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Saving the UK Games Industry
arcticstoat writes "Following the cancellation of games tax relief in the 2010 UK budget, the UK games industry is now feeling increasingly threatened by Canada, France and some US states that offer tax relief to their games businesses. What's more, it looks as though the R&D tax credits scheme offered up by UK Chancellor George Osborne in last week's budget speech is nowhere near enough to enable UK-based games studios to compete internationally. 'In terms of magnitude, games tax relief would be much more generous,' says Dr. Richard Wilson, CEO of the UK games industry's trade association TIGA, in this in-depth interview about the need for games tax relief in the UK. 'The proposals we've been campaigning for would allow games companies to basically put in a claim for a reduction in corporation tax of between 20-30 per cent on given projects. The R&D tax credits are much smaller in magnitude – we're talking somewhere around 4-5 per cent.' Is this enough to enable UK game studios to compete with the likes of Canada? 'Good grief, no,' says Wilson, 'absolutely not.'"
Do you get tax relief if you can hold your breath for five minutes? You know, some kind of cap 'n trade thing. And no farting..
For justice, we must go to Don Corleone
You can tell when British management fully sign up to the establishment. They start lecturing and demanding corporate welfare. It's all part of the innovate, expand, manage decline cycle these deadbeats pursue. Not that a gutless bag of shit like Dick Wilson who got the Tory government he wanted gives a flying fuck for everyone at the bottom who's carrying the burden of job losses, tax cuts, and welfare cuts.
Go to hell you cunt. There's people out there with more brains and fuck all in the bank who are producing the games that will put your skinny shiny ass out of business.
Seriously, he would rule with an iron fist, but he would get results.
What do you mean he's actually a Texan?
e.g., 'You better give us tax breaks, or we won't give you jobs, hahahahaha'. This is why I'm a socialist in favor of strong central gov'ts. No matter how bad the gov't gets, there's always a tiny, tiny chance they'll turn out OK. Corporations are intrinsically jerks.
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As long as free trade is god governments are only able to dick around in the margins, especially in countries which have basically no comparative advantage and have been running trade deficits for decades. Nearly the entire first world is living on the dole.
The UK is enacting severe austerity measures on its citizens and companies that develop *games* are whining about not getting large enough tax breaks? Talk about being out of touch, this isn't "let them eat cake" its "how come we aren't getting enough cake?". Meanwhile people are having their bread portions slashed.
The first thing that comes to my mind when I think of a strong central government getting bad is China's "cultural revolution". If you don't mind a couple of million dead people, I guess, yes, you're right.
marbles? ping-pong? hide-and-go-seek? dodgeball? Are these games given tax relief?
Nobody should get any kind of tax relief anywhere, whatever they're doing. Everybody should have to pay.
e.g., 'You better give us tax breaks, or we won't give you jobs, hahahahaha'. This is why I'm a socialist in favor of strong central gov'ts. No matter how bad the gov't gets, there's always a tiny, tiny chance they'll turn out OK. Corporations are intrinsically jerks.
Let's suppose you then set up a strong central government with socialist policies. And then some other country that you do not control decides to offer a marginally better deal for businesses that locate in their jurisdiction. One would hope that you don't claim the right to force that other country to adopt your sort of policy or to force the company not to do business with them. The worst you can do is forbid them from importing their game they made elsewhere into your country, giving you the triple whammy of pissing of your citizens, denying you sales tax revenue and then having to deal with the porous nature of the internet. See, e.g. the US online gambling ban (and obvious corollary to anything that can be distributed digitally).
Socialism or central control doesn't solve your problem here at all unless you are really talking about worldwide socialism and one-world-government, about which the less said the better.
This is where IP businesses suffer in the ideology of socialism but really the argument that people of talent that make software are trying to outsource themselves over what are small margins is inane. What right does an English citizen who wants to make video games have to move to the US or Canada? I'm not denying them the right to move or pay taxes in my preferred locality but in effect the argument is shifted onto the government to be held hostage by corporations when it should be on the corporations to deal with their locality and accept that taxation is part of the system. Then again I am openly in favor of every country charging corporate taxes on profits made within their borders so we can break the back of this poorly done blackmail game we suffer through as citizens. For the record, if a UK game company moved to the US over taxation the best answer would be to simply charge them an additional surcharge to place their games on the shelves. In essence it would be passed onto the citizens of your own country but it would be a perfect way to execute protectionism which is definitively different from socialism.
