UK Announces 'Google Tax'

mrspoonsi points out that the UK has announced a "Google tax" on corporations that send a significant portion of their profits overseas to avoid local taxation. Any "economic activity" that is pushed to another country would face a 25% tax. George Osborne, the Chancellor of the Exchequer [said], "We will make sure multinationals pay their fair share of tax. We will introduce a 25% tax on profits from multinationals here in the UK which they artificially shift out of the UK. Today we're putting a stop to it. It's unfair to British people." ... [C]orporate taxes are still low, because the system does not tax sales, it taxes profits. And those profits are fiendishly difficult to pin down. Intellectual property payments to holding companies, the movement of sales activity to lower tax jurisdictions and the cost of licensing fees to holding companies all confuse the picture and allow firms with very mobile business models (such as in the technology sector) to be highly tax efficient.

Comments

Great

[Roodvlees]

Sadly it has to be done this way. Because countries refuse to stop giving the ridiculous tax benefits.

Re:Great

[Lawrence_Bird]

Because countries refuse to stop giving the ridiculous tax benefits.

Well there you have it. Exactly what is wrong with the left. A lower tax rate is considered a "benefit" as if the government is tossing a cookie out and patting the corporate (or individual) dog on the head and saying "good boy!"

The government has no inherent natural right to take money from anyone.

The far better way to view it is "companies are shifting assets and income out of our country because of the ridiculous tax penalties here."

Re:Great

[dave420]

The companies profit because of the stable economies and societies countries create through spending the tax the countries have collected. Why shouldn't governments try to recoup some of this? Google can choose to not do business in the affected countries if they want.

Re:Great

[visualight]

And you have no inherent natural right to electricity, plumbing, roads, safety from murder/rape/robbery, etc. Society gives that to you in EXCHANGE for your taxes.

Next, try to separate Society from Government to continue your argument. Then I'll just call you you a Liar, because you do actually understand the manipulation you (will) be making.

Or, you have another, more fair, method that results in every member of Society contributing to the whole, let's hear it. But if you think you should be allowed to live here and profit from our infrastructure and then not pay for it you can get the fuck out you communist free loader.

Re:Great

[deKernel]

You make it sound like they don't recoup any money which they do. The question is how much is fair.

Re:Great

[CrimsonAvenger]

The government has no inherent natural right to take money from anyone.

Nonsense! Governments have the normal natural right to take money from anyone - the Army and Police.

Or do you really believe that there's any difference between modern governments and medieval ones, other than the method of picking the rulers?

Re:Great

[Roodvlees]

Exactly what is wrong with the left.

The only where it matters who says it is when you are wrong and unable to argue the point.

A lower tax rate is considered a "benefit" as if the government is tossing a cookie out and patting the corporate (or individual) dog on the head and saying "good boy!"

When that tax rate is lower than the one people have to pay over their income and it's only paid over the profit the company makes (unlike personal taxes which are paid before basic life maintenance) - yes it's a benefit because it means people have to make up the difference on their personal taxes.

The government has no inherent natural right to take money from anyone.

Of course not, but lets be realistic how else will it pay for services?
If you really don't want to pay tax you can always move to Yemen.
But you want a police force to reduce crime, fire department to put out fires, etc...
Taxes are necessary to make those things happen.
I want everyone to pay their taxes so nobody has to pay an unfair amount.

Also I think most companies will be happy to pay their taxes, so long as their competition also has to, because they benefit from government services just the same.

companies are shifting assets and income

That's so broken! These companies enjoy roads, an educated population, etc, they should not be allow to 'move' income from the place they earned it.

Re:Great

[beelsebob]

Of course they don't - governments are an entirely human construct, so they have no inalienable rights at all.

However, the vast majority of society sees creating a pot of money from which we pay for shared resources as a valuable and useful thing. We then expect everyone to pay their fair share into said pot given that they are sharing said resources.

Re:Great

[gstoddart]

You know, corporations have no inherent natural right to anything. Corporations are a construct created and regulated by governments.

Corporations have no such thing as natural rights, because corporations are not a natural thing. They are a legal construct, and nothing more. They aren't some protected species.

So, yes, when you incorporate to get certain benefits from the government, you do it under their terms. And that has a pretty good chance of including paying taxes.

So, your status as a corporation isn't some magical, inherent thing in the universe. It's not an objective fact. It's not defined by physics.

Governments keep giving tax breaks to corporations and the wealthy under the lie that this will create jobs and stimulate the economy. And the they destroy jobs, and sit on record high piles of money and not do anything for the economy.

From what everyone who isn't a corporation can tell, giving tax breaks to corporations has NONE of the claimed benefits. All this has done is put more money in the hands of the few, and leave the rest of us begging for scraps.

But don't think for a minute that a corporation is in any way entitled or has some inherent natural right to make money which isn't taxed.

Because that's complete bullshit.

Corporations do not exist without the permission of governments. Which means it's corporations which don't have any natural rights in this equation. And they certainly don't have some inherent right to not be taxed.

Re:Great

[thaylin]

Companies do not create jobs, demand for goods creates jobs, companies fulfill that role of producing. If that company was not there the job would still be there. That is a myth created by the right.

