‘Dutch sandwich’ grows as Google shifts €8.8bn to Bermuda
cnbc.com
cnbc.com
It is overall a terrible thing for the economy. It is an incentive for bigger companies to get even bigger, and it is horrendous for small companies that have to pay full taxes and carry the burden of a tremendously complicated tax system that meanwhile fails spectacularly at taxing their orders of magnitude bigger competition.
(I guess it tells you a lot about the political system that we are happy to invade big countries but apparently powerless at regulating small ones that have specialized as tax havens)
Call it Double Dutch Chocolate (dot com).
Startups, almost by definition, are generally not profitable. Almost all revenue above costs will be more or less immediately reinvested into growth. Taxes for companies which are not profitable are very nominal.
1) Income earned in a particular country should be taxed there and not elsewhere;
2) Taxes should be incurred on net income, not gross income.
In the context of a multi-national, there is no simple way to implement these two simple principles. When Google earned a Euro for an ad shown in the U.K. from a server in Ireland using technology developed in Ireland and the U.S. how do you divy up the income and the expenses?
It isn't that big of a expense if you really want to try and avoid taxes as much as possible for your company.
source: I saw various of these reports for a few firms I consulted with
People are annoyed about it because it's stealing from the rest of us who do pay our taxes.
That's an interesting moral viewpoint!
EDIT: Perhaps I should put it more clearly...
If you sell goods on Google Play, I believe there is a fee of 30%. Now, imagine I found a bug in the Google Play store that meant that, even though I sold millions of copies of my app, I actually paid 0% to the Play Store. Do you think that Google would just accept that I'd found a bug in their software and therefore I owed them nothing? Do you think I owe them nothing?
Google chose to participate in a market where the costs were clearly labelled up-front and they didn't even have to pay a penny unless they made a significant profit!
Why the hell should they get away with paying nothing for a service that other people pay a lot of money for?
If not, then Google is to blame for taking advantage of tax loopholes.
* the software is designed by committee
* in the interest of greater acceptance, the committee solicits opinions of users for how to design the software
* some users need certain features, and the committee members are open to "suggestion"
* committee members have no issue with accepting suggestions without considering their impact
* committee members have no issue with accepting bribes in exchange for guarantees of certain features being implemented
* committee members actively solicit suggestions because they want money
* there are no repercussions for committee members taking bribes and blindly accepting feature requests, as a matter of fact it's official policy that they do so
Yeah, those "hackers" are definitely to blame here. They're playing the game by the rules and they're winning, and that makes you upset? Personally I'm not even surprised at all.
Man, the mental gymnastics people will go through to justify tax avoidance is astounding. Those with greater knowledge in an assumed non-adversarial system have a moral imperative to disseminate that knowledge to the others in the system. Otherwise taking advantage of the information imbalance and the other party's implied trust is unethical.
Just because something is legal does not make it right. Those who would outsource their moral thinking to laws are a sorry lot.
There are no mental gymnastics in determining how much taxes you have to pay, the only thing that matters is how much you pay.
Morals/ethics do have a determination whether the concept of tax is ethical or not, which would then determine the ethics of avoiding said tax. If you take the position that tax is ethical (as a member of a society...) then it is at least on the surface unethical to avoid the intended tax rate (shifting burden, freeloading, etc).
Also in a free market, governments should compete for companies to register their books in their respective countries and the competition between the governments should keep the tax rates fair.
http://www.npr.org/blogs/money/2012/07/19/157047211/six-poli...
I think we have to use common sense here. I can see why we want to tax a corporation if they just set up a shell company and pay royalties to the shell companies from revenue generated within the US but if the income is earned outside the US, why do we care? Why do we tax income that was not earned in the US?
A simple (but very difficult) way to fix it would be to eliminate all tax incentives, reduce the tax rate, and peg tax to revenue and not to profit.
So if you had revenue of $100 and expenses of $110, you would still pay taxes on the $100 revenue (at a newly reduced rate). This would encourage people to try to improve efficiency and profit margin.
