Outrage At Microsoft Offshoring Tax In the UK, Google Caught Avoiding US Taxes 768
Master Of Ninja writes "After the ongoing row about companies not paying a fair share of tax in the United Kingdom, and with companies such as Starbucks, Amazon and Google being in the headlines, focus has now turned to Microsoft. Whilst the tax arrangements are strictly legal, there has been outrage on how companies are avoiding paying their fair share of tax generated in the country."
And over here in the U.S., dstates sent in news of Google getting caught doing something similar: "Bloomberg reports that Google is using Bermuda shell companies to avoid paying billions of dollars in taxes worldwide. By routing payments and recording profits in zero-tax havens, multinational companies have been avoiding double digit corporate taxes in the U.S. and Europe. Congressional hearings were held in July on the destructive consequences of off-shoring profits. Why aren't the U.S. and Europe exerting more diplomatic pressure on these tax havens that are effectively stealing from the U.S. and European treasuries by allowing profits that did not result from activities in Bermuda or the Cayman Islands to be recorded as occurring there?"
Applicable quote from Judge Learned Hand (Score:3, Informative)
"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
Re:What's good for the goose... (Score:5, Informative)
He was until relatively recently, unlike others who were born with silver spoons in their mouths.
I think he remembers his apartment dwelling days quite clearly.
Correction: Only the second part is required. (Score:5, Informative)
Did a little checking: Actually a presidential candidate is not REQUIRED to put their money in a blind trust.
In principle Romney could have kept control and ordered his accountants to not use a tax haven.
The downside is that he'd be nuts to do so. In addition to the loss of money from such deliberate mismanagement, he'd be leaving himself open to legitimate attacks on any OTHER decision he made about the money, along withaccusations of conflict-of-interest when he makes political decisions. (Avoiding both conflicts of interest and the appearance of them is the whole point of blind trusts.)
Re:What's good for the goose... (Score:3, Informative)
He doesn't have the educational history of someone with poor parents, or even of someone with just average parents. He spent just 1 year of grade school in a public institution, all other years being private schooled. He spent grades 5-12 in Punahou school, where tuition costs more than minimum wage pays before tax each year.
Re:What's good for the goose... (Score:5, Informative)
The crux of these loopholes seems to be that by and large, corporate taxes are levied on net profit, not gross revenue. A company will make $10B in the US, then license something from a Bahamanian subsidiary for $10B, resulting in a profit for the US component of $0. If they had to pay on the total revenue, losing money to themselves would only increase exposure (since the US and Bahamanian divisions would both pay tax on the same $10B).
In the example of a US-based construction firm that made some money through a Canadian subsidiary, Canada would get the tax on that part of the work and the US on their domestic revenues.
The problem with this taxation model is that it would be a heavy weight on young companies; businesses generally run losses for the first several years of operation, even without paying taxes.
Obviously this is my layman's view of the way corporate income tax works; I assume that there is a certain complexity to the way that revenue and profit are calculated for tax purposes, and that there are frictional costs associated with various maneuvers.
Re:What's good for the goose... (Score:5, Informative)
Perhaps you missed Obama filling his cabinet originally. He had to go through 50 people to get 20 from the DNC that had ACTUALLY paid taxes. Daschle failed to pay taxes, a woman named Hillary (not Clinton) was rejected for failure to pay taxes, Tim Geitner was still confirmed even though he didn't pay taxes. Go into Congress and you can find more, like Charles Rangle who didn't pay taxes. There was even a stink about John Kerry mooring his boat in Rhode Island to avoid state taxes from Mass.
Your point is invalid because its the DNC that raises taxes and its the DNC politicians that constantly fail to pay taxes.
Re:What's good for the goose... (Score:5, Informative)
The US should simply make it illegal for these US companies to do this.
The problem is these aren't technically US companies. That's how a shell company works.
It's not that I don't disagree with you. It would be great if the US could put a stop to this behavior. But on paper, these companies are fully foreign companies that happen to have a relationship with a US company. That relationship consists of holding a lot of money overseas.
Re:compete instead of complain (Score:5, Informative)
They do pay taxes on their income. Unfortunately, their reported profits are much lower than their actual profits (courtesy of tax loopholes like the Double Irish strategy). Their are tons of articles on the internet that explains how this works. e.g., http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes.html [bloomberg.com]
Re:What's good for the goose... (Score:4, Informative)
First of all, $250K a year doesn't get you into the 1%. You need a bit more than that. The top 1% earned an average of $717,000 per year. The lower limit for a "1 percenter" is $386,000/year. And indeed, a large number of these people were indeed born with silver spoons. Many of them may have made relatively small sums right out of college...after all, you don't pay a recent college grad extra money for the same job just because their parents are rich. Looking at what they get paid for their first jobs when they graduate, however, completely ignores the concept of the "silver spoon." It doesn't take into account trust funds, gifts, being supported by their parents, inheritance wealth, or any investment portfolio they may already have at that point in their lives. It just looks at what an inexperienced college grad is worth on the market, which has nothing to do with actual wealth.
And the average college grad who has been working his entire life absolutely does not make it into the 1%. It's just common sense. If working your whole life and going to college, on average, gets you into the top 1% of anything, then that means only 2% of the population went to college and worked their whole life. If you want to stretch it a bit..okay, 3%. A lot more than that percentage of the Americans I know (because that's the population we're talking about here) went to college, and kept in the workforce the whole time.
Re:What's good for the goose... (Score:3, Informative)
It's cute that you actually buy that. David Cameron has a net worth of $50 million [celebritynetworth.com]. Even if supposing he's financially illiterate and shoves it in a savings account it would still net him $1.5 million each year. But let's all just ignore the facts and pretend he's an underpaid middle-class average Joe like you and me.
Re:What's good for the goose... (Score:5, Informative)
What the GP described is not a deduction. It is called "transfer pricing" or "cost-effective supply chain management". What they do is they artificially inflate the price of a single stage in the production or sale of the product and accounting for this in subsidiary in a tax haven or a country with a very low tax rate (This is what Google and Microsoft does). Alternatively the actual product itself is owned by a off-shore subsidiary (ie. what Walkers/Lays does with their potato crisps/chips in the UK).
The latter is actually a very good case study in this type of activity. Walkers is the UK snack food subsidiary of PepsiCo/Frito-Lays. They produce much of their products in the UK but the product (ie crisps/chips) are owned by a Swiss subsidiary. The UK factory makes no profits and the profits that come from the sale of the crisps in the UK go directly to the Swiss subsidiary (with much lower corporation tax). It's a complicated structure but it enables them to avoid most of the tax on profits in the UK. This is enabled by the EEC rules the preluded the eventual formation of the EU (which Switzerland is not a part of officially).
What you describe as a tax on gross profits is actually called a "cascade tax" or more commonly known as sales tax. VAT is not a cascade tax and is a tax on the value add of each stage of production. It's not the most straightforward topic so you might want to read up on it if you are passionate about tax reform.
Re:What's good for the goose... (Score:2, Informative)
A buddy of mine was in Punahou a few years behind Obama. His dad worked construction, but he cared about his kids. It wasn't cheap, but the public schools in Hawaii were terrible, and it's what you did if you could scrape it together and wanted anything resembling an education for your kids.