Re:Great

[Maxwell]

And companies don't get any of those services, nor do they benefit from any of those services. Services like IP property rights, employment laws, public education for workers are of no benefits to corporations. As none of that benefits the corporations, they should be free to ship all the profits to Ireland/no tax jurisdictions while continuing to do business in England! Right? Right, not left, right!

Re:Great

[admiral snackbar]

True, but does the combined level of taxes on capital add up to the same level of taxation as someone earning the same amount through labor? In my opinion it should add up to the same amount. If I as a citizen make 100k a year through dividends and capital gains, I profit about as much from the government as another guy making 100k a year through working a job. We should pay roughly the same level of taxes, as we gain roughly the same amount of benefits from living in an orderly, governed society and we make roughly the same amount of money. Corporate income taxes are a valid way to ensure that all sources of income can in the end be taxed at roughly the same percentage. There may be alternatives, but corporate income tax is no more or less valid than a personal income tax or a capital gains tax. How the government achieves that same level of taxation is less relevant to me. My problem lies with corporations that evade taxes. Not only does that problably lead in some cases to a situation where someone making 100k in capital income pays less tax than someone making 100k in labor income, it is also unfair compared to for example smaller companies that don't operate internationally and therefore can't use dodgy tax evasion measures. Why would it be fair if the mom-n-pop store on the corner pays a higher percentage of corporate income tax than Walmart, just because the latter can shift its taxes to whereever it wants? Is that fair competition?

Re:Great

[Krojack]

Last I checked all my utilities other than water are private companies. My taxes won't pay my electric, gas or phone bill. If I don't pay any of them then they get shut off.

Also I pay my water bill to my local city and it's not even part of my taxes.

Re:Great

[Des Herriott]

As the parent poster stated: "in EXCHANGE", or in other words you're paying for it. You can't rebut an statement if you've only bothered to read half of it.

Parent poster is right: western nations with higher tax rates generally do offer more stable, safer, societies, and corporations are all too happy to take advantage of that without making their contribution to that society.

And yes, governments do have the right to tax you. You can bleat about libertarianism all you like, but elected governments get to make the laws, and you can either abide by them, or piss off somewhere else without any pesky laws. I understand Somalia is nice at this time of year.

Re:Great

[Kierthos]

People don't give up their natural rights when they form a corporation, but that does not mean that the corporation has all those same rights.

Re:Great

[Opportunist]

Well, let's look at a country without any kind of sensible government system in place. Let's take, say, Somalia. Now imagine you're doing business there. Ponder for a moment how much you'd pay to be protected from looting, to have your workforce protected from being mugged, to create and maintain an infrastructure so you have gas, water, power and transportation, ...

Then you know what's fair.

Re:Great

[Opportunist]

Sorry, no. Jobs are to a company a necessary evil. No company in their sane mind creates a job for the sake of creating a job, only if said job generates more revenue than what the worker costs that job will be created.

I create jobs. I buy goods and services.

Re:Great

[cornjones]

Ok, fine, do it as efficiently as possible. But there was around 100MM GBP shortfall in the UK budget last year. This isn't about take as much as they can get, this is about we need to bring in X to provide all the things we have decided to spend on.

Note that arguing about the validity of the things we spend on is a separate (but related) discussion.

Re:Great

[thaylin]

That is not creating a job. That is changing the type of way the job is done. The job is still there, they are just using robots to perform that job. Removing the robot does not create a new job, just changes who does it.

Re:Great

[qbast]

Automation doesn't destroy jobs, it increases the amount of goods that a single worker can produce, making everyone richer..

Except for the worker who gets fired.

Re: Great

[Anonymous Coward]

In the UK we have the concept of an individual being "self employed". If companies did not exist, then every job, where there is demand, would be done by a person. He or she would pay tax on their income. Corporation tax only exists because corporations exist. And it is not fair that a self employed owner of a coffee shop has to pay tax on their profits, whilst a large multinational like Starbucks pays no tax, even though the shops are located in the same street and sell the same goods.

Re:Great

[Obfuscant]

Ponder for a moment how much you'd pay to be protected from looting, to have your workforce protected from being mugged, to create and maintain an infrastructure so you have gas, water, power and transportation, ...

Except that those employees ALSO pay taxes to create and maintain the same infrastructure so they get gas, water, power, and transportation. In fact, because those employees are employed and earning income they pay MORE than people who are unemployed.

So the government is double dipping here. Tax the company who creates the jobs that allow the people to pay more in taxes, and tax the people who exchange their time and labor for money.

The real issue is not whether there should be corporate taxes, but whether a corporate tax rate of 25% is reasonable when a company earns that money someplace else. Great Britain has no business taxing multinationals for money earned abroad, and even less business threatening them with an exorbitant penalty when they don't free pay up on those external profits.

Re:Great

[CrimsonAvenger]

Automation makes the owner of the machine richer. The man with no machine is stuffed. It is not just a law of economics, its the truth!

Which no doubt explains why we're all generally poorer now than in the 19th century - all that automation of farms (tractors, combines, that sort of thing) left most everyone unemployed (remember, once upon a time, 80% of the workforce was farm labour), except for the 2% of farmers who managed to scrape together the funds to buy those neat new farm-toys....