After all, I pay income taxes on all my income, not on the savings after I have spent my money. Why should companies get to pay taxes on "profit" and not on revenue?
http://www.bloomberg.com/news/2013-05-22/google-joins-apple-...
Because then a company that makes losses (expenses exceed revenues) is still taxable, which isn't sensible. Taxes are not an expense, they are a tax on earned income.
Depending on where you live, you probably won't be paying taxes on your whole income: you might get tax breaks for anything from housing loans, to write-offs for travel to and from your business, etc. in the same way that a business gets to claim expenses against generating their revenue.
Hang on a minute. Maybe I am a little naive but I don't understand what all this hub bub is all about. Are you saying that people in country X (not the US) pay Corporation A real money but Corporation A legally does not pay taxes in country X? If that's the case, I think the fault is with your tax code than with corporation A.
I am sorry but if I could get away with paying less in taxes, I absolutely would. There is no shame in trying to pay as little tax as one legally can.
Actually, you, like a corporation, pay taxes on income after deductible expenses, and you, unlike a corporation, even get the privilege of assuming a certain amount of deductible expenses without proving it.
OTOH, almost everything a corporation can do with money other than lock it in a vault is a deductible expense, so there is that.
> Why should companies get to pay taxes on "profit" and not on revenue?
In theory, I think, because corporations are legal fictions and the actual benefits that their shareholders, employees, etc. -- the non-fictional people involved -- derive from them are taxed as personal income or capital gains, and corporate tax serves as a fee on delaying those personal taxes by retaining profits in the corporation.
For example, if a chocolate bar is sold by overseas manufacturer A to an importer B then to a wholesaler distributor C then to a small retail shop D then to you - then if taxes were paid on revenue, then that chocolate bar would be taxed 4 times, and each step would bump the price up by the tax rate in addition to the current markup; However, if a manufacturer A would buy all the elements in the chain and sell it directly to you, then it would pay 4 times less taxes, and it would be impossible for others to compete with that pricing difference.
In general, taxing income and profit is difficult to do fairly. It requires a really complex and invasive bureaucracy that scrutinizes everyone and every business. Sales tax, on the other hand, is easy to do fairly. You already have to regulate sales to enforce anti-fraud laws, food and drug laws, and other regulations.
People often say that sales tax is regressive, whereas income tax is progressive. But in practice, income tax is regressive, really falling only on the middle class. For example, multi-billionaire Warren Buffet pays a lower tax rate than his secretary. http://money.cnn.com/2013/03/04/news/economy/buffett-secreta...
In fact I believe it makes sense for the US corporation to borrow money and pay interest on it than to bring money in from offshore divisions. (As Apple did to pay dividends at shareholders behest)
Of course, if Larry, Sergey, or Eric at some point have kids or ex-spouses who are non-US persons, perhaps the majority of these assets won't re-enter the US in some form.
But it's amazing how many dark clouds are gathering around Google in the Larry Page era. One day it may start to rain or pour.
Even TechCrunch bashed them over all deceptive ads search results http://techcrunch.com/2013/10/07/verbase/
They removed it, because it didn't prove to be valuable when compared to other metrics. Odd TC didn't include this information when writing this piece. Seems fairly relevant.
They removed it, because it didn't prove to be valuable when compared to other metrics. Odd TC didn't include this information when writing this piece. Seems fairly relevant.
EVERYTHING above fold was ads, not sure what you're talking about. Ads and probably most people didn't realize that they were ads. Google, no doubt A/B tested the text and colors to fool the users.
The whole "crowdsourced" ranking system was tried by Google. Odd that they left it out of the article.
Oh well, if you learned it in school then it must be true!
Meanwhile corporate taxes and personal income taxes are at record low and it still didn't stop all manufacturing jobs to be outsourced to China.
See your logical fallacy? Sometime "basic econ class" will teach you... well... just the basics.
(This isn't to say you are wrong, at all; just that the actual tax businesses are really required to pay must be considered, not the claimed values on the sticker sheet.)