Didn't know there was one. Cool.
It's so hard to cut spending because no matter what program you cut, some group and some trade association or citizen group has a vested interest in it. I say good job UK. It's not like video games is a infant industry that needs support. All government funds can do is muck up efficiency. Good games will do well in the UK and great games will get distribution internationally and in the long term, the industry will be healthier and the government will have one less thing sucking at it's teat. Support from the government will only lead to more and more need for support after the first hurrah's, and the industry slowly slides worse and worse. For reference, see every industry ever with government support over the last 50 years
What right does an English citizen who wants to make video games have to move to the US or Canada?
The absolute right. England is not a prison, you can't hold people against their will.
I'm not denying them the right to move or pay taxes in my preferred locality but in effect the argument is shifted onto the government to be held hostage by corporations when it should be on the corporations to deal with their locality and accept that taxation is part of the system.
I don't see any argument being shifted by anyone. A company is free to set up wherever they please. England cannot force an American company to set up shop in London, never could, never will. You are arguing about what has always been the case -- that companies will chose to do business in friendly jurisdictions and that the citizens of those jurisdictions have the right to set those policies in accordance with their preferences.
The contrary position -- that one national government can coerce a corporation headquartered elsewhere -- is internally unworkable in the case of >2 governments anyway.
For the record, if a UK game company moved to the US over taxation the best answer would be to simply charge them an additional surcharge to place their games on the shelves.
Leaving aside that it is totally illegal under existing law to charge different import taxes to different companies importing the same good, the UK isn't a large enough market that this would make a difference.
In essence it would be passed onto the citizens of your own country but it would be a perfect way to execute protectionism which is definitively different from socialism.
Given the elasticity of videogame purchases, the cost of a high tax is born by the supplier not the consumer.
..wait until they have a few of their cronies are UK games industry leaders and I'm sure we'll see tax breaks.
One the one hand you have corporations that will do everything to push the boundaries of law in order to gain power.
On the other hand you have governments that can just change laws in order to gain power.
I'm reminded of something with "absolute power"...
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There was a time where artists and programmers learnt in their bedroom. This was great because when they came into industry, it didn't take much to get them up to scratch as they had been doing it at home, just with less tools and no access to others. Now, in the game company I work at, we struggle to get people who know what we need.
I wonder how much of the recruitment problem is noise to signal ratio because of:
http://www.youtube.com/watch?v=lGar7KC6Wiw
These kids go and do "games" courses, but aren't being taught what they need, because really, they don't want to know and the course is about bums on seats to make the education stats look good. I was on a "VR" course that was similar, but I dropped out and went into industry when our "professional 3D artist" didn't know what was skinning or IK and seamed to make everything out of spheres, and our programmers didn't know anything about real-time 3D. That was 10 years ago, not sure it's got better since.
I also wonder how much of the problem is no one learning "roll in the mud" C/C++ that is required. Those learning at uni, and even at home, seem to be learning only managed languages, so don't really understand computers. They don't get memory, data and instructions, only objects and garbage collection. Even if you are going to use someone else's engine, that still puts you at a disadvantage. Though of course, as long as the tech is "good enough" it starts becoming about game play and artwork....
I also wonder if this is limited to the game industry after last week's link to:
http://blog.expensify.com/2011/03/25/ceo-friday-why-we-dont-hire-net-programmers/
I think this kind of thing makes people angry because they know, deep down, there is at least an element of truth to it, but don't want to take the ivory tower blinkers off and see. Same kind of people who shout that programmers should do GUIs for everything, and there should be no CLI. Tough. For real time, you need to know what the computer is doing, even if you are using a virtual machine on top (in which case, you need to know what that is doing too, so it's actually making things more complex for you). For advanced computer use, you need to learn the CLI.
It should be obvious without having to be said that a fair democratic process is a needed. You don't want to hand over lots of power first and only afterwards try to control it.
Do note that word "fair" too, because it's important. Corrupt semi-democracies need not apply.
I'm not denying them the right to move or pay taxes in my preferred locality but in effect the argument is shifted onto the government to be held hostage by corporations when it should be on the corporations to deal with their locality and accept that taxation is part of the system.