Alas for all of us that farming was automated! If only we lived in the good old days of horse/mule drawn plows (ploughs for you Brits in the audience) and harvesting by hand!!

As for me, I'll take the increased wealth and leisure that resulted from all that automation - 40 hour work weeks instead of 60 hour work weeks, enough wealth that even the middle class can afford an occasional trans-Atlantic vacation, that sort of thing....

Re:Great

[davydagger]

Lets be fair, using another dissimilar country for comparison is not a fair comparison

Lets be frank and you have no real intrest in fair comparisons.

Somolia's situation is complicated, and as the country has no real "government" as we know it, does not mean its "ungovernen", the capital is a warzone, but the rest of the country is a somewhat peaceful being ruled under tribal leaders. This is not Anarchism, or even capitalism, but simply old school tribalism, something much better suited to the locals than imposing a western style state.

We can also look at neighboring states, not doing much better *with* government.

Re:Great

[Opportunist]

Ok, let's use a fictitious country since Somalia might have a negative connotation. In this country you don't get anything from the government, you need to pay for everything yourself. In return, no taxes are being paid. EVERYTHING is privately owned and run for-profit because, well, you have to run it for-profit because there is no other way to do it sensibly when there ain't nobody going to back you.

What remains is that you need to hire security (and I mean 24/7 security, since nobody would give a shit about anyone breaking into your place), and pay them rather well because they need to have an incentive to have that job still tomorrow instead of simply using their position to sell off your belongings themselves. You should also take care that you have some firefighters and other technical emergency services on your payroll, at least if there are any assets that you don't want damaged in case of an emergency.

Depending on what kind of company you have, you will also have to find someone to pipe some water your way, along with someone to transport off your sewage. And unless you want to keep it or treat it yourself, find a treatment plant to enter a contract with you. Put aside a bit of money every year to pay for the necessary inspection and maintenance of the pipes. Or, of course, pay someone to do it for you. Since you will probably not find anyone else willing to share a pipe with you unless you pay him handsomely to use his pipe (after all you'd have to rent it from him, and like I said before, everything in our fictitious state is for-profit, and so is access to this pipe), you will want your own pipe, so expect to pay a bit more than you'd do in one of these "socialist" countries where the sewage is bundled. How else do you think the treatment plant could find out how much to charge you if they can't measure your amount of poop?

Same goes of course with your waste. Find someone to dump it for you or drown in it.

You will probably also have to do with a relatively lower qualified work force. Since only people who come from a well off background can afford education, the pool of educated people is smaller. Unless you just need menial workers, this may mean that you have to pay more due to supply and demand. Of course, if you only need monkeys you'll get by paying peanuts since that pool would certainly grow correspondingly. In general, the less training you need to give your work force the better, since fluctuation can be serious. Especially if work related injuries can be an issue and if your workers cannot afford medical care they might stay deformed. Whether this is a crippling problem for you too or just for them depends of course on the kind of work you offer. Though as experience has taught us, workers in jobs where injury is likely are also easy to replace because such jobs usually need no lengthy training, so I think you should be ok without having to implement any worker safety precautions. It's not like there's a government that would pester you with such, if you come up with something like that it would only be in your interest, and as long as workers are easy to replace (remember monkeys and peanuts from above), there is no pressing urge for this.

And so on. It would be interesting to find out whether it would be cheaper or more expensive to produce in such a country. One thing is certain, though, I would not want to LIVE in such a country.

Re:Great

[cornjones]

You are having two different discussions. One is that you want to minimize what the gov't offers to curb that bill. THere is a vast area to explore there but it is not the point of this discussion.

The people, as a block, have determined that this is the set of services the gov't is going to offer. they need to pay for it through tax policy. Running a deficit, while sometimes necessary, makes as much economic sense as credit card spending.

Besides, over the last few years, there has been a significant amount of 'austerity' cuts to gov't spending in the UK. For the most part, the economic markers seem to show that it is working better for the UK than the rest of the EU. That said, there is still a shortfall. You need to adjust both dials, cutting spending and raising revenue.

All this is about is attempting to address the shady loopholes where corporate accountants have figured out how to avoid national taxes, by the letter but against the spirit of the law.

Re:Great

[Dr_Barnowl]

Yes, you need robot makers.

But the whole point of automation is to reduce costs or increase productivity or quality.

If you robotize McDonalds, you're not going to increase the number of people who eat there ; that's pretty much determined by the size of the restaurant and the capacity of the kitchen. Quality is pretty much set by the quality of the ingredients, and is not the reason people eat in McDonalds.

The kitchen labour is flexible - McDonalds go to great pains to have people on contracts that mean they can have them work as little or as much as they need. So the thing they are making flex is labour, not production. Add robots, and you have less human labour. If you don't, there is no economic reason to do so - you don't need more production (or they would be having problems recruiting, not trying to keep their workforce lean).

