back to article Tech giants' offshore cash-stashing is only ever a delaying tactic

Do companies have a duty to their shareholders to dodge as much tax as possible? Are Google, Apple and Facebook simply following the law as they ought to by shovelling everything through Ireland and Bermuda? Unsurprisingly, it depends on which law you think they're supposed to follow, for the law does, in fact, vary across …

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  2. jaduncan
    Facepalm

    ?

    You don't need to bring the capital in; the company can just borrow inside the US whilst securing the loan on the capital that never entered the country you are borrowing in.

    1. Tim Worstal

      Re: ?

      True. But at some point those loans need to be repaid. Either out of US made profits, which will pay the US corporate income tax, or out of those foreign made profits, which will have to be brought into the US and will thus pay the US corporate income tax.

      The one thing that Apple simply cannot do is borrow the money abroad, pay it out as dividends, and then use the profits stacked up offshore to repay the loans.

      Absent a tax amnesty Apple simply cannot get those foreign profits into the hands of the shareholders without paying corporate income tax on said profits.

      You can delay for a long long time but true avoidance is much more difficult.

      1. Anonymous Coward
        Anonymous Coward

        Re: ?

        Can they not wait until they use the money outside of the US for pre-tax expense? That way a profit is held in reserve and used to expense a cost that would have otherwise come out of post tax cash reserves?

        1. Tim Worstal

          Re: ?

          Sure. But only for expenses incurred outside the US.

          They can't use it for an expense inside the US, no way Jose.

      2. Shagbag
        Boffin

        Tax deferral

        A pound today has more value than a pound in 10 years' time. Deferring taxes for as long as you can adds value to a company's shares.

        It is a truism that there are two certainties in life: death and taxes.

        The question is how long can a company (which has an infinite life, in theory) defer its payment of taxes past the death of its owners?

      3. Anonymous Coward
        Anonymous Coward

        Re: ?

        @tim - you're forgetting global banks. You don't need to repay the loan in the same legal jurisdiction you borrowed the money.

        1. Tim Worstal

          Re: ?

          That's true: but the IRS won't let you do that. Not a chance.

          1. Anonymous Coward
            Anonymous Coward

            Re: ?

            I think you'll find it's not quite so black and white. This is where intra-company loans and other exotic instruments become useful.

      4. Anonymous Coward
        Anonymous Coward

        Re: ?

        It's correct that anything that pays out as dividend comes out of profits (and so will need to have been repatrioted) but for many tech busiensses shareholders invest for share price growth (capital gain). So long as the business keeps growing shareholders benefit from the price of the shares.

        In this case the un-taxed profits held offshore can be used to fund investment and expansion and to mitigate the tax bill (a loan from the offshore company charged as a cost to the local company means reduced local profits for taxation and an enlarged money funnel offshore).

        The company can also use this principle in a share buy-back scheme for instance, or taking over a competitor in order to pump up the price of the shares - so essentially creating a capital gain for share holders from untaxed profits, instead of a dividend out of taxed profits. M&A can iselft bring some significant tax advantages - for instance using losses from the acquired company to offset corporation tax - another method of repatriation via business growth.

        (This method can also be used to benefit specific shareholders - eg by buying or investing in a specific shareholder's business - something akin to Apple buying NeXT).

        The reason these tax-shenanigans are a problem is because not only does the local government not get tax due, but it gives a cost advantage to the company using offshore ploys over local businesses.

      5. Roland6 Silver badge

        Re: ? @Tim Worstal 09:06

        >But at some point those loans need to be repaid. Either out of US made profits, which will pay the US corporate income tax, or out of those foreign made profits, which will have to be brought into the US and will thus pay the US corporate income tax.

        Unless the US system is vastly different to the UK system, there will be no US corporation tax to pay: servicing the loans is an allowable business expense, sufficient monies from oversea's can be brought into the US to service these loans - after allowing for expenses incurred in the US there is no US trading profit...

        I expect to see more companies following Apple's lead, particularly given the substantial difference between corporation tax rates and the cost of borrowing money.

      6. Axel

        Re: ?

        The thing is that they never need to repatriate the cash.

        Apple, for example, didn't issue a dividend from 1995 to 2012.

        http://money.cnn.com/2012/03/19/technology/apple-dividend/index.htm

        That's not a problem for investors, because they also make money from stock market price increases.

        If Apple has a pile of money sitting off-shore, that's an asset so it increases the value of the stock.

        If Apple uses the money to buy stuff, IP or other companies outside the US, that also increases the value of the stock.

        An investor can realize that value by either selling stock or by using the value of the stock as security for a loan (which they will get at a very low rate of interest) which they can use to invest elsewhere or spend).

