> The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.
It's also a loss to all of us who find ourselves owning a "foreign" corporation for legitimate reasons, and having to do a lot of work proving that we're not playing shell games.
I'm an American living in the UK; I've started what's now a one-man bootstrapped company and it just makes sense for it to be incorporated in the UK. I don't mind paying taxes, but I don't want to have to pay them twice. UK taxes are generally higher than US taxes, and there are tax treaties to avoid double taxation, so no problem, right?
Wrong. First, if a US citizen owns more than 10% of a foreign corporation, there's an insanely complicated form you have to fill out, two pages of which are incomprehensible questions ("Is your company considered an X corporation under sections Y and Z of the Blablablah act?") that simply require an expert to fill out.
Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
So because of [REDACTED] lawyers and accountants that have come up with these schemes, I have to spend precious starting capital to a bunch of accountants to prove I'm not evading taxes, rather than actually doing something useful with that money (and that accountant doing something more useful with their time).
The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US - that's a condition of US citizenship. If you don't want to pay those taxes, then renounce your US citizenship once you have, say, gained UK citizenship, if that works for you.
A famous bloke once said (probably in Hebrew, written up in Aramaic or Greek and badly translated into middle, modern and somewhat strange English): "Pay unto Caesar, that which is due to Caesar and pay unto God that which is due to God" or words to that effect. Substitute IRS for God and you have a suitably cynical aside!
If your firm over here is good enough and you are reasonably settled then why not go all in? I'm not sure what the rules are on reconnecting with the US if you have formally renounced citizenship. However, I'm sure a birth cert from Yeehaw, TX or wherever will go some way. Even so, UK citizens are generally welcomed in the Land of the Free. An ESTA (great scheme IMO) costs about £20 for two years coverage - more than enough to visit the relos.
I know from second hand experience that our bureaucracy is just as convoluted as any other and it will take roughly one to two years (that was about 10 years ago) to get citizenship and probably involves a test that I would fail!
You might like to look into where your company is actually registered. A Ltd is not you - it is a separate legal entity and the UK (etc) is quite a complicated setup within quite a complicated environment. You might explore Jersey and the Isle of Man for places to headquarter. Don't overlook Eire either (EU with UK to the north, with special arrangements)
Anyway, the snag you have is solely US based and not UK (for a change).
> I'm not sure what the rules are on reconnecting with the US if you have formally renounced citizenship. However, I'm sure a birth cert from Yeehaw, TX or wherever will go some way.
It doesn't. Once you've renounced your US citizenship you're on exactly the same footing as any other foreigner in terms of visiting or living here.
And that's assuming you're smart enough not to admit to the government that you're renouncing your US citizenship for tax purposes. If you make that mistake, you've made yourself permanently inadmissible to the United States under INA 212(a)(10)(E).
"And that's assuming you're smart enough not to admit to the government that you're renouncing your US citizenship for tax purposes. If you make that mistake, you've made yourself permanently inadmissible to the United States under INA 212(a)(10)(E)."
Blimey, that's a bit harsh!
I wonder if Mr Adams and co, when throwing off the yoke of something, something, imperialism and that, and those jolly beastly Britons, would approve of INA 212(a)(10)(E)?
That is some legacy for those freedom fighters. cough terrorists (sorry - I'm a Brit, its only been 250 odd years!)
> If you don't want to pay those taxes, then renounce your US citizenship once you have
Haven't you heard of exit tax? If you renounce citizenship (or surrender your 8+ year green card), you must pay 30% of your worldwide assets' value (as if you sold it for cash) to the IRS. And if you own something illiquid, you're deep in trouble!
So no, people can't renounce their U.S. citizenship easily, the IRS has accounted for that...
If you're no longer citizen you won't be accountable for any tax accrued after you're no longer a citizen.
But you're still accountable for debt, so all they need is to frame this as taxes on earnings and property that you have accrued while you were a citizen and you keep to be accountable for your debts even after you renounce the citizenship.
Now, what can the US government actually do to you while you're no longer a citizen depends a lot where you live and whether you care traveling or doing business with the US again
> Now, what can the US government actually do to you while you're no longer a citizen depends a lot where you live and whether you care traveling or doing business with the US again
In most western country anything involving a (even local) bank will be a headache already when you're an American citizen. I can't imagine it would be easier if you're a former American citizen with a large debt towards the US.
In Switzerland, almost no bank wants to deal with you if you have US citizenship. Its easier to just avoid creating whole new department for that reporting, risk getting sanctions if you make a mistake etc.
US in this case is a global bully, based on some talks with people involved in such processes also arrogant, very aggressive in enforcement, at the end punishing its own citizens just because they can.
Their choice, but if I or my kids would ever be in the situation of potentially gaining citizenship or green card (that probably won't ever happen, life here is much higher quality overall for people like me), this alone is good enough reason to not do it.
The US is a bully because wealthy people want to live, work with, have assets, or even have citizenship in the US. The US is very business friendly and offers top-tier everything if you have money.
Wealthy people though are accustomed to having their cake and eating it too, so naturally they will try to take as much as they can while giving back as little as they can manage. Their wealth will carry them very far towards this goal, so the US cannot be soft when it comes collecting.
Its like saying you need to be hard on terrorism or drugs problems, so that you can actually fix that. We know how that worked in past 100 years...
What it will collect is totally negligible in US budget and won't make dent in anything (compared to say companies like Apple or Google skimming paying taxes by tens of billions yearly), and it won't make many friends to US.
But sure, chase them, chase them hard, I have literally no skin in that game. I guess as long as really serious problems are ignored government is happy.
It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
Most higher developed countries have it in some form (with varying degree of strictness, scoping etc.).
Technically you also pay the tax in the process of losing your citizenship not after losing it.
A more "fair" approach probably would be if capital (especially bound capital which generates more capital, like companies) are "pinned" to a country and transferring it from there involve paying tax (oversimplified).
Then when renouncing US citizenship you would only need to pay "exit" tax if you also move your capital out of the US (e.g. your US company) but if you have a UK company it would already be pinned to the UK and you wouldn't pay exit tax on it (but you would have had to pay taxes on moving capital from the US to the UK to found the company).
But I mean it's a purely hypothetical approach:
- it is very much in conflict with globalization and investing in foreign companies (you have to pay exit tax on the money you invest outside the US!). This means it also hinds projection of US power by getting influence into foreign companies through investments.
- it's not really viable to retroactively apply it
- it kinda requires all countries to agree on this law
- it would mess with investment banks, fond etc.
- it's a mess when it comes to international buying of goods (as you want to prevent laundering capital moving through unusual good buying schemes)
> It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
It really does not sound common at all. In all countries where I have lived, my citizenship did not enter the picture for the local tax authority or that of my country of birth. All that matters is my resident status. I did not renounce any citizenship (because why would I? It comes with no downsides), but I cannot see them going after my foreign possessions, considering they entirely ignored them for years. And if they did, a loophole would be to not renounce it because again it comes with no downsides.
I actually checked with my country of birth, and renouncing simply requires me to send a declaration to the authorities and they have 2 months to accept (it’s accepted by default if they do not reply within 2 months). No other requirements or anything.
Do you have many examples of countries that do what you described?
they do often work slightly different based fundamental differences in tax and law models so it's not always coupled to citizenship but practice still quite the same as in you get taxed when moving "capital" (mainly companies) out of the country
"pretty much every EU country" is not an example, so I guess no, then.
Anyway, this is not what was discussed here, and has nothing to do with citizenship. The example was a non-resident's business abroad being taxed when giving up their citizenship. As far as I know, there is no European country that does anything remotely equivalent. I am willing to accept that there might be some, but this is far from the norm.
Moving stuff across borders is something entirely different.
There is one group in Congress dedicated to representing Americans abroad. Since 2007 they've been working to reform the tax code and make the voting process easier. No politician in my state has ever joined - and the tax code remains the same.
Americans abroad are taxed on worldwide income, but don’t get the same benefits; healthcare, infrastructure, education, etc. We pay full price for a system we barely use. The laws on starting a company abroad are arcane; cruel and unusual.
... So I don't feel very represented*.
