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The Tax Haven That's Saving Google Billions

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Re: The Tax Haven That's Saving Google Billions

#51

Post by danssig »

rprasad wrote: post #8
stephenhamilton wrote: post #2

I'd like to know how much of the $60 billion tax shortfall the US government doesn't receive ends up in being spent by Google (at their discretion) on public works, education etc. I don't know enough to suggest this is (or isn't) the case, but perhaps this model would allow companies who genuinely want to look after their community to basically choose how money, that would otherwise be tax money, gets spent. I think…

That's called a charitable deduction, and it's already part of the tax code. Google isn't using the charitable deduction; it's simply using a loophole to avoid U.S taxation on income earned from non-US sources. Whether this is bad depends on your view on taxation.

>it's simply using a loophole to avoid U.S taxation on income earned from non-US sources

Income earned from non-US sources on US soil or outside of it? The thing that infuriates me about my home country is that they think I owe taxes on money I've earned while living in a totally different country. What stops, say, Russia from deciding I owe them taxes too?

Re: The Tax Haven That's Saving Google Billions

#53

Post by umarmung »

dsplittgerber wrote: post #43
illumen wrote: post #38

Earlier quoted context omitted.

Note, Matt_Cutts works for Google. Don't you think Google should be paying the UK tax on UK profits?

I don't agree at all. First, what exactly are "UK profits" supposed to be? Say Apple has a net margin of 20 % on every iPhone sold. It's designed in California by Americans (most surely several non-native Americans among them), manufactured in China by probably lots of Chinese workers and immigrants, shipped and flown across the world by god knows whom, etc. It's not like it's designed in Brixton, manufactured in Man…

These sort of tax haven arrangements are commonplace with almost all multinationals, which basically means almost all non-SME corporates these days.

There's a very good book on the subject, which is pretty shocking even if you work in finance (but not offshore tax accountancy or law):

"Treasure Islands: Tax Havens and the Men Who Stole the World"

http://www.amazon.com/Treasure-Islands-Havens-Stole-World/dp...

Re: The Tax Haven That's Saving Google Billions

#54

Post by danssig »

Wait a second. These are earnings that Google international made. So, yes, perhaps they have weaseled out of paying taxes in the UK or various European countries but IMO they shouldn't owe the US a dime of that money. It wasn't made in the US.

I find it really frustrating that people talk about discuss these things as "look at all the revenue the US lost because of this!". Sure, and look how much the mafia lost on it too! Both of these armed groups could have made more money if they just extorted foreign agents and took their money (calling it "protection money" or "tax" or whatever seems appropriate).

Re: The Tax Haven That's Saving Google Billions

#55

Post by mattraibert »

rayiner wrote: post #33
JoshTriplett wrote: post #30

Earlier quoted context omitted.

In the case of a business, that business had to grow to justify the increase in value, and that growth typically occurred via some taxable event, such as income. Then, that growth makes the business more valuable. If you sell your interest in the business, you pay taxes again on the increased value. So, yes, double taxation. Very similar to the double taxation experienced when taking in taxed business income and usin…

So first of all, the concept of "double taxation" is something you have to be careful with. In general, a given dollar will be taxed more than once because it is spent more than once. However, that same dollar also counts towards the net income of the country more than once. Double taxation is when the same income is taxed more than once, which is a bit different. Capital gains in general does not involve double taxa…

I'm confused by your income totals in your two examples: "$200,000 of income" and "$1.9m of income" can you break these down for me?

Re: The Tax Haven That's Saving Google Billions

#56

Post by bryanlarsen »

mslate wrote: post #40
Matt_Cutts wrote: post #18

This is an article from 2010 that's already been submitted to HN in the past: http://news.ycombinator.com/item?id=1815457 Personally, I find the sub-headline misleading. The subhead reads "Google uses a complicated structure to send most of its overseas profits to tax havens, keeping its corporate rate at a super-low 2.4 percent." But I believe that number refers only to Google's overseas tax rate. This more recent a…

Which is still ridiculously well below the stated 35% corporate tax rate in the USA (source--IRS http://www.irs.gov/pub/irs-pdf/i1120.pdf )

But that 35% corporate tax rate is the highest in the developed world, so Google's overseas tax rate is going to be lower than 35% even if they didn't pull anything fancy.

Also keep in mind that 35% corporate tax rate is also almost pure fiction too -- standard exemptions, let alone loopholes, are among the best in the world.

Re: The Tax Haven That's Saving Google Billions

#57

Post by Matt_Cutts »

mslate wrote: post #40
Matt_Cutts wrote: post #18

This is an article from 2010 that's already been submitted to HN in the past: http://news.ycombinator.com/item?id=1815457 Personally, I find the sub-headline misleading. The subhead reads "Google uses a complicated structure to send most of its overseas profits to tax havens, keeping its corporate rate at a super-low 2.4 percent." But I believe that number refers only to Google's overseas tax rate. This more recent a…

Which is still ridiculously well below the stated 35% corporate tax rate in the USA (source--IRS http://www.irs.gov/pub/irs-pdf/i1120.pdf )

Note: I am only speaking for myself personally, not for my employer.