You can close the loopholes and lower taxes, leaving a neutral revenue effect. That still leaves a net gain through less expensive tax enforcement and compliance, along with an attractive corporate tax rate that suddenly becomes very competitive internationally.
If we closed all corporate tax loopholes, you could lower the corporate tax rate down to closer to the 22% range (if my memory serves me).
Those loopholes are there because Google pays(lobbies) for them to be there. As far as I know, they've paid more in lobbying last year than Microsoft, Apple and Facebook combined.
Those loopholes will never be closed, Google and the like will make sure of that.
I don't think it is "wrong thinking" on the parent comment's part not to blame the corporation for doing what it can to profit. Hell, if I could find a legal tax loophole I certainly would take it, too.
Larry Page and Sergey Brin wanted Google to be different, but all they've done is create yet another giant corporation.
On many matters Larry Page and Sergey Brin have had opportunity to take the moral high ground, but they have failed.
Why would I want you as a CEO of a company I invest in if you're not doing everything legal to raise my stock price / return money to me as dividends?
In this instance, Google was given no choice.
http://utterlyboring.com/archives/2004/04/19/google_may_be_f...
Because your definition seems to be taking advantage of something in a law, miswording or mistake, in a negative way, or even illegal, to avoid paying taxes that are rightfully due.
I define it as following the law as written to lower your tax burdens.
You imply that there's something inherently wrong with using "loopholes". I say there's something inherently wrong not using them, since it is the law.
You may attempt to make this about moral high ground and doing what's right, but that's your definition of the situation and you are welcome to your opinion. But the law says otherwise.
Especially since the company is basically legally required to use such methods to reduce their tax burdens, because otherwise they're likely to be sued by share holders or to whomever they are beholden to.
If it were true that a corporation is legally obligated to reduce its tax burden... then why isn't every shareholder in America suing the company for not moving the headquarters to Dubai where corporation tax is ZERO percent?
I'm pretty sure the parent meant within reason. Moving a $300b tech company's headquarters from the heart of SV to a location halfway around the world is not reasonable.
So why doesn't Google and every other company move to Dubai where corporation tax is zero percent? Why aren't shareholders demanding the company move to the lowest tax jurisdictions in the world?
Run down to your local university and audit a class in Federal Income Tax. It's actually a pretty well thought-out system. There are "loop holes" (e.g. for oil and gas companies), but when it comes to taxing multi-nationals there are real theoretical challenges.
As for your evidence-free assertion about lobbying, let's assume it's true, Google lobbies more than those corps combined, does that mean that these three you mention, who employ similar tax reduction techniques are proactivly lobbying to pay more taxes?! And are we to believe that these tech companies you mention are the only ones who "lobby" on tax issues or otherwise?!
Again, your comment is idiotic.
But the comment I replied to was implying that Google lobbying alone was responsible for all that is wrong in the world, and even the valiant efforts of Apple, Microsoft, and Facebook couldn't stop it.
So you're "pretty sure" but we need to provide evidence. I have some evidence: Google (along with others) saves BILLIONS a year by these tax schemes so you can bet your last dollar they lobby for them. Don't expect CNN commercials but extremely well funded industry groups, or lobbyists contacting already bought senators and congressmen. It's a return on investment that George Soros can't even dream about.
If Google paid 5% tax, imagine what a 35% or even 10% rate would have done to their earnings. In light of this, you need to provide proof they don't lobby to keep these tax loopholes :-)
OK, how deep have you looked for evidence?
Ah, I see.
Once you pay off a congressman or senator you can ask them for anything.
Burden of Proof:
You said that the burden of proof lies not with the person making the claim, but with someone else to disprove.
The burden of proof lies with someone who is making a claim, and is not upon anyone else to disprove. The inability, or disinclination, to disprove a claim does not render that claim valid, nor give it any credence whatsoever. However it is important to note that we can never be certain of anything, and so we must assign value to any claim based on the available evidence, and to dismiss something on the basis that it hasn't been proven beyond all doubt is also fallacious reasoning.