        And, as has been pointed out, corporations know that if they sit on a big pile of cash for long enough they can blackmail the US Government into letting them repatriate the cash at a hugely deducted tax rate (less than 10% instead of 35%). So they just wait for a decade...

      7. Anonymous Coward
        Anonymous Coward

        Re: ?

        "You can delay for a long long time "

        And then go bust, and be resurrected with a different name and the same directors.

        Well known tactic in the construction industry a while back, hopefully now eliminated (well I can dream can't I?).

  3. Duncan Macdonald

    Simple fix for the US

    If the US wanted to stop the tax dodging by companies that leave their money offshore then a simple fix would be to deem the money returned to the US three years after it is earned with the tax then being due. For a company to delay paying tax on overseas profits it would have to prove that the profits could not be returned to the US (e.g. if there was an exchange control that prohibited the movement of the money) .

    1. Shagbag

      Not so simple

      What about those foreign subsidiaries that are economic activity (employ 100s/1000s of locals, occupy office space, etc.)? Do they get hit by your undistributed profits tax? What about a trading trust? It's not a company. It doesn't pay dividends. How would it be hit by your deeming provisions. Also, at what point does a company cease to be part of the US tax group? eg. when its management and control is offshore?

      What about foreign losses? Can they be carried back and the US taxpayer gets a refund of previously paid taxes (on prior profits)?

      Tax law is never simple.

  4. John Sanders
    Meh

    """Thus, the value of the NHS must be expressed as something other than the tax that it doesn't pay. That value being that it has been known, occasionally, to cure people of illness and disease."""

    Classic.

    Also I'm all for taxing people using something like a proper scaled VAT and dropping all the other indirect taxes, taxing on how much you spend is the most democratic way of taxing, because if you want to opt out of it all it takes is to save money spending wisely. It is the only way in which those that have more wealth would pay a fair tax.

    But the Politicos will surely end doing the worst thing, use an unfair VAT, abusive income revenue tax, lots of equally abusive indirect taxes, etc. Oh wait....

    1. CaptainHook

      Nice in theory, complicated in practice

      VAT is a regressive tax because the poor have to spend more of their income just to survive compared to the rich and so end up paying a higher percentage rate.

      Thats not to say it's couldn't be made to work, you would need to apply zero rate VAT status to everything that is considered essential goods and services, and keep that list of goods and services up to date as time goes on.

      What gets included on that list would be very politcal.

      For example, a car is an essential item for a lot of people, without access to private transport access to jobs, entertainment and participation in a lot of what society offers is restricted or completely cut off. However there is a big difference between a Ford Fiesta and Ferrari 458 Italia. That means someone in Government/Civil Service needs to review everything, even different models within the same class of goods to decide on a tax rate which companies are going to want to game because it directly affects the price the end user will pay (see Jaffa Cakes)

    2. Tim Worstal

      There's a name for this

      "Consumption taxation".

      You keep the Pigou taxes (APD, ciggies, booze, carbon emissions etc.....because they're there to correct market prices more than to raise cash). Then you abolish everything else.

      Your tax system then comes down to taxing people on their spending. But you run it like an income tax.

      Here's your income for this year. Now, how much of that did you save? That's all tax free. So you pay "income tax" on your spending.

      Any earnings from your savings are also tax free: as long as you reinvest them. However, if you spend the earnings from your savings, or draw down your savings to spend the capital, then you pay that "income tax" on the amount that you have taken out of your savings.

      Thus earnings from labour or earnings from capital are taxed at the same rate: nothing if you invest them or the full whack if you spend them. It's a consumption tax.

      The Economist spent most of the 80s touting this as an idea but no one wanted to listen.

      1. James Micallef Silver badge
        Meh

        Re: There's a name for this

        @Tim re consumption taxation

        The good thing about your / The Economist's proposal is that all types of income are liable to the same tax. Main problem with it is that poor people need to spend all they earn just to survive, so will not save anything and be taxable on everything. So the very least, the tax needs to have bands like current income tax bands where the first £Xk of spending is tax free, next £Xk at 20%, rest at 30% etc.

        On a more 'macro-economic' level, if taxing income discourages people from economic activity, taxing spending discourages people from spending. It's to be seen of course but I suspect that this would crimp the economy more (at least short-term while people get used to it)

    3. AndrueC Silver badge
      Unhappy

      I agree on the VAT but just you try suggesting that in public. The immediate response is that it penalises the less well off while benefiting the wealthy and nothing you say about tax-bands and exemptions for essential items or punitive banding for luxury goods will change their mind. A lot of people seem to really hate VAT.

      I've tried to debate it on various forums but given up because of the vitriol. It clearly wouldn't be the simple system we have now so obviously would need careful thought but the politicians may be ignoring it because they know there's no way to have a reasoned debate about it.

