How to tax global multi-nationals.

xjx388 said:
If a company takes advantage of every deduction, credit, etc that is legally allowed, then they have reached an accurate assessment of their tax responsibilities. Are you suggesting that a government tax accountant would not allow a company to take those legal measures that reduce tax liability? If so, then accuracy is not what you are after . . .
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One wonders, then, why some tax accountants cost more than others, if the result of any tax assessment is going to be the same anyway.
 
MikeG said:
1% of turnover would do me. That's way more tax than some of them pay at the moment, and it would still leave low-margin activities such as some retailing in business. Socialists would turn the argument around and argue that by not doing something like this governments are effectively subsidising some businesses, and some sectors of the economy. Oh, and a 1% turnover tax on money traders and traders on the stock exchange would produce a windfall for the Treasury.
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No, no, no, this is a silly idea that has not been thought through.

The perceived problem is big companies are not paying the taxes they should be while others are paying the correct amount.

Adding a 1% tax to big companies

1. is less than they were gaining through avoidance.
2. doesn't address the fact that they still would be paying less Corporation tax/stamp duty/VAT/CGT etc than they would were it not for the schemes.
3. still leaves them with a competitive (costs) advantage over companies that don't enter into the same arrangements.
4. hits those companies that haven't engaged in such schemes
5. gives a disincentive for companies to grow.
6. can be avoided easily by disaggregation.
7. taxing turnover on financial transactions fails to understand how finance works. It would kill the overnight money markets and ruin the stock exchange in one swoop.
8. would encourage companies to find ways to avoid other taxes to ensure that their profitability was not affected.
9. it is 'solving' a problem that may already largely be fixed. See my comment on the diverted profits tax earlier.
10. ignores the obvious sensible solution which is to fix the loopholes. International cooperation and using retrospective legislation, DOTAS and GAARs decreases the incentive for companies to pay for avoidance schemes.

 
Lothian said:
10. ignores the obvious sensible solution which is to fix the loopholes. International cooperation and using retrospective legislation, DOTAS and GAARs decreases the incentive for companies to pay for avoidance schemes.
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The US is one of the few nations that had enough good sense to make post facto laws unconstitutional.

Elsewhere, governments don't care that you can do something that is legal today and be punished for it tomorrow.
 
psionl0 said:
The US is one of the few nations that had enough good sense to make post facto laws unconstitutional.

Elsewhere, governments don't care that you can do something that is legal today and be punished for it tomorrow.
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The use is limited. Generally in Europe the law is purposative. In the UK is more textual.

As a silly example in the past the law may tax you for 20% of your earnings you got in your weekly pay packet. Come the banking revolution the EU would have been fine they would see money put straight into a bank account as being the same as put in a pay packet so there would be a 20% tax. Conversley in the UK having the money put straight into the bank instead of a pay packet means you go tax free.

Retrospective legislation is used to fix these loopholes where parliament had the intention to tax a certain activity and the law was no longer having the effect that parliament intended.

It would not apply to a new tax.

Of course you may think that the government not future proofing the law well enough is the state's loss. If someone can find an accountant to get them out of paying a tax, great, everyone else can pay a little bit more to make up any treasury shortfall.
 
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Lothian said:
As a silly example in the past the law may tax you for 20% of your earnings you got in your weekly pay packet. Come the banking revolution the EU would have been fine they would see money put straight into a bank account as being the same as put in a pay packet so there would be a 20% tax. Conversley in the UK having the money put straight into the bank instead of a pay packet means you go tax free.

Retrospective legislation is used to fix these loopholes where parliament had the intention to tax a certain activity and the law was no longer having the effect that parliament intended.
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Retrospectivity is not ok just because it is about money.

Somebody who complies with the law at the time and is assessed a certain amount of tax should not have to worry that the government will retrospectively change those laws and say "you owe use more taxes than we said you did". It is akin to a creditor retrospectively changing the interest rate on a loan and declaring that suddenly, your debt is "magically" bigger.

Any change in the law should only apply from the date it was proclaimed onwards.
 
psionl0 said:
Retrospectivity is not ok just because it is about money.