If robots cost more to make and maintain than your human labour, you don't use them. Therefore robots mean fewer dollars in the pockets of human labour. It creates SOME jobs higher up the supply chain, sure, but not the kind of jobs that McDonalds kitchen labour can do - these guys are by and large, on the lower half of the bell curve for ability, as you point out. But if you need to spend more dollars on robots and engineers to handle them, you're doing it wrong. Therefore more money departs from the labour end of the economy (the customers of McDonalds) and into the pockets of the owners (the customers of 5 star restaurants).

Extend this to every low-skill employer and you have a vast underclass of unemployed people who i) need supporting ii) can no longer afford to buy goods and services that they previously would have afforded.

Lower demand means less economic activity which means more push to increase productivity and decrease labour.

Before long, robots are making the robots. The only guy with a job in robotics is the guy who maintains the robot maintaining robot. Sooner or later they realise that if they make another robot maintaining robot, they can make him redundant too.

At this point you can go one of two ways :

i) The 0.1% own all the robots and don't see why they should share their wealth. The remaining human population compete for an increasingly small pool of non-automatable jobs, the unemployed are herded into basic subsistence camps (by robot "peacekeepers").
ii) Everyone realises that the robots are made of materials from the Earth, and powered by energy from the Sun, that the Earth should be owned by all of us equally and that we should be striving for universal human happiness, and that if we cooperate we can all have a living standard that exceeds the definition of "comfortable" by some large margin, since all these robots made everything so gosh-darned productive

Re:Great

[Obfuscant]

Companies do not create jobs, demand for goods creates jobs,

Demand creates opportunities for companies to profit, who then create the jobs while making the product in demand. It is trivial to have demand without jobs. Ten million people could line up for a product tomorrow, and if the company that makes that product decides that the increased prices and profits from high demand were better than increased sales of lower priced products then there will be no new jobs. E.g., the demand for Apple Dev tickets is outrageous, yet this doesn't create more jobs. Or more Jobs.

And you really should recognize that companies often create both the demand and the jobs. Who really needs a Flip Jack or Shamwow or Ronco Pocket Fisherman? Those companies created the demand through advertising, and the jobs for the people that made those products.

If that company was not there the job would still be there.

So you're saying that if all the companies magically went away tomorrow that all the jobs would still be there? Funny, we've seen lots of companies go bankrupt and the jobs went away with them. Who pays the salaries for the people who hold the jobs when there is no company? A job with no pay and noplace to perform it is hardly a job worth having, is it?

That is a myth created by the right.

That the left wants to call the truth a "myth" speaks volumes about the quality of the argument from the left. Perhaps more economic "truth" from the left, such as counting the people who have simply given up looking for work as no longer unemployed, would help the economy even more, huh? Oh, wait, that's right. The demand for jobs has, all by itself, created those jobs, since it is demand by itself that creates jobs. That's the left's version of the job market. Works great, huh? Try telling an unemployed guy that he's got a job because he demands one ...

Re:Great

[diamondmagic]

Said worker didn't have any guarantee of employment, did they? No?

No one is stopping them from getting another job, right?

But they are seeing the benefits of increased marginal productivity of the workforce, in the form of lower prices. For the working class, you think that would be a good thing.

Your alternatives are (1) require people to hire employees (um, that's called slavery); or (2) prohibit companies from buying capital goods. Which is, like, 100% of the reason we have modern technology. But hey, enjoy your horse and buggy!

If You Had An Electronic Currency

[Greyfox]

You could just tax every transaction made with that currency at a fairly low percentage of the total transaction and do away with all the other taxes. Credit card companies figured this out decades ago.

Re:If You Had An Electronic Currency

[Anonymous Brave Guy]

Their fundamental problem is that they can't do enough on spending alone to balance the books.

Politicians like to talk about efficiency savings, particularly when they're not the ones actually in government so they don't have to find actual savings to back up their rhetoric. But the reality is that we have an ageing population in the UK, and the younger generations who are still working and paying taxes have to pay for more social security and medical care for more people than ever before if services are to be maintained. You can't just wish that away by hand-waving, and the results of "austerity measures" are much more visible to the average voter than any theoretical long-term economic benefits.

So, one way or another, the government has to raise more tax revenues, and part of their strategy is to chase the big multinationals in major growth industries like technology, which are playing funny money accounting games to shift their profits to avoid tax obligations they would otherwise incur. Given how much business is now done on-line, in some industries at the expense of traditional physical versions, the government quite simply can't afford not to alter the tax regime to keep up with new technologies and the businesses built with them.

Re:If You Had An Electronic Currency

[Wrath0fb0b]

The problem with taxing at a fixed percentage of volume is that it penalizes high-volume low-margin businesses relative to the high-margin ones. That introduces serious inefficiency by artificially lowering the relative cost of expensive good relative to cheaper ones (which is also regressive*).

In practice, States try to soften the regressive nature of fixed-percentage taxes by devising a classification scheme wherein essential goods like food are taxed at a different rate (sometimes zero). That leads to a separate inefficiency where now people start to game and dispute the classification, leading to high-stakes court battles about wether Jaffa cakes are a cake or biscuit.