I don't see any argument being shifted by anyone. A company is free to set up wherever they please. England cannot force an American company to set up shop in London, never could, never will. You are arguing about what has always been the case -- that companies will chose to do business in friendly jurisdictions and that the citizens of those jurisdictions have the right to set those policies in accordance with their preferences.
The contrary position -- that one national government can coerce a corporation headquartered elsewhere -- is internally unworkable in the case of >2 governments anyway.
Of course, you are missing the point that under the current system, the point of corporations is to make profits for their owners. If a corporation and its owners currently exist in the UK and are paying UK taxes, then it is totally feasible to set up a system of taxation and tariffs that prevent this ownership from moving around, or eliminates the benefits of moving it around. Just like the US government requires its citizens to pay income taxes for income from their employment, a government could easily require its citizens to pay income taxes/capital gains taxes on assets they are holding around the world.
This would not prevent founders from changing citizenship and then creating new corporations abroad, but that is not a very credible threat anyway - people don't change their citizenship on a whim. However, it would effectively stop domestically owned corporations from evading taxes by moving abroad. They could still move their jobs abroad, but hey: if they do that, and by doing so increase the taxes they pay domestically, then this could even become a win-win situation for society as a whole, because other, less easily offshored jobs could be created.
Conceptually, it is really not that difficult to set up a tax system in which there is no real threat of corporations moving abroad due to taxation (the devil's in the details of course). The problem is a political one. Nobody in power really wants to set up such a system because of vested interests.
Although it calls itself a "constitutional monarchy", it was established during the 1688 revolution that Parliament can remove the monarch (essentially what happened - James was removed and William of Orange invited to take the job.) So yes, we are de jure and de facto a Republic whose President gets the job notionally for life and has a funny hat. The difference between us and the US is that they complain if the President does nothing, and we complain if a member of the Royal Family tries to do anything other than wave gracefully.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
There's two sides to emigration. I think he's talking about the other one.
The H1B quota is taken up by dodgy bodyshops bringing Indians in.
I'm British. I pay British taxes. My short response to this revelation that we don't subsidise the game industry from public funds any more is:
"Fucking good!"
My full response is:
"What the hell? We PAY people from public funds to write computer games just so we can compete with other country's computer games?"
Of all the myriad taxes, charges, jobs, cuts and everything else going on, this is seriously making the whole UK games industry look like a bunch of whiners.
How about this - you're running a business. It produces a product. That product is FAR from essential. In fact, it's as much luxury as is conceivably possible to the ordinary man. You build it, sell it, make a profit, pay your staff. Like every other business in the world.
And I'm assuming these tax breaks don't even run to business software, or healthcare software, or educational software, or the myriad other types of software which could conceivably be useful? No, just games.
Seriously. You're making yourselves look like arses, in public, in times of austerity - people were smashing up London the other day because the government has made cuts, what do you think they'd do if they thought for a second their tax was going to help write computer video games?
I'm not one to blame everyone on the recession and yell about how bad people have it but this is just ridiculous. Get off your arse and make a product that sells. Yeah, you might conceivably add a job or two if you were giving huge tax breaks by the government, but so would any other industry.
Ain't that the truth. If only the nimby environmentalist anarcho-luddites would allow us to farm unicorns genetically modified to shit gold we could all be as rich as Croesus.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
The normal state of affairs would be that a company would pay a certain percentage of Corporation Tax. In giving the industry tax relief, we're effectively handing them back a load of money that would otherwise have gone into the Treasury.
That said, George Osborne has apparently decided that no matter how much tax receipts come in over estimate, he's still not going to pull back on austerity measures (which, incidentally, I don't oppose entirely but he is going much too far, too fast, and the cuts have barely hit yet). I'd rather we supported successful industries in the UK, at least until such time as we've rebalanced our economy onto a more sustainable (ie. not so banking-dependent) footing.
No thanks, not interested.
HEY HEY 16K, What Does That Get You Today, Thursday (NNGadget) — As well as attempting to give the major record and television companies whatever they want until the end of time, Lord Carter's Digital Britain report includes tax breaks for "culturally British" computer game development.
