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How to Stop Turning U.S. Corporations into Tax Exiles

nytimes.com

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Re: How to Stop Turning U.S. Corporations into Tax Exiles

#41

Post by geomark »

deciplex wrote: post #16
seanmcdirmid wrote: post #13

Earlier quoted context omitted.

Only if the math doesn't work out right (same for corporates also). There is a lot of ambiguity though...

Everything over the deduction (currently just shy of $100k) is taxed, minus a further deduction for tax paid to a foreign government on the earnings. Basically, you will pay the higher of US tax or local tax, on earnings over $100k. And you're right, most people don't pay. Really the bigger pain in the ass is that you even have to file . I've filed tax returns to the IRS for the last 10 years despite not paying a cen…

Actually, it's been a requirement to file a FBAR for many years if you have a foreign bank account with more than equivalent of US$10,000 in it. So that filing requirement isn't exactly new, just that it's gotten more attention lately and now with FATCA you might not get away with ignoring it.

And yes, expats just love that requirement to file a tax return on your world wide income regardless of where it was earned or where you live, because as a US citizen you are the property of the US government.

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#42

Post by blisterpeanuts »

Almost more interesting than Icahn's common sense article are the many talkback comments from the New York Times readership, most of whom appear to be bitterly opposed to corporate activity which maximizes profits.

Has the NYT become a haven for left wing advocacy, Icahn's capitalistic perspective notwithstanding, whose primary readership are socialists? How much of the country do they represent?

I worry about our economic prospects when a significant chunk of the intelligentsia no longer believe in free market economics.

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#43

Post by DominikR »

king_of_nouns wrote: post #37
DominikR wrote: post #25

Earlier quoted context omitted.

How on earth can this be a law? This is such a broad and general statement that it could be used for whatever reasons to confiscate private property.

Sadly, laws aren't written like executable code. They're something vaguely resembling executable statements that require a lot of judgement by the person (trying to) interpret them to actually get to something that can finally be acted upon. As such, law contains many places (usually preambles and stuff) that are there to just give context and aid the interpreter in filling in the gaps, when he centuries later tries…

I know that, but not all laws are unspecific like that one. In fact, most laws specify in which cases they apply.

But with such a law it is impossible to specify anything. It just states that private property is to be used for the "common good".

What is the "common good"? I have my understanding of the common good which might be different from yours, so how are you going to codify that? This is a prerequisite to judging entities for infractions against this "common good".

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#44

Post by geomark »

seanmcdirmid wrote: post #36
deciplex wrote: post #16

Earlier quoted context omitted.

Everything over the deduction (currently just shy of $100k) is taxed, minus a further deduction for tax paid to a foreign government on the earnings. Basically, you will pay the higher of US tax or local tax, on earnings over $100k. And you're right, most people don't pay. Really the bigger pain in the ass is that you even have to file . I've filed tax returns to the IRS for the last 10 years despite not paying a cen…

So there is ambiguity: what if your Chinese company sends you to the states on a biz trip? The Chinese and U.S. governments both feel like they have exclusive taxation rights, so you just pay tax to both (and no, even the taxes paid are not deductible). Or what a of health insurance, if it counted as taxable income in your host country, is it taxable in the U.S. also? And then there are "expenses" that I have no clue…

It's messy and expensive to pay an accountant who knows how to get it right, which makes for a big disincentive to take any work abroad. Small jobs are money losers after accounting and filing costs.

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#45

Post by sokoloff »

rmc wrote: post #30
apsec112 wrote: post #10

Earlier quoted context omitted.

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes." "Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any…

There's no legal responsibility on me to be nice to my elderly parents either. Doesn't mean it's not The Right Thing To Do.

We legislate that you can't murder, torture, kidnap, or assault your parents. What you do beyond that is up to your conscience.

Given that corporations are conscience-less entities, the de jure minimums become the de facto outcomes.

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#46

Post by pzone »

throwawayukcyb wrote: post #40
pzone wrote: post #14

Earlier quoted context omitted.

