the economy" is flatly insulting to the other companies which cannot get away with it like Bermuda-based Google.
They all have the means to register in Bermuda (or Cyprus or several other countries used to offshore money), it's relatively simple for an accountant to setup, but there's little point as the UK doesn't have any easy way to get the money back into the country from offshore without paying the required amount of corporation tax; so there's no point in sending it overseas in the first place.
The US does have periodic amnesties that allow offshore money to be brought back into the US at a reduced tax rate which makes hoarding it overseas for a few years financially worthwhile.
Of course, there's nothing stopping a UK company with good cashflow (which is required if you're going to be keeping lots of cash overseas in the hope of a future amnesty) from moving their headquarters to the US and doing exactly what these US companies are doing to pay little/no UK corporation tax.
http://www.npr.org/blogs/money/2012/07/27/157421340/how-to-s...
Companies get profits proportional to the value of goods they provide to the economy.
Saying that somehow $100 earned by Google is more beneficial than the $100 earned by a small dental gabinet is extremely stupid. Both companies should pay taxes on their profits and none of them can claim it does more good for its money than the other.
To me, what Google tries to say is pure bullshit.
Argue about loopholes or Republicats all you want, this is fundamentally built into our system and there is NO ONE who wants to take on changing it. I guarantee you Romney and Obama BOTH know how this works and yet they play dumb in tax debates for hours, and no one calls them out on it.
I think getting rid of the corporate tax makes sense because it would at least level the playing field for smaller companies, but pretending that it makes a difference for larger companies just demonstrates how uninformed the electorate is.
If governments are allowing this, it's because they want to, not because of some accidental goof.
You can download a copy here: http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-.... I've read in many places that the US taxcode is > 70,000 pages. Maybe that includes state taxes. This pdf is a little over 3000 pages.
Still pretty complicated, and makes plenty of room for maneuvering in tax avoidance efforts.
Tax competition is a good thing. Kudos to Google and Bermuda.
I think you missed the point:)
We see this here in the US where States will undercut each other to get a business to move to their state (although it is different from doing this at a country level). In my opinion it is a fools game for States to do this - it is a race to the bottom and the company will just pack up and move to another state as soon as they're done taking advantage of the tax code.
I also think it is fine for an individual politician to express indignation as (a) they may not have been in office when this was passed and (b) one politician can't, by him or herself, change the law.
What I find most interesting was what happened in the UK with Starbucks - basically they bowed to public and government pressure on tax avoidance. Still, Starbucks sounded like they were "doing the right thing" as though paying tax was voluntary. Hysterical.
b) All of this 'tax dodging' is perfectly legal. But the laws are not perfect that incentivize this sort of behavior.
c) Of course the Europeans opt for some larger-government solution, all in the name of 'fairness'. I say that much injustice indeed has been done in the name of this fairness, since those with the lawmaking power are the ones who decide what's 'fair.' These outcomes usually do not promote liberty, free markets, or growth.
d) I'm sick of those who spout off this 'fair share' business about taxes. Show me some figures on who is paying the taxes and who is free-riding (as far as personal income tax goes), and I will then be able to hear an argument about 'fair share.' Hint: the top few percent pay the vast majority of income taxes.
"Last week, the European Union’s executive body, the European Commission, advised member states to create blacklists of tax havens and adopt anti-abuse rules. Tax evasion and avoidance, which cost the EU 1 trillion euros ($1.3 trillion) a year, are “scandalous” and “an attack on the fundamental principle of fairness,” Algirdas Semeta, the EC’s commissioner for taxation, said at a press conference in Brussels."
This is the issue. The Euro-zone is in a world of hurt and having a few hundred billion euros would "fix" that problem. So they are gearing up to change their tax laws, which is going to be a huge fight (taking money from wealthy people or corporations is always strongly resisted by those people).
I see it as a side effect of the EU fiscal problem in general (the root of which is non-soverign control over fiscal policy and enforcement) and suspect it will impact Europe at least as much as the end of the cold war did, if not more. I'm not entirely comfortable predicting what those effects will be.
Achieving low tax rates is largely about keeping up with Wall Street analyst expectations. CEO's of public companies having to face a bunch of analysts every quarter to discuss quarterly earnings, including after-tax earnings, is a huge driver of this sort of behavior. CEO's are judged on how analysts view their stock, and it's a horse race. If some other company makes $0.05 more than you per share because of a lower tax rate, they are going to get credit for that.