Somebody who complies with the law at the time and is assessed a certain amount of tax should not have to worry that the government will retrospectively change those laws and say "you owe use more taxes than we said you did". It is akin to a creditor retrospectively changing the interest rate on a loan and declaring that suddenly, your debt is "magically" bigger.

Any change in the law should only apply from the date it was proclaimed onwards.
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It is not about collecting more taxes. It is about collecting the same tax. It only applies to aggressive tax avoidance schemes designed to defeat the spirit of the law. It doesn't affect the overwhelming majority of taxpayers. It only affects the elite few who can afford costly accounants to dream up elaborate wheezes. We are not talking about claiming for a bit more if your home electricity, we are talking about highly artificial arrangements that allow corporate executives to take home $millions while paying less tax than their cleaners.
As I said, some people think it is wrong to prevent people, who can afford it, to pay accountants large fees instead of paying taxes. However it is not a legal certainty issue it is a moral one. These are egregious schemes.
 
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Lothian said:
It is not about collecting more taxes. It is about collecting the same tax. It only applies to aggressive tax avoidance schemes designed to defeat the spirit of the law. It doesn't affect the overwhelming majority of taxpayers. It only affects the elite few who can afford costly accounants to dream up elaborate wheezes. We are not talking about claiming for a bit more if your home electricity, we are talking about highly artificial arrangements that allow corporate executives to take home $millions while paying less tax than their cleaners.
As I said, some people think it is wrong to prevent people, who can afford it, to pay accountants large fees instead of paying taxes. However it is not a legal certainty issue it is a moral one. These are egregious schemes.
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Don't be silly! The government isn't going to introduce retrospective legislation just so it won't collect any more tax than it already collected legally.

If you are going to talk about "morality" then you should understand that the moral issue is that we live under rule of law. Nobody is above the law and that includes the heads of government. If the law proves to be deficient in some way then it is up to the government to fix it but they should not be able to do so retrospectively. You can't penalize people for complying with the law that has been given.

Once you start changing laws retrospectively, you no longer have rule of law. You have rule by despots. There are a number of ways of addressing tax avoidance by multi-nationals but rendering the law meaningless is not one of them.
 
psionl0 said:
Don't be silly! The government isn't going to introduce retrospective legislation just so it won't collect any more tax than it already collected legally.

If you are going to talk about "morality" then you should understand that the moral issue is that we live under rule of law. Nobody is above the law and that includes the heads of government. If the law proves to be deficient in some way then it is up to the government to fix it but they should not be able to do so retrospectively. You can't penalize people for complying with the law that has been given.

Once you start changing laws retrospectively, you no longer have rule of law. You have rule by despots. There are a number of ways of addressing tax avoidance by multi-nationals but rendering the law meaningless is not one of them.
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Before laws are brought in there is plenty of discussion and explaination of who is supposed to gain from it. People it is not intended for can not expect to be able to gain from it.That is not despotic, expecially when the government explain that they will make retrospective law changes if people it is not intended for find a loophole to gain the benifits. It by and large forms an effective deterrent to avoidance of that law.
 
Lothian said:
Before laws are brought in there is plenty of discussion and explaination of who is supposed to gain from it. People it is not intended for can not expect to be able to gain from it.That is not despotic, expecially when the government explain that they will make retrospective law changes if people it is not intended for find a loophole to gain the benifits. It by and large forms an effective deterrent to avoidance of that law.
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Why are you changing the default text color?

For whatever reason, it actually makes the font of your posts smaller, to the point of them being uncomfortable to read. Are you trying to control other people's browsing experience, or just your own?
 
Lothian said:
Before laws are brought in there is plenty of discussion and explaination of who is supposed to gain from it. People it is not intended for can not expect to be able to gain from it.That is not despotic, expecially when the government explain that they will make retrospective law changes if people it is not intended for find a loophole to gain the benifits. It by and large forms an effective deterrent to avoidance of that law.
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This is just the same rationalization as before.

