Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

The missing profits of nations

voxeu.org

Post reply on HN
Print view View original

61–70 of 103 posts

Re: The missing profits of nations

#61

Post by opportune »

candiodari wrote: post #34
TAForObvReasons wrote: post #15

Earlier quoted context omitted.

Same thing played out with Amazon. The embedded 7-9% sales tax advantage gave them a massive price advantage (even if the headline price is the same, the price the consumer pays is less) that retailers couldn't keep up with.

You forget the effects of the "full reinvestment" policy. Amazon barely paid any tax at all. Not on sales, not on storage space, not on profits, not on ... (note: Jeff Bezos DID get enough money out of it to become the richest man on earth, but not through profit. Rather he got "capital gains on his shares", which is the same thing in practice, but a very different thing for the IRS. Oh, and since it's "paper profits…

how is reinvesting profits a government subsidy? Literally any company that wants to grow can do that

What subsidies are you even talking about? Most of your post sounds like stuff you just pulled out of your ass

Re: The missing profits of nations

#62

Post by jaredklewis »

tomp wrote: post #55
jaredklewis wrote: post #22

Earlier quoted context omitted.

> Is it because "making the use of tax havens illegal" is hard/impossible? It is at the very least hard. How would the law work? Will it be illegal for a company to sell/transfer their intellectual property to a company in the Caribbean? Will it be illegal for that company to license intellectual property to a company in the US? Everyone feels they can recognize tax evasion when they see it, but to come up with a set…

> Will it be illegal for a company to sell/transfer their intellectual property to a company in the Caribbean? Why not? I'm sure the tax havens would be very quick to adopt sensible tax rates to stop the ban.

The first problem with this is the same race to the bottom you have with corporate tax rates in general. If only one country, the US for example, creates such a law, that would give corporations a massive incentive to create their intellectual property outside of the US. I imagine that pretty much all global companies would gradually move to produce all of their intellectual property outside the US so as to avoid such restrictions. This would in turn be a huge windfall to other countries and a major detriment to the US economy.

So you need all countries to coordinate on this front. I also don't see how the ban would encourage the Caribbean to adopt "sensible" tax rates. In the Bahamas, Bermuda, Cayman Islands, or the Virgin Islands, the corporate tax is already zero. Not sure how much leverage such a ban would actually have over these countries.

The second problem is in the actual legislation. How is the law going to be written? Is it going to be a fixed list of countries that congress must update? Any country with a 0% tax rate? A new FTC style body that adjudicates which countries are "tax havens?" Because all of these can be circumvented with just a little elbow grease.

The final problem is enforcement. Can intellectual property be sold to other countries in the US? Can those companies be sold to foreign companies? If a US company is a acquired by a foreign company, could that company then not license software to US companies? Are all transactions between US and foreign companies going to be individually monitored? Because that is a lot of work, and if you don't do that, it's very difficult to enforce the law.

Basically, if someone was to sit down with the specific goal of designing a tax that could be easily evaded, they would come up with the income tax. Personally, I feel it's better if we adopt taxes that are more easily enforced and more progressive than the income tax. But for some reason, the corporate income tax remains relatively popular with politicians and voters around the developed world.

Re: The missing profits of nations

#63

Post by dang »

eecc wrote: post #44
derefr wrote: post #41

Question: why isn’t there an international entity that is to tax-law normalization as WIPO is to IP-law normalization, that could—like WIPO—punish offending non-members by requiring members to impose trade sanctions on them? The big players (none of which are tax havens) certainly would have an interest in building it, and in giving it power.

Regulatory capture? Nah! lobbying? Hmm, close. Corruption? Yup, that right!

Please don't post unsubstantive comments or use HN for ideological battle. Other users in the thread have views that I assume are similar to yours, and are posting substantively. That's the way to be.

Comments like this one and https://news.ycombinator.com/item?id=17620701 are a bit like littering. I'm sure you wouldn't do that offline, so please don't do it here either.

Re: The missing profits of nations

#64

Post by rbranson »

dzink wrote: post #39
flexie wrote: post #3

And this is where the main issue is. Local newspapers, local advertising companies, global search companies that could have been; all of them are competing with Google on vastly unfair terms. Google is not paying tax. The others have to.

True, though small companies can be held as LLCs or taxed as SCorporations if they have less than 100 investors, and they wouldn't pay corporate taxes anyway. At that point taxes on gains trickle to the owners/partners and are taxed at personal tax rates. C-Corporations pay taxes twice (Corporate taxes, then taxes on distributions as salaries or dividends).

Employee salaries are tax deductible in the US.

Re: The missing profits of nations

#65

Post by tomp »

jaredklewis wrote: post #62
tomp wrote: post #55

Earlier quoted context omitted.

> Will it be illegal for a company to sell/transfer their intellectual property to a company in the Caribbean? Why not? I'm sure the tax havens would be very quick to adopt sensible tax rates to stop the ban.

The first problem with this is the same race to the bottom you have with corporate tax rates in general. If only one country, the US for example, creates such a law, that would give corporations a massive incentive to create their intellectual property outside of the US. I imagine that pretty much all global companies would gradually move to produce all of their intellectual property outside the US so as to avoid suc…

US has far more leverage than any third-world country. E.g. they could simply prohibit countries incorporated/owning/owned by countries in tax havens from selling in the US. Seems to work well for China.

Re: The missing profits of nations

#66

Post by eecc »

dang wrote: post #63
eecc wrote: post #44

Earlier quoted context omitted.

Regulatory capture? Nah! lobbying? Hmm, close. Corruption? Yup, that right!