It seems as simple as that, from my ordinary tax-paying citizen POV.
We only need to look at Europe to see how widespread tax avoidance plus high government spending creates an unsustainable path that puts the entire economy and country at risk.
Seems to me the only rational path is to either support lower government spending across the board to complement the aggressive tax avoidance, or demand that leading companies pay taxes according to the state or country where the bulk of their employees are, and not based on wherever a shell company may reside.
But isn't it also the same problem in the US? Some states have very low taxes on business profits. So you can see very often companies having offices over there?
Fucking hypocrites
What infrastructure are translators and lawyers using? They still pay normal taxes because they extract profits from a given country and are ought to pay taxes on it. One shouldn't argue whether he or she is ought to pay taxes. If it was the case, 95% of companies and entities would argue that they shouldn't pay a cent. All using their own, twisted logic.
No one wants to pay taxes but avoiding them is unethical and doesn't help the society at all.
Should police/military funding be used to protect corporations or citizens? Are citizens paying it with take home salary? Google could hire their own private military, likely for less than the tax burden you're implying they should pay.
Since the post complains largely about behavior in the United States, it seems a fair reminder that from this list Police and Military are paid through taxes, while the others are (for the majority) constitute private transactions for services which individuals have no inherent right to consume.
> No one wants to pay taxes but avoiding them is unethical
I am sure many here would be interested in how you would support this assertion.
Apple has ~$74bn sitting off shore waiting for the same thing: http://news.yahoo.com/apples-phantom-taxes-hide-billions-pro...
The European countries are annoyed because they're not getting any of it (apart from Ireland who are getting 12.5% of a lot of this money as they're one of the countries where these tax schemes do pay corporation tax).
I just don't get it.
And I don't care about Apple right now: this is a Google thread.
Edit: I obviously understand "how" it is done. I do not get why that gives them the right to do so (apart from the obvious "being able to do that").
A company pays corporation tax in the UK on its profit, not on its sales, just its profit.
Your UK company makes sales of £500m and makes £200m profit.
You offset this by paying a £200m 'license fee' (for nothing special, it's easy to conjure up) to a company you also own based in Ireland. It pays just 12.5% corporation tax on this £200m instead of 28% in the UK.
That Irish company moves the money out to Bermuda in a similar way and there's no corporation tax to pay between Ireland and Bermuda.
You can't go directly from the UK to Bermuda as the UK's existing tax laws prevent that. Going via Ireland is the cheapest method (see "Double Irish"). Variants to help indemnify sometimes use a firm in the Netherlands (see "Dutch Sandwich").
So, by paying a £200m license fee to another company the UK company has made no profit, so it pays no corporation tax in the UK, despite sales of £500m.
Other variants include obtaining loans from the foreign companies and then paying interest on these loans.
If you want to bring that money back into the UK again then the remaining 15.5% (28% UK corportation tax rate minus the 12.5% already paid in Ireland) is due, so you're no better off than having just paid the full 28% in the UK in the first place.
Eventually you want to have the money somewhere else than Bermuda, and in Google's case this is back in the US, so they wait for the US Government to announce another tax amnesty and bring it back into the US from Bermuda and only pay 5% on it. Ireland wins (they get 12.5% for nothing really), the US wins (they get 5% instead of nothing) and the UK loses out (it gets 0%).
My point about Apple was that Google aren't alone in doing this, nor are they the biggest beneficiaries of these types of schemes.
If my company buys £2 million of plastic and spends £1 million licensing a widget design from a company based in Bermuda, I haven't made a profit and I don't pay my shareholders, so I pay no profit tax. The Bermuda-based company, on the other hand, has made a profit of £1 million - and they're only taxed at whatever Bermuda's tax rate is. And if that completely separate company happens to have the same shareholders...
Their duty to shareholders is to maximise profit.
Google are big and ubiquitous enough that they've probably decided that the negative aspects (bad PR from these stories) is outweighed by the increased profits and, therefore, shareholder value.
And in fact it’s not a moral issue at all but a legal one. And if the conduct is legal then it’s not Google’s problem, is it?! the focus on Google in some of this tax talk is indicative of some sort of a PR offensive against them by governments and other bodies who aren't fond of Google and are using this as a wedge issue against the company.
Everyone does it and it’s been done for a while, governments allow much of it to encourage corporations to hire and invest within the local economies and now they pretend to be surprised and appalled by it. This just reeks of hypocrisy.