Again, no other country outside North Korea and Eritrea (a combined population of 30m people) treats their citizens like this. The US just started it because it needed to raise funds during the Civil War, and keeps it because it's a useful way to siphon money.
Non Americans are shocked when they hear of these rules - it's unthinkable. Even Americans are surprised, most have never heard of such a thing.
* Tbf, neither do most Americans these days. According to Pew, only 20% of Americans are 'satisfied with how democracy is working'. 10% feel "hopeful" when thinking about politics, compared to 65% who feel "exhausted".
60 years ago, 77% of people trusted the US govt. Today, 77% of Dem voters wish we'd stop arming war crimes.
All taxes are arbitrary. It doesn't need to "make sense". The only reason countries tend to tax their own citizens is more because of the practicalities of enforcement rather than any stance on the philosophical nature of taxation; as this particular rule illustrates.
I know a few folks who gave up their US citizenship over tax, and both had to plan for about a decade to do so without paying exit tax - and their lives continue to revolve around being tax exiles - 89 days here, 44 days there, etc. etc.
I’m glad to be a Brit, if only because the revenue doesn’t pursue me around the planet.
It's only if you qualify as a 'covered expatriate' though. I'm not a lawyer or an accountant but a plain reading of the standard suggests the vast majority of Americans would not be covered.
I think the key would be how they arrive at the net worth numbers. If it's just a calculation of all your assets as if they were sold at FMV, ~90% of the US is below the net worth threshold.
The average tax liability standard looks like it would take 5 years at $600K+ of adjusted gross income, too. Plenty of people would meet this standard. Most people would not.
So it basically says if you net worth is over $2 mil, you're need to pay exit tax, right?
If a house and 401k also counted towards net worth, it could impact quite a few Americans. Besides, those who expatriate for tax optimization purposes usually have a significant amount of wealth.
> If a house and 401k also counted towards net worth, it could impact quite a few Americans
I have no sympathy for people who want to dodge taxes being forced to pay a tax on income that the government has deferred taxes on while they were a citizen making taxable income in the US, and presumably if you're abandoning your citizenship you're not keeping your home and would have already paid sales and capital gains taxes on it when you sold it.
"
You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation.
"
I agree you should pay up your taxes but this will not only recover the due taxes but it will take more.
> probably in Hebrew, written up in Aramaic or Greek
It is generally agreed upon by scholars that Jesus’ primary language, like in Palestine generally, was Aramaic, not Hebrew, which was already well on its way to becoming a liturgical language (although Jesus probably knew Hebrew well, as he was called “rabbi”, and likely Greek as well): https://en.m.wikipedia.org/wiki/Language_of_Jesus. Certainly for the context of this quote, it’s likely that he was speaking in Aramaic, given that in the chapter he was responding to questions from a variety of local people.
> If you don't want to pay those taxes, then renounce your US citizenship once you have, say, gained UK citizenship, if that works for you.
Boris Johnson - the ex UK prime minister - was born in the US, and complained loudly and frequently about having to pay taxes to the US - and appears to have refused to do so atleast partially. Having to pay tax on profits from the sale of his family home (which is tax free in UK) was the trigger to get him to renounce citizenship.
> The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US
No, I think you're missing the issue.
Suppose the company (let's call it XYZ Ltd) is owned 100% by my spouse. Let's say XYZ has $XYZPROFIT in one year. It then pays $XYZUKTAX on that profit, but the US isn't involved whatsoever. If it pays me $MYSALARY, XYZ reports that to the UK government and pays $MYUKTAX. I then report the US government $MYSALARY and $MYUKTAX, calculate $MYINCOME, and then calculate $MYUSTAX (which is normally $0, since UK taxes are higher than US taxes).
Now let's suppose I own more than 10% but less than 50%. Now I basically have to report to the US the same information about XYZ's financials that the company reports to the UK government, as well as answer 40-60 questions each of which would take a few days to understand the meaning of. Thankfully that's where it ends under normal circumstances; pay an accountant to prove you're not cheating the system and you're done.
Now suppose XYZ is 100% owned by me. It has $XYZPROFIT for the year, and pays $XYZUKTAX on that profit. Now, by default, $XYZPROFIT is included in $MYINCOME, but $XYZUKTAX is not included in $MYUKTAX; meaning by default I'm going to be double-taxed. I can avoid this, but only with 1) extra paperwork, and 2) forgoing any tax breaks for start-ups that the UK government has.
> "Pay unto Caesar, that which is due to Caesar and pay unto God that which is due to God" or words to that effect.
As I said, I don't mind paying taxes, but I don't want to pay it twice.
If you renounce your citizenship to avoid taxes, you are barred from ever entering the US or its territories again. Take one quick look at the EEZ of the US and tell me if you are OK with never traveling through those places again.
US citizen and long-time expat calling bullshit on this. That's not the purpose of taxes and that's not how citizenship works in any other country except North Korea.
Looking at the list of "benefits" another person posted:
> The rights your passport gives you
Are no different than the rights an EU passport gives you, except when entering the US-- but then again, an EU passport gives you better rights when entering the EU, so this is not an exclusive.
> + the legal and embassy protections given to American citizens. Like the American civilians held in Russia that Biden recently traded Russian spies for.
Note that the US doesn't have jurisdiction outside of US territory, so it cannot give legal protection and explicitly embassies do not give legal advice. Yes, there may sometimes be trades like above, but on the other hand, if the US prisoners were not US people, they probably would not have been jailed by the Russians in the first place.
> You still have access to vote absentee,
Voting is a responsibility, not a benefit.
>as well as collect social security benefits.
Wrong-o! You only get social security benefits you have paid for. If you are living outside of the US, you are not contributing to soc. security.
> You can use US bank accounts and other institutions.
So can non-citizens. US bank accounts do not require citizenship. Nor does owning real estate. Nor forming companies.
You and your children have the right to return if you ever desire it.
Not sure why US citizens believe this. I've been in situations where there was genuine peril and the look of shock the US citizens had when someone from their embassy said the only thing they'd do is organize a convoy of private vehicles if everyone turned up at x time and place. They really expected the US army to turn up to save them. Honestly I don't think I've seen the US do any more than any other western country for their citizens in these situations.
The rights your passport gives you + the legal and embassy protections given to American citizens. Like the American civilians held in Russia that Biden recently traded Russian spies for.
You still have access to vote absentee, as well as collect social security benefits.
You can use US bank accounts and other institutions.
You and your children have the right to return if you ever desire it.
Most other countries allow their expatriate population to vote without this taxation requirement. Why should the US be different?
>as well as collect social security benefits.
Absolutely incorrect. The times I've lived abroad have not count towards my SSN contributions; I've had to make up for them after returning, in a sense. I now have to figure out how to collect a smattering of "social security equivalent" payments once I retire from a foreign country as a result.
> You can use US bank accounts and other institutions.
Actually, you're not supposed to in most cases, and most banks will basically force you out if they find out you're not in the US. Only a few brokerages will actually work with you (ibkr is best iirc, Schwab can also work). Pretending to "exist" at a relatives house for your bank may be living on borrowed time, though in practice it is possible to do for years if one leaves. Newcomers can't open a bank account with US citizenship if they're non residents (again, except for a few brokerages).
> You and your children have the right to return if you ever desire it.
Why should I pay for the option to do so? Why not do like every other country and pay if I actually exercise the option and return (and pay taxes)? Just like every other country (except Eritrea and North Korea, but do we want to be in the same camp as them?).
> You can use US bank accounts and other institutions.
Recently found out that this is more and more difficult because most banks are requiring 2FA with a US phone number which is difficult to get if you don't live in the states.
As others have pointed out, this is far from correct. If you have a US bank account and they find out your residence has moved to another country they are very likely to close the account immediately.
I think it's because the US has the clout to indirectly compel foreign institutions to cooperate in a way that other western countries can't.
For example, for a US expat living in the UAE the various branches of the US government can threaten the UAE government, banks etc. to make them cooperate and tell them how much the US citizen is earning to ensure they pay their US taxes - if you're a bank anywhere in the world, you do not want to be cut off from the US dollar system.