Parliamentary debate does not supersede the law. Ultimately it is up to the courts to decide if something is permissible under the law. If the courts make a decision that the government doesn't like then it is up to the government to change the law (but not retrospectively).

It is because of people like you who would say "**** the law" whenever somebody they don't like benefits from it that retrospectivity must be unconstitutional at all times.
 
psionl0 said:
This is just the same rationalization as before.

Parliamentary debate does not supersede the law. Ultimately it is up to the courts to decide if something is permissible under the law. If the courts make a decision that the government doesn't like then it is up to the government to change the law (but not retrospectively).
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Parliamentary debate is used by courts in legal interpretation. Explanatory memorandums explain the purpose of new acts. What retrospection does is apply a purposative interpretation to the law. There is nothing ultra vires with retrospective legislation. The only objection is from people seeking an unfair advantage, who seek to gain from a law that is not aimed at them.
It is because of people like you who would say "**** the law" whenever somebody they don't like benefits from it that retrospectivity must be unconstitutional at all times.
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if retrospective action is banned by your constitution, change your constitution. It is something that supports the law, it doesn't attack it. It makes sure the law only applies to those it is written for.
People who want corporations to pay a fair amount of tax are not saying **** the law, they are ensuring the law fulfills the wishes of the people.
 
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psionl0 said:
Never! Retrospectivity is Evil! Lack of foresight on your part does not constitute a crime on my part.
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I understand your point of view. Tax avoidance costs the USA $458 billion pa. The government budgets for this and raises taxes to compensate. $458bn is approx $3250 per taxpayer that the government has to get from other taxes. If you are avoiding more than this you are as we would say "quids in". If not, your taxes are in part subsidizing a tax avoider. I am sure I have read that paying for someone else gives people a warm internal glow, so if you are out of pocket rejoice in that at least.
 
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Lothian said:
Tax avoidance costs the USA $458 billion pa. The government budgets for this and raises taxes to compensate.
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If the government chooses to do this rather than fix the laws then why do you think that retrospectivity would make a difference? It would just be a power that they could abuse.
 
Lothian said:
I understand your point of view. Tax avoidance costs the USA $458 billion pa.
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Legal tax avoidance doesn't cost the state anything. That money never belonged to the state, and makes up no part of their balance sheets. You collect revenues on the tax code you have, not the tax code you wish to have or plan to have at a later date.

I think it's a philosophical difference, really. You believe the government should get the benefit of the doubt, and that whatever it meant for you to do, that's what you were supposed to do, even if the government didn't actually tell you to do it. And that the liability for not doing it rests on you, one the government gets around to correcting its mistakes.

I believe that the government should not get the benefit of the doubt. Whatever it is that *I* mean to do, that's what I'm supposed to do. If the government wants me to do something else, they have to spell it out. If they spell out something else instead, that's their liability, not mine.
 
theprestige said:
Legal tax avoidance doesn't cost the state anything. That money never belonged to the state, and makes up no part of their balance sheets. You collect revenues on the tax code you have, not the tax code you wish to have or plan to have at a later date.
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No, you are suggesting that governments collect money and then once they have received it they decide how to spend it. That is not the way it works!

Put simply governments have predictions (I think they are called forward estimates in the US) on what will come in based on economic forecasts and extrapolation of the consequential tax yield. That forecast is used to decide spending in the next year.
Tax avoidance leads to a smaller than expected tax yield and if spending is not cut, a deficit. There gets a point in these annual cycles where the deficit can not be addressed simply by spending cuts, tax rises are needed.
 
No, if your tax code doesn't match your projections, you fix the code or the projections. You don't go around collecting additional taxes - taxes that aren't even part of the tax code, no matter how much you thought they would be! - in order to make up your budget shortfall.
 
theprestige said:
No, if your tax code doesn't match your projections, you fix the code or the projections. You don't go around collecting additional taxes - taxes that aren't even part of the tax code, no matter how much you thought they would be! - in order to make up your budget shortfall.
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Ok try this out for size, a simple tax avoidance scheme common amongst BBC TV personalities (according to a BBC investigative program!) . You were paid $250,000 a year and have paid tax on that. Going forward you are to be paid $20,000 a year and a trust has been set up for you in a hot sunny island from which you can borrow $230,000 a year without have to ever pay it back.

