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How much tax should corporations pay?


Laura Corin
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Corporate tax paying  

72 members have voted

  1. 1. How Much Tax Should Corporations Pay?

    • They should pay the basic rate that a local government sets for local profits
      44
    • They should use what means they can legally to avoid paying tax
      21
    • Other
      7


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There is a kerfuffle going in in Britain at the moment about legal tax avoidance by multinationals, particularly Amazon, Starbucks and Google. Opinion piece here. This quotation is about Amazon:

 

UK revenues were estimated at £3.3 to £4.5 billion for 2011, though the online retailer paid less than £1 million of that to the exchequer. When one remembers that the rate for corporation tax in this country is 25 per cent of profits, that’s quite a remarkable limbo.

 

The kinds of schemes used: Starbucks bases its brand-handling company in a low tax country, then charges the British subsidiary so much for using the brand that the UK profits are virtually nil. Then very little tax is paid on that 'brand-related' revenue in the offshore location.

 

Laura

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I have issues with large corporations avoiding taxes, yet denying their workers a living wage and healthcare coverage. This isn't an issue in the UK ( the healthcare thing), but my mother (psychotic though she is) almost died on the floor of a charity hospital ER because her 50+ hours a week at a large corporation did not warrant decent healthcare coverage. And that's all I can say about that without getting political.

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I have issues with large corporations avoiding taxes, yet denying their workers a living wage and healthcare coverage. This isn't an issue in the UK ( the healthcare thing), but my mother (psychotic though she is) almost died on the floor of a charity hospital ER because her 50+ hours a week at a large corporation did not warrant decent healthcare coverage. And that's all I can say about that without getting political.

 

 

Yeah, that too. :( It is terrible.

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happens in Australia as well.

one thing that is happening here is that Chinese are buying up large tracks of farmland (on no interest Chinese government loans) and then exporting all the produce to China. They then avoid paying any tax on their produce.

 

 

Doesn't Australia charge export tax?

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Ah, the Laffer Curve, controversial as it is for some.

Companies will do things to make up for high taxes. Cut workers, pass the cost onto customers, cut hours... Or flee states like California to get away from the draconian taxes. Many will shut down just to shut down, because they are tired of the game. Where I live there is a movement on to 'starve the beast' on top of it...ie, not to spend in any county that went a specific way politically, near to wherever you live. To pull back and hasten the economic collapse, and get it over with. I predict a greater divide (is that possible?) happening over the next several years. "The US is two countries, not on speaking terms."

 

The loop of companies paying more tax, charging more and laying people off, fewer customers coming in because of the higher prices, having to lay more people off because business is dropping off, fewer people with jobs to buy all sorts of things, downward spiral..... yeah. They should avoid taxes wherever they can. The hulking monster that goes by the name "government" is out of control...and needs to go on a diet.

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I don't know enough about large, multinational companies tax systems to comment that much...but from what little I do know, I think Ellie is right, with a Fair Tax. I do know an international tax attny and from what she has said, it's hard because it's not the 'government's' ONLY bite of the apple. It's more like a nibble here, a nibble there, and it all adds up to these amounts that curtail the business' prosperity. So I think wiping all that nibbling out is a way to start. THe companies fight back by slipping through loopholes wherever they can.

 

Healthcare is a separate issue.

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One thing I wanted to bring up is that it seems to be politically correct in the United States to demonize corporations for finding loopholes to reduce their tax burden. However, most people I know do the exact same thing when they file their taxes. Is it ok for people to take legal tax deductions? I have a hard time criticizing corporations for doing the same thing I am doing as well. I want to minimize the tax I pay, and they have a responsibility to the shareholders to do that as well.

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It seems to me that 'corporations' don't really pay the taxes they are charged anyway. A 'corporation' in and of itself is nothing. It must have people working for it and people investing in it in order to BE a corporation to begin with. If there are no people investing their time and/or money, there is no corporation. The people of the corporation work together, using their time, talents and/or money (investing in the corporation) to make a product or provide a service which their customers purchase.

 

The people who invest their money in the corporation do so to make a profit and they pay taxes on that profit.

The people who invest their time and talents in the corporation do so to have a job and receive compensation and they pay taxes on that compensation.

The people who purchase a product or service from the corporation do so because they want or need that product or service and they pay taxes on that purchase.

 

If the 'corporation' is taxed, those taxes are simply more taxes that these three sets of people are paying. The 'corporation' entity itself does not and cannot pay taxes. Only people pay taxes.