I used quotes because I'm borrowing an analogy from police investigations. You provided "motive", ie. "Google has a good reason to pay lobbyists for tax loopholes: money." But you did not provide evidence of said "crime", ie. "You have not shown direct evidence that they pay for lobbying for the purpose of tax loopholes -- rather, that they pay for lobbying (ostensibly for other purposes like net neutrality)."
I don't see how it's Google's fault.
The playing field should be level. If Google stops the lobbying, their competitors won't.
The system is rotten, it's not Google's fault they have to use the faulty system or die.
My point about shared/abstracted responsibility wasn't meant to defend or absolve anyone personally, but if you ever ask yourself how [CEO or board member of your favorite villainous corporation] sleeps at night, that was an attempt to explain it in broad terms. If responsibility is seen as shared, humans seem to have an increased psychological ability to internally deflect blame from themselves, in addition to the perception in some cases that they personally will not be punished or fined, rather the abstract corporation will. This in turn reduces the disincentive for behavior that they might not otherwise engage in.
If you'd prefer to believe instead that the problem is that people are running said corporations are simply evil to the core, feel free, but what do you plan to do about that? I tend to think any attempt at a solution should start with reducing the effect of corporate money on legislation and other areas of politics.
Hence, government's job is to limit how much damage evil can do.
They suck at this.
We have a system that literally mandates bribery. It's nuts. First step: campaign finance reform. There was a nifty proposal that got posted to HN a while ago, but it fell off the front page in minutes.
https://news.ycombinator.com/item?id=6461076
The idea is to give partial public funding to campaigns through $100 tax rebates to individual donors. The bill appears to be the usual "campaign finance refrom + next year's loophole" junk, but it's teeth sink in (loopholes slam shut) when campaigns want to take advantage of individual rebated contributions. It's actual reform dressed in fake PR-reform's clothing, trying to fly in under the radar. I'd love to see it get a chance.
A brief interview with Al Gore discussing modern politics that addresses this: http://www.theatlantic.com/video/archive/2013/10/al-gore-on-...
Obviously a non-commercial query like this should return few (if any) ads, so I tried to reproduce the author's results. Here is a screenshot taken of searching for [what is bitcoin] in a fresh Incognito window: http://i.imgur.com/KfY3gvs.png . There are no ads, and the search results a reasonable.
I thought the vastly different result could maybe be a result of searching on google.com vs google.co.uk, but changing the domain did not generate any ads either: http://i.imgur.com/5gcOvtJ.png
Does anyone on HN see a page full of ads when they search for [what is bitcoin]?
> Does anyone on HN see ads when they search for [what is bitcoin]?
I used the stock crunchbang browser (iceweasel) and it showed me advertisements: http://i.imgur.com/mhJhc5W.png
Obviously Google isn't evading taxes. Google has lawyers and accountants telling them that this is legal.
But some of the schemes that big companies are using are not legal, and the only way to test that is in court or to hope they agree and pay up.
This is a small argument in favour of tax simplification. The UK tax regime is baffling, and simplifying it would be a good thing.
{EDIT: I say UK tax system, I assume the same is true for the US tax system too.}
They are pretending that UK sales are taking place in Ireland, a lower tax jurisdiction, and then in Ireland they are saying they must pay Royalty payments to Bermuda, an even lower tax jurisdiction.
The FT reports that UK sales represent 10% of global sales, so the UK generates $4.9 billion of revenue but Google only pays $70 million corporation tax on that, an effective tax rate of 0.3%!!!
The MP can grandstand in front of an audience grilling Google in a public hearing every day, it means nothing. If the MP is so sure they are breaking the law, then charge them and take them to court over it. Otherwise, it's just posturing for people who like the drama of accusing large companies of keeping the little guy down by using special versions of the law that supposedly only they have access to.
Some people see a bad company, I see a bad law. A company following a bad law does not necessarily make for a bad company.
Intent matters, and these loopholes circumvent the intent of tax laws.