Planned games include Lard Warrior (“the goal is to sit playing a game. The graphics are truly horrifying and needed us to go to 3.5-dimensional to fit the player's avatar on the screen. Rated 18+ for explicit neck beards"), CCTV Panopticon (“take pictures of the CCTV cameras in your high street until arrested under the Terrorism Act for having your own camera in public, defeat final boss with Doctorow Attack"), Bottled Tan Snorter (“get into celebrity magazines and shag footballers, lose points for any sign of intelligence, insufficient nipple slips or words of two syllables") and Cynical Apathist (“write outraged blog posts and comments with amusing satires of events of the day while working a job directly keeping the hideous machinery alive and running, avoid removal by the Guardian moderator"). A committee will also form a group to do a study concerning a team to write a ZX Spectrum emulator for the iPhone, with a cassette interface emulator that sends Apple 99p every time you get an "R: Tape Loading Error."
The games industry has warned in the past that developers are being lured away to other countries by the prospect of being paid more than shit. Conservative Shadow Arts Minister Ed Vaizey has leapt upon the opportunity, with promises of incentives for talented developers to stay in Britain and not be lured away by better pay in America. "We'll keep their passports from them until they reach 'Achievement Unlocked.'"
Having finally released Digital Britain, Lord Carter has resigned from the government and is returning to private industry. "Of course, Digital Britain remains a completely objective assessment of the way forward for the nation in the twenty-first century, and should in no way be thought of as my CV for a series of lucrative consultancies with the large media companies I've just given everything they've ever asked for. And a pony."
http://rocknerd.co.uk
Of course, you are missing the point that under the current system, the point of corporations is to make profits for their owners. If a corporation and its owners currently exist in the UK and are paying UK taxes, then it is totally feasible to set up a system of taxation and tariffs that prevent this ownership from moving around, or eliminates the benefits of moving it around. Just like the US government requires its citizens to pay income taxes for income from their employment, a government could easily require its citizens to pay income taxes/capital gains taxes on assets they are holding around the world.
So let's say that I, as an American, buy a rental property in the UK. You state that I should pay both UK taxes on the income (income made in the country is taxed by that company), and then US taxes on the income? And you liken this to an income tax? Yea... that is such a crazy-bad deal that I would switch citizenship.
I'm sorry, I normally favor the UK in this system, but if you move your company overseas, then it is taxed overseas.
What right does an English citizen who wants to make video games have to move to the US or Canada?
The absolute right. England is not a prison, you can't hold people against their will.
The US and Canada have a say, too. I doubt I would be allowed by the US or Canada to move there to work (unless I won the green card lottery) so no, I don't have the right.
Quidnam Latine loqui modo coepi?
Not saying you should. Saying that the governments have that power.
Quidnam Latine loqui modo coepi?
corporation - "take less money from us and we'll give you jobs"
government - "give us more of your money and we'll give you jobs"
Umm... sounds like the corporations wins here as the lesser of two evils :P
There are a ridiculous number of british people in california or vancouver writing games who went over in the 1990s before the immigration system got 0wned. Neil Young (EALA then ngmoco) and Dave Perry (Shiny) are two of the more high profile.
Corrupt semi-democracies need not apply.
We always apply, bitch.
--L&K,
USG
"I don't believe it!"
The real problem here is that there are game houses out there that are doing phenomenally well, while others are failing. A lot of this has to do with the business models they have adopted. Many of the 'failing' ones are very vertical. They contract develop games. This works well in a buoyant market, but during a recession, this can cause work to dry up.
The more successful ones have fingers in multiple pies, not only doing contract development but also developing their own in-house games with development targeted at mobile, console and PC.
I'm actually reminded of an Asimov story, where there was this world where Sex was open anywhere, anytime, anyplace. No restrictions.
Eventually all the worlds around it decided to stop it because they were being drained by the tourism all going there.
Of course, you are missing the point that under the current system, the point of corporations is to make profits for their owners. If a corporation and its owners currently exist in the UK and are paying UK taxes, then it is totally feasible to set up a system of taxation and tariffs that prevent this ownership from moving around, or eliminates the benefits of moving it around.
Which make UK corporations less competitive with respect to those in other jurisdictions and encourages anyone setting up a new corporation to chose those jurisdictions instead of the UK.
Just like the US government requires its citizens to pay income taxes for income from their employment, a government could easily require its citizens to pay income taxes/capital gains taxes on assets they are holding around the world.