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One thing I wanted to bring up is that it seems to be politically correct in the United States to demonize corporations for finding loopholes to reduce their tax burden. However, most people I know do the exact same thing when they file their taxes. Is it ok for people to take legal tax deductions? I have a hard time criticizing corporations for doing the same thing I am doing as well. I want to minimize the tax I pay, and they have a responsibility to the shareholders to do that as well.

 

 

I don't believe it is true that most working Americans set up Swiss bank accounts, or ones in the Cayman Islands, or create shell corporations, or engage in other "creative" tax avoidance schemes.

 

Bill

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A few quick thoughts off the top of my head:

 

- In the US, for-profit corporations are legally obligated to their shareholders. Typically, such obligations would include seeking to pay the lowest tax legally allowed. I don't know about the UK.

 

- Corporations moving activities to new locations may be reacting to a number of factors. One such factor is comparative tax rate/amount ("loopholes" included) between the old location and the new location - the greater the difference, the more significant the factor (if it helps, for those who took Microeconomics 101, think back to simple indifference curves - considering marginal utility in choosing between A and B ).

 

- Tax "loopholes" tend to lead to economic inefficiencies, moving scarce resources from activities valued higher by the market to activities valued lower by the market but valued higher by the government. Put simply, the whole purpose of the loophole is to override the market. Whether or not there is sufficient "justification" for a particular loophole, or loopholes in general, is another matter.

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I don't believe it is true that most working Americans set up Swiss bank accounts, or ones in the Cayman Islands, or create shell corporations, or engage in other "creative" tax avoidance schemes.

 

Bill

 

Indeed, and the split between 'ordinary' tax minimisation and 'extreme' versions is even more marked in the UK. The UK tax system is extremely simple for individuals: it takes me about half an hour to do my tax return using the government declaration website. There are very few deductions/loopholes unless you use tax havens or other very creative accounting methods. Meanwhile, husband pays an accountant to do his US taxes.

 

Laura

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It seems to me that 'corporations' don't really pay the taxes they are charged anyway. A 'corporation' in and of itself is nothing. It must have people working for it and people investing in it in order to BE a corporation to begin with. If there are no people investing their time and/or money, there is no corporation. The people of the corporation work together, using their time, talents and/or money (investing in the corporation) to make a product or provide a service which their customers purchase.

 

The people who invest their money in the corporation do so to make a profit and they pay taxes on that profit.

The people who invest their time and talents in the corporation do so to have a job and receive compensation and they pay taxes on that compensation.

The people who purchase a product or service from the corporation do so because they want or need that product or service and they pay taxes on that purchase.

 

If the 'corporation' is taxed, those taxes are simply more taxes that these three sets of people are paying. The 'corporation' entity itself does not and cannot pay taxes. Only people pay taxes.

 

 

:iagree: :iagree:

 

The corporations, as far as I've experienced, are to *protect* yourself.

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The people who invest their money in the corporation do so to make a profit and they pay taxes on that profit.

The people who invest their time and talents in the corporation do so to have a job and receive compensation and they pay taxes on that compensation.

The people who purchase a product or service from the corporation do so because they want or need that product or service and they pay taxes on that purchase.

 

If the 'corporation' is taxed, those taxes are simply more taxes that these three sets of people are paying. The 'corporation' entity itself does not and cannot pay taxes. Only people pay taxes.

 

I see what you are saying, however the corporation pays taxes on its profit (after expenses/wages are paid) before investors are paid dividends. I see those taxes as representing a duty owed to the state for the structure and services (law, infrastructure, emergency services, etc.) that allow the corporation to function. Any residual profit is then paid to shareholders as dividends - the shareholders pay taxes on this to represent their own individual duty to the state (for law, infrastructure, emergency services, education, health....)

 

Laura

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I see what you are saying, however the corporation pays taxes on its profit (after expenses/wages are paid) before investors are paid dividends. I see those taxes as representing a duty owed to the state for the structure and services (law, infrastructure, emergency services, etc.) that allow the corporation to function. Any residual profit is then paid to shareholders as dividends - the shareholders pay taxes on this to represent their own individual duty to the state (for law, infrastructure, emergency services, education, health....)

 

Laura

 

Well, to me it seems that the 'corporation' is really just the people who work and invest towards a common goal, and also their customers. All of those people are already paying their share of taxes to cover their duty to the state, such as the law, infrastructure, etc. By adding an additional tax on the corporation's profits, which really are the profits of the people working for and investing in the corporation, you are taxing those same people (including their customers) again. This additional taxation often puts these people (those who work and invest towards a common goal) in a situation where they are not able to be competetive in a global market, in which case their would-be customers will purchase a similar product/service from another country where the taxes on corporations are lower. Taxing 'corporations' also hides the real amount of taxes that we the people have to pay to our government, since taxing a corporation is really just taxing people (workers, investors, customers). It seems it would be more transparent to tax the people directly.