      1. Hayden Clark Silver badge
        Unhappy

        And this is where the complexity comes in..

        A sound use for some of your VAT-paying expenditure is on some nice clever accountants. They then set up trusts, shell companies and what-have-you to ensure that you, personally, don't pay VAT. Everything you own is an asset of some company somewhere, neatly arranged so that VAT doesn't apply. Hey, you even get to set the Bentley's depreciation against tax!

        So the stupidly-complex tax system comes about because any simple system is ripe for gaming by clever people.

        1. CaptainHook

          Re: And this is where the complexity comes in..

          I'd argue it's the other way round, it's the stupidly complex tax system which is ripe for gaming.

          What we need is a dirt simple, back of the fag packet type of calculation, that way there is nowhere to hide the money.

          Personally, I'm in favour of either a vastly simplified income tax with a large personal allowance, same rate of tax regardless of source of money, so it doesn't matter if it's capital gains, salary, benefits (either from the state or from companies in the form of health insurance/company car etc) or investment interest it's all the same rate.

          - or -

          some sort of land value tax, on the basis that you can't move it outside of our tax jurisdiction. However although like the idea of a Land Value Tax, I haven't seen a good anwser to the issue of asset rich but cash poor people.

          1. JC_

            Re: And this is where the complexity comes in..

            However although like the idea of a Land Value Tax, I haven't seen a good anwser to the issue of asset rich but cash poor people.

            Sell something :)

            Estate taxes and land taxes should both be high. Money attracts money and these taxes are good ways of off-setting this undesirable fact.

            VAT is grossly regressive and anyone who argues that replacing income tax with VAT is either deluded or cruel. Rupert Murdoch won't give a toss if he pays high VAT on his Bentley - he already has more money than he can spend - but someone living on the minimum wage spends every penny and every penny counts.

            1. JC_

              Re: And this is where the complexity comes in..

              To my downvoter, which of the following statements do you disagree with and why?

              * VAT is regressive.

              * The consequences of massively unequal distribution of wealth are undesireable.

              * The more wealth one has in surplus, the more there is available for investment, resulting in ever greater concentration of wealth in the absence of redistributive taxes.

              1. Mike Street

                Re: And this is where the complexity comes in..

                "To my downvoter, which of the following statements do you disagree with and why?

                * VAT is regressive."

                It isn't so much of a problem as is usually presented. Food, after all, is free of VAT, as is rent and mortgage.

                Also, VAT on a second hand car, such as I have, is zero. On a £10k car it is £2k, and on a £100k it is £20k. Last time I looked, £20k was a bigger number than £2k. People who buy more expensive items, even of the same type, pay more tax. Are you saying that's a bad thing?

                "The consequences of massively unequal distribution of wealth are undesireable."

                Often claimed, though usually spelt correctly, but not proven. Consider, for example, China. Inequality has increased markedly in the last 10 years, due to fewer constraints on the market. Yet in those same 10 years more than 500m people have been lifted out of poverty in that country, because there are now fewer constraints on markets.

                Maybe, despite what you might want to be true, greater inequality is a by-product of generally increasing wealth overall.

                "The more wealth one has in surplus, the more there is available for investment, resulting in ever greater concentration of wealth in the absence of redistributive taxes."

                Investment is generally regarded as a good thing - investment in companies after all produces jobs (including my own). Perhaps, as a by-product, it increases inequality, but so what if the overall effect is good?

                If taxes are too redistributive, they may reduce or remove the incentive to invest and create jobs. Which in turn lift people out of poverty.

                1. JC_

                  Re: And this is where the complexity comes in..

                  * VAT is regressive. It isn't so much of a problem as is usually presented.

                  And yet it is. It's very simple: whenever a poor person and a rich person buy the same item, the poor person pays a greater proportion of his or her income in VAT. That's the definition of regressive.

                  People who buy more expensive items, even of the same type, pay more tax. Are you saying that's a bad thing?

                  They pay proportionately less even though they can afford more; that is what I'm saying is a bad thing.

                  Maybe, despite what you might want to be true, greater inequality is a by-product of generally increasing wealth overall.

                  Try this thought experiment to test your real attitude to income inequality: where would you choose to live if you were born into a random family, Denmark or Brazil?

                  If you answered Brazil, then you'll have lovely beaches upon which to sell snacks, but opportunities for fulfilling your potential have historically been few. Thankfully though, the situation is getting better, thanks in part to the redistributive policies of Lula and Rousseff.

                  If taxes are too redistributive, they may reduce or remove the incentive to invest and create jobs. Which in turn lift people out of poverty.

                  The point at which higher income tax rates become counter-productive (i.e. the down side of the 'Laffer Curve') is approximately 70%. A rate that high would sting, but people would indeed still work, so it's not fanciful to suggest it.