If the UK, France, Germany etc. tried to tax their citizens globally it might work in other western countries, but in places like the Middle East they might struggle to get foreign entities to comply making it impossible to enforce.
That is a completely warped and incorrect view. There is no political will to do so. I’ve never even seen it suggested even by the cringiest parties in any country in which I have lived. Besides, the simple fact that North Korea and Eritrea have comparable policies, and only them, is a strong indication that this idea is completely wrong. Neither has any kind of international clout to enforce this, and yet they have it for a reason.
Assuming that everyone else would do just like the US if they could get away with it is pure projection. Yes, it’s how the US work. No, it is not normal or even common.
If you phrase it as "taxing expats" then, sure, no other country is proposing it. If you phrase it as "making sure the rich don't skip out on their taxes by moving to a low tax country" then it's going to be a lot more popular.
You realise that these things are completely different, right?
Stripping people from their citizenship as a punition for a crime has nothing to do with taxing people who renounce their citizenship. The only thing they have in common is that citizenship and taxes are involved. As an aside, because you mention France, there would be significant constitutional challenges to do this for something that is not high treason. It is not going to happen in the near future. The far right barks often, but when push comes to shove their only way to win votes is to soften their rhetoric and there is no support for this so they are not going to die on this hill.
> If you phrase it as "taxing expats" then, sure, no other country is proposing it.
That was the whole premise of the discussion, though.
> If you phrase it as "making sure the rich don't skip out on their taxes by moving to a low tax country" then it's going to be a lot more popular.
That's already being done. There is political will for that (though not from the fringe parties who'd be the most likely to go after expats, including the barking far right). It does not require sending a bill to people renouncing their citizenship, or taxing non-resident citizens.
Perhaps because no other country goes to the same lengths to help its citizens abroad in times of trouble. When there's geopolitical trouble brewing, it not uncommon for other nationalities to take advantage of American evacuations. Few countries come close the US in leveraging intelligence and logistics to help citizens; France is probably #2.
True, but it is kinda like paying for insurance and then when you need it you get a giant surprise bill.
Although ironically much like the American health care insurance system which is much the same. Pay every month for “insurance”, and when you need it you also pay for it.
I don't know what it's like for Americans living abroad but indeed, as a French citizen living abroad I do believe that France spends enough resources to justify taxing me (with guarantees against double taxation, and the various complications and edge cases it implies).
As far as I know, American citizens can't really vote abroad (they have to be registered to a place inside the US and vote by correspondence, I think?) while we have voting booths in most countries where France has a consulate[0].
Since there are many French citizens where I live, there were 14 booths across this country for the last elections so you're probably never more than 50 kilometers from one (in addition to being able to vote through Internet). There were 23 of them in the US, 33 in Canada (20 of them in Montreal apparently), etc.
That's a whole lot of effort for people who are voting for things that will not affect them directly and who don't pay taxes (even a token tax) for France, and it's great, and I think it's normal to devote efforts for all citizens wherever they are, but it means I couldn't honestly complain about reasonable taxation.
> As far as I know, American citizens can't really vote abroad (they have to be registered to a place inside the US and vote by correspondence, I think?) while we have voting booths in most countries where France has a consulate[0].
French expats also have their own representatives to the National Assembly, on top of voting for national elections (mostly presidential and the occasional referendum). It’s like if there were representatives for Europe in the US congress.
> The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.
Looking at all the corpo legal/HR departments really has to make you think - those are people that are paid to aggresively look for legal loopholes, to defeat the spirit of laws and to make sure that the corporation always has the advantage against the society and workforce they exist nearby. There's decades upon decades of man hours being put into chipping away the effectiveness of tax, workplace and other laws and finding loopholes to make them ineffective. We've been at war and we never even noticed.
>Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
Yeah it's become an absolute nightmare now if you're an individual or small business involved in anything cross border.
Even if you're not unlucky enough to be a US citizen, if you're tax resident in one country and incorporate in another for completely legitimate reasons, as an individual you're just screwed if you want to be compliant. Rocket science is significantly easier.
You need some KPMG-tier advisor to work it out for you for $crap-ton/hr. Few sole operators have the revenue to afford that.
Be careful it might be more complicated than that. I am not 100% sure but I think you might be required to pay taxes on unrealized gains for your company (or whatever assets you are owning).
What you're complaining about is overreach by the IRS in relation to foreign assets held by US citizens (ie FATCA) and the reporting requirements (eg Form 7938 and FBAR). It's worth noting that real estate is carved out as an exception for reporting purposes somehow, even though it's a common vehicle for money laundering.
That has literally nothing to do the Double Irish Dutch sandwich, which has historically been used by US companies (particularly Big Tech companies) to avoid taxes by moving their IP to a foreign subsidiary and then paying "royalties" to avoid paying US taxes.
You seem to think that the IRS doing that just for a laugh, or just because they hate rich people, and that Big Tech companies are the only ones playing shell games with their revenue in order to shirk paying their fair share to support the society they've benefitted from.
I think it much more likely that rich people also play shell games with their assets / revenue to avoid paying their fair share to support the society they've benefitted from, and that the IRS requires the extra reporting to try to counteract that.
This article is specifically about a specific loophole invented by unethical accountants and lawyers, but it's also generally about all the effort spent by unethical accountants and lawyers to come up with such loopholes, causing not only harm to society (in the form of free-riding on those who are paying taxes), but which in turn forces effort on the part of tax agencies and legislatures, which then forces effort on normal people like me who just want to make some money and pay our fair share. It's pure wasted energy.
> and that the IRS requires the extra reporting to try to counteract that.
The extra reporting largely exists because of the fundamental and rather unique misdesign of the US tax system - taxing citizens’ worldwide income for life. Most countries only tax (1) worldwide income for residents (2) in-country income for non-residents
> What you're complaining about is overreach by the IRS in relation to foreign assets held by US citizens (ie FATCA) and the reporting requirements (eg Form 7938 and FBAR)
A big problem is the US is one of the few countries in the world which taxes its citizens (and green card holders) worldwide, for life, no matter how long they’ve been outside the United States. Most countries don’t tax non-resident citizens, or only do so for a limited period of a few years.
The only other country that does it, that I know of, is Eritrea - and it has been widely condemned by the international community for its “diaspora tax”. But no condemnation for the US diaspora tax, despite actually being far more onerous than Eritrea’s is
I believe they may have been referring to the Global Intangible Low-Taxed Income (GILTI) tax, which from what I've read is as bad as the OP describes in their post.
Why is the top comment on this post a mostly unrelated rant about USA individuals being taxed in weird ways? The actual post is about global corporate shenanigans that enable them to evade astronomical amounts of taxes.
Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
This is the GILTI regime, which was intended to target foreign income from intangible assets. But, like most GOP legislation of the last two decades, it was written in a rush without regards to the practical consequences.
Note however that if the foreign income (from the company's perspective, local income) is being taxed at a higher rate than 90% of the applicable U.S. tax rate on that income (currently meaning, 18.9% foreign tax rate or higher) then the income does not get included in its owner's income (aka the high-taxed exception).
Also note that if you are for some reason subject to GILTI, you've basically just prepaid your taxes on actually receiving that income, meaning that you don't pay taxes again when the foreign corporation actually pays the income to you as a dividend.
This was super complicated for a year or two until the IRS released guidance clarifying some points. Now, for any accountant worth their salt, it's pretty straightforward and if they're still complaining about it, find a new accountant.
The guild will get its due! Ironically this is also what the productivity gainsgames produce in the long run. All that excess human capability goes into bureaucracy labyrinths and highway robbery sometimes with the law behind and armed with subscription. The entrepreneur producing the beast that strangles him.
They seem to think that [REDACTED] is something that hn automatically redacted and that dang will come check what the actual word was. Because this person assumes every negative comment about a lawyer must be antisemitic.
“ The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.”
I’d expect very little overlap between those talent pools.
Tangential, but a pet project I've been working on has been doing exactly that! Looking at US federal tax laws and using constraints solves to find optimal paths to the lowest taxes.
I don't really do anything besides play with it, my taxes are very simple and boring, but it's been a fun project to play around with.
