It ain't just Apple: Eric Schmidt of Google on coporate taxation

Discussion in 'Politics, Religion, Social Issues' started by VulchR, May 27, 2013.

  1. VulchR, May 27, 2013
    Last edited: May 27, 2013

    VulchR macrumors 68020

    VulchR

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    #1
    It's not just Apple seeing nothing wrong with avoiding taxes. Eric Schmidt of Google was interviewed by the BBC. He was very straightforward about the taxation issue: He believes, quite correctly, that his corporate duty is to provide maximum return for his company's stock holders, even if this entails what the average person would call 'legal tax avoidance' (see BBC link). According to the BBC story, from 2006-2011 Google earned about £11b (that's 'billion' with a 'b') in revenues but paid only £10m (that's 'million' with an 'm') in corporate taxes the UK.

    I listened to the interview and I was astonished that nobody pointed out that wealthy people own the vast majority of stocks (in the US about 80% of stocks are owned by the richest 10% of Americans - source). Thus, the 'corporate duty' toward shareholders equates to arranging things so that the richest people get more rich. The rest of us can eat cake.

    As long as we view corporations as being for the benefit of stockholders only, it will be impossible for any government to tax corporations so that they pay their fair share. Perhaps it is time to enact laws the addresses the imbalance between the interests of predominately wealthy stockholders and the rest of us....
     
  2. ugahairydawgs macrumors 68020

    ugahairydawgs

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    #2
    It isn't just Apple and Google...its all companies with an international presence. The corporate tax code, like the one for individuals, is a mess in this country. Simplifying the code by eliminating various deductions and credits, lowering the rate, and removing a lot of the burdens of the repatriotization of corporate cash is the way to go, but special interest is what it is and up to this point our elected officials haven't had the back bone to stare them down.

    And let's cool it with the evil corporation and evil rich talk. I don't know if that number you threw out there for corporate ownership is correct or not, but lets not act like corporate decisions don't effect us all in some way. Anyone of us who invests in the market has some sort of tie in with the goings on of these corporate entities. Anyone with a 401k or any sort of IRA is mixed in with this companies, through varying degrees, by way of the mutual funds we invest in.
     
  3. VulchR thread starter macrumors 68020

    VulchR

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    #3
    Agreed, but it is precisely the 'varying degree' that is worrisome. As we come out of this recession, the stock market is making good returns, but only the rich can afford to invest since the other classes have largely locked their resources, to the extent that they have them, into their homes. This is not about evil companies, or even evil people (I would say they are ignorant and therefore indifferent), but about realizing that we are in a self-reinforcing cycle that makes the gap between rich and poor larger and larger over time. In my opinion such a self-reinforcing cycle is not sustainable....
     
  4. ugahairydawgs macrumors 68020

    ugahairydawgs

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    #4
    I'm having a hard time reading between the lines. What exactly are you suggesting happen here?
     
  5. dscuber9000 macrumors 6502a

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    #5
    When the goal is to make as much money as possible, you'd be an idiot to not try to pay less taxes. It's up to the government to be pro-active and try to come up with logical solutions so that companies like Apple and Google don't weasel out of paying their fair share. (So nothing will ever happen.)
     
  6. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #6
    Oddly enough, once upon a time, pension funds that benefited (often unionized) employees were a huge factor. It all seems so long ago.

    As for what to do about, I honestly don't think the corporate rate matters that much. It could be zero, really. But, because virtually all trade in goods (and much in services) is international, it would appear that uniformity in corporate tax rates should be set as part of the WTO process.

    What we had, that worked, that we should bring back, is the truly progressive income/spending tax. The economy did quite well under Eisenhower, so, I suggest we use those rates.
     
  7. ucfgrad93 macrumors P6

    ucfgrad93

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    #7
    I do not fault companies like Apple or Google who follow the tax code. Like individuals, they use the tax code to pay as little as possible. As long as they are following the law, I have no problem with it. If you think they are paying too little, then you should blame the people who write the tax laws.
     
  8. pdjudd macrumors 601

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    #8
    I agree. I have no problems when companies employ legal accounting measure that limit their tax burdens (however I tend to disagree with the lobbying methods since companies have way too many resources on that end - but that's a different argument). Heck, if they didn't do that, their board and shareholders would not be very happy for what they would see as giving away money with no tangible benefit. In this case, bringing in money from overseas doesn't benefit Apple at all and I don't see why the government is entitled to a cut of it if said money was earned overseas.