Loopholes do not circumvent tax laws in any way, if the method is allowed within the wording of the law then it is perfectly legal. By your logic any time I follow the law to reduce my tax burden I am in effect circumventing the intent of the tax law, which somehow makes me immoral.
I guess the difference is that if people don't like it or can't do it themselves it's a "loophole" and somehow wrong.
Either way, they are still getting some of that blame. Whatever blame they don't get goes to the hacker. I fail to see an issue with this.
So, as to your tax analogy, I see it much the same way in terms of language. You see the loophole as a means to exploit the tax law, I'm assuming to imply they are doing something they should not be doing. But the word exploit has positive as well as negative meanings. You say they saw a loophole in the tax law and they exploited it in a negative way meaning it was unethical, immoral, and/or illegal. I say they saw a business opportunity and exploited it for the advantage of their company and shareholders, which is totally legal.
Which one of us is right? Don't know. Someone has to complain to proper channels and let a court of law determine the outcome. But considering that most laws go with the notion of innocent until proven guilty, we can only go with that the tax methods used are legal. Questionable? Yes, but legal.
This is the first I've heard anyone claiming that the word exploit can have a positive meaning.
>You say they saw a loophole in the tax law and they exploited it in a negative way meaning it was unethical, immoral, and/or illegal. I say they saw a business opportunity and exploited it for the advantage of their company and shareholders, which is totally legal.
How you characterize the action isn't important. What is important is that exploiting logic in a law for personal gain and exploiting logic in software for personal gain is exactly analogous. The "hacker" in both cases is equally morally culpable as in each case their exploit was an unintended consequence.
exploit: (verb)
1. to utilize, especially for profit; turn to practical account: to exploit a business opportunity.
2. to use selfishly for one's own ends: employers who exploit their workers.
3. to advance or further through exploitation; promote: He exploited his new movie through a series of guest appearances.
You'll notice that only one of those four is distinctly negative in nature. Two of them are distinctly positive. The final one can be seen either way depending on context.
Therefore, I totally disagree that "exploiting" tax laws for personal benefit can always be seen as a immoral, unethical, and/or illegal act.
Your hacker is exploiting things for personal gain that is likely already considered illegal. Someone labeled as a hacker can exploit software for their own personal gain in a manner that is not illegal, but you don't seem to be using that context.
The two do not necessarily match in context because the "exploiting" of the tax laws you are complaining about has not been deemed illegal. This "exploiting" of tax law may have unintended consequences but that's the fault of the people who wrote the law, not the ones who willingly follow it.
I still feel you're intentionally evading the point here. The salient point is about the intention of the laws and the morality of circumventing intention. Circumventing the intent of the (justly applied) rules of a system is decidedly negative. This is why hacking is wrong (not because its illegal... really, everyone please stop citing laws as if they are the ultimate arbiter of truth) and this is why tax avoidance is wrong.
For example, waiting over a year to sell stocks so you pay long term rather than short term capital gains.
This is contrasted by "tax evasion," which is the illegal version of the same thing.
I know you're going to say, what Google is doing here is obviously wrong, not the same thing at all; and you're right, but a court has to draw the line somewhere, and it's very, very difficult to do so. Google has a variety of extremely highly paid professionals telling them they are on the correct side of that line, and so does every other large company, which is why so many of them employ these strategies.
In fact, I wonder how much more "moral" they could get without incurring legal action from shareholders over not taking advantage of permissible methods of tax avoidance!
That's the same line Eric Schmidt used and what he's really saying is "I defy you to change this as our lobbying power will ensure it's never closed. We already own the politicians so don't bother."
Not serious =). A much more realistic short term strategy is to give Google bad PR over this to the point that they stop, then they will start lobbying against it if their competitors are still getting to take advantage of the loophole.
I can't see that happening.
Not nearly as enough as they deserve. It should have started pouring years ago.
But keep in mind that there is no set of rules which can prevent, much less detect, all forms of cheating.
Any non-trivial game can be "broken".
Said another way: Locks keep honest people honest.