Those two concepts are very much the same thing. There is no literally distinction between legally minimising the taxes you have to pay, and legally avoiding a tax that you would otherwise have to pay. You just want to have a different word to use to criticise people/groups/companies you don’t like doing something you seem to otherwise approve of, so you don’t look like a hypocrite.
My accountant defined it this way… minimization is legal, avoidance is not.
Minimization is just taking advantage of the tax loopholes and strategies that are within bounds. Avoidance is lying or ignoring.
Yes it’s possible to minimize your taxes down to zero legally in many cases, but you’ll pay a good percentage of that savings to accounts and lawyers for managing that structure.
I’m struggling to believe that a qualified accountant said that. Tax avoidance is completely legal, if it becomes illegal, then that’s called tax evasion.
Avoidance and “minimisation” are the same thing, evasion is a crime.
I think of minimization as doing things like taking deductions, and avoidance as creating confusing structures of new entities in order to take advantage of gray areas and deciding that the cost of getting caught is not material.
Yeah, that's fair enough; outside of keeping as much money as I can in ETFs and index funds, my tax strategies are pretty much non-existent since I don't have enough money for it make a huge difference.
If there are any novel or situation-specific conclusions drawn, that sounds like an easy sell to CPAs and independent tax preparers. Maybe even individual tax optimizers.
My naive assumption is that sophisticated analysis will return the same few well-known recommendations almost all the time -- the taxation variant of eating properly, sleeping regularly, and getting appropriate exercise.
How many people pursue business or accounting degrees instead of mechanical engineering or biotechnology degrees? The talent flows to what policy incentivizes, over the long run.
Your point, that people can't just switch careers willy nilly, actually reinforces the point of the article -- that incentivizing accounting games actually reduces time spent on impactful pursuits in the long run.
More like how many people with degrees in Business go into Management Consulting, would like to join a startup as a Product Manager, or accountants that want to be Associates at a VC firm rather than work a big 4.
But even for programmers, plenty of people make the decision to go into programming or medicine or law because they are well paid and respected careers. And interests in secondary school and university are influenced by parents, teachers and the culture promoting certain directions. Kids these days are bombarded by STEM everything.
Interesting enough I read an article that there is going to be and there is to some degree, a large shortage of accountants over the next 10-20 years as people entering the profession are at record lows and retirements are at all time highs
If there were no need for tax avoidance accountants, they very well might have chosen to study to become software engineers instead. It's not like they were born a tax avoidance accountant and would be sitting in the field rotting if they couldn't find work avoiding taxes. Many would at least be regular accountants (efficiently allocating money is still more useful to all of us than efficiently avoiding taxes), or maybe some other sort of lawyer (your city's prosecutors AND your city's public defenders are both sorely overworked).
Tons of people who get degrees in technical fields work outside that field. There are many people who have have spent at least part of their studies or career in hard science, SWE, IT, management consulting, law or finance before switching to something else in that list to improve their work/life balance, to make more money, to find employment more easily, or simply because learning the field and cracking its puzzles is engaging work for them no matter the exact technical field it's in.
High finance and crypto are two places where a high concentration of technical skills intersect with using those same skills to game our financial and legal systems.
Tax avoidance is a legal problem instead of a tech problem, but it has many parallels wherever there are bad incentives. These are fundamentally not pro-social activities, but trying to get an unfair advantage through loopholes.
More computer programmers might moonlight as SEO gurus, if search engines didn't put up at least a token amount of resistance against scummy low-effort SEO tactics.
Fewer tax avoidance accountants would still be tax avoidance accountants, if we made a bigger effort to prevent it. (And that doesn't mean accountants would have to be programmers instead, there are many other kinds of talent)
Yes and those few software devs who work in the accounting sector on facilitating tax evasion aren't exactly changing the world for the better. Not exactly the best use of their skills.
Wow. I can't believe people believe this is still true in 2024.
I worked in crypto sector which paid really well in some cases... Though compensation had little to do with talent and more to do with focus on political bs and alignment with the needs of corrupt authorities. Some could argue there was an inverse correlation between talent and compensation as the most corrupt people are often that way because they lack talent to begin with.
I've observed similar dynamics in big tech corporations, unfortunately. People are promoted on the basis of their incompetence and capacity for self-delusion as it creates the necessary blind-spots which allow organizations to occasionally poke their toes beyond red lines to reap massive profits.
Stupidity and incompetence are useful attributes within corporations because they instill a feeling of insecurity in the minds of the affected employees and this makes them highly loyal and controllable. Sometimes I think one of the main reasons these companies hire actual intelligent people is to make the incompetent people feel insecure 'imposter syndrome' and increase their degree of loyalty/compliance. They don't actually need intelligent people to run things because they have monopolies and the big profits are to be reaped in maintaining their monopolies which is achieved via dirty politics; not achieved via innovation.
I think many intelligent people have observed this reality in companies they worked for. We've seen the HR manager who will bend over backwards to deny reality to align with the goals of management.
Interesting anecdotal response but it’s pretty obvious that top pay attracts top talent, basic market dynamics. Obviously grifters gravitate to where money is, that doesn’t mean all to talent at high pay is a grifter. Correlation != causation
Tax law is the highest paid field within law. High pay attracts smart people. Smart people could do something more beneficial to society with their time. (Source: I'm married to a tax lawyer)
Tax avoidance and evasion are not distinct categories. Some things are clearly legal. Some things are clearly illegal. And for many things, the legality can only be determined by a court after the fact.
Laws are inherently ambiguous. There is no objective classification that tells for each possible action whether it is legal or illegal. That's why courts and lawyers are needed.
Those are formally defined terms here in the UK [citation needed - must find one].
Tax avoidance is avoiding paying a tax by following some legally sanctioned rules. For example, in the UK, using an ISA, which is a form of bank savings account, for which the interest is paid tax free. ISAs were created by an Act of Parliament. By saving in an ISA you avoid paying some tax.
Tax evasion is avoiding paying tax ... by not paying tax that is due, according to the law of the land.
There are no grey areas these days. When you do "Self Assessment" in the UK, one of the early questions paraphrases to "have you done anything dodgy". I think it is something like: "Have you participated in any tax evasion schemes within the tax year considered here". Without looking it up now (which takes a while), it may even use the word avoidance instead of evasion.
Self assessment is similar to how the US and some other countries do taxation.
In the UK the norm is Pay As You Earn (PAYE). Your employer does everything - you earn a wage and tax (Income Tax and National Insurance) is extracted at source and the balance is paid to you. The taxes are passed on to His Majesty's Customs and Revenue (HMRC). You can fill in a Form P11D if you want to claim expenses for something you supplied or pay for benefits received from your employment. Most employees in the UK don't care about taxation too much - it just happens.
Tax avoidance and evasion are very different beasts. Do be careful.
Sure, there are two different terms with two different legal statuses. Unfortunately those paying taxes and those collecting them don't always draw the same line between them.
For tax strategies that hadn't been ruled on by court, and are ambigious based on the law as written, are they tax avoidance, evasion, or are they just untested tax strategies?
Is that fair to say given that it's been found illegal?
It's more complicated because the Irish law people were following was found to be invalid, not that the people leveraging it we're breaking the law as understood at the time, but it still seems unfair to call this approach legitimate.
> It's more complicated because the Irish law people were following was found to be invalid,
It wasn’t found to be invalid per se. The European Court of Justice found that the tax breaks Ireland was offering were unlawful state aid (a corporate subsidy that violates EU law) in the case of large multinationals such as Apple. From what I understand of the ruling, it only applies to large multinationals, and Ireland is allowed to continue to offer the same tax breaks to smaller firms.
Also, while IANAL, I have read some EU law textbooks, and one thing they make clear is that ECJ decisions do not always have “direct effect” - the ECJ can declare a national law to be in violation of EU law, but whether that by itself invalidates the national law depends on the specific grounds the ECJ used. So, without having looked into the legal details of this specific ruling, I’m not even sure if it makes the Irish law invalid, as opposed to merely illegal. The distinction is, an illegal law, the national government is obliged to repeal/amend it, and if they fail the EU can punish them, but it remains in force until they repeal/amend it; whereas an invalid law they have to immediately stop enforcing it.