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Well, to me it seems that the 'corporation' is really just the people who work and invest towards a common goal, and also their customers. All of those people are already paying their share of taxes to cover their duty to the state, such as the law, infrastructure, etc. By adding an additional tax on the corporation's profits, which really are the profits of the people working for and investing in the corporation, you are taxing those same people (including their customers) again. This additional taxation often puts these people (those who work and invest towards a common goal) in a situation where they are not able to be competetive in a global market, in which case their would-be customers will purchase a similar product/service from another country where the taxes on corporations are lower. Taxing 'corporations' also hides the real amount of taxes that we the people have to pay to our government, since taxing a corporation is really just taxing people (workers, investors, customers). It seems it would be more transparent to tax the people directly.

 

 

"Corporations are just people too," is a bit simplistic. A corporation (or if you will, the group of people running the corporation) can make decisions that can negatively affect a community, yet it is often the individual taxpayers that will have to rectify the situation. The individual people in the corporation making the decisions that affect the community may not even pay taxes or have a personal stake in that community.

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It seems it would be more transparent to tax the people directly.

 

I can see a system in which double taxation (corporation tax, CGT, sales tax) would be eliminated. The key to your argument, however, is that the workers and the investors live in the same country as the operations of the company, providing taxation to support local services.

 

In the case of Amazon and Starbucks (I haven't looked into the Google business model), they employ large numbers of low-paid workers in the UK. These people pay little tax, both because they earn little in absolute terms, and also because they are in the bottom tax percentage band. The investors will live worldwide and very few of them will be UK tax payers. Therefore the corporation is not 'pulling its weight' in any way to support the services it uses. This is, of course, legal. Is it moral, however?

 

Laura

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What services are the corp. using that it is not paying for? Roads, education to prepare employees and occupy employees' children, emergency services, health services, armed forces to discourage invaders, flood prevention strategy, investment in the political process (stability again)......

 

Does the UK tax investors' earnings? Yes, but only if they are UK residents.

 

 

Laura

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If it's legal AND not fair, then it's up to the government of the country to write fairer tax laws. It's up to the electorate to vote in people who will do so.

 

Personally I don't think corporations should be taxed on their profits. The owners should. The corps could be a go-between for paying the taxes in bulk, but then the individuals should not again be taxed on the same earnings.

 

Also, I thought that was one of the reasons for how they design VAT (and similar sales-level taxes) in many countries. Tax is paid on sales revenue and then there is a deduction for previously paid VAT, e.g., the VAT paid at the level of the manufacturer and distributor gets deducted from the tax charged at the retail level. So if nobody at the previous levels paid tax, the tax due upon sale will be higher.

 

As for the trademarks of Amazon and Starbucks, I agree that most of the profit relates to the trademark. If the trademark was not developed in the UK, i.e. the risks and costs of trademark development (including lost tax revenues if they don't pan out) are incurred elsewhere, then those profits should not be taxed in the UK. Should it matter to the UK whether the trademark income is taxed in Singapore or the USA? No.

 

Every country has transfer pricing laws where the tax agents can go in and investigate and decide whether the amount paid for the trademark was appropriate from a business perspective. If the company convinces the tax man that the trademark payment was the same as it would be at arm's length, then nobody else has anything to complain about.

 

I also think it's disingenuous for them to compare "revenues" with "tax paid" as if the company's business expenses should not be taken into consideration in computing its tax.

 

But if it still bothers people that the UK government doesn't make a lot of money every time they buy a Starbucks coffee, they are free to buy some other brand that does not have an offshore trademark.

 

Also, if the trademark revenue somehow gets on-shored, be assured that the tax cost will be passed to the customer.

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Also, I don't agree that every company doing business with UK residents needs to financially support the UK highway system etc. But if that is the case, what is the proposal for taxing offshore cyber companies that don't deal in tangible goods?

 

And don't say it's because Amazon ships its product over the roads. Amazon uses shippers who are also taxpayers locally. That ought to cover the tax man's share of the revenues from shipping product with or without the Amazon trademark on it.

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Also, I don't agree that every company doing business with UK residents needs to financially support the UK highway system etc. But if that is the case, what is the proposal for taxing offshore cyber companies that don't deal in tangible goods?

 

And don't say it's because Amazon ships its product over the roads. Amazon uses shippers who are also taxpayers locally. That ought to cover the tax man's share of the revenues from shipping product with or without the Amazon trademark on it.