I did a little searching, and http://www.reuters.com/article/2011/07/27/us-microsoft-tax-i... says that in their last fiscal years,

- Microsoft had an overall effective worldwide tax rate of 17.5%.

- Google's effective tax rate was 21%.

- Apple's effective tax rate was 24%.

- IBM's effective tax rate was 25%.

Then with a bit more digging into (independent Senator from Vermont) Bernie Sanders' twitter feed, I saw:

- General Electric had an effective tax rate of -45.3% from 2008 to 2010: https://twitter.com/#!/SenatorSanders/status/132791467994386...

- ExxonMobil had an effective tax rate of -38.3% in 2009: https://twitter.com/#!/SenatorSanders/status/132835853536989...

- Merck had an effective tax rate of -1% in 2009: https://twitter.com/#!/SenatorSanders/status/132927696131985...

- Boeing had an effective tax rate of -1.8% in 2008-2010: https://twitter.com/#!/SenatorSanders/status/132973012763938...

- Verizon had an effective tax rate of -5.4% in 2009 and 2010: https://twitter.com/#!/SenatorSanders/status/132944059814785...

Again, I'm just speaking for myself personally, not on behalf of my employer. My issue with the article was that I felt like it focused on Google when a broader perspective on corporate tax rates would have been more helpful.

Re: The Tax Haven That's Saving Google Billions

#58

Post by camz »

Matt_Cutts wrote: post #57
mslate wrote: post #40

Earlier quoted context omitted.

Which is still ridiculously well below the stated 35% corporate tax rate in the USA (source--IRS http://www.irs.gov/pub/irs-pdf/i1120.pdf )

Note: I am only speaking for myself personally, not for my employer. I did a little searching, and http://www.reuters.com/article/2011/07/27/us-microsoft-tax-i... says that in their last fiscal years, - Microsoft had an overall effective worldwide tax rate of 17.5%. - Google's effective tax rate was 21%. - Apple's effective tax rate was 24%. - IBM's effective tax rate was 25%. Then with a bit more digging into (indep…

Not to discredit Matt or his point, but I think the illustration of percentages does very little in illuminating valid points when it comes to taxation because most people don't understand the mechanisms and the theory behind tax law at this level.

I agree with Matt that the focus on Google is unfair, but the use of these one off statistics without an in depth review of the companies named above for the last 10 years is also unfair (Yes it takes a review of the past 10 years to establish a proper understanding of a company's tax position).

But, I will qualify that GE has an amazing tax team and the oil and gas industries are a beastly at lobbying.

Re: The Tax Haven That's Saving Google Billions

#59

Post by rayiner »

JoshTriplett wrote: post #36
rayiner wrote: post #26

Earlier quoted context omitted.

With corporations, taxation is very complicated. The law is complicated because its tries to be sensitive to the question of who should be taxed where for what, and the facts are complicated because it's hard to find out exactly what revenues are being made and what they represent. You can always throw more enforcement at the problem, but that costs money, and your yield is uncertain because companies will just spend…

> Taxing individuals is a lot simpler. You live in the US, you pay US taxes on all your income. Not quite as simple as that, actually. As a US citizen, you have to pay US taxes on your income even if you live and work in another country. Which sounds a lot like the problem that Google and other companies successfully avoid: a jurisdiction claiming tax on income taking place entirely outside of their jurisdiction. Ind…

The point is that a corporation can relocate activities on paper to the Bahamas to avoid taxation. A US citizen can live and work in another country and try to avoid tax that way, but few people are actually going to do that. All of the places someone might actually want to live have higher tax rates than the US.

Re: The Tax Haven That's Saving Google Billions

#60

Post by rayiner »

mattraibert wrote: post #55
rayiner wrote: post #33

Earlier quoted context omitted.

So first of all, the concept of "double taxation" is something you have to be careful with. In general, a given dollar will be taxed more than once because it is spent more than once. However, that same dollar also counts towards the net income of the country more than once. Double taxation is when the same income is taxed more than once, which is a bit different. Capital gains in general does not involve double taxa…

I'm confused by your income totals in your two examples: "$200,000 of income" and "$1.9m of income" can you break these down for me?

So the basic point is that in any economy, a given dollar supports a multiple of one dollar in income. The US GDP is roughly $13 trillion dollars, which is roughly equivalent to the total national income (http://en.wikipedia.org/wiki/Gross_domestic_product#Income_a...), but there are a lot fewer than $13 trillion dollars in circulation.

Now, when you buy something with a post-tax dollar, that money will get taxed again, but that is not double taxation. That dollar is counting towards income again when you spend it.

So say in the first example, the buyer made $200k in salary and capital gains, on which he paid 25% in taxes and was left with $150k. He then bought the property from the seller with that $150k, and the seller paid tax on the $50k of capital gains. Say this all happened in the same tax year. So the buyer reported $200k of income, and the seller reported $50k of income. That contributes $250k to the GDP. And taxes were paid on that $250k. No income was taxed twice.

Now compare this to a corporation. Say it makes $1m in profits after expenses. It is taxed 30% on these profits, leaving $800k. It then distributes this $700k via a dividend to its shareholders, who are taxed another 15%, leaving $595k. This example does not involve $1m + $700k of income. Only $1m of income is added to GDP. But that same income is taxed twice: once as corporate taxes and again as capital gains.

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