Everyone in Ireland [and almost everyone else] seems to be under the impression that this is what just happened with the CJEU ruling last week. But it's not.
Ireland, since the mid-1980s, has been offering Apple (and ONLY Apple) a bespoke tax arrangement which is not only unlawful state aid under EU rules but also straight-up illegal under Irish law as well. This "deal" was never codified in primary or secondary legislation in Ireland. The government of famously-not-crooked-in-any-way Charlie Haughey did this deal under the table, and all subsequent administrations have been behaving like it was legal. It never was.
This case was about Apple in particular and it is very important to understand that this has never at any point been the law in Ireland as it was understood at the time.
Apple was treated differently to all other companies -- those companies were subject to the laws at the time which allowed multijurisdictional shenanigans as described in the OP link. There was never any legal basis for Revenue's different level of enforcement for Apple alone.
> Is that fair to say given that it's been found illegal?
Those activities were not illegal at the time. If the laws have changed, then as a tax paying entity, these people/businesses will have to comply with the new laws and/or remove themselves from the jurisdiction where these laws preside.
This comment comes up every time tax evasion is discussed, and it's always presented as self-evident, when it really is not. I think there's no distinction, except an illusory one invented by tax evaders, and I've never seen a coherent argument to the contrary.
Tax avoidance and tax evasion are defined terms and the distinction between them is that the first one is the set of things that are legal. Some of these are obviously legal, like buying an electric car so you can get a tax credit you're eligible for if you buy an electric car. But companies will try to find and use all of these, including the ones that go right up to the line of what's allowed.
The actual problem is that tax codes are complicated enough to allow this game to be played. You want to try to assign the profits of a multinational supply chain to a particular jurisdiction and then end up surprised it ends up somewhere with low taxes? The premise is wrong. All of the revenue is somebody's profit/income. Just tax revenue where the final product is sold, allow deductions for cost of goods sold when the tax on that portion has already been collected by the supplier and stop having any other taxes that give the accountants complicated rules to game.
There is a clear legal distinction in fact between tax evasion and tax avoidance. Tax evasion is illegal. Tax avoidance is not. Tax evasion means you are doing something illegal to not pay taxes, taxes that you would otherwise owe for example if the government had total knowledge of your financial records. Tax avoidance means you are staying within the letter of the law and that your actions taken in the process of doing everything you can to limit the taxes you owe are legal actions.
It's quite simply the difference between taking legal and illegal action. And if the IRS were to be fully aware of what you've done, whether you have broken the law or not. With tax avoidance you do everything you can to not actually break the law (you want to take max advantage without crossing the line). With tax evasion you are breaking the law.
The IRS will almost always try to nail you for tax evasion if they find out what you're doing. The IRS will rarely be able to get you for something related to tax avoidance if you're very careful / strict about it and stay within the letter of the law. Obviously this applies in the US context, however I find that very commonly when people discuss tax evasion vs tax avoidance, they're talking about the premise I'm talking about: one is about taking illegal actions, one is legal and narrowly walks the letter of the law to limit taxes.
Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion? Courts are not generally very impressed by them - which is why it requires a captured government (Ireland) to do them and ideally some sort of multinational scheme so every challenge is a hugely difficult endeavour.
> Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion?
This is the kind of law politicians pass thinking they're being clever when they're really just being incoherent.
If the government makes renewable energy a tax deduction and then you invest in renewable energy to get the tax deduction, that's tax avoidance. The primary purpose of making the investment is to reduce your tax burden and if it wasn't a deduction (i.e. it didn't allow you to avoid taxes) then you'd have bought the power from the power company instead. But causing you to change your behavior in order to avoid taxes is the purpose behind making that a tax deduction.
If you're deciding where to put your facility and the decision comes down to which jurisdiction has a lower tax rate, that's tax avoidance. You're avoiding taxes in the higher tax jurisdiction by putting your operations in the lower tax jurisdiction. But that is likewise the intended purpose of the lower tax rate. That jurisdiction wants businesses to set up there, or wants local businesses to have more money so they build more facilities and hire more local people etc.
If the government raises the tax on cigarettes and that causes you to quit smoking... you get the idea.
It makes no sense for it to be illegal for you to do the thing the government intentionally passed law to give you the incentive to do. But more than that, how are they supposed to prove it? They claim you quit smoking to avoid the tax, you claim it was because you didn't want to get cancer.
Hypothetically they could uncover some email in which you were complaining about the high taxes before you quit, but that doesn't actually prove anything -- the tax could make you chafe even if your primary purpose was to avoid cancer. Moreover, the well-counseled entity is not going to write that email, which makes it a law against writing something down rather than a law against doing something, and those are the worst because the evil megacorps who know they're doing something shady make sure to cross all their t's and the ones who get punished are the guileless ones who didn't know there was effectively a law against complaining about taxes.
This is a technicality created by legal tax evaders. To evade is to avoid. If you're avoiding tax you're evading tax. Sometimes it's moral, many times it's legal.
The word evade has a specific meaning in English, implying avoidance by trickery. And it has a specific legal meaning, which is knowingly bending or breaking the law. They are not synonyms, especially in a tax context.
That's correct. Deliberately restructuring your activities beyond common sense in order to reduce taxes even further, however, is legally evading them, by the normal definition of the English word "evade".
If you are running a business and someone points out you can reduce taxes by registering a corporation, that's normal - most businesses are some type of corporation.
If someone points out you can reduce taxes even further by registering an Irish subsidiary and sending them license fees, that's abnormal, and now you're using trickery to avoid taxes. UNLESS your business really does do R&D in Ireland at an arms-length subsidiary which charges license fees. In that case, the legal structure mirrors what is actually happening, so it's fine!
There will always be legal (but arguably immoral) ways to minimise your taxes, and there will always be illegal ways to minimise your taxes. Those are different problems with different solutions. It's a useful distinction to make, that warrants having different words.
The point people are making (to mostly deaf ears) is that many tax "avoidance" strategies are just unprosecuted tax evasion strategies. If you claim deductions you don't qualify for, that's obviously just tax evasion, but most taxpayers will get away with it. Does their lack of a conviction mean they're just tax avoiding? Of course not.. so when some company dreams up a scheme where the 'owner' of a laptop changes 6 times to various subsidiaries in countries that laptop has never entered, is that just sophisticated tax avoidance? Or is the obviously illegal scheme tax evasion? (Illegal in the sense that almost every jurisdiction has laws that will pierce transactions that only occur to minimize taxes).
Thats hilarious that this social activist who promoted progressive, socialist movements chooses to (quite literally) not put his money where his mouth is/was.
Ordinary people can't do this because they missed the window, but also because their labor has a clear nexus. This scheme worked because when a product is designed in one locale, built in another, and sold in a third, there's some reasonable question of what the nexus of the income is.
Ordinary people that have written books or songs or otherwise earn royalties from creative works on a regular basis could probably have arranged for ownership of their royalties to be owned by a complex corporate structure as well, but I don't know that very many ordinary people earn enough in royalties that tax avoidance is worth the setup and maintenance costs.
I mean, the clear way to deal with this is to make them choose, and allow import tariffs. Get taxed where the nexus is, and pay to bring the value to other jurisdictions.
I understand that the web of various tax laws and trade agreements makes this impossible though. 80 years of cruft is too much to sift through to improve things in one fell swoop I suppose.
> the clear way to deal with this is to make them choose
My understanding is that the whole problem stems from companies being able to choose. Apple chose to pay taxes in Ireland for some things, because Ireland gave them a tax advantage, thus avoiding taxes in other European countries.
Allowing import tariffs between EU countries would maybe help with this but cause other problems. The EU free market isn't a whim, it has good reasons to exist and significant benefits.
There is no "clear way" to fix this. If there was, it would be used already.
No it’s because an un-elected class of political invents new ways to launder our money over and over. How else does a politician with a small salary end u on millionaire over and over? They do not get book and consulting deals out of the goodness of the public hearts
Of course they do. But "lower taxes on ordinary people by defunding corruption" is a very different proposal than "sustain funding for corruption by raising taxes".