* Most commodities like gas* and groceries fall into the "high volume low margin" category, so this will harder hit the lower class that spends a large percentage on its income on commodities. In the US, gas stations average 3c on each dollar spent on gas, less than half the average margin for a private business in the US. YMMV in other countries.

Re:If You Had An Electronic Currency

[TubeSteak]

The GP doesn't understand what the "Google Tax" is about.
This previous /. thread has an article about Amazon that lays it out

It worked like this: Amazon Europe paid 105 million EU to Amazon Technologies Inc in Nevada to license the rights to Amazon's intellectual property -- the patents and software for the websites, including that button that buys a book with one click.

Amazon Europe onsold the rights to use this intellectual property to Amazon EU for 519 million EU -- five times what it had paid the US company. Amazon Europe made an instant profit of 414 million EU, which would have been taxable, except that Amazon Europe is a limited partnership. It doesn't pay tax in Luxembourg.

This is what the UK is trying to stop.
A small transaction tax would do nothing to prevent naked abuses of transfer pricing.

Re:New notice on Google agreements

[91degrees]

Not sure if it will be as easy as that, but it's certainly true that it's a lot easier for entirely online firms to avoid this sort of thing than companies that have physical products. Ultimately, Google can operate in a country with zero physical presence.

Still, it's not just Google. Starbucks and Amazon also came in for a lot of criticism, and it's a lot harder to charge a customer in US dollars for a cup of coffee along Kensington High Street.

Why tax profits, why not income?

[trout007]

Individuals aren't taxes based on their profit but income. Corporations should minimally be held to the same standard. After all there is a huge benefit to incorporating which is limiting liability of the owners. Tax the income at a much lower rate of 5% or so. Think of all of the productivity lost moving money around to optimize tax payments. If your profit margin isn't high enough to cover this tax then you shouldn't incorporate.

Re:Why tax profits, why not income?

[petes_PoV]

Individuals aren't taxes based on their profit but income

Not strictly true. Individuals pay some taxes (here, at least - other countries: different rules) on their taxable income. That allows for certain deductions such as some expenses paid by people for items necessary for their work. It also allows them quite generous allowances and reductions.

It would be simple to think of all the income that a person received from their job as "profit". But governments don't apply rules like that, to protect low-paid workers and be progressive (tax those who can afford to pay more, at higher rates). Taxing companies on their profit is the only way that a sensible and proportionate system could work - while still incentivising companies to invest in their (and, by association, our futures). It is a reasonable parallel to the way that income is taxed. Sadly, companies employ cleverer accountants than governments do.

Re:Why tax profits, why not income?

[trout007]

Did you read what I wrote?
"After all there is a huge benefit to incorporating which is limiting liability of the owners"

This is what I mean. This HUGE benefit should come at a price.

Re:Why tax profits, why not income?

[Charliemopps]

Individuals aren't taxes based on their profit but income. Corporations should minimally be held to the same standard. After all there is a huge benefit to incorporating which is limiting liability of the owners. Tax the income at a much lower rate of 5% or so. Think of all of the productivity lost moving money around to optimize tax payments. If your profit margin isn't high enough to cover this tax then you shouldn't incorporate.

No no no and no.
Taxes make people not do the thing you are taxing. Tax income, and they have reason to make less. Why go get the new job that pays a tad more when 25% of your raise goes to the feds?
Tax the thing you want people to do less of. Sales tax. The last few financial bubbles have been because people spent beyond their means and didn't save. But the fact of the matter is due to capital gains, putting your money into a mutual fund means it'll get taxed! You pay less in taxes spending it at the movies or buying a house. Instead, tax sales... people will save and invest more. Tax stock sales, as regular old sales. You pay your taxes when you buy them, but sit on them for 30yrs? No taxes. The person that buys them from you pays sales tax. People are more likely to hold onto money, slow down their spending and day trading dies in fire like it should.

Oh and, before everyone poo poos this because of deductions... no deductions, at all... for anything. No tax breaks for anything.

Re:Why tax profits, why not income?

[bws111]

That is already built into the tax tables. You pay no tax at all on the first $x of income, of low rate on the next $x, etc. That untaxed (and lower taxed) money covers your basic expenses. If you have additional expenses (such as required for a job) you can also deduct those. If your additional expenses are because of your lifestyle choices, too bad, you are in effect just spending your 'profits'.

Re:Why tax profits, why not income?

[Kohath]

Limiting liability isn't a "benefit". It's a basic necessity to doing business. Without limited liability to business owners, every business owner would always have to bet his family's life savings on every business transaction. One failure would mean permanent destitution. No one with any money would ever take a risk like that. You couldn't build something like a factory -- why bother when it can disappear at any time because someone made a mistake?

A similar problem keeps countries like Haiti and some African nations poor. No one can get ahead -- if you start doing better than the people around you and accumulate a little wealth, it gets stolen or confiscated by government and you become a target. So no one bothers, there are no success stories to teach new people how get ahead, and the people are extremely poor.

You need to be able to retain earnings and use past success to build infrastructure for future success. Without this, you'll be in hand-to-mouth mode forever. Limited liabilty is required.

Re:Why tax profits, why not income?