                  Estate taxes, on the other hand, what's the argument against them? That it would remove the incentive to be born into a rich family?

                  1. P. Lee

                    Re: And this is where the complexity comes in..

                    > Estate taxes, on the other hand, what's the argument against them? That it would remove the incentive to be born into a rich family?

                    No, simply that people with excess wealth will sell up and move it abroad. Perhaps they will take out large joint mortgages with vast sums of life insurance. My family paid 93% last time around thanks to the Labour government before Thatcher. All the work the parents had done to help their children was taken by the government and given to strangers. The impact is that we are now all far more tax aware. Sure, the government "got their bit" out of senile old lady without the presence of mind to plan well, but it was a one-off. It will never happen again. Inter-generational tax planning is now firmly on the family agenda. If nothing else, you leave your income in the company for the next generation to extract as required. Its all taxed as normal, but at income rates, not death duty rates.

                    I think you'll find that money is more mobile than legal jurisdictions. Also, corporates tend to have work facilities which are abusable. For example, Mr Gates could easily suggest arrange a business meeting in Monte Carlo just when the Grand Prix is on. Oh and I think the use of the corporate jet is appropriate.

          2. PyLETS

            Land value taxation

            " - or - some sort of land value tax, on the basis that you can't move it outside of our tax jurisdiction. "

            LVT has much to recommend it - if set at a rate which encourages better use of land assets.

            So this one isn't an "or", it's more an "and", because if you try to use LVT entirely to replace income, VAT, sales and profits taxation for funding the expenses a modern democratic states engages in, it would have to be set at such a high rate that all land would revert to the state so you wouldn't collect any tax. That's why personally I favour a combination of LVT and Tobin taxes, the latter to be collected at a fixed rate in a fully automated manner upon all bank transactions.

    4. Anonymous Coward
      Anonymous Coward

      "taxing on how much you spend is the most democratic way of taxing"

      Depends on your definition of "democratic" In the sense of "everyone pays the same tax for the same spending", taxing on how much you spend is "proportional to the spending", but not "democratic".

      You seem to ignore that a rich person is not going to spend proportionally to his/her amount of wealth. Yes, rich people may live in a house that is more expensive than the poorest, and pay a proportionally higher tax for that. But the metaphor fails because the proportion is not the same. You earn 1000 times more and perhaps spen "only" 100 times more, and then only on a few selected items.

      As it has been highlited recently, no matter how rich you are there are certain things on which you are not spending proportionally to how much money you have: how many pairs of shoes, cars or whatever else are the rich getting in proportion to the average tax payer? As a human being there is a limit on how much you can spend, but there is no limit on the money you can earn. Don't forget how they became rich in the first place: either by inheriting the money or by making a very good use of it.

      Taxing revenue, either coming from one's labor or from the investiments you made, is the only fair way of taxing. The only outstanding question -and one with a lot of ideological slant- is how much each source of income should be taxed.

      1. Mike Street
        FAIL

        "Don't forget how they became rich in the first place: either by inheriting the money or by making a very good use of it."

        Of course, no one ever started a company, practiced a sport or mastered a musical instrument and made lots of money those ways.

        Idiot.

        1. Anonymous Coward
          Anonymous Coward

          Stepping aside for a moment from your rather lucid, intelligent and civilized last paragraph, let's analyze your sentence:

          " no one ever started a company" - Does not that count for you as making good use of money?

          "practiced a sport or mastered a musical instrument" - Ah now I see. You must live in a country that is not the UK, the EU or the rest of the world, for that matter. Because in those places the richest people with the highest amount of income are not made up of the very few athletes that make it to the top, or the even smaller numbers of musicians that make a significant, above average, income. I feel happy for your planet, because a few rock stars together with some sport figures can by themselves solve the imbalance of public spending vs. taxes collected.

          I suggest you keep yourself on that wonderful planet, and leave to us humble earthlings solve our own problems without insulting us and without ridiculing yourself in the process. Thanks.

          1. Mike Street
            FAIL

            "practiced a sport or mastered a musical instrument" - Ah now I see. You must live in a country that is not the UK, the EU or the rest of the world, for that matter. Because in those places the richest people with the highest amount of income are not made up of the very few athletes that make it to the top, or the even smaller numbers of musicians that make a significant, above average, income. I feel happy for your planet, because a few rock stars together with some sport figures can by themselves solve the imbalance of public spending vs. taxes collected."

            Are you saying Bono isn't rich? That Sting doesn't have a butler, and his wife access to a private jet?

            And that the richest woman in the UK (leaving aside the queen, for the moment) has written some books, and inherited nothing whatsoever?