Do we simply fix the projections and forget about taxing the £230,000.
 
Lothian said:
Ok try this out for size, a simple tax avoidance scheme common amongst BBC TV personalities (according to a BBC investigative program!) . You were paid $250,000 a year and have paid tax on that. Going forward you are to be paid $20,000 a year and a trust has been set up for you in a hot sunny island from which you can borrow $230,000 a year without have to ever pay it back.

Do we simply fix the projections and forget about taxing the £230,000.
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You fix the code to properly tax that trust fund income going forward. You adjust your projections for future years accordingly. And you eat the loss for the years that your code did not cover that scenario. You don't go back and dun the citizen for taxes he didn't actually owe you.

However, I think in this particular scenario, you could probably make a case that the offshore trust is in fact an illegal avoidance scheme under the current code. That money can be recovered without having to write new laws and apply them retroactively.

You might want to write a new law that clarifies the illegal nature of the trust under the current code, but the argument for convicting the beneficiary and seizing the fund must be able to stand without that clarifying rewrite.
 
theprestige said:
You fix the code to properly tax that trust fund income going forward. You adjust your projections for future years accordingly. And you eat the loss for the years that your code did not cover that scenario. You don't go back and dun the citizen for taxes he didn't actually owe you.
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I disagree, the smart arses need a slap.
However, I think in this particular scenario, you could probably make a case that the offshore trust is in fact an illegal avoidance scheme under the current code. That money can be recovered without having to write new laws and apply them retroactively.

You might want to write a new law that clarifies the illegal nature of the trust under the current code, but the argument for convicting the beneficiary and seizing the fund must be able to stand without that clarifying rewrite.
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I can't see any moral justification for the BBC employees not paying the same tax that I do just because they paid someone to find a clever wheese. Sure fix the law but hit them for the tax they avoided and leave them out of pocket for the fees they paid. YMMV.
 
psionl0 said:
Any change in the law should only apply from the date it was proclaimed onwards.
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The only exception I can approve to this would be if the tax code has been written and published, but not fully ratified yet.

We're experiencing this in Canada with something called Income Sprinkling. The government announced a couple of years ago that it was under review, and last Summer they published the new code, intended to be enacted January 1st. But parliament got other priorities (eg: the end of NAFTA) and this moved further down the to-do list, it will probably be passed in a few weeks. Retroactive to January 1st, as previously announced.
 
theprestige said:
However, I think in this particular scenario, you could probably make a case that the offshore trust is in fact an illegal avoidance scheme under the current code. That money can be recovered without having to write new laws and apply them retroactively.

You might want to write a new law that clarifies the illegal nature of the trust under the current code, but the argument for convicting the beneficiary and seizing the fund must be able to stand without that clarifying rewrite.
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I'd almost want to hesitate to write a new law clarifying. Once a judge has confirmed the scheme was illegal, case law would stand ongoing.

If a judge can't confirm the scheme was illegal, then it was legal, and an update to the code is merited for ongoing.
 
Lothian said:
They do fix the laws, it is just more loopholes are found. Retrospectivity would give a cash boost that can fund other areas.
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No, you had it right the first time: "The government budgets for this and raises taxes [on other people] to compensate."

All retrospectivity would do is enable the government to hit the little people even harder without having to be mindful of any existing laws. There is precious little evidence that the government has either the will or the ability to tackle the multi-national corporations.
 
psionl0 said:
No, you had it right the first time: "The government budgets for this and raises taxes [on other people] to compensate."

All retrospectivity would do is enable the government to hit the little people even harder without having to be mindful of any existing laws. There is precious little evidence that the government has either the will or the ability to tackle the multi-national corporations.
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No, retrospection is only ever used to 'fix' the loophole so that the tax hits those it it supposed to. Most people in the UK are unaware we have retrospective tax laws. It only hits those who avoided paying in the first place. The public, myself included, would not support a retrospective tax on the innocent to compensate for tax losses by avoiders.
 