    What I am against is people taking their own money that was earned in the US and is intended to stay in the US is squirreled away in places like the Cayman islands so that you can claim less income and pay less taxes. But Apple is not doing this - they aren't hiding money in some account in the islands to be sneaky. They actually operate parts of their companies in other countries and they do so in areas that is financially advantageous. They are doing the same legal tactics that anybody who sees an accountant does - they minimize expenses.
     
  9. zin macrumors 6502

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    #9
    Why should people try to pay as little tax as possible? Your tax contribution goes to supporting public services and infrastructure that everybody can use. Google and Apple wouldn't be around today if it were not because of the collective tax contribution that generations before them made. If there were a legal way to pay 0% tax, how many people do you think would take that path? I'd bet 99%, because over the years people just like you have demonised tax as this evil, criminal "burden" that doesn't help anybody.

    Bolded:
    More often than not it is the corporations themselves who write the tax code because of the lobbying or corruption in government agencies.
     
  10. Eraserhead macrumors G4

    Eraserhead

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    #10
    Because companies are supposed to maximise the return to their shareholders.

    If governments want to fix this they should change the law.
     
  11. pdjudd macrumors 601

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    #11
    Because they have the option to and we live in a society where it is considered stupid to throw away money. Those deductions exist so that people can use them. If you feel that people shouldn't be taking them, then laws need to be changed because people will take them. If I gave you a choice to be a nice guy and give me a hundred bucks or not to and we can still be friends just the same, odds are you aren't going to give me money for no reason and without a return.

    You won't get an argument about who is to blame (the people who write the code), but there are other ways to address that too. I do not fault companies for wanting to pay less taxes any more than I do not fault people to talk to a tax expert and say "I need you to find whatever deductions I qualify for" or voting for people that promise lower taxes.

    What annoys me when the people who can work it out that they pay zero or next to zero in taxes don't get called out as much. If the laws should change somewhere it should be here. The only way companies should avoid taxes should be bonafide charities and companies that never make money (and taxes would be the least of their worries)
     
  12. jnpy!$4g3cwk macrumors 65816

    jnpy!$4g3cwk

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    #12
    I think we are all agreed that the tax laws need to be changed. Are we agreed on what they should be changed to:

    - Earnings within a particular country should be taxed by the laws of that country?

    - Within-company "imports" have to be valued correctly.
    - Could be tricky. What is the value of internal software-development services?

    - Laws should be rationalized across trading partners so that it doesn't make sense to export jobs and profits to other countries just because of taxes alone.
     
  13. vrDrew macrumors 65816

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    #13
    In order for that to work would require an international agreement that would prevent foreign "tax havens" from existing. And its not enough simply to get most countries to agree. You'd need pretty much every country to get on board. Because as long as one "tax haven" existed (and there are plenty of incentives for them to do so) you'd still have a problem.

    How do these tax havens work? A (slightly comical) example:

    Say I have a highly profitable single-employee window-washing business. 360 days a year, I wash windows here in the US city where I live. I charge my clients $1000 per day for washing windows. But I only "pay myself" $10 per hour ($80 per day) for doing the work.

    One week per year, I fly to the Cayman Islands, where I wash a couple of windows. But I also visit the lawyers office where the Cayman Islands corporation that owns the "intellectual property" of Drew's Window Washing. That Cayman Island corporation charges Drew's Window Washing (USA) $900 per day for the use of that Intellectual Property.

    So, from a tax standpoint, rather than having roughly $900 per day (~ $300,000/yr) in profits - Drew's Window Washing USA barely breaks even. And so only pays the 35% US corporate tax on a couple thousand in profits. While Drew's Window Washing (Cayman Islands) pays a nominal 1% tax to the (very grateful) Cayman Islands Government.

    As long as I don't try and "repatriate" the profits that are piling up in my Cayman Islands bank, I'll be fine.

    (Note: This is a somewhat comical example, and I think that - if audited - the IRS would take a dim view of the legality of the whole thing. But this is, more or less, what Apple, Google, and a whole bunch of other US tech firms are doing.)
     
  14. Eraserhead macrumors G4

    Eraserhead

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    #14
    The Cayman islands are a British colony - so at the end of the day we can tell them what to do. Ultimately I guess they could declare independence, but then they'd be at risk of getting their assets seized by another power invading them.
     
  15. pdjudd macrumors 601

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    #15
    I actually think that Apple and other companies are doing a heck of a lot more in other countries than just existing. They have much larger infrastructure in other counties.