 

 

I think the feeling is that if profits are generated in the UK, then tax should be paid in the UK. It's not a question of tangible or intangible products. It's not a question of: this company uses the roads, this other company does not. It's more: this company benefits from the totality of the UK infrastructure, and should pay towards it.

 

Laura

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As for the trademarks of Amazon and Starbucks, I agree that most of the profit relates to the trademark. If the trademark was not developed in the UK, i.e. the risks and costs of trademark development (including lost tax revenues if they don't pan out) are incurred elsewhere, then those profits should not be taxed in the UK. Should it matter to the UK whether the trademark income is taxed in Singapore or the USA? No. I absolutely agree that a company's trademark has value and the expense of its development should be deducted before tax is paid. The balance as stated in my original post seems to go beyond the fair, however.

 

.....

I also think it's disingenuous for them to compare "revenues" with "tax paid" as if the company's business expenses should not be taken into consideration in computing its tax. I do understand the difference between revenues and profit - the piece that I quoted was indeed using the revenue figure for effect.

 

But if it still bothers people that the UK government doesn't make a lot of money every time they buy a Starbucks coffee, they are free to buy some other brand that does not have an offshore trademark. I think that most people in Britain would like to welcome international companies - I haven't heard any, for example, anti-American rhetoric on the issue. The solution is not protectionism of boycotts, but a suggestion that international companies have a moral duty to contribute.

 

Also, if the trademark revenue somehow gets on-shored, be assured that the tax cost will be passed to the customer. Unless it might possible lead to reduced profits..... no, maybe not.

 

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Another point. Most countries have a tax on trademark payments to foreign recipients. UK certainly does. It is a tax on gross payments and is often quite high. It gets reduced by tax treaties if the recipient is in a treaty country. If the UK has made a treaty with another country that results in an unfair tax situation, then the question to be asked is, why is the UK legislature doing this?

 

Usually the reason is reciprocity.

 

Surely there are UK corporations that have trademarks whose profits get taxed in the UK even if the income comes from royalties paid from users outside the UK. If a UK trademark used in the US is getting taxed by the US at 30% of gross, then the UK gives a tax credit to the UK company and loses that tax revenue. The governments of most developed countries have decided that it's better to reciprocally allow a reduced royalty tax rate and instead collect more tax on the royalties received by local countries.

 

If there is no reason for a reciprocal agreement, there usually isn't a royalty tax reduction provided by treaty.

 

Check it out. If it's legal for companies to do this, there's probably some logic behind it.

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I can see a system in which double taxation (corporation tax, CGT, sales tax) would be eliminated. The key to your argument, however, is that the workers and the investors live in the same country as the operations of the company, providing taxation to support local services.

 

In the case of Amazon and Starbucks (I haven't looked into the Google business model), they employ large numbers of low-paid workers in the UK. These people pay little tax, both because they earn little in absolute terms, and also because they are in the bottom tax percentage band. The investors will live worldwide and very few of them will be UK tax payers. Therefore the corporation is not 'pulling its weight' in any way to support the services it uses. This is, of course, legal. Is it moral, however?

 

Laura

 

Isn't it also true that there are UK residents who pay taxes on earnings from their foreign investments?

 

They try to make laws to treat people more-or-less the same whether they:

(a_) are UK people earning profits on a completely domestic UK business,

(b_) are UK people earning profits on an international business,

(c_) are foreign people earning profits on a UK business.

 

Because it wouldn't be fair to expect (b_) or (c_) to have to pay more total tax than (a_) just because of the locations of some of their operations.

 

However, when every country has different tax laws of its own, the individual countries' laws can only *approximate* fairness when it comes to multinational businesses.

 

The media (who are a bunch of rich people themselves and probably don't go out of their way to pay the most tax they legally can) should be ashamed for stirring up people when the fact is, they know it's unfair to attack these corporations just for doing their businesses legally.

 

ETA: This forum does weird stuff to letters in parentheses, so I had to type weird stuff to counteract that.

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I think the feeling is that if profits are generated in the UK, then tax should be paid in the UK. It's not a question of tangible or intangible products.

 

 

The UK has no problem seeking to tax income and/or assets abroad.

 

http://www.revue.ch/...euerabkommen-en

 

What goes around, comes around.

 

Personally, I think it is appalling that the UK would try to collect 41% of assets as a "tax arrears" on money that has been legally invested in Switzerland for years, just because it happens to be owned by a UK resident. (There was no mention of WHERE the money was originally earned.) By the anti-Starbucks plan, that 41% should go to Switzerland, after all, it is sitting in their banks, being monitored by their employees, whose children go to Swiss school, using their electricalroad, transportation infrastructure.

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