I believe they have obligations under bilateral tax treaties that prevent this.
Of course, the UK could withdraw from the US-UK tax treaty but the net result would be significantly lower investment and business in the UK, driving up prices for UK consumers and businesses. That is, the UK benefits from allowing US corporations to sell shit in the UK and pay only UK taxes but we would not grant the UK that privilege unless they allowed UK corps to sell shit in the US and pay only US taxes.
IOW, you are mixing up the concession and the benefit. The UK concedes that it will not require its citizens to pay income tax on assets elsewhere because it wants the benefit of having the citizens of other countries' citizens doing business in the UK on the same terms.
This would not prevent founders from changing citizenship and then creating new corporations abroad, but that is not a very credible threat anyway - people don't change their citizenship on a whim
No, but corporations do move entire offices around if they think they are getting a raw deal.
However, it would effectively stop domestically owned corporations from evading taxes by moving abroad.
Back to point one: now domestically owned corporations are at a material disadvantage and their market-share will shrink accordingly. Meanwhile, some more business-friendly jurisdiction eats your lunch. Heck, the worst case the corporation can dissolve itself and reform in another place under foreign ownership, nearly intact.
Conceptually, it is really not that difficult to set up a tax system in which there is no real threat of corporations moving abroad due to taxation (the devil's in the details of course). The problem is a political one. Nobody in power really wants to set up such a system because of vested interests.
The devil's in the fact that you can't force everyone to cooperate with your scheme, and so either the corporation moves or their foreign competition has a favorable cost-basis.
The more rules you make, the less competitive you become relative to everyone else. No one that buys a video game cares if it's made in the UK or Canada, and if the latter has lower costs and can therefore deliver better games, consumers will chose them. Maybe UK game developers are intrinsically so much better than Canadian ones that they will still compete but I doubt it.
Companies will always go for the cheapest sources of labor. In a few years, the starving kids in Bangladesh who have been making clothing all this time will be teenagers. When their fingers get too big, they'll have to move on programming games for ten cents a day and we'll all be out of our jobs.
Do you want a mechanic working on your car who was clueless about cars until one day he decided to blindly go take car repair courses, purely because he thought he could make some easy cash with it?
Or somebody who's been tinkering under the hood of a car since he was 13?
So let's say that I, as an American, buy a rental property in the UK. You state that I should pay both UK taxes on the income (income made in the country is taxed by that company), and then US taxes on the income? And you liken this to an income tax? Yea... that is such a crazy-bad deal that I would switch citizenship.
Except that the empirical evidence contradicts your claim. I will reiterate: Americans who work abroad have to pay US income taxes (of course they can deduct whatever amount they paid in taxes in the country where they worked, and obviously it would work the same way for corporate income), yet the number of Americans who give up their US citizenship because of that burden is insignificant. Perhaps you personally would switch, but clearly the vast majority of people value their original citizenship more than a small monetary benefit. This is not an opinion, it's an empirical observation.
It is possible that the super-rich might not care enough about their citizenship and prefer to become citizens of some small island in the Pacific or something. Personally, I would consider this a benefit: at that point their influence on domestic politics would essentially disappear, because even conservatives would start labelling them as pariahs.
I understand your knee-jerk reaction, because it just seems so unreal to imagine a world where corporations and the super-rich have to abide by the same rule as normal people. But this is exactly the problem. So try to think outside the box, and start imagining. The only reasons we do not live in such a world are political, there are no other fundamental obstacles.
Of course, you are missing the point that under the current system, the point of corporations is to make profits for their owners. If a corporation and its owners currently exist in the UK and are paying UK taxes, then it is totally feasible to set up a system of taxation and tariffs that prevent this ownership from moving around, or eliminates the benefits of moving it around.
Which make UK corporations less competitive with respect to those in other jurisdictions and encourages anyone setting up a new corporation to chose those jurisdictions instead of the UK.
In reality, actual founders (as opposed to those mythical creatures in the economists' dream world) do not choose the place where they set up a new company based on tax rates. Most of the time, they simply set up where ever they happen to live. Please show me all those mythical Brits who give up their citizenship and become let's say Taiwanese, because the tax rates there are better for them, otherwise your argument has no basis in reality. You have to understand that this threat of moving to another country is largely a bluff. Shipping the jobs of somebody else overseas is one thing, but actually changing your own citizenship for a small tax benefit? Very few people are prepared to do that. Don't fall for their bluff.