Please don't post unsubstantive comments or use HN for ideological battle. Other users in the thread have views that I assume are similar to yours, and are posting substantively. That's the way to be. Comments like this one and https://news.ycombinator.com/item?id=17620701 are a bit like littering. I'm sure you wouldn't do that offline, so please don't do it here either.

Yeah, not sure about the littering but I could have elaborated the argument some more. But it’s late here and other will do a better job than myself

Re: The missing profits of nations

#67

Post by jaredklewis »

tomp wrote: post #65
jaredklewis wrote: post #62

Earlier quoted context omitted.

The first problem with this is the same race to the bottom you have with corporate tax rates in general. If only one country, the US for example, creates such a law, that would give corporations a massive incentive to create their intellectual property outside of the US. I imagine that pretty much all global companies would gradually move to produce all of their intellectual property outside the US so as to avoid suc…

US has far more leverage than any third-world country. E.g. they could simply prohibit countries incorporated/owning/owned by countries in tax havens from selling in the US. Seems to work well for China.

> E.g. they could simply prohibit countries incorporated/owning/owned by countries in tax havens from selling in the US.

Yea, I don't think there would be anything "simple" about this, for all of the reasons listed in my reply above.

> Seems to work well for China.

We have very different definitions of "work well." I assume you are referring to the recent tariffs, in which case we gave China an ultimatum, and they said go for it, and are imposing retaliatory tariffs.

If China had actually changed any of their trade policies to be more fair, I would have considered that to have "worked well."

What we got instead was a trade war, which was to be expected. Basically ultimatums are always an ineffective negotiating tactic as they force politicians in the receiving country to reject the offer, no matter how reasonable.

Re: The missing profits of nations

#68

Post by candiodari »

adventured wrote: post #43
candiodari wrote: post #34

Earlier quoted context omitted.

You forget the effects of the "full reinvestment" policy. Amazon barely paid any tax at all. Not on sales, not on storage space, not on profits, not on ... (note: Jeff Bezos DID get enough money out of it to become the richest man on earth, but not through profit. Rather he got "capital gains on his shares", which is the same thing in practice, but a very different thing for the IRS. Oh, and since it's "paper profits…

> if these loopholes were all closed, the internet "revolution" would end. All these companies would rapidly shrink to 10% of their current size That's wrong and impossible to support in fact. You can spot a fraudulent claim like that easily because it wings an arbitrary number that on the surface appears absurd (and as it turns out, is). Tax Microsoft at the OECD median, their net income for 2018 would be about ~$25…

You just pick out their corporate tax and then state all this like it's the only tax in existence ???

This is not what I mean. Replace Microsoft tax with an auto repair shop's taxes. Everything produced and installed and serviced locally.

1) Sales tax/VAT. On the full amount of the sales, not just the lowest they can get away with. That's 10-27% depending on the location. No interstate commerce exception. No import/export exception.

2) Corporate tax in the local jurisdiction. That's the 14% tax rate (and there are jurisdictions where this is 35%). This comes on top of the sales tax of course.

3) Capital gains or profit tax in the local jurisdiction, on the company side (there is ALSO capital gains tax on the investor side, it's not either/or everywhere). This is going to be somewhere from 0% in some (few) places, 15% (normal) up to 58% (in jurisdictions where capital gains is taxed like income) (note that this will be charged before buybacks or dividend payouts are allowed). Auto repair shops don't get to pick ... why should Microsoft ?

This is ignoring lots of varied taxes, TAX DEALS, real estate investments, owned real estate, depreciation for machines being allowed or not, any investment/loan taxes, ...

Now we have a minimum of 35% tax, up to 81% tax, on any amount of money that shows up in the share price or is paid out to investors.

THAT's the figure to be compared to the 14% tax rate. THAT's why Walmart and "brick&mortar" retailers feel slighted.

THAT's why everybody should be angry as hell at people like European Commission president Juncker, as he was one of the pioneers of allowing companies evade tax within Europe. Of course, that's also why it won't ever be fixed without replacing most/all of the political establishment in Europe (but US is not that different)

https://www.fool.com/investing/2018/04/08/trump-is-right-ama...

Re: The missing profits of nations

#69

Post by opportune »

tcfunk wrote: post #18

Maybe this is a silly question, but why don't we just lower the corporate tax rate significantly (maybe 10 or 15%), and make the use of tax havens illegal? I'll bet 10% of $17bil is still quite a bit more than whatever Google paid in US taxes that same year. Is it because "making the use of tax havens illegal" is hard/impossible?

Tax havens are tax havens for a reason. The only way to stop the Cayman Islands from being a tax haven would be picking a fight with the UK

This a solution which is easy to explain, but hard to implement.

Re: The missing profits of nations

#70

Post by tomp »

jaredklewis wrote: post #67
tomp wrote: post #65

Earlier quoted context omitted.

US has far more leverage than any third-world country. E.g. they could simply prohibit countries incorporated/owning/owned by countries in tax havens from selling in the US. Seems to work well for China.

> E.g. they could simply prohibit countries incorporated/owning/owned by countries in tax havens from selling in the US. Yea, I don't think there would be anything "simple" about this, for all of the reasons listed in my reply above. > Seems to work well for China. We have very different definitions of "work well." I assume you are referring to the recent tariffs, in which case we gave China an ultimatum, and they sa…

> I assume you are referring to the recent tariffs, in which case we gave China an ultimatum

No, I'm referring to the fact that foreign (Western) companies cannot sell in China unless part of the products are made there, and can't own Chinese companies without Chinese co-ownership. It all resulted in a massive transfer of IP to China, simply because for most companies, the tradeoff still made sense (short-term at least) (Google is a notable exception).

Post reply on HN