Lothian said:
No, retrospection is only ever used to 'fix' the loophole so that the tax hits those it it supposed to.
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Exactly! Individuals who are not major corporations. Governments deliberately tailor the tax laws so that multi-national corporations can get away with paying minimal tax because they are where the government gets most of its political funding from.

I'm glad that in the US people like you can't call for retrospective legislation in the delusional belief that only "other" people would be affected.
 
psionl0 said:
Exactly! Individuals who are not major corporations. Governments deliberately tailor the tax laws so that multi-national corporations can get away with paying minimal tax because they are where the government gets most of its political funding from.

I'm glad that in the US people like you can't call for retrospective legislation in the delusional belief that only "other" people would be affected.
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I suggested retrospective legislation to take away the advantage tax avoiders get, irrespective of whether the avoidance is corporate or individual. I think my point is made. It is probably best if I now leave you and your paranoia about your Government alone. It is affecting your ability to comprehend quite simple concepts.
 
Lothian said:
. . . I now leave you and your paranoia about your Government alone. It is affecting your ability to comprehend quite simple concepts.
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It does not surprise me that somebody who doesn't believe in the rule of law would call me "paranoid".

You might have a point though, I have too often been a victim of "I might have said that but I didn't mean that" to trust the word of a politician.
 
psionl0 said:
The US is one of the few nations that had enough good sense to make post facto laws unconstitutional.
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Although it seems to be possible to pass laws that give out retrospective tax cuts. So that's not symmetric since one woman's retrospective bung is another's retrospective (unconstitutional . . . perhaps) unfairness and relative penalty.

Lothian said:
Retrospective legislation is used to fix these loopholes where parliament had the intention to tax a certain activity and the law was no longer having the effect that parliament intended.

It would not apply to a new tax.
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Not sure what you are saying, but Tony Blair's government promised to (and did) introduce a windfall tax in 1997 on utilities privatised by Thatcher-Major that was restrospective, and clearly would have the folks who bought the shares as one of the groups who essentially paid it. It wasn't to fix a loophole. It was because Blair et al took political exception to what the prior governments had done.

Of course charges of gross unfairness did not stop him getting re-elected (twice) because it was also quite populist. But then, neither did Iraq (once). I believe there have been various calls for similar back-reaching penalisation of previously OK behaviour since, not sure if there have been any other taxes similar to that though.
 
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Francesca R said:
Although it seems to be possible to pass laws that give out retrospective tax cuts.
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I don't know which case you are referring to. IMO offering a rebate on taxes paid in the past would not be unconstitutional but retrospectively declaring that you owe more taxes than the law previously said you did would be.

It's a similar principle to the one where a guilty verdict can be appealed but not a not guilty verdict.
 
I seem to remember some backdated Bush junior tax rebate.

If it is given differentially I think a case could be made that it flouts the same ethic that a backdated tax rise does.

(Which would suggest not making such a massive deal of the ethic unless one opposes both vehemently)
 
Lothian said:
No, retrospection is only ever used to 'fix' the loophole so that the tax hits those it it supposed to. Most people in the UK are unaware we have retrospective tax laws. It only hits those who avoided paying in the first place. The public, myself included, would not support a retrospective tax on the innocent to compensate for tax losses by avoiders.
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And fortunately, the government never does anything that the public, yourself included, doesn't support?
 
Francesca R said:
I seem to remember some backdated Bush junior tax rebate.

If it is given differentially I think a case could be made that it flouts the same ethic that a backdated tax rise does.

(Which would suggest not making such a massive deal of the ethic unless one opposes both vehemently)
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Tax evasion is a crime. I wouldn't put a government handout in the same category as retrospectively calling somebody a criminal.

Iif you say that neither should be permissible then I won't disagree on moral grounds. However, it is easier to disguise a handout than a retrospective tax.
 
Well they are only a criminal if they don't cough up.