The amount of money given by companies to congresspeople to save on taxes is necessarily lower than the amount of money not paid in taxes by doing so. I would be surprised if the return was less than 10x.
It's fine to believe this. But you should be aware it's a partisan political opinion, and it's inflammatory to present it as an objective fact. Is this site really the place for partisan political opinions?
Given that 100% tax compliance at the highest rates would not solve any high tax nation’s budget holes
You should be asking the same questions that companies are asking: instead of “why arent we getting hosed equally” its “why are we getting hosed at all”
Improving IRS tax collection enforcement could generate significant funds
In fiscal year 2021 the IRS managed more than $4.1 trillion in tax revenue. The annual tax gap was estimated at $688 billion in 2021, with $625 billion remaining uncollected even after enforcement efforts.
So collecting all those extra taxes would cover somewhere south of 25% of the budget deficit for 2021. You aren’t wrong, but the parent isn’t wrong either.
I'm not sure that my preferred outcome is relevant to what the other person meant, but I would like a simpler tax structure and higher-than-current effective rates for wealthy entities.
yeah absolutely, I look at the nation’s debt load - which it does pay interest on from tax revenues - and its increase of debt load alongside actual spending of debt sale proceeds, and compare that to how much it collects in taxes
I use that government’s official sources to do that math
Additionally, in some nations, there are underfunded liabilities, future necessary spending
And it all far eclipses what the nation makes in revenue from taxes, tariffs and productive industries it owns - if any
If there an aspect of accounting that I’m misunderstanding, by all means enlighten me
> I use that government’s official sources to do that math
You mean the source of the claim is you, you personally did the math for all "high tax nations" whatever those are, and you're presenting the claim without any of the math or explaining any qualifier like "high" from "high tax"?
I really despise some of these anarcho capitalist arguments.
A society that isn't lifted by redistributing wealth through taxes creates nothing but a more inequal and dangerous society for everyone.
We can all argue about inefficiencies, what is the right amount of spending and funding, but redistributing taxes by creating socially needed projects, from roads that you use, to ports through your shipments to policing streets so your daughter is safer when she goes out with friends. The list is so long.
People don't even realize how much wealth and prosperity has been created by redistributing wealth through taxes.
People would be mich happier if the taxes were 50% less, the waste and corruption would be gone. And services were at similar level. Right now, US health care is redistributing money from poor people to rich.
> A society that isn't lifted by redistributing wealth through taxes creates nothing but a more inequal and dangerous society for everyone.
I mean.... the government is taking tax money from the "poor" (so, normal workers, who cannot avoid paying taxes the way the article described, and whatever new way will be used after the changes), and giving them to a few friendly corporations who give back a percentage to politicians and normal peple usually get nothing.
Capitalism only works if someone gets hosed. And of course as we all know, the only alternative to capitalism is communism which is scary and evil! Don't you see how good you have it under the hose?
Given the nature of the human being, there’s no way to live in a free society without someone being hosed. And even then, capitalism has improved the life conditions of those hosed. Communism removes the freedom for everyone and it is effectively hosing everyone at the same time.
It’s been very tightly intertwined with the position. When you retire, your wealth is gone, and sometimes retirement equals a purge. I wouldn’t call this being among the wealthy elite by any means. Today, you live in the center of Moscow, and tomorrow you’re an ‘enemy of the people’—good luck proving otherwise.
This seems like a really backward way of thinking. You seem to be advocating for complex tax loopholes to be opened for individuals rather than advocating for simple, but lowered taxes.
I understood it more as "the individuals should be taxed the same (so, much lower amount) as corporations".
If company X can pay just <small percent> of their income as taxes (all together), why can't random bobby do the same?
The law requires you to have a fire extinguisher in your office? Sure, buy one, but since it's a cost of doing business, that money comes from the pre-tax pile and is not taxed extra. The law requires me to wear pants when I go out, why do i have to buy them from post-tax pile of money (so, after ~50% gone to the government), and still pay 9.5% VAT on them? I can buy those same black jeans as a company (eg. consider black jeans a work uniform), and avoid all those taxes). Rent? Pre-tax money for a comoany, post-tax for an individual. In some countries (eg. mine, slovenia) you have even bigger stupidities... you have a CO2 tax (and some other) on gasoline (and other fuels), and you pay VAT on top of that tax... the co2 tax included in the base to calculate the VAT... you literally pay taxes on taxes. Again, businesses don't have to pay that VAT (they deduct it) because well.. they need the company car to do business.
The distinction is business vs personal, not company vs individual. A sole trader can usually do avoid income and VAT on all those things (except some deductions pertaining to payroll benefits). Some countries have an alternative arrangement where very small traders pay VAT but also retain VAT on the products they sell rather than actually netting out the VAT on a return.
what's backwards about that? driving to the neighboring town for cheaper gas (because the gas tax happens to be lower) is just as legal as these complex multijurisdiction incongruencies
yes, I believe car ownership should be more accessible to people to be able to ponder such a drive
I am, regardless of the effect on individuals, it skews the market away from smaller entrants and allows those that have reached enough of a size to be able to afford to play these games to leverage a huge advantage.
As well as killing local competition there's also the pure hypocrisy of firms such as Apple (and they're not the only offender) passing themselves off as some kind of moral authority whist at the same time aggressively refusing to pay taxes towards hospitals and schools in the local markets they operate in.
They can present themselves anyway they like but it does leave a bad taste in the mouth.
Frankly I don't even understand why companies are taxed at all. Taxes are proportional to individuals' income so that the pain of contributing to the collective good is distributed fairly. Companies don't feel any pleasure or pain, they need money as a commodity- it pays people, investments, innovation, talent. Money and other benefits should be taxed when they are transferred to individuals, not before.
That take feels kinda... Detached from the average person to me? I don't know how to take it, just like when you hear gates saying a banana cost 10$. Common Joe would benefit much more from taxes being actually paid than profits being accumulated by companies just so they can crush the competition more and earn more and (...)
I've never seen a real video, it may as well be a common saying after being on the internet for a so long time. However, there is a video of gates trying to guess grocery prices on the internet, and he's not that bad. I think at this point it's just an internet meme that exist to reference billionaires being disconnected from reality
But that has nothing to do with Bill Gates or any other person named Gates. (You might be aware that Bill Gates isn't a woman.) It's a joke on a comedy show. It's not something anyone has ever said.
But ordinary people can buy stock, and should buy index funds at least.
There are plenty of reasons why they do not, but in almost all cases they are not good reasons. There are some extreme exceptions, but then you're outside of "ordinary".
And presumably some of the 66% are either children/students who have never had a job but will have a 401k or similar when they get one, or retirees who cashed out their 401k and bought an annuity (perhaps not the absolute smartest thing to do, but something a decent number of people do).
Curiosity questions is the revenue that is localized in Ireland and the Netherlands because of the double sandwich, of any significance in terms of percentage of total taxed revenue in those countries?
From memory Ireland and the Netherlands are also the biggest contributors to EU funding. So I am wondering how this shift would affect EU dynamics as a whole?
Yeah -- Ireland and Netherlands are both top contributors on a per capita basis. Though this was only accelerated recently i.e. the 2023 budget not the 2021 budget. Ireland on many occasions has be a net recipient before this while the Dutch have a longer history of being a net contributor.
Nah; Ireland's the biggest per capita contributor, and the Netherlands is fourth (after Luxembourg and Belgium).
(Not sure what's going on with Belgium; Ireland, Luxembourg and to some extent the Netherlands have rather inflated GDPs, which drives up contribution amounts, but Belgium's isn't particularly high.)
The complexity in the tax code is why we end up with things like AMT (Alternative Minimum TAx) and the 15% minimum corporate tax. There are so many carved-out special interest exceptions that it's almost impossible to unravel, like the carried interest tax credit for hedge fund management fees.
I think we've reached the point where we need revenue apportinment of profit. That means if 50% of your revenue comes from the US, then (at least) 50% of your profit is taxable in the US.
