They could wait around for a tax-repatriation holiday. There was one in 2004 that brought in about $312 billion. Companies paid 5% tax, instead of 35%, on all foreign revenue brought back to the states.
The theory was that companies would use that money to create jobs, but instead they bought back a lot of stock. So it's unlikely that there will be another one in the near future, unless the political winds change.
What they should do instead of a holiday is simply seize assets statesside with rouhgly the same bookvalue until the money was brought in and taxed in the normal way.
That would close this loophole pdq. All this pussyfooting around just underscores that private individuals are on the hook but as a company you can do just about anything.
I don't like taxes, I disagree with plenty of them, I disagree with how they are spent. But I still pay my taxes and the fact that I pay more tax on my income (which is a very small fraction of their turn-over) than some well known multi-nationals has me seriously ticked off.
No they shouldn't seize anything. That overseas money is not owed to the US Government and does not belong to the US Government. Taxes are only owed if you repatriate it. You're advocating theft as it is.
It's not a loophole, it would be double taxation.
If Microsoft earns $10 billion in China, they should pay taxes to China on that, not pay China + the US Government. Unless you're advocating confiscatory level taxation, of perhaps 60% to 70% on corporate profits.
Microsoft never earned $10 billion in China, they sold $10 billion worth of goods to an overseas entity using a tax avoidance scheme. Different thing.
I understand that parent/daughter company relationships are hard but the only thing that matters is who holds the final holdings shares. Everything else is just window dressing and obfuscation.
So by your argument, when we purchase a physical book, we should pay taxes in every locality that that book passed through.
So let's say it was manufactured in Florida, shipped from New York, and sold in California, by your logic we should be paying state taxes in Florida, New York, and California.
>So let's say it was manufactured in Florida, shipped from New York, and sold in California, by your logic we should be paying state taxes in Florida, New York, and California.
I do not think that is an accurate example of what occurred in the article.
1. MS bought a Danish Company, (This is a taxable transaction),
2. MS then sold the assets (software) of the Danish Company to an MS subsidiary in Ireland, (This is a 2nd taxable transaction, but this is where MS "allegedly" sold the Danish Company asset at a price far below the market value effectively cheating Denmark out of taxes it would receive had the Danish Company sold its asset to an independent company)
Nevermind the obvious reasons "Why" MS engaged in the second transaction, MS is paying less taxes on the asset selling it from Ireland than in Denmark.
So to change your hypothetical to more accurately reflect the article - It is more like manufacturing a book in Florida, selling it to your own company in NY, who in turn sells it to someone in Florida just to avoid charging FL Sales tax which would need to be charged by a Florida company selling to a Florida resident. Of course at first glance this seems like a smart business move, but assuming the legal analysis of the article is true, then also imagine in your hypothetical there is a law prohibiting this type of transaction to its own subsidiaries in other states to prevent the circumvention of State sales tax.
A book is exactly the wrong sort of example because publishers don't generally own the rights to the book, authors do. So the argument is that if I own, manufacture, and distribute a product or service that I shouldn't be able to dodge paying taxes on it by establishing a wholly owned sham company off shore and transferring the "ownership" of some product to that sham entity and then assign all the profit to that entity thereby making it a "foreign profit" which is only taxed when repatriated. Apparently, this is going on not only with products sold outside the US but also products that never left the country. It has nothing to do with double taxation.
Sounds right to me. The manufacturer will pay tax in Florida, the shipping company will pay tax in New York, and the retailer will pay tax in California— all those taxes get sent down the line to me. If any of these entities are legally based out of somewhere else, I would expect them to pay tax there in addition. If the shipping company and the retailer are owned by the same entity, and they said that their revenue from shipping was $0 so they don't owe New York any tax, I'd expect New York to take a different view.
If I live in Massachusetts and earn money in New York, both states expect me to pay income tax.[0] And why shouldn't they? I'm using both of their resources.
[0] The amount paid to NY is deducted from the MA tax, down to 0. That might be different elsewhere?
So... if it's "not true", what sort of curve would you get if you plot government revenue as a function of tax rates? The Laffer curve makes a lot of sense. What is difficult about it, and where politicians are likely to try and push their own agenda, is finding where revenues are maximized, which is a far more difficult proposition than proposing that there is a revenue curve with a high point somewhere in the middle, which makes intuitive sense.
"Taxes shouldn't be too high, and shouldn't be too low" is about the most precise statement anyone can make about the Laffer curve and still be able to have it hold up in the face of the real world.
Well, given that plenty of governments seem to think taxation can be increased indefitely in order to support their "client state" of government employees, I'd say that was a valuable result.
That's a believable number. But I also imagine that the curve flattens considerably before topping out: Sweden probably wouldn't get a lot of additional revenue out of that last 5-10% in tax rates. If you were picking the "right" level of taxation, you'd presumably want it to set it somewhere near the point where the economic cost of the taxes was equal to the benefits of the government's use of the revenue, and not at the point of maximum revenue.
A 70% marginal rate is not outrageously far from where the top bracket in California will be if Washington decides the best Social Security reform includes lifting the payroll tax cap. Today's effective top marginal rate in CA is ~52% in Fed+State income taxes and another 3.8% for the high-earner Medicare tax. If SS goes uncapped, adding another 12.4%, your $1M earner is hitting 68.2%. I'm dispensing with the accounting fantasy that the "employer-paid" portion of the tax isn't actually a tax on the worker.
According to the Wikipedia page some studies indicate that the maximum for the laffer curve in Sweden was about 70% tax.
On the other hand, the introduction of a 50% income tax rate in the UK didn't work very well[1]. It caused more than £10B of income to be shifted to an earlier year, and in the end raised only a modest fraction of the predicted extra tax revenues. It looks like a few people in government failed to notice that almost everyone who has enough income to pay that kind of tax rate in the first place also has the ability to choose when they formally realize that income, and many of the wealthiest also have the ability to choose where they formally receive the income as well.
The newish top tax rate here is coming down to 45% in April 2013, after the new government finished figuring out how much of a poison chalice they had been left by the previous one. Unfortunately, this causes problems of its own, as they are now predicting a multi-billion pound shortfall in tax revenues for 2012-2013 as wealthy folk do the opposite and defer their income to take advantage of the reduced rate. Obviously they're hoping that greater tax revenues in later years will make up for that.
Worse than these individual disruptions over a relatively short period, though, is the fact that successive governments have made it very clear that they can and will mess around significantly with tax rates for high earners, which in turn creates an incentive for any big earner to talk to tax experts and either take part in legal tax avoidance schemes or at least minimise how much income they wind up with on paper in any given year until they're convinced that it's the most tax-efficient time for a while to take it and then grab the lot at (what they hope will be) a minimum rate.
At least we're not in France, where the government seem to think they can slap a 75% tax rate on the wealthy and not suffer horrendous consequences to their already business-hostile economic and political landscape...
Even if the Laffer curve is true (see the comment by wavefunction) no one knows where the maximum revenue point is. Look at "Empirical data" in the Wikipedia article: There are many possible values for "optimal tax rate" and companies have many options to play the system, e.g. always hold back enough money that there is justification for a lower tax rate.
No, nobody knows what the exact shape of the curve is, but governments should bear in mind when screwing more cash out of companies and people in order to fund pork barrell projects.
You mean cost 1.8 trillion? At some point shareholders want here money back so companies have little choice in the long term. Until then it's reasonable to keep an offshore buffer which they refill after a tax holiday.
The theory was that companies would use that money to create jobs, but instead they bought back a lot of stock. So it's unlikely that there will be another one in the near future, unless the political winds change.
http://online.wsj.com/article/SB1000142405270230333990457640...