[Anonymous Coward]

If by income you mean wages then your talking about taxing profits of the individual essentially. In a business you might have high costs, low margins, and quick turnaround to compensate. That is one business model. If you start basing taxes on income those businesses would go bankrupt or you would see prices increase drastically. On other sorts of items where there is a high margin low cost the seller would greatly benefit. We would have nobody wanting to sell anything for which has a high cost as they would then have to pay more in taxes. No more cars, no more houses, no more computers... more junk made in China, etc.

Simple math:

$1000 in costs per widget
$1050 sells for
$50 profit
$1050 income
$52.50 in taxes if based on income @ 5%
$12.50 in taxes if based on 25% profit

$2 in costs per widget
$10 sells for
$8 profit
$12 income
$0.60 in tax if based on income @ 5%
$2.00 in tax if based on profit @ 25%

Re:Why tax profits, why not income?

[CrimsonAvenger]

Umm, no.

Your "profit" is the difference between the price you sell your labor for and the cost to produce your labor. Since it doesn't cost you $50, then your "profit" isn't zero.

Theoretically, the "standard deduction" (if you don't itemize) is supposed to approximate the cost of your labor. It hasn't for a very long time, but theoretically it did.

Do note that when the Income Tax was proposed and passed, the intention was to tax people who made tens of thousands of dollars per year (at the time, that kind of income was in one-percenter territory), and that virtually no normal worker would pay any of it.

Inflation, of course, put paid to that idea three generations back.

Re:Why tax profits, why not income?

[tomhath]

If I exchange one hour of labor for $50.00

Nope. You produced an hour of labor and sold it for $50. That's a $50 profit (ignoring expenses related to producing that hour of labor such as the cost of an office).

Re:Why tax profits, why not income?

[jabuzz]

Show me anyone outside the 1% and even 99% of the 1%'ers that would choose to make less money because they where being taxed too heavily on it. That is a complete fallacy.

Re:Why tax profits, why not income?

[rabtech]

Tax income, and they have reason to make less. Why go get the new job that pays a tad more when 25% of your raise goes to the feds?

This has to be one of the dumbest arguments of all time and I can't imagine anyone who actually has money ever actually operates this way or they're headed for ruin rather quickly.

Of course you take the job; 75% of the extra income goes into your pocket. A business that decides not to sell more widgets at a 75% profit margin because they'd have to spend 25% to sell the widgets (taxes, overhead, etc) is a business headed for bankruptcy.

The only programs in the USA that lead to less overall income when you get a raise are ones for poor people like Medicaid where making one extra dollar can cut off your benefits.

Re:Why tax profits, why not income?

[HeckRuler]

That's.... huh. I wanted to call bullshit on that because the system is ludicrously rigged for business taxes... but that makes a good deal of sense.

So while that might be true, putaro's point still stands. Practically everything is a business expense for a corporation: Planes, ludicrous CEO's wages, the rent on the building they pay to the owner to bypass taxes. There is no upper limit to the extravagance that a corporation can claim as a business expense. Their "lifestyle choices" are not scrutinized. Only when they try to invest in the company and see capital gains. Or hoard money. Meanwhile individuals are expected to just get by on the minimum amount, and taxed on anything past that.

Wait a minute, I can still call bullshit on this: if you think that the cost of doing business for individuals (ie, living) is built into the tiered tax-rate.... then why doesn't that argument apply to the tiered corporate tax rate? Why do they get to write off business expenses if people can't write off living expenses? If your comeback is "well that's what the lowest brackets are for", then YEAH, that's what the lowest corporate tax brackets are for!

Your argument sounds a good and rational way of dealing with individual taxes. We're just saying it'd be nice if corporations played by the same rules.

Re:Why tax profits, why not income?

[swillden]

That's hugely unfair to companies with low profit margins. There are extremely successful businesses that run on single digit profit percentages. Your local supermarket is a pretty good example.

It's also extremely harmful to highly disaggregated supply chains and strongly rewards deep vertical integration. That's bad because it means supplies of materials that have multiple uses either get locked to a single use or else the companies that control those supplies become ideally-positioned to own huge swaths of the market. This is because if you tax revenue, the tax gets applied at every step in the supply chain. If it's a 5% tax and there are 10 steps in the chain (10 companies adding a bit of value and selling on to the next company in the chain, up until the last which sells to consumers), then the tax that must be build into the final price could be as high as 63%. In contrast, a company that buys up the entire supply chain only has to build a 5% tax into their prices. This translates into a huge competitive advantage for vertical integration.

Algorithm

[countach]

I'm not sure what Britain has in mind, but I've long argued for a system like this. Say Apple does business in my country. Say they do 6% of their global business and revenue in my country. OK, then whatever profits Apple makes world wide throughout their empire throughout all associated companies, you've got to pay tax in my country on 6% of it.

If you want to argue that for whatever reason the product mix of sales in my country is lower margin than your global business because the product mix is different, ok fine, but the onus would be on you to demonstrate that, and the level of proof required would be high.

Re:Algorithm

[gnupun]

OK, then whatever profits Apple makes world wide throughout their empire throughout all associated companies, you've got to pay tax in my country on 6% of it.