I agree with you in general but there is another thing you're missing: the double taxation discourages investing in new businesses in the United States. If a VC is looking at two very similar businesses selling internationally, with one seated in the US where their profits will be doubly taxed, and the other running in a different country where profits are not subject to this, then ceteris paribus, they should expect…

ceteris paribus i.e. unicorns and rainbows. You're essentially just responding to every response to your posts with "yeah but more assumptions make it true!"

No, it's not unicorns and rainbows. My argument does not rely on the existence of such ceteris paribus firms, my argument is that this will affect decisions to invest on the margin. Maybe right now, the margin is deciding between a great company in the US versus a crap company in Ireland, but the one in Ireland looks more attractive due to tax reasons. This policy change would push it back in the right direction. The point is that because there is a margin somewhere, it must be shifted by these policy decisions.

I don't see myself relying on strong assumptions. I am laying out some simplified models to explain the core mechanisms of what's going on.

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#47

Post by DominikR »

skrause wrote: post #39
DominikR wrote: post #25

Earlier quoted context omitted.

How on earth can this be a law? This is such a broad and general statement that it could be used for whatever reasons to confiscate private property.

It's a constitution. You create actual laws based on the general statements in the constitution and enforce those laws. It's up to the constitutional court to interpret the constitution and decide if the other laws follow it correctly.

Still you will have to codify in some way what the "common good" is, because some way or another humans must be able to judge if something is against the common good or not. I wonder how someone could possibly do that.

The problem I see is that everyone will have his own idea about that. For some it will be upholding religious morals, for others it will be socialism. Could be really anything.

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#49

Post by king_of_nouns »

DominikR wrote: post #43
king_of_nouns wrote: post #37

Earlier quoted context omitted.

Sadly, laws aren't written like executable code. They're something vaguely resembling executable statements that require a lot of judgement by the person (trying to) interpret them to actually get to something that can finally be acted upon. As such, law contains many places (usually preambles and stuff) that are there to just give context and aid the interpreter in filling in the gaps, when he centuries later tries…

I know that, but not all laws are unspecific like that one. In fact, most laws specify in which cases they apply. But with such a law it is impossible to specify anything. It just states that private property is to be used for the "common good". What is the "common good"? I have my understanding of the common good which might be different from yours, so how are you going to codify that? This is a prerequisite to judg…

..and that's why you get lawyers to plead their clients cases, various chances to appeal a ruling, a separation of legislative and judiciary powers and ultimately even judges that are voted in and given tenure instead of just hired.

Yes, the state humanity finds itself in is a sad one. Patch atop patch atop patch .. for centuries (millenias?) by now. But what can you do? Everything else so far has failed in even more spectacular ways.

Re: How to Stop Turning U.S. Corporations into Tax Exiles

#50

Post by deoptimo »

princeb wrote: post #18

I am trying to think of companies that should rightfully repatriate cash back to the states, and companies that should not. Why is it that it is repulsive that Google or Apple chooses to keep their cash overseas, whereas it is fine for Budweiser to do so (ignoring magnitudes for a second)? Because AB Inbev is Belgian? This is a difficult example for me to think of, because the US is one of the interesting countries w…

As an alternate hypothetical, lets imagine that every multinational happens to be related to a large number of subsidiaries in the Cayman Islands, Bermuda, Singapore, and Luxembourg. Furthermore, suppose that three quarters of all world-wide corporate profits happen to be booked in these four countries with a minuscule population. Clearly there would be a problem.

So long as there is "greyness" in the allocation of profits among related entities, this will be systematically exploited to maximally shift profit low tax jurisdictions.

Although transfer pricing is a significant component, it is not the only one.

The most obnoxious methods probably relate to hybrid mismatches where corporations exploit differences in two tax codes to take deductions in both countries. This may involve a payment that is treated as interest in one country and a dividend in the other. It may involve an entity that is treated like a flow-through partnership in one country and a corporation in the other.

There is also "treaty shopping" where corporations set up faux corporations in countries with favourable bilateral treaties so they may reduce their tax when shifting profits from country A to the intermediary to country B.

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