            I don't begrudge those people their comfortable lifestyle (though I could do without their lectures to the rest of us) but at least I acknowledge that they exist.

            You're still an (anonymous) idiot.

            1. JC_

              @Mike Street

              And that the richest woman in the UK (leaving aside the queen, for the moment) has written some books, and inherited nothing whatsoever?

              It's interesting that you illustrated your point with the UK's richest woman (leaving aside the queen...) and not man. The richest man is Lakshmi Mittal, a steel magnate; Mittal's father ran a ... steel business.

              The next two on the list are Alisher Usmanov and Roman Abramovich, both Russian oligarchs. As some might say, behind every great fortune lies a great crime.

              Next is Duke of Westminster, who with a name like that mustn't have inherited anything.

              Next is Ernesto Bertarelli, who became CEO of his father's pharmaceutical company upon his old man's death. What a nice comfort in his time of grief.

              And so it goes on. Even an 'idiot' should be able to spot the pattern here.

        2. Charles 9

          "Of course, no one ever started a company, practiced a sport or mastered a musical instrument and made lots of money those ways."

          All of those involve investment, which means you put in money and likely time to get the return on the investment. The point still stands.

      2. Anonymous Coward
        Anonymous Coward

        "You seem to ignore that a rich person is not going to spend proportionally to his/her amount of wealth"

        In turn, this counter-argument seems to ignore that many rich people feed back into society in the process of getting rich, by creating jobs and generally stimulating economic activity.

        It is often overlooked that shareholders of profit-making companies includes not just wealthy investors but many many other entities such as pension funds, which directly affects far less well off people in a positive way.

        1. Anonymous Coward
          Anonymous Coward

          "shareholders of profit-making companies includes not just wealthy investors but many many other entities such as pension funds, which directly affects far less well off people in a positive way."

          Widely-repeated borrocks, but still largely borrocks nonetheless.

          The vast majority of ordinary working people (at least in the UK, some other countries admittedly do better) don't have any kind of pension fund.

          Many rich people have big pension funds. Ask any senior director or senior banker, or even just read a decent newspaper or company report or...

          There are a lucky few in the middle, working people who in recent decades may have built up pension funds in a decent scheme and might be able to retire in reasonable confidence, but probably not luxury. I'm hoping to be one of them soon.

          However, the rapid death of the "defined benefit" pension scheme will soon likely mean that, once again, pension funds will be irrelevant to the 99%.

          So away with your "pension funds are for everybody" nonsense. The CIty may well *wish* everybody had a pension fund (hence auto-enrolment) but that's another story.

  5. AndrueC Silver badge
    Joke

    I'm sure someone can find some use for Facebook.

    Helps identifies weak minded individuals and even keep them on their sofa and off the street to an extent? Reducing the cost of government surveillance by providing private information for free?

  6. Rol

    Her Majesty's Royal Tax Harvesters.

    Assess everyone as owing the national debt in tax every year, then have them prove otherwise.

    I've seen this in action, it certainly, if not, shakes the tree, bulldozes it over.

  7. Great Bu

    NHS occasionally cures people

    As an NHS employee I strongly object to the suggestion that we cure people. That would be in direct contravention to our secret orders from the government to as part of the pension time bomb reduction plan.

    Uh-oh, I have said too much, does anyone know a good hotel in Hong Kong ?

  8. James Micallef Silver badge

    Re: "Companies don't pay taxes, people do"

    "It's some combination of the shareholders and the workers that bear the actual burden of it. How that is apportioned between the two ...."

    How that is apportioned between the two is already heavily skewed in favour of shareholders and against the workers. If the company uses some excess cash to increase salaries or give bonuses, that will be taxed at the highest rate the workers already pay, typically around 35-40% in most European countries and up to 50% and more for high earners.

    Dividends on the other hand are typically taxed at around 15%. Even if dividends aren't paid out, a company's cash pile contributes to it's share price, so shareholders can cash out, paying capital gains tax which is also typically around 15%.

    That's not even mentioning that shareholders do not take kindly to using 'their' cash pile to increase workers' salaries, except for the mega-salaries + bonuses + golden-parachutes/rewards-for-failure for the top execs (although thankfully this is changing)

    So yes, sure, go ahead with scrapping company tax and an amnesty for repatriating funds, but to do that fairly you first need to

    a) tax all income at the same level. Earned income, bonuses, dividends, capital gains, inheritance etc etc all go into one 'Income' pot that is taxed at the same level.

    b) benefits provided to an individual by a company are accounted as income and taxed as such

    1. Chris Miller

      Re: "Companies don't pay taxes, people do"

      "Dividends on the other hand are typically taxed at around 15%". That's because dividends are paid out of company profits and have already been taxed once, at a rate not far from basic rate income tax. Hence dividends (in the UK) are only subject to higher rate income tax. By all means tax dividends at the same rate as other income, but you'd (logically, if logic has any place in taxation :) have to allow them as a corporate expense, just like salaries.

