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Facebook tax court trial begins over Ireland offshore deal

reuters.com

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Re: Facebook tax court trial begins over Ireland offshore deal

#51

Post by AnthonyMouse »

SilasX wrote: post #43
cbanek wrote: post #7

Earlier quoted context omitted.

Well, I guess it depends on the interpretation of the rules. The point of contention seems to be the valuing of assets, which of course FB has incentive to not value highly: > The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010 while building out global operations, a move common among U.S. multinationals. Ireland has lower corporate tax rates than the…

Part of the problem is, it’s not a legit, best price, arm’s-length, market price. Facebook:Ireland is just a sock puppet for Facebook:USA, and the latter has no intention of selling it to a true outsider. OTOH, if FB:USA sold the rights to FB:I for $1, knowing it would pay billions to license those rights the next year, I don’t get how that can be a proper valuation, even without a clear price discovery mechanism.

The real issue is that "market price" legitimately has an amount of slop in it that can eat the company's entire profit.

Suppose it costs $50M in salaries to create intellectual property which is then licensed to customers for $500M. Which one is the "market price"? It was sold for both prices, once by the employees to the company and then by the company to the customers. But the difference is a factor of ten.

More than that, the difference can be justified. When the $50M is paid, you don't know whether anybody will buy it. Maybe you'll make a billion dollars, or maybe you'll make nothing and just flushed $50M down the toilet. Or maybe you'll make a profit but the profits are spread over future years whereas the work was paid for immediately, so in an arms length market transaction you would expect the price paid to be discounted for the time value of money.

So they pay $50M for something they go on to sell for $500M. Which one is the market price? Both of them.

This obviously leaves more than enough slack for chicanery.

Re: Facebook tax court trial begins over Ireland offshore deal

#52

Post by seibelj »

greglindahl wrote: post #49
seibelj wrote: post #40

Earlier quoted context omitted.

Given all the other comments it sounds like many people agree with me. What part didn’t you understand?

"Many of my comments do poorly on HN" -- silbelj

What particularly about the top comment is nonsensical to you? If English is not your first language I can try to simplify the prose to 5th grade English.

Re: Facebook tax court trial begins over Ireland offshore deal

#53

Post by webpaymentsguy »

manigandham wrote: post #47
seibelj wrote: post #4

I truly wish that the corporate tax rate was 0. Not 25, not 15, but 0%. Then all of this ridiculous nonsense around crony capitalists lobbying for special tax breaks, “double Dutch Irish sandwiches”, and the insane discrepancies between big business and small business in regards to tax games would all go away. Just increase capital gains to match income tax and be done with all of this bullshit. Amazon pays an effect…

As a business owner, I fully support this. There are plenty of other taxable outflows like payroll and sales. Having 0% corp income tax would also encourage spending and growth without trying to write down everything as COGS. Also LLCs operate this way already with pass-through taxes which is why they're used so often in real-estate. It allows for limiting liability and splitting ownership and management without addi…

I'm wary of incentivizing corporations as a personal wealth vehicle, but I still agree with you. Payroll, sales, capital gains, and value added taxes are a great place to shift or grow tax revenues should we ever reduce the corporate tax rate.

Re: Facebook tax court trial begins over Ireland offshore deal

#54

Post by greglindahl »

seibelj wrote: post #52
greglindahl wrote: post #49

Earlier quoted context omitted.

"Many of my comments do poorly on HN" -- silbelj

What particularly about the top comment is nonsensical to you? If English is not your first language I can try to simplify the prose to 5th grade English.

Your insult is a good example of why you might be downvoted.

Re: Facebook tax court trial begins over Ireland offshore deal

#55

Post by gimmeThaBeet »

cbanek wrote: post #7
ThrowAway14592 wrote: post #2

Is this actually illegal though? Or is it just clever exploitation of the rules? Tax avoidance is not the same as evasion.

Well, I guess it depends on the interpretation of the rules. The point of contention seems to be the valuing of assets, which of course FB has incentive to not value highly: > The IRS argues that Facebook understated the value of the intellectual property it sold to an Irish subsidiary in 2010 while building out global operations, a move common among U.S. multinationals. Ireland has lower corporate tax rates than the…

IANAL, Retroactively going after the valuation of assets based on success years on is awkward at the least, and dangerous at the worst.