As for your point on international tax treaties - such treaties are changed all the time when parties feel that the terms are no longer beneficial. If both the US and the UK required income from assets to be taxed at their respective rates, then things naturally balance out again, and your argument on investment becomes moot.
This would not prevent founders from changing citizenship and then creating new corporations abroad, but that is not a very credible threat anyway - people don't change their citizenship on a whim
No, but corporations do move entire offices around if they think they are getting a raw deal.
So what? Then the corporation would perhaps be able to make a higher profit and if - as I originally suggested - existing tax loopholes were closed, this would result in them actually paying more taxes domestically. The composition of the work force would change, but these things can be dealt with.
The devil's in the fact that you can't force everyone to cooperate with your scheme, and so either the corporation moves or their foreign competition has a
favorable cost-basis.
The more rules you make, the less competitive you become relative to everyone else. No one that buys a video game cares if it's made in the UK or Canada, and if the latter has lower costs and can therefore deliver better games, consumers will chose them. Maybe UK game developers are intrinsically so much better than Canadian ones that they will still compete but I doubt it.
What's this obsession with competitiveness? The entire point of why we come together as a society to form states, to form a government, what legitimises the whole system, is that it should work towards the benefit of the public. Competitiveness may be a useful tool to achieve that end, but it can never be an end in itself. If, in the pursuit of competitiveness, we are actually hurting the well-being of the general population, then I say screw competitiveness.
Taking a step back, I think the thing that baffles me is that you seem to want the wealthy and corporations to have privileges that are not accessible to the vast majority of the population in terms of taxation. Is that what you want? If so, why?
Or, alternatively, if you do want a more fair system of taxation, in which corporations do not have unfair advantages compared to what the general population has available, then what is the point of your argument? Do you have something better to propose? I would appreciate constructive input.
In reality, actual founders (as opposed to those mythical creatures in the economists' dream world) do not choose the place where they set up a new company based on tax rates.
As an American part owner of a corporation set up in Ecuador, I can assure you that this is utter nonsense.
Please show me all those mythical Brits who give up their citizenship and become let's say Taiwanese, because the tax rates there are better for them, otherwise your argument has no basis in reality.
I didn't have to give up my American citizenship to set up a corporation elsewhere ....
As for your point on international tax treaties - such treaties are changed all the time when parties feel that the terms are no longer beneficial. If both the US and the UK required income from assets to be taxed at their respective rates, then things naturally balance out again, and your argument on investment becomes moot.
No, both parties lose out because of lower trade. If you have to pay double-tax to import a car from the US but only a single-tax for a UK one, then the UK car becomes more appealing by comparison even if they are (let's say by assumption) equal in terms of quality and cost of inputs.
So what? Then the corporation would perhaps be able to make a higher profit and if - as I originally suggested - existing tax loopholes were closed, this would result in them actually paying more taxes domestically. The composition of the work force would change, but these things can be dealt with.
You can't tax the corporation if they move out of your country. If Rockstar (an American company) relocates their UK office to Canada, the UK government has no "loophole" to close because the UK can't do anything about it. At worst they can try to tax Rockstar's game imports to make up for the difference, but given that the UK domestic market is small, that's not a great move.
Essentially, for this to work, you need to have all the governments cooperating by implementing the same tax policy at the same time. You just can't force other countries to do things like that -- the UK has to make the best policy for the UK, not to start dictating to the rest of the world how we are going to do things.
What's this obsession with competitiveness? The entire point of why we come together as a society to form states, to form a government, what legitimises the whole system, is that it should work towards the benefit of the public. Competitiveness may be a useful tool to achieve that end, but it can never be an end in itself. If, in the pursuit of competitiveness, we are actually hurting the well-being of the general population, then I say screw competitiveness.
Competitiveness is the the well-being of the public. If you can make a car or a building with fewer inputs that means more of society's limited resources can go towards other things that people want like games and planes.
Taking a step back, I think the thing that baffles me is that you seem to want the wealthy and corporations to have privileges that are not accessible to the vast majority of the population in terms of taxation. Is that what you want? If so, why?