It's worth noting that there are various schemes for multinationals to avoid taking profits in the US. One of the most common is transfer pricing. Example: Company A sells sofas to US consumers for $1000. It buys them from subsidiary B (in Bermuda) for $900. Subsidiary B buys the sofas from Subsidiary C in China for $300 each. So $600 in profit is moved to a 0% tax haven like Bermuda. That's transfer pricing and it's illegal.
The Double Irish Sandwich is an example of profit shifting. What's the difference between profit shifting and transfer pricing? Profit shifting is legal. Transfer pricing isn't. That's functionally the difference.
So an argument against revenue appointment of profit is you can use similar schemes to hide profits but you really can't. For one, companies need to report profits to shareholders so the IRS has that data point. For another, the IRS can and does go after companies to figure out beneficial ownership and whether transactions really are at arm's length or not.
For anyone saying they can benefit from this by buying shares in $BIG_TECH$, I promise you that you would benefit more from that company paying taxes to fund the roads, bridges and schools that you would from your 100 shares going up by an extra 1%.
"if your company structure contains additional complexity which main purpose is the avoidance of tax it's a crime"
I mean law has the fundamental benefit of allowing you to define what is a crime based on the outcome (tax evasion) instead of needing to explicitly rule out any way you might reach that outcome. I mean e.g. for killing people the law also does state it's not allowed without listing every way you could kill a person. So why can't we do the same for clear cases of tax evasion?
> The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.
It's also a loss to all of us who find ourselves owning a "foreign" corporation for legitimate reasons, and having to do a lot of work proving that we're not playing shell games.
I'm an American living in the UK; I've started what's now a one-man bootstrapped company and it just makes sense for it to be incorporated in the UK. I don't mind paying taxes, but I don't want to have to pay them twice. UK taxes are generally higher than US taxes, and there are tax treaties to avoid double taxation, so no problem, right?
Wrong. First, if a US citizen owns more than 10% of a foreign corporation, there's an insanely complicated form you have to fill out, two pages of which are incomprehensible questions ("Is your company considered an X corporation under sections Y and Z of the Blablablah act?") that simply require an expert to fill out.
Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
So because of [REDACTED] lawyers and accountants that have come up with these schemes, I have to spend precious starting capital to a bunch of accountants to prove I'm not evading taxes, rather than actually doing something useful with that money (and that accountant doing something more useful with their time).
The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US - that's a condition of US citizenship. If you don't want to pay those taxes, then renounce your US citizenship once you have, say, gained UK citizenship, if that works for you.
A famous bloke once said (probably in Hebrew, written up in Aramaic or Greek and badly translated into middle, modern and somewhat strange English): "Pay unto Caesar, that which is due to Caesar and pay unto God that which is due to God" or words to that effect. Substitute IRS for God and you have a suitably cynical aside!
If your firm over here is good enough and you are reasonably settled then why not go all in? I'm not sure what the rules are on reconnecting with the US if you have formally renounced citizenship. However, I'm sure a birth cert from Yeehaw, TX or wherever will go some way. Even so, UK citizens are generally welcomed in the Land of the Free. An ESTA (great scheme IMO) costs about £20 for two years coverage - more than enough to visit the relos.
I know from second hand experience that our bureaucracy is just as convoluted as any other and it will take roughly one to two years (that was about 10 years ago) to get citizenship and probably involves a test that I would fail!
You might like to look into where your company is actually registered. A Ltd is not you - it is a separate legal entity and the UK (etc) is quite a complicated setup within quite a complicated environment. You might explore Jersey and the Isle of Man for places to headquarter. Don't overlook Eire either (EU with UK to the north, with special arrangements)
Anyway, the snag you have is solely US based and not UK (for a change).
> I'm not sure what the rules are on reconnecting with the US if you have formally renounced citizenship. However, I'm sure a birth cert from Yeehaw, TX or wherever will go some way.
It doesn't. Once you've renounced your US citizenship you're on exactly the same footing as any other foreigner in terms of visiting or living here.
And that's assuming you're smart enough not to admit to the government that you're renouncing your US citizenship for tax purposes. If you make that mistake, you've made yourself permanently inadmissible to the United States under INA 212(a)(10)(E).
"And that's assuming you're smart enough not to admit to the government that you're renouncing your US citizenship for tax purposes. If you make that mistake, you've made yourself permanently inadmissible to the United States under INA 212(a)(10)(E)."
Blimey, that's a bit harsh!
I wonder if Mr Adams and co, when throwing off the yoke of something, something, imperialism and that, and those jolly beastly Britons, would approve of INA 212(a)(10)(E)?
That is some legacy for those freedom fighters. cough terrorists (sorry - I'm a Brit, its only been 250 odd years!)
It’s a hang over from the civil war I believe.
hahaha, nothing beats a spoon of redcoat tears in a cup of salty boston tea
> If you don't want to pay those taxes, then renounce your US citizenship once you have
Haven't you heard of exit tax? If you renounce citizenship (or surrender your 8+ year green card), you must pay 30% of your worldwide assets' value (as if you sold it for cash) to the IRS. And if you own something illiquid, you're deep in trouble!
So no, people can't renounce their U.S. citizenship easily, the IRS has accounted for that...
That doesn’t make any sense. I’m not a citizen any more, so clearly I’m not accountable for any tax.
If you're no longer citizen you won't be accountable for any tax accrued after you're no longer a citizen.
But you're still accountable for debt, so all they need is to frame this as taxes on earnings and property that you have accrued while you were a citizen and you keep to be accountable for your debts even after you renounce the citizenship.
Now, what can the US government actually do to you while you're no longer a citizen depends a lot where you live and whether you care traveling or doing business with the US again
https://www.irs.gov/individuals/international-taxpayers/expa...
> Now, what can the US government actually do to you while you're no longer a citizen depends a lot where you live and whether you care traveling or doing business with the US again
In most western country anything involving a (even local) bank will be a headache already when you're an American citizen. I can't imagine it would be easier if you're a former American citizen with a large debt towards the US.
In Switzerland, almost no bank wants to deal with you if you have US citizenship. Its easier to just avoid creating whole new department for that reporting, risk getting sanctions if you make a mistake etc.
US in this case is a global bully, based on some talks with people involved in such processes also arrogant, very aggressive in enforcement, at the end punishing its own citizens just because they can.
Their choice, but if I or my kids would ever be in the situation of potentially gaining citizenship or green card (that probably won't ever happen, life here is much higher quality overall for people like me), this alone is good enough reason to not do it.
The US is a bully because wealthy people want to live, work with, have assets, or even have citizenship in the US. The US is very business friendly and offers top-tier everything if you have money.
Wealthy people though are accustomed to having their cake and eating it too, so naturally they will try to take as much as they can while giving back as little as they can manage. Their wealth will carry them very far towards this goal, so the US cannot be soft when it comes collecting.
Its like saying you need to be hard on terrorism or drugs problems, so that you can actually fix that. We know how that worked in past 100 years...
What it will collect is totally negligible in US budget and won't make dent in anything (compared to say companies like Apple or Google skimming paying taxes by tens of billions yearly), and it won't make many friends to US.
But sure, chase them, chase them hard, I have literally no skin in that game. I guess as long as really serious problems are ignored government is happy.
It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
Most higher developed countries have it in some form (with varying degree of strictness, scoping etc.).
Technically you also pay the tax in the process of losing your citizenship not after losing it.
A more "fair" approach probably would be if capital (especially bound capital which generates more capital, like companies) are "pinned" to a country and transferring it from there involve paying tax (oversimplified).
Then when renouncing US citizenship you would only need to pay "exit" tax if you also move your capital out of the US (e.g. your US company) but if you have a UK company it would already be pinned to the UK and you wouldn't pay exit tax on it (but you would have had to pay taxes on moving capital from the US to the UK to found the company).
But I mean it's a purely hypothetical approach:
- it is very much in conflict with globalization and investing in foreign companies (you have to pay exit tax on the money you invest outside the US!). This means it also hinds projection of US power by getting influence into foreign companies through investments.
- it's not really viable to retroactively apply it
- it kinda requires all countries to agree on this law
- it would mess with investment banks, fond etc.
