7 ms·

If they would just close the loop holes that allow things like having Apple, setup a subsidiary that licenses its own stuff back to itself so it can move profit

If they would just close the loop holes that allow things like having Apple, setup a subsidiary that licenses its own stuff back to itself so it can move profits around the world ... you'd solve this problem. Make a rule, if you own >50% of a company, you can't buy trademarks, patents, whatever from yourself.

gamblor956 5y ago
Most of the West treats transactions between companies and their disregarded subsidiaries as not occurring for tax purposes (i.e., the transactions are "disregarded"). They should expand that principle to simply disregard transactions between all members of a conglomerated or commonly owned group.
- milesvp 5y ago
  I might be tempted to take it a step further, and say that any interaction that would be taxed between businesses should be taxed if the same interaction happens internally. I really don’t like that the system seems to encourage acquisitions and mergers. If I buy a marketing firm so I don’t have to keep paying another firm for marketing, all those taxable events are now gone. I know my proposal starts to break down quickly and can lead to an accounting nightmare, but it seems like sort of a starting place to meditate on this topic.
Andrex 5y ago
Agreed. Self-dealing among companies under the same corporate parent is a scourge. https://www.hollywoodreporter.com/business/business-news/fox-settles-bones-suit-ending-profits-case-stunned-hollywood-1238843/ https://www.hollywoodreporter.com/business/business-news/fox...
ksec 5y ago
You then end up having FAANG setting a company called FAANG which each FAANG owns exactly 20% of the FANNG companies and the sole purpose was to relicensing trademarks patents or whatever. At the end of the day moving profits around isn't illegal and I dont see how banning it solves that problem. As long as it is taxed somewhere, which is what all country cares.
- vladvasiliu 5y ago
  > At the end of the day moving profits around isn't illegal and I dont see how banning it solves that problem. As long as it is taxed somewhere, which is what all country cares. Well, that's the crux of the matter, isn't it? Because they actually are taxed "somewhere", it's just that this usually tends to be a place with very low taxes. We're not talking tax evasion here, but actually legal ways of paying the least tax possible. The issue with this approach is that some countries can attempt to undercut others with taxes. Of course, this could be seen as "capitalism at work", why should a country charge (tax) more if they can get by with less by being more effective? The issue is that this doesn't happen in a vacuum. And if BigCorp makes a ton of profit in HiTaxCountry it's likely because the good conditions there are afforded by the taxes (which pay for education, infrastructure, etc). Whereas LoTaxCountry is usually some small island nation with next to no one actually living there, which means little cost for infrastructure, etc, so of course they can get by with next to no taxes. Even though "next to no taxes" on billions and billions of dollars can actually make up quite a hefty amount for a minuscule country.
awillen 5y ago
The problem isn't any specific rule or loophole, it's the immense complexity of the system. Removing the loophole they're using today doesn't fix the system, it just leads to corporations using other loopholes. That's why putting in place a simple minimum tax is a good plan - if there's a complex system but an overarching rule that says regardless of any other rules, you must pay at minimum 15% of profits, then you at least can't avoid that minimum (I mean, except with clever classifications of what your profits are, but at least for the most part it's not feasible for most of the large companies, excepting some like Amazon, to claim that they make no profits).
cle 5y ago
"Just close the loophole" to me sounds like "just fix the bugs" in an API used by every person in the country. That would be an enormous undertaking, not something you "just do". Most likely many benign people rely on particular combinations of these rules such that changing them might have terrible consequences for them. And some loopholes are likely similar combinations of rules, and removing those might create others unexpectedly. An expert weighing in on the specifics would be nice, since I'm just speaking in vague generalities b/c I don't actually know the specifics, I can only compare it to my experiences in software. I'm also not arguing that it's not worth doing, just that it's probably not as easy as "just" doing it.
briffle 5y ago
They don't even have to close the loophole. Just tell the US Apple Corporation (as an example) they can't proceed in their current court cases, as they are not the 'owner' of the IP, they are merely a licensee. Let them fight it in the court systems of the country where the IP is actually in. Right now, these companies get all the tax/financial protection of another country, but all the legal protection of the US. Imagine the EPIC vs Apple Battle, if they had to try it in another country, or even better, in every country that 'licences' apple's IP.. Lots more chances for losing.
- nodamage 5y ago
  This is a common misconception but actually Apple Inc. (the US corporation) is the sole owner of the legal rights to Apple's intellectual property. The economic rights are split between Apple Inc. (for sales occurring in the Americas) and Apple's Irish subsidiaries (for sales occurring outside the Americas) but the IP itself remains in the United States. Source: Apple's Congressional hearing from a few years ago
- xyzzyz 5y ago
  > Just tell the US Apple Corporation (as an example) they can't proceed in their current court cases, as they are not the 'owner' of the IP, they are merely a licensee. Let them fight it in the court systems of the country where the IP is actually in. That's just absurd. If you want something to happen in jurisdiction X, you sue in jurisdiction X, not some other place where you might be a citizen or legal entity. Apple can try to sue in Ireland or Netherlands or wherever, but if they are suing a US company for some breach or whatever that happens in US, the Irish or Dutch court will just dismiss the lawsuit for the lack of jurisdiction, as it could not possibly enforce its judgement in the US.
markvdb 5y ago
It's very hard to avoid artificial self dealing between related entities. The OECD transfer pricing arm's length principle [0] is supposed to somewhat solve that. The problem regarding transfer pricing is that the US, the Netherlands, Ireland, Luxemburg, plus most of the places generally reputed to be tax havens have holes in their law you can fly an Antonov AN-225 [1] through. [0] https://www.oecd-ilibrary.org/taxation/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-2010/the-arm-s-length-principle_tpg-2010-4-en https://www.oecd-ilibrary.org/taxation/oecd-transfer-pricing... [1] https://en.wikipedia.org/wiki/Antonov_An-225_Mriya https://en.wikipedia.org/wiki/Antonov_An-225_Mriya
lefty2 5y ago
They don't want to close the loopholes, because the loopholes give American companies an advantage over foreign companies.