What privileges? The right to do business in other countries? Everyone has that. I'm not a wealthy man and I set up a partnership elsewhere. If the Ecuadorian government decides to jack up my taxes, I'll move shop elsewhere. I provide a useful service to my customers (evidence: they voluntarily give me money in exchange for goods) so it's their loss if they end up with fewer choices.
It's quite the contrary, actually -- the more complicated and draconian the tax code, the harder it is for an individual to compete against a corporation that has an in-house legal team and tax specialists. Complexity favors large organizations that can distribute the cost of dealing with the red-tape over
In reality, actual founders (as opposed to those mythical creatures in the economists' dream world) do not choose the place where they set up a new company based on tax rates.
As an American part owner of a corporation set up in Ecuador, I can assure you that this is utter nonsense.
Is it really nonsense? You are still American, aren't you? It seems you really didn't understand my point at all, so let me reiterate one last time.
If, instead of part-owning a company in Ecuador, you were to move to Ecuador to work there, you would of course pay Ecuadorian income tax. However, as long as that tax is lower than whatever the US income tax rate is, you would then have to pay the difference to the US government. In effect, the tax rate you are paying is the maximum of whatever the local income tax rate is and the US income tax rate. In that sense, as long as you keep your US citizenship, you cannot evade those taxes by moving abroad.
All I'm saying is that it would be both possible and fair - and remove a lot of the tax evasion incentives - to apply similar rules to the taxes that a US-owned company has to pay. Basically, let the tax rate that applies to a company be the maximum of the rate of the country where it operates and the rate of the country of citizenship of its owners. Yes, there are details that need to be worked out - and they can be. It's the big picture that counts.
I agree with you that e.g. sales taxes should simply be based on whatever country the sale happens in. But when you're talking about corporate taxes that are essentially the corporate equivalent of a person's income tax, then there is really no reason not to apply a similar system.
I don't know why you're doing business in Ecuador. If it is indeed purely for tax reasons as you seemed to imply, then you might disagree with me because you have vested interests. That's okay - but please at least be man enough to admit that, instead of making up some fake "reasons".
However, as long as that tax is lower than whatever the US income tax rate is, you would then have to pay the difference to the US government. In effect, the tax rate you are paying is the maximum of whatever the local income tax rate is and the US income tax rate. In that sense, as long as you keep your US citizenship, you cannot evade those taxes by moving abroad.
Actually, I don't pay any US taxes on profits that I do not repatriate. So long as I keep the money in the Ecuadorian corporation, the US government does not ask for any of it.
All I'm saying is that it would be both possible and fair - and remove a lot of the tax evasion incentives - to apply similar rules to the taxes that a US-owned company has to pay.
That would discourage US-owned companies from selling in Ecuador (as they would be taxes much higher than their domestic competitors) ending up with there being fewer choices for Ecuadorian purchasers.
Basically, let the tax rate that applies to a company be the maximum of the rate of the country where it operates and the rate of the country of citizenship of its owners. Yes, there are details that need to be worked out - and they can be. It's the big picture that counts.
We have partial owners from 3 different countries. How is that even supposed to work?
I agree with you that e.g. sales taxes should simply be based on whatever country the sale happens in. But when you're talking about corporate taxes that are essentially the corporate equivalent of a person's income tax, then there is really no reason not to apply a similar system.
But the corporation lives in Ecuador, not the US. There is absolutely no connection between it and the US except that a fraction (not even a majority!) of it is owned by a US citizen.
I don't know why you're doing business in Ecuador. If it is indeed purely for tax reasons as you seemed to imply, then you might disagree with me because you have vested interests. That's okay - but please at least be man enough to admit that, instead of making up some fake "reasons".
I'm doing business in Ecuador because I sell goods and services to the people of Ecuador and hence it became necessary to incorporate in that jurisdiction. In fact, I could not legally do business in the country without setting up some official presence -- if I partially-owned a US corporation we'd still have to set up a local subsidiary.
As for vested interests, it's a small company and it accounts for a negligible fraction of my assets. As I see it, it's in the interest of the Ecuadorian people to have a lively and competitive market instead of locking out foreign competitors with protectionist schemes. More choices for them can only be better.
There's a difference between 'strong central government' and a 'tyrannical authoritarian regime'. China was the latter.