FB is right, they were still pretty unproven in 2010. It took nearly 1.5 years after their IPO before they convinced people they could make money.

I agree, it seems like they would be looking for evidence of undervaluing. But like, let's say you are discount potential cash flows. I don't even know if FB was profitable in 2010, what kind of projected cash flows are you going to have?

I just think that if the governments cared about this so much, they would actually fix this. The double irish is going away, but while the US had a chance to fix stuff in 2018, there's still incentive to offshore IP, and in fact, reinforces the advantage of offshoring production.

Re: Facebook tax court trial begins over Ireland offshore deal

#57

Post by dodobirdlord »

jdkee wrote: post #24
BurningFrog wrote: post #17

Earlier quoted context omitted.

You can make a good argument* that taxing corporations is weird anyway, since they're abstract legal concepts. Taxing the income real people get paid from the corporation would be the logical, and much simpler system. * You can of course also make a decent argument against this :)

Corporations have similar legal rights to corporeal persons. Freedom of speech, access to the legal system, etc. As a result of having similar rights, they should be taxed as corporeal persons. It is not rocket science to conclude that corporations in the U.S. should be taxed at the same effective tax rate as real persons.

Corporations are just bundles of stuff that people own. They have legal personhood as a convenient legal fiction because it would be obnoxious if all of the owners had to get together to sign things, and they have rights because people don't lose any of their individual rights just because they happened to form a corporation together. But at the end of the day, bundles of stuff. Economists seem to be broadly in agreement that tax systems would work better if corporations didn't pay income tax.

Re: Facebook tax court trial begins over Ireland offshore deal

#58

Post by BurningFrog »

wolco wrote: post #28
BurningFrog wrote: post #17

Earlier quoted context omitted.

You can make a good argument* that taxing corporations is weird anyway, since they're abstract legal concepts. Taxing the income real people get paid from the corporation would be the logical, and much simpler system. * You can of course also make a decent argument against this :)

Then you get companies leasing jets, houses, etc for employees uses instead of pay.

This is already regulated. The current 21% corporate tax rate would be enough to make it very attractive otherwise.

Re: Facebook tax court trial begins over Ireland offshore deal

#59

Post by dodobirdlord »

webpaymentsguy wrote: post #53
manigandham wrote: post #47

Earlier quoted context omitted.

As a business owner, I fully support this. There are plenty of other taxable outflows like payroll and sales. Having 0% corp income tax would also encourage spending and growth without trying to write down everything as COGS. Also LLCs operate this way already with pass-through taxes which is why they're used so often in real-estate. It allows for limiting liability and splitting ownership and management without addi…

I'm wary of incentivizing corporations as a personal wealth vehicle, but I still agree with you. Payroll, sales, capital gains, and value added taxes are a great place to shift or grow tax revenues should we ever reduce the corporate tax rate.

The point of capital gains taxes having a separate rate lower than income tax is mostly to account for the fact that corporations pay income tax, so income received from corporations has already been taxed once. One of the perks of abolishing corporate income tax is that it naturally should be paired with abolishing the distinction between capital gains and earned income, a double-whammy of tax code simplification.

Re: Facebook tax court trial begins over Ireland offshore deal

#60

Post by dodobirdlord »

awb wrote: post #45
seibelj wrote: post #4

I truly wish that the corporate tax rate was 0. Not 25, not 15, but 0%. Then all of this ridiculous nonsense around crony capitalists lobbying for special tax breaks, “double Dutch Irish sandwiches”, and the insane discrepancies between big business and small business in regards to tax games would all go away. Just increase capital gains to match income tax and be done with all of this bullshit. Amazon pays an effect…

I think most people advocating for 0 income tax (corporate or personal) advocate replacing that tax with an increased sales tax instead. That way you don't have to mess with income reporting, deductions, loopholes, etc. Just pay a % of each transaction directly to the government. Credit card companies and banks could even automate this so it's completely transparent.

Most people (that I know of at least) advocating for 0 corporate income tax would like to see it paired with eliminating the special tax rate for capital gains and rolling capital gains income into earned income.
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