I think it is regrettable in both cases. Probably permissible. Just like compulsory purchase ("eminent domain" in American) and other abridgements of rights. Permissible and rare. (Did Bill Clinton say something like that about abortion?)

It seems to be ethically worse if it re-writes the laws of prior administrations. EG Tony Blair was sort of pissing all over the electorate's decision to have voted tory before him. GWB was more changing his mind about how much he wanted to bribe (some) voters (although he wasn't going to run for office again, but still). (IIRC it was almost universal in its effect, can't remember though)
 
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MikeG said:
There's a big difference between GST and VAT on one hand, and a turnover tax on the other. The former aren't paid by corporations but by the consumer, whereas the latter would be paid by corporations and not (directly) by the consumer.
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Not really. One would typically replace the other (as in having sales tax and VAT together is quite obvious double taxation in anybody's book)

Main difference is that gross sales tax would likely effectively tax raw production inputs ("cost of goods sold") as well as capital reinvestment ("property plant and equipment") to a greater extent than VAT which is why ideas about it set a much lower tax rate than the VAT rate which is typically 15-25%.

*Sales tax comes up more often in respect of the digital economy because supposedly this sector's COGS and PPE are way smaller than traditional businesses
 
psionl0 said:
One likely consequence is capital expenditure. Currently it is not deductible (though depreciation is) but labour is a legitimate tax deduction. Make labour non-deductible and it becomes more attractive to invest in capital that replaces workers.
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Depreciation and amortisation is capex, just spread over the life of the assets in line with accrual accounting. Indeed tax rules normally allow more rapid depreciation than firms put in their income statements leading to "deferred tax liabilities". If a firm expensed its capex all at once then it would all be a deduction.

Interest is deductible too. If it wasn't any more then firms' after tax debt cost would jump and they would probably reduce financial leverage, and have lower return on equity. I suppose the latter is an intention of revenue tax though.

I agree if wages and comp is no longer deductible (under a top line sales tax) then there is an additional incentive to shed labour. The popular criticism of digital firms is that they largely already have.
 
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MikeG said:
It seems like the EU is about to adopt a turnover tax for multi-nationals. It was on Today, R4, this morning.
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Brexit is one of several things likely to prevent that from happening although it probably would not anyway, rather like the financial transactions tax hasn't. Rather the EU is a standing example of how supranational organisations don't easily get over the difficulty of enforcing harmonisation (another word is collusion)
 
Any real changes require the political support that the very same monies and interests are guaranteed to stymie. But anyway:

* Close obvious tax havens by shuttering all trade and financial flows until the white flag comes up, and only then open trade progressively as local supervisory institutions and banking practices pass muster.
* Close the other tax havens (looking at you, Netherlands, USA, UK, Singapore) by, who knows, agreeing to stop the nonsense.
* Place a limit on ownership nesting, such that only one level of holding company is allowed in any corporate structure, max. Gets too big? Spin off divisions into new and still similarly flat ownership structures.
* The top investor in any private company, large or small, holding or not, must be a physical person with a known place of business, and physical residency in one of the top two, maybe three countries in terms of company sales.

But now, surprise:
* Eliminate all corporate and business income taxes.
* Set the retained earnings payout ratio to the rate needed to be tax revenue neutral (can't remember since I did the calc a long, long time ago). Was something like 40%.
* Allow some leeway for retaining more earnings to accumulate investment capital through certain forms of provisioning.
* Personal income taxes are the same for earned and unearned income.

Finally,
* Introduce a flatter, but not flat tax rate, now that the tax base is a great deal larger, and fairer.
* Everyone wins in the end.
* The flat corporate structure remains, as it is key for retaining proper legal liability and accountability.
 
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Hlafordlaes said:
Set the retained earnings payout ratio to the rate needed to be tax revenue neutral (can't remember since I did the calc a long, long time ago). Was something like 40%.
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What's this? Are you assuming dividend tax equal to the abolished corporation income tax? If pay out is 40% the tax rate would seem to need to be at least two point five x meaning above 50%.

Maybe you mean something else

Requiring a fixed payout/retention rate would have a few problems.
 
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