That's just wrong. Say Apple's total annual sales is $100B, and $6B of that is from your country. But profit margin varies from product to product. Say another country also has $6B sales, but the average profit margin of Apple products is 30% in that country and 15% in yours. Say, also that the profit margin difference is not due to different pricing in each country, but because some products have a higher profit margin than others. Should Apple pay the same tax to both countries? That makes no sense at all.

Re:Algorithm

[admiral snackbar]

For me the real problem isn't that some corporations don't pay taxes in some countries, its that some corporations hardly pay taxes anywhere. That is the real problem. I don't mind Starbucks not paying taxes in the UK, as long as they pay a fair share of taxes somewhere. What I would do is this: I would demand from all corporations operating in the country an overview of the corporate income taxes they pay anywhere in the world. If this is the same or more than the national corporate income tax rate, I would not add any tax. If it is lower, I would take cut of the lower amount equal to the percentage of total business they do in the country. Example: Apple makes 10 billion profit a year and pays 500 million in corporate income tax (anywhere in the world), while the corporate income tax is 25%. So they should have paid 2.5 billion in taxes, a shortfall of 2 billion. If they have 50% of their revenue in the US, the US should take 50% of the shortfall, i.e. 1 billion. This way, you avoid double taxation and you still force corporations to pay a reasonable tax to some country at least. In your example, theoretically Apple could have shifted all their profits to the UK and paid a regular 30% (or whatever the corporate tax rate is there) corporate income tax, and then also be forced to pay in the US over their revenue share (if the US implemented your system)

Easy: just kill IP

[Anonymous Coward]

Of course killinng "Intellectual Property" wouldn't be realistical not thoroughly fair. But strongly curtailing it would go a long way towards a better wold:

  * strongly limit the duration of afforded protection
  * don't let IP "owners" to set an arbitrary phantasy price
  * acutally force an "owner" to use the IP or relinquish control within some reasonable time limit

IP isn't some property and speculation on IP is already doing a huge damage (speculation on food is doing a huge damage too, but I disgress).

Re:great name

[Anonymous Coward]

Absolutely correct!

Google doesn't sell anything or make any money in the UK.

Doesn't sell apps through the play store, doesn't sell any Nexus devices, doesn't sell any advertising, not a sausage.... Well, not profitably anyway, it's a strangely expensive business to be in, as there are all these funny fees and license payments they have to pay, all to other google subsidiaries in Ireland/Luxembourg/Netherlands/etc.

All seems above board to me!!

Get rid of corporate taxes totally

[Chirs]

I know it sounds crazy at first blush, but I think it would make sense to totally get rid of corporate taxes. (Replaced by other forms of taxation.)

The basic idea is that a corporation is nothing but a bunch of people owning it, so instead of taxing the corporation you tax the individual owners (owners, shareholders, etc.) instead. Since corporations wouldn't be paying taxes, you could then get rid of all of the tax breaks/writeoffs for corporations, which would significantly simplify corporate accounting and reduce the incentive for large corporations to shift money around to avoid tax.

Some references:
http://www.dailykos.com/story/...
http://www.theatlantic.com/bus...
http://www.vox.com/2014/8/8/59...

Why not abolish corporate taxes entirely?

[Chirs]

The basic idea is that a corporation is nothing but a bunch of people owning it, so instead of taxing the corporation you shift the tax to the individual owners (owners, shareholders, etc.) instead. Since corporations wouldn't be paying taxes, you could then get rid of all of the tax breaks/writeoffs for corporations, which would significantly simplify corporate accounting and reduce the incentive for large corporations to shift money around to avoid tax.

Re:Why not abolish corporate taxes entirely?

[Rich0]

++

Corporations love to socialize the risks and privatize the benefits. If some Pharma company releases a drug that kills a bunch of people, I don't hear the libertarians calling for liability for anybody who had money in a 401k that was partially invested in a mutual fund that had .5% of its shares in the company 5 years ago when the decisions were made that led to the problem.

And this is why corporations make short-term decisions. The person making the decision gets his bonus today. The shareholders get their dividends today. The consequences (if any) come for the shareholders 5 years from today.

Re:Why not abolish corporate taxes entirely?

[Streetlight]

I keep hearing this suggestion but have not heard how those taxes on the shareholders would be taxed. If you own the stock of a company that pays no dividend you won't pay any tax even if the stock price increases. Under today's tax law taxes aren't levied on the increase in stock equity unless the stock is sold. And then the tax depends on how long one owns the stock and the total income of the seller so it's either 15% or 20% for long term holds. I also haven't heard anyone propose taxing the change in equity value of companys' shares held by individuals. If stock prices decrease then would shareholders should get credit for that decrease? Furthermore, the taxes produced could be very volatile as the willingness of stockholders to sell or buy stock varies. One thing government at all levels need is certainty in the size of annual tax revenue to pay for required services. One way taxes might be levied on owners of companies is to distribute all after expenses revenues to shareholders and then tax the shareholders. Companies are able to manipulate their books so there are no after expenses profits including moving profits overseas so there may never be any taxes paid directly or indirectly by companies.

I want to hear how shareholders in companies would pay taxes corporate taxes.

There is no single "fair" value.