  9. Hayden Clark Silver badge
    Flame

    US Tax deferral is fraud....

    ... or at least, highly cynical.

    As article says, the only way to use your offshore stashed profits is to repatriate them. So, the asset value of those balances is 65% of the money value, yes? Well no, when totting up the "cash pile" of companies like Apple, the offshore balances are added at face value. This means that the "market" is pricing in the idea that they will, at some point, get repatriated at a low or zero rate of tax. So either (a) this ain't gonna happen, and the valuations of these companies is off, or (b) big companies can budget for a tax amnesty to occur frequently enough that they can reasonably expect to be able to make use of the entire balance.

    That's the usual one-rule-for-them situation. Sigh.

    1. Charles 9

      Re: US Tax deferral is fraud....

      As the article notes, the main thought is that the money never enters the US directly. Instead, Apple will look for foreign locations to build plants and so on. These plants affect the company as a whole, boosting the market cap without directly taxing the increased market value until cashout time. And even there, there are supposedly a few tricks to evade that: such as borrowing against the gains and dying with the debts. This may have changed, but some assets can be re-based when they're inherited, allowing the heirs to pay off the debts by selling out at a reduced tax burden.

  10. James Micallef Silver badge
    WTF?

    Second point

    "The second point is this bizarre idea that the tax an organisation pays to the Treasury is the measure of good that it does the country"

    I'm not sure where this fits into the argument at all. Are you arguing that since Google provides such a huge benefit to a country then Google should not be taxed? That's a very bizarre way to look at things. If all the shopkeepers in Britain combined together in one shell company, do they not contribute a greater benefit to the country than Google? (and therefore should they also be exempt from tax?) But it's OK to tax them individually?

    1. Tim Worstal

      Re: Second point

      No, I'm running that argument the other way around. There's plenty out there insisting that because Google doesn't pay tax in the UK therefore it offers nothing of value to the UK economy.

      Which is ridiculous because consumer surplus.

      Whether Google should be taxed and how much is an entirely different question from whether it is providing value or not.

      1. James Micallef Silver badge
        Happy

        Re: Second point

        Ah, understood.

      2. strum

        Which is ridiculous because consumer surplus.

        But, unfortunately, 'consumer surplus' is a fantasy.

        Yes, I choose to use Google, because it's there. But to suggest that I wouldn't use anything, if Google ceased to exist, is nonsense. I'd use Infoseek, or Yahoo, or DuckDuckGo, or even Bing.

        'Consumer value', in your definition, only exists where no alternative service exists.

  11. PyLETS

    Tobin was right

    Another approach exists instead of employing an army of accountants and tax officials trying to work out which transactions lead to profits where, and which transactions lead to income and which do not, and which lead to value added and which don't. That's to get rid of all these taxes and tax all bank transactions instead at the point at which these are made, but at a lower rate. Means you have to get rid of cash though, or replace it with a different kind, e.g. carrying a duty to remain valid, e.g. 10% of its value every year so notes and coins have to go into a special machine a year after issue to be replaced at 90% face value in new ones.

    That would probably lead to a very different kind of economy with much less emphasis on debt-fueled growth.

    1. Number6

      Re: Tobin was right

      That would just encourage people not to save. Why put money away if it's going to be worthless in a few years? the British welfare state is bad enough at the moment, where the really well off don't care, the ones at the bottom get some degree of government aid but the ones in the middle who might do something stupid like save a bit for retirement suddenly find that the existence of those savings means they don't qualify for any of the benefits for which they've probably paid a significant amount of taxes over the years. So, if you've got any savings, blow them on a holiday just before you get to retirement, otherwise you'll never see the value of them.

      I think if you visibly devalued money every year (as opposed to inflation doing it quietly) then you'd have rebellion.

  12. Aitor 1

    Companies don't pay taxes, people do.

    Well, not all economists agree. I don't agree.

    Companies (legal persons) must pay taxes because they compete with physical people. Therefore, they should pay taxes.

    As for companies giving money back to shareholders.. it is not fundamental to get the money from then bank and pay them: you can also raise the value of the shares, they sell shares, and don't pay that many taxes... Microsoft style.

    This kind of behavior has also other problems: taxdodgers are encouraged not to invest of manufacture in the US (or UK or whatever) in order not to pay taxes...

    In my opinion, VAT should be payed where the sale is made: if you sell to somebody in France from Ireland, that VAT should go to France. And that should be arranged by Ireland, not the seller (this is, all sales should include buyer address).