gamblor956 5y ago

Most of the West treats transactions between companies and their disregarded subsidiaries as not occurring for tax purposes (i.e., the transactions are "disregarded"). They should expand that principle to simply disregard transactions between all members of a conglomerated or commonly owned group.

milesvp 5y ago
I might be tempted to take it a step further, and say that any interaction that would be taxed between businesses should be taxed if the same interaction happens internally. I really don’t like that the system seems to encourage acquisitions and mergers. If I buy a marketing firm so I don’t have to keep paying another firm for marketing, all those taxable events are now gone. I know my proposal starts to break down quickly and can lead to an accounting nightmare, but it seems like sort of a starting place to meditate on this topic.

Andrex 5y ago

Agreed. Self-dealing among companies under the same corporate parent is a scourge. https://www.hollywoodreporter.com/business/business-news/fox-settles-bones-suit-ending-profits-case-stunned-hollywood-1238843/ https://www.hollywoodreporter.com/business/business-news/fox...

ksec 5y ago

You then end up having FAANG setting a company called FAANG which each FAANG owns exactly 20% of the FANNG companies and the sole purpose was to relicensing trademarks patents or whatever. At the end of the day moving profits around isn't illegal and I dont see how banning it solves that problem. As long as it is taxed somewhere, which is what all country cares.