    But there is the honest question we need to ask ourselves. What right does the US government have to claim taxes on a company that operates onside of the US, pays employees outside of the US, and sells to consumers outside of the US and those profits never touch a US account? Should said company have to pay a country who was not involved in such a transaction?

    Look at it individually, If I go to Europe and buy something cheap and later sell it at a profit (or not) do I owe the US anything in say sales or income taxes even if it a product from an American company? Remember, at no time was the US involved with my business. Heck, I even paid the local income taxes that were appropriate before I went home. Since I plan to come back again, I decided to set up a bank account so I have convenient and safe access to my funds. I keep the money I earned in Europe in that bank so I know how much I earned in one place over another. I of course have that money even though it never ever touched US soil and I want to keep it overseas for convenience. I am not trying to deprive the US of what they are due. I am doing nothing sneaky - I claim my income in the US based on what I made there, and I only pay the unnamed country what they are due based on my income there. I am not moving money from one country to another without paying necessary taxes but I claim everything - no hiding here.

    Tell me why the US is entitled to money they had nothing to do with or why the unnamed european country is due income that I obtain and spend in the US?
     
  16. vrDrew macrumors 65816

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    #16
    Are you familiar with the Whack A Mole game?

    Because, ultimately, thats what would happen. You could shut down the tax haven that exists in the Cayman Islands, only to see it moved to Macao, or San Marino, or Singapore, or Belize...

    That is, in a nutshell, the extent of the problem.
     
  17. pdjudd macrumors 601

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    #17
    Speaking as a non expert, my only suggestion is two fold - we need to encourage companies to based in a certain country to maintain as much national resources as possible by dissenting things like hiring out their workforce to other countries or simply setting up a shell in another country that has no functional purpose. I don't mind companies operating globally and setting up other branches for efficiency reasons, but if you do that, you have to silo things off.

    Part 2 is to provide incentives to move money to their home country - penalize off shoring money and incentives it going in for native companies (there has got to be a way for this to work for non US companies) but make it voluntary. Lets be honest, companies are responsible to their shareholders and will only act if there is fiduciary advantageous. Companies rarely act on the idea of "lets just give our money to the government even if we don't have to". Give them a good reason to bring their money home and they are more likely to do it, but right now they have no good reason and just forcing them isn't going to work.

    Now the biggest wrinkle is that unless other countries play along (and not all do) its going to be much harder to compete on a global level and one country doing the right thing doesn't mean that other countries are going to play along. People said that Apple should move manufacturing to the US, but they never address what that will do to help labor in China since other companies really don't care about the situation and will simply exploit the situation.
     
  18. Eraserhead macrumors G4

    Eraserhead

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    #18
    The number of countries is relatively limited at 200 or so.

    Macao and Hong Kong are both ruled by China which puts them in a similar boat to the Cayman Islands, San Marino has a lot of links with Italy, Singapore could, but probably doesn't want to completely bias its economy towards banking, and Belize doesn't appear to have any sort of significant finance industry at all at the moment. Besides I'm sure the Americans or someone else could invade if it proved to be too problematic - so it has much higher risks to stash money there.
     
  19. VulchR thread starter macrumors 68020

    VulchR

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    #19
    My solution to that problem:

    [​IMG]


    Seriously, though*, economic boycotting of the puny little principalities would provide enough leverage to convince them to be legitimate bankers rather than tax havens.

    *Actually, threat of force should never be ruled out.
     
  20. GermanyChris macrumors 601

    GermanyChris

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    #20
    If it's over $86,000 in profit you do..

    you are a US national your income should be taxed whether you earn it America or China, whether or not the money comes back to America. If the tax you paid to the foreign government is more then you would have had to pay to the US government you owe nothing if it is less than you owe the difference..

    The only thing I'd change about the current law is you I would give no exception to where the money is, you are liable for 35% the end.
     
  21. ugahairydawgs macrumors 68020

    ugahairydawgs

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    #21
    All you'd be doing then is incentivizing American companies to move overseas.
     
  22. GermanyChris macrumors 601

    GermanyChris

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    #22
    Then they cannot re-import
     
  23. ugahairydawgs macrumors 68020

    ugahairydawgs

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    #23
    At 35%....they wouldn't want to.
     
  24. GermanyChris macrumors 601

    GermanyChris

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    #24
    See ya..
     
  25. ugahairydawgs macrumors 68020

    ugahairydawgs

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    #25
    So your solution is to be hostile towards businesses and send them (and all of the jobs they create) packing?
     

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