    As for "benefits" going to Barbados, etc, it is illegal in many places and should be banned AND procecuted.

    1. arrbee

      Re: Companies don't pay taxes, people do.

      Or we could drop all company taxes but also remove all the legal/financial 'people' attributes from companies, preferably including all the limited liability stuff.

      ( of course in the UK our lords and masters would do the first bit without the rest )

      1. Fink-Nottle

        Re: Companies don't pay taxes, people do.

        Or we could drop all company taxes

        That would simply lead to people gaming the system - placing their capital in shell companies to avoid income tax, for example.

        1. Charles 9

          Re: Companies don't pay taxes, people do.

          But as the article notes, hiding the money in shell companies only goes so far. If the cash stays in the company, it gains value That counts as a capital gain, meaning taxes due when you cash out. Same for dividends. Furthermore, aren't business transactions normally subject to sales or value-added taxes, whether the purchase is for resale or for internal use?

    2. Uffish

      Re: Aitor 1 - Companies don't pay taxes, people do.

      Agreed, this phrase is just tendentious gobbledy gook.

      Personally, and without any reference to any economic theory, I would like a country's government to get its hands on a share of all profits made from economic activities within that country. That way the locals, who generated those profits, get a share of them.

      What I wouldn't like is all almost profits and taxes ending up is, say, the USA. (Not an anti-Merkin sentiment - just a criticism of stupid EU laws).

  13. Anonymous Coward
    Anonymous Coward

    Fire the SEC!

    Its about time the securities and exchange commission changed some laws and forced companies to reveal to their shareholders a breakdown of where they are earning an income from. Shareholders would then be in a better position to decide if they want to invest in a company earning a living in the Western World or a tax haven like Bermuda.

  14. Steve I
    Black Helicopters

    Corporation tax seems silly.

    After all, the money a company makes eventually gets distributed, either into dividends or salaries of the employees or by purchasing components etc. Each time it gets distributed, it get taxed.

    What the governments want is for money to be taxed at every conceivable point - when a person ears it, when they spend it, (crafty one this, as tax ends up being paid twice in the same transaction - sales tax on the price of the item and corporation tax on the profit the company make by selling the item), and back to the beginning when the company pays their employee.

  15. Aged Cynic
    Holmes

    I spot a flaw in your basic premise: "the whole point of being a company is to send money to your shareholders".

    Some might argue that large corporates appear to have been hijacked by the managerial class to the detriment of other stakeholders (cf board-level remuneration rising far faster than other measures of company performance)

    While your "delayed" tax remains within the balance sheet it inflates the apparent worth of the company - and gives management a larger argument for "look how well we are doing (aka: we deserve even more money)"

    (Or untaxed cash on a Caribbean island may tempt a CEO to invest in a superyacht^H^H^H^H team-bonding venue. Since that cash would never be paid as dividends, there'd be no tax-take back home either)

    1. Mike Street

      "I spot a flaw in your basic premise: "the whole point of being a company is to send money to your shareholders".

      Some might argue that large corporates appear to have been hijacked by the managerial class to the detriment of other stakeholders (cf board-level remuneration rising far faster than other measures of company performance)"

      Management are employees of the company, so the point is correct. Corporate tax incidence is on customers, employees or shareholders, or some combination thereof.

      You make a good point about management though. In my view, company management should be much more under the control of the owners. At the moment, shareholder votes on remuneration are advisory only.

      Some changes to company law would undoubtedly be beneficial.

  16. Anonymous Coward
    Anonymous Coward

    It can be stopped, but no-one wants to

    To stop this behaviour put a tariff on 'imported' IP (such as royalties for use of trademarks owned by overseas companies) and tax repayments on loans.

    The first is hard because international treaties get in the way. The second increases the cost of borrowing. However, bad loans are the reason we're in economic crisis so maybe rewarding savers and penalising borrowers a bit more isn't so bad.

  17. Bluenose

    One sided proposal - again

    I find this article to be a little one sided in its approach.

    Companies in the US only repatriate profits when they get a tax holiday so therefore they can hold money offshore (resulting to boosts in their share price) until the cows come home or more importantly the govt grants the tax holiday. Therefore there is no deferral of tax whatsoever.

    Companies already get the best of both worlds. Reduced taxation because they are not living persons but able to buy political influence through giving money to political campaigns, parties and lobbyists. At the same time they receive tax relief to enable their survival for example for holding patents (UK); asset purchases; goods consumption and investment in woodlands to name but a few. These are all tax reliefs that ordinary (i.e. those without a fortune in cash behind them) people can take advantage of.

    The alleged benefits of allowing the tax holiday for repatriation of profits is that it leads to increased consumption and investment. Again this is not true. Look at where the money ends up. The rich invest where they can get the best returns, currently China, India, Asia in general and now even Africa. Therefore investment in the UK, US or other stagnant western economy is likely to be fairly low by comparison.