vladvasiliu 5y ago
> At the end of the day moving profits around isn't illegal and I dont see how banning it solves that problem. As long as it is taxed somewhere, which is what all country cares. Well, that's the crux of the matter, isn't it? Because they actually are taxed "somewhere", it's just that this usually tends to be a place with very low taxes. We're not talking tax evasion here, but actually legal ways of paying the least tax possible. The issue with this approach is that some countries can attempt to undercut others with taxes. Of course, this could be seen as "capitalism at work", why should a country charge (tax) more if they can get by with less by being more effective? The issue is that this doesn't happen in a vacuum. And if BigCorp makes a ton of profit in HiTaxCountry it's likely because the good conditions there are afforded by the taxes (which pay for education, infrastructure, etc). Whereas LoTaxCountry is usually some small island nation with next to no one actually living there, which means little cost for infrastructure, etc, so of course they can get by with next to no taxes. Even though "next to no taxes" on billions and billions of dollars can actually make up quite a hefty amount for a minuscule country.

awillen 5y ago

The problem isn't any specific rule or loophole, it's the immense complexity of the system. Removing the loophole they're using today doesn't fix the system, it just leads to corporations using other loopholes. That's why putting in place a simple minimum tax is a good plan - if there's a complex system but an overarching rule that says regardless of any other rules, you must pay at minimum 15% of profits, then you at least can't avoid that minimum (I mean, except with clever classifications of what your profits are, but at least for the most part it's not feasible for most of the large companies, excepting some like Amazon, to claim that they make no profits).

cle 5y ago

"Just close the loophole" to me sounds like "just fix the bugs" in an API used by every person in the country. That would be an enormous undertaking, not something you "just do". Most likely many benign people rely on particular combinations of these rules such that changing them might have terrible consequences for them. And some loopholes are likely similar combinations of rules, and removing those might create others unexpectedly. An expert weighing in on the specifics would be nice, since I'm just speaking in vague generalities b/c I don't actually know the specifics, I can only compare it to my experiences in software. I'm also not arguing that it's not worth doing, just that it's probably not as easy as "just" doing it.

briffle 5y ago

They don't even have to close the loophole. Just tell the US Apple Corporation (as an example) they can't proceed in their current court cases, as they are not the 'owner' of the IP, they are merely a licensee. Let them fight it in the court systems of the country where the IP is actually in. Right now, these companies get all the tax/financial protection of another country, but all the legal protection of the US. Imagine the EPIC vs Apple Battle, if they had to try it in another country, or even better, in every country that 'licences' apple's IP.. Lots more chances for losing.

nodamage 5y ago
This is a common misconception but actually Apple Inc. (the US corporation) is the sole owner of the legal rights to Apple's intellectual property. The economic rights are split between Apple Inc. (for sales occurring in the Americas) and Apple's Irish subsidiaries (for sales occurring outside the Americas) but the IP itself remains in the United States. Source: Apple's Congressional hearing from a few years ago
xyzzyz 5y ago
> Just tell the US Apple Corporation (as an example) they can't proceed in their current court cases, as they are not the 'owner' of the IP, they are merely a licensee. Let them fight it in the court systems of the country where the IP is actually in. That's just absurd. If you want something to happen in jurisdiction X, you sue in jurisdiction X, not some other place where you might be a citizen or legal entity. Apple can try to sue in Ireland or Netherlands or wherever, but if they are suing a US company for some breach or whatever that happens in US, the Irish or Dutch court will just dismiss the lawsuit for the lack of jurisdiction, as it could not possibly enforce its judgement in the US.

markvdb 5y ago

It's very hard to avoid artificial self dealing between related entities. The OECD transfer pricing arm's length principle [0] is supposed to somewhat solve that. The problem regarding transfer pricing is that the US, the Netherlands, Ireland, Luxemburg, plus most of the places generally reputed to be tax havens have holes in their law you can fly an Antonov AN-225 [1] through. [0] https://www.oecd-ilibrary.org/taxation/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-2010/the-arm-s-length-principle_tpg-2010-4-en https://www.oecd-ilibrary.org/taxation/oecd-transfer-pricing... [1] https://en.wikipedia.org/wiki/Antonov_An-225_Mriya https://en.wikipedia.org/wiki/Antonov_An-225_Mriya

lefty2 5y ago

They don't want to close the loopholes, because the loopholes give American companies an advantage over foreign companies.