271–280 of 423 posts
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Because they act as a stand alone entity, and they may make and keep profit that doesn’t get dispersed to the employees.
They don't make use of it in a way a person does. They use it to make more income, not for food, housing, fun, etc.
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This could work, but it would have to be reconciled with the existing basis step-up at death, which is a key part of our intergenerational personal tax system. If you only taxed people when there is a dividend or salary payment, a savvy CEO of a private company could follow the tax advice of "borrow, buy, die". Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the…
> Instead of taking a huge salary, the CEO would borrow money to pay for everything, using the shares of the company as collateral. This would mean that they essentially pay a "wealth tax" (interest on all their borrowed net worth, with probably a decent premium for the risk) to the bank. > Then when the CEO dies, the loans are repaid out of the estate. And at this point, income is raised out of the company and would…
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VAT is literally tax on revenue and it works fine. You tax the added value, so each company pays tax only on (sell_price - purchase_price).
That's literally tax on profit.
For example, if you sell something before you have paid for it (this is very common), and then put the money from selling into a bank where it earns interest, and then withdraw that money and pay for the thing you sold:
You will have made sale_price - purchase_price + interest.
In a VAT system, you will pay VAT on sale_price - purchase_price (or your customer will, depending on how you sell things), but not on the extra interest you earned.
So that's already a loophole. You can game the tax system by selling things before you buy them and earning interest.
If you're smart enough, you might even sell things for exactly the same as you pay for them, and still make a profit due to the interest while you hold the money. You could get even smarter, and hold that money on behalf of your upstream supplier to withdraw when they need to spend it. Before you know it, you're paying zero VAT, and all your profit looks like interest.
But you have to pay an accountant to make sense of all these for you. The cost of the accountant isn't a direct cost of making the thing you're selling.
So that gives you the difference between gross profit (sales price minus costs associated with the thing you're selling) and net profit (what you have after paying for everything needed to run the business).
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“Transfer pricing” is why this doesn’t work out.
Could you elaborate? Reading up on it it's not clear what you mean.
I am still confused as to why companies have to pay tax at all? If every single employee including owners already pay income tax, and IVA/GST/purchase taxes, property taxes, xyz additional personal taxes levied by respective governments, why then on top of all that make companies pay tax, doesn't that just detract from people wanting to start companies and/or seek countries with the least taxes/best loopholes? Discla…
Similar to VAT you could argue that you pay with money that got already taxed.
But if companies have rights, you can argue that they also have burdens.
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This tax shenanigans happen because we have built an absurdly complex tax framework which can be gamed/abused with economies of scale. The solution is to streamline the tax framework as to make its implementation almost unavoidable. Long-story short, my bet is: - Sales tax (VAT) - Inflation - UBI Sales tax is far less gameable as it's linked to concrete economic activity. It also has the benefit of tracking the added…
Inflation is a tax on capital held in monetary form . It is not a tax on capital held as the earning power of an ongoing business. If I hold $1M of cash, I care about inflation eroding that over decades. If I hold $1M worth of DCF of Coca-Cola's future profit streams, inflation does not concern me for that portion of my capital.
My point is that the idle capital held in monetary form does nothing, so I want to disincentivize that to some extent. While I have nothing against that capital being available to an enterprise, they inject it back to the economy through their CapEx, R&D, income for employees, etc...
Potentially a company may also sit in vast piles of idle money (e.g. Apple), the value of the company will take into account the DCF and also the existing liquid reserves. In that case the liquid reserves will be progressively diluted by inflation and again, that's a desired outcome (in my view).
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> How to fix it? Make a tax code as simple as possible. So simple there is no room for interpretation.
Or do like Europe is finally starting: just tax revenue. They can suppress their 'profit' whichever way they want, they can't suppress their revenue in a given country. The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digita…
Better to tax value adds than revenue, which is simply money flowing through the economy.
I read about tax avoidance schemes like corporate inversions or sending all your patents to a company in some tax free haven and licensing your patents from your company for all your profits, and so on, and it makes me really mad. Companies making many billions of dollars paying no taxes. My intuition is that if I personally came up with a cute "gotcha" like this where I wound up paying zero in taxes because of some…
This tax shenanigans happen because we have built an absurdly complex tax framework which can be gamed/abused with economies of scale. The solution is to streamline the tax framework as to make its implementation almost unavoidable. Long-story short, my bet is: - Sales tax (VAT) - Inflation - UBI Sales tax is far less gameable as it's linked to concrete economic activity. It also has the benefit of tracking the added…
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I know of one "gotcha" that works in my country at least: work for low / no wage but instead have loads of assets like stocks; dividend taxes are much lower than income taxes. This is a common trick in the UK, or at least it was before the IR35 crackdown. Programmers, sportsmen, celebrities, even politicians and civil servants would run single-person companies and get their salaries paid to them. Then those companies…
The saving is more from a National Insurance perspective than an income tax one as income tax is paid on dividends (and dividends come out of profit after tax) Only first 2k of dividends is tax free, then its 7.5% within the basic earnings band, and 32.5% in the higher band. This is from funds that have already had 19% corporation tax applied to them. Of course anything paid as dividends doesn't attract either employ…
For income tax apart from the £2k(divi) and £500 (savings interest) allowances, it is already on the same basis.
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Take the case of me, a German citizen living in Germany, owning Apple stock. The German government taxes me on the capital gains - fair enough. But with your model the US government and the government of California would receive no taxes beyond those owed by the employees.
US taxes us on capital gains. OP is asking why the same money is taxed twice. You have simply restated the scenario what OP is asking about. The question is why are corporations taxed , not, what would happen if corporations are not taxed.