    The money goes to shareholders, the majority of whom are big banks and pension funds. Therefore there is unlikely to be a significant rise in consumption as banks will use the cash to invest in areas of bigger returns or increase their capital holding (currently the big banking issue). Pension funds need the cash to cover their existing liabilities and not to increase pension payments. And all of these need the money to pay big bonuses to the people who made the investment in the first place.

    If we are to stop taxing companies then we should stop providing them with tax relief. Let the owners pay the full cost of buying new assets or reap their rewards from actually doing something with their patents. In a capitalist economy a company should not expect state support if they are not paying taxes.

    As for the shareholders in companies, they of course will need to pay higher taxes for the additional services that their businesses require from the state; policing, education of their workforce, etc. Of course all of this can be simplified by taxing the company so that these costs are removed from the profit thus enabling keeping personal taxation simpler.

  18. scrubber
    Facepalm

    Couple of problems...

    Companies spend money lobbying government officials to grant a tax amnesty to onboard hoarded cash. Bribed officials accede.

    Cash rich company buys its own shares rather than invests; share price spikes options and performance benefits to senior management go through the roof. Or, failing that, buys other companies to justify ever higher management salaries (it's a bigger company now, right?)

    To maintain high share price and inflated P/E ratio (or profitability) company fires workers.

    That's what happened last time.

    1. Tim Worstal

      Re: Couple of problems...

      Quite possibly true but:

      "Cash rich company buys its own shares rather than invests"

      So the people who receive that money have to do something with it. Either invest it again in another company or spend it. The money isn't lost just because it leaves the company you know.

  19. Paul Hovnanian Silver badge

    Globalization

    Increasingly, multinational companies do business in several financial markets. They might be borrowing in Euros,or Renminbi. And so they have to pay those loans off in those currencies. There is no sense in moving their revenue through the United States, just to move it back out again. And then there's the shareholders. Not all of them live within the USA. So why should they have35% shaved off their dividends?

    Everyone keeps worrying about how these companies are ever going to move these funds back within US jurisdiction. The answer is: Never. The capital can be put to better use outside of the country.

  20. Alan Denman

    duty is obviously the same .........

    ....as the consumers duty to boycott the public purse thieving *astards,.

  21. Peter Johnston 1
    Mushroom

    Two ways to benefit shareholders

    Shareholders have two ways to benefit from their investment in a company.

    Dividends is the lesser of the two.

    The other is from the rise in value of those shares.

    This makes them worth more when it comes to sell.

    So you can keep all your profits offshore for as long as you like - shareholders will still be happy as long as the stock goes up.

    1. Mole5000

      Re: Two ways to benefit shareholders

      Dividends are the lesser of the two? Really?

      The Barclays Equity Gilt study rather disagrees with you - to quote Monevator:

      £100 invested in UK equities in 1899 would have been worth just £180 by the end of 2010, after inflation.

      £100 invested in UK equities in 1899 would (if you had reinvested dividends) have been worth £24,133 after inflation.

    2. Fink-Nottle

      Re: Two ways to benefit shareholders

      So you can keep all your profits offshore for as long as you like - shareholders will still be happy as long as the stock goes up.

      Exactly. A well managed company aims to add $1 to the share price for every $1 of retained earnings. A company would be remiss not to retain its earning offshore, if that strategy will generate a higher return for the shareholders than repatriation and taxation.

  22. Big_Boomer Silver badge
    Facepalm

    Tax is tax

    Tax has one purpose in life, to fund the country. The source of the tax is mostly irrelevant as one way or another it is always you and I who pay it. We either pay it directly (income tax, VAT, duties, etc) or indirectly via corporation tax and similar. Yes those who have less money think they should pay less tax as a percentage, and those who have more money don't want to pay tax so they hire accountants to work the ridiculously complex taxation system to their advantage. The upshot is that the poorest little or no tax, the richest pay little or no tax and the rest of us pay nearly all of it. Corporations qualify in the "richest" bracket. What is needed is a TOTAL revamp of the entire taxation system. Of course it's never going to happen as there are too many vested interests in keeping it exactly as it is, and they include the poorest, the richest, AND us gormless morons in between who seem to be proud that we are paying too much tax.

  23. Mole5000

    Unless I've missed it Tim missed the response from Roland6 that pointed out that Apple are going to be able to use the interest payments on their fresh new debt as a business expense against their US profits.

    Although fair play for there finally being a article on the Register pointing out their isn't a legal obligation to minimise tax in the UK. Their isn't one in Delaware either, or Australia. I'd be honestly surprised if their was a legal jurisdiction on the planet where that is the case.

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