[Chirs]

How much is "fair" depends on the culture the company and government are operating in.

You could have a libertarian society with minimal government involvement and minimal taxation, but where every individual has to pay for everything they do. (Roads, fire protection, ambulance, medical, police, education, utilities, garbage collection, etc.)

On the other hand, you could have a more socialist society with high taxation and high government involvement, but where most of the services are paid for by the government.

Both are viable solutions, with different tradeoffs.

Re:There is no single "fair" value.

[tnk1]

Services paid for by the government *are* services paid for by individuals. I pay a significant portion of my paycheck in taxes. Please don't tell me that I'm not individually paying for government programs.

What you mean is that the government ensures that everyone has individual services irrespective of their ability to pay for them. They make that happen by charging individuals with those means to pay for people who do not have those means. If I am poor and want fire services, under a libertarian system, I pay let's say $100, but under the government, I pay $10, $1 or even zero. If I am not poor, under a libertarian system I will still pay $100 for fire services, but under the government, I pay $150 (or more).

Unless the government is an entity that generates its own operating expenses from the sale of a service or product, it is not anything other than individuals being forced to pay for services. It's just not all individuals at the same rate.

Don't get me wrong, I am not necessarily arguing for the existence of the a la carte ultra-Libertarian state. The government exists for a reason and I happily pay taxes for those services that government is well designed to manage. What I don't like is when the government becomes an engine for wealth redistribution, forced charity, or social engineering experiments.

Re:There is no single "fair" value.

[tnk1]

And that is why I said that the government is good at certain things and I am happy to pay for them.

What I most objected to, I think, is this idea where someone says, it is either the individual or the government who pays for something. There is no such distinction.

The "government" is a corporate fiction just like any corporation. It is just run under different rules. The government may print money, but it doesn't create the value of the money out of thin air. It doesn't produce things. That value is generated by individuals, either by themselves or as part of a corporate body devoted to production or for-pay services. And since the corporations don't usually eat the cost of taxes, but pass them to consumers, *all* taxes are actually paid by individuals.

There is no division between government money and individual money. It is all individual money, the government merely extracts it and redistributes it to ensure order and collective security from things like fire, invasion, etc.

This is why people are wary of government being used for every problem under the sun. There are people out there who believe that there is this magical vault where the government has money that was not generated somehow by charging people. What people are saying when they want "the government" to pay for it is that they really want other people to pay for it. Just not them. Maybe those rich people over there.

And again... there are times that a government makes a lot of sense, and I probably do generate a lot of benefit for paying to make sure that poor person's house doesn't light my McMansion on fire, but it starts becoming dangerous when people believe that taking from the government isn't actually equivalent to taking from actual humans... they lose sight of where that money actually comes from and they start believing that it is magically produced and can't run out.

What they should be doing...

[MillerHighLife21]

Is offset that tax shift by an amount of money equal to how much is spent employing people in that country. Same idea, but provide an incentive to hire more people locally.

I've been wish the US would do something similar to use taxes to incentive employment. Right now there's so many additional rules, fees, and legislative attachments to hiring people that the government is virtually incentivizing companies to favor automation.

Your fair share

[NotQuiteReal]

(Cost of Government) / (Number of Citizens) = the fair tax per citizen.

Anything else is unfair, but necessary simply because not everyone can afford their fair share.

The tax code boils down to extracting unfair amounts of money from whomever can pay, muddied by the politics of helping friends and punishing enemies.

Sadly, politicians have a disincentive to keep a "reasonable" Cost of Government.

Nice language

[argStyopa]

I appreciate the use of the term "fiendish" as artfully coined in this discussion.

It paints the companies trying to avoid taxes as nearly-diabolical agents skulking around in the dark, not to mention adding a delightful soupcon of sinfulness.

Of course, what this seems to conveniently ignore is that national taxation policies are likewise "fiendishly" complicated, sometimes driven by complicated corporate structures, but just as often driven by a quasi-socialist, populist, and (as long as we're painting in Medieval imagery) a quasi-Dulcinian desire to appropriate at least a piece of anything valuable "for the public" meaning actually "for politicians to spend and gain votes without the usual pain of public taxation or debt".

Companies respond to these policies. If the policies are so contrived and convoluted that there remain loopholes that are worth pursuing to evade tax, that's the LAW WRITERS' fault, not the companies' for exploiting it. But it plays so much better in the press to blame companies for being greedy, rather than politicians for being incompetent.

Re:Google should leave

[ledow]

Yeah, that kind of attitude goes down really well.

Hence why Microsoft kowtowed to the EU requests and paid millions of dollars in fines, etc.

Pulling out of one of the top two world markets (depends what you look at exactly, but Europe and the US are either 1st or 2nd in almost any product/industry), especially over a sales tax, is corporate insanity and will see stockholder lawsuits within seconds.

And, to be honest, there are countries that survive just fine without Google. Google is only really the top search engine in English-speaking countries. And Google Maps? What about it? I can name ten different companies producing maps accurate enough for almost any purpose. You think ONLY Google get the mapping and aerial photography data of a country? Maybe StreetView (because they're the only ones really doing it seriously), but maps? No.