- it's a mess when it comes to international buying of goods (as you want to prevent laundering capital moving through unusual good buying schemes)
> It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
It really does not sound common at all. In all countries where I have lived, my citizenship did not enter the picture for the local tax authority or that of my country of birth. All that matters is my resident status. I did not renounce any citizenship (because why would I? It comes with no downsides), but I cannot see them going after my foreign possessions, considering they entirely ignored them for years. And if they did, a loophole would be to not renounce it because again it comes with no downsides.
I actually checked with my country of birth, and renouncing simply requires me to send a declaration to the authorities and they have 2 months to accept (it’s accepted by default if they do not reply within 2 months). No other requirements or anything.
Do you have many examples of countries that do what you described?
pretty much every EU country has a similar law
they do often work slightly different based fundamental differences in tax and law models so it's not always coupled to citizenship but practice still quite the same as in you get taxed when moving "capital" (mainly companies) out of the country
"pretty much every EU country" is not an example, so I guess no, then.
Anyway, this is not what was discussed here, and has nothing to do with citizenship. The example was a non-resident's business abroad being taxed when giving up their citizenship. As far as I know, there is no European country that does anything remotely equivalent. I am willing to accept that there might be some, but this is far from the norm.
Moving stuff across borders is something entirely different.
> It's actually a pretty common law to have in some form to penalize tax evasion and capital flight.
In basically every other country you don't get taxed when you haven't even lived in the country for years/decades.
I think the only other countries that tax their citizens in other countries like that are North Korea and Eritrea.
It's about as definitive a form of taxation without representation as I can imagine...
> It's about as definitive a form of taxation without representation as I can imagine...
American citizens retain the right to vote in US elections no matter where they live. They have representation.
There is one group in Congress dedicated to representing Americans abroad. Since 2007 they've been working to reform the tax code and make the voting process easier. No politician in my state has ever joined - and the tax code remains the same.
Americans abroad are taxed on worldwide income, but don’t get the same benefits; healthcare, infrastructure, education, etc. We pay full price for a system we barely use. The laws on starting a company abroad are arcane; cruel and unusual.
... So I don't feel very represented*.
Again, no other country outside North Korea and Eritrea (a combined population of 30m people) treats their citizens like this. The US just started it because it needed to raise funds during the Civil War, and keeps it because it's a useful way to siphon money.
Non Americans are shocked when they hear of these rules - it's unthinkable. Even Americans are surprised, most have never heard of such a thing.
* Tbf, neither do most Americans these days. According to Pew, only 20% of Americans are 'satisfied with how democracy is working'. 10% feel "hopeful" when thinking about politics, compared to 65% who feel "exhausted".
60 years ago, 77% of people trusted the US govt. Today, 77% of Dem voters wish we'd stop arming war crimes.
All taxes are arbitrary. It doesn't need to "make sense". The only reason countries tend to tax their own citizens is more because of the practicalities of enforcement rather than any stance on the philosophical nature of taxation; as this particular rule illustrates.
That’s why you put everything into trust first.
I know a few folks who gave up their US citizenship over tax, and both had to plan for about a decade to do so without paying exit tax - and their lives continue to revolve around being tax exiles - 89 days here, 44 days there, etc. etc.
I’m glad to be a Brit, if only because the revenue doesn’t pursue me around the planet.
Wow I knew of the tax thing but not this. That's tough.
It's only if you qualify as a 'covered expatriate' though. I'm not a lawyer or an accountant but a plain reading of the standard suggests the vast majority of Americans would not be covered.
https://www.irs.gov/instructions/i8854#en_US_2023_publink100...
I think the key would be how they arrive at the net worth numbers. If it's just a calculation of all your assets as if they were sold at FMV, ~90% of the US is below the net worth threshold.
https://dqydj.com/net-worth-percentiles/
The average tax liability standard looks like it would take 5 years at $600K+ of adjusted gross income, too. Plenty of people would meet this standard. Most people would not.
So it basically says if you net worth is over $2 mil, you're need to pay exit tax, right?
If a house and 401k also counted towards net worth, it could impact quite a few Americans. Besides, those who expatriate for tax optimization purposes usually have a significant amount of wealth.
> If a house and 401k also counted towards net worth, it could impact quite a few Americans
I have no sympathy for people who want to dodge taxes being forced to pay a tax on income that the government has deferred taxes on while they were a citizen making taxable income in the US, and presumably if you're abandoning your citizenship you're not keeping your home and would have already paid sales and capital gains taxes on it when you sold it.
You're a covered expatriate also if:
" You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation. "
I agree you should pay up your taxes but this will not only recover the due taxes but it will take more.
> probably in Hebrew, written up in Aramaic or Greek
It is generally agreed upon by scholars that Jesus’ primary language, like in Palestine generally, was Aramaic, not Hebrew, which was already well on its way to becoming a liturgical language (although Jesus probably knew Hebrew well, as he was called “rabbi”, and likely Greek as well): https://en.m.wikipedia.org/wiki/Language_of_Jesus. Certainly for the context of this quote, it’s likely that he was speaking in Aramaic, given that in the chapter he was responding to questions from a variety of local people.
> If you don't want to pay those taxes, then renounce your US citizenship once you have, say, gained UK citizenship, if that works for you.
Boris Johnson - the ex UK prime minister - was born in the US, and complained loudly and frequently about having to pay taxes to the US - and appears to have refused to do so atleast partially. Having to pay tax on profits from the sale of his family home (which is tax free in UK) was the trigger to get him to renounce citizenship.
https://www.forbes.com/sites/robertwood/2022/07/10/boris-joh...
> The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US
No, I think you're missing the issue.
Suppose the company (let's call it XYZ Ltd) is owned 100% by my spouse. Let's say XYZ has $XYZPROFIT in one year. It then pays $XYZUKTAX on that profit, but the US isn't involved whatsoever. If it pays me $MYSALARY, XYZ reports that to the UK government and pays $MYUKTAX. I then report the US government $MYSALARY and $MYUKTAX, calculate $MYINCOME, and then calculate $MYUSTAX (which is normally $0, since UK taxes are higher than US taxes).
Now let's suppose I own more than 10% but less than 50%. Now I basically have to report to the US the same information about XYZ's financials that the company reports to the UK government, as well as answer 40-60 questions each of which would take a few days to understand the meaning of. Thankfully that's where it ends under normal circumstances; pay an accountant to prove you're not cheating the system and you're done.
Now suppose XYZ is 100% owned by me. It has $XYZPROFIT for the year, and pays $XYZUKTAX on that profit. Now, by default, $XYZPROFIT is included in $MYINCOME, but $XYZUKTAX is not included in $MYUKTAX; meaning by default I'm going to be double-taxed. I can avoid this, but only with 1) extra paperwork, and 2) forgoing any tax breaks for start-ups that the UK government has.
> "Pay unto Caesar, that which is due to Caesar and pay unto God that which is due to God" or words to that effect.
As I said, I don't mind paying taxes, but I don't want to pay it twice.
If you renounce your citizenship to avoid taxes, you are barred from ever entering the US or its territories again. Take one quick look at the EEZ of the US and tell me if you are OK with never traveling through those places again.
> The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US - that's a condition of US citizenship.
imo a feature, not a bug.
How so?
You enjoy benefits as a citizen, even if living abroad. You should pay for those.
US citizen and long-time expat calling bullshit on this. That's not the purpose of taxes and that's not how citizenship works in any other country except North Korea.
Looking at the list of "benefits" another person posted:
> The rights your passport gives you Are no different than the rights an EU passport gives you, except when entering the US-- but then again, an EU passport gives you better rights when entering the EU, so this is not an exclusive.
> + the legal and embassy protections given to American citizens. Like the American civilians held in Russia that Biden recently traded Russian spies for.
Note that the US doesn't have jurisdiction outside of US territory, so it cannot give legal protection and explicitly embassies do not give legal advice. Yes, there may sometimes be trades like above, but on the other hand, if the US prisoners were not US people, they probably would not have been jailed by the Russians in the first place.
> You still have access to vote absentee, Voting is a responsibility, not a benefit.
>as well as collect social security benefits.
Wrong-o! You only get social security benefits you have paid for. If you are living outside of the US, you are not contributing to soc. security.
> You can use US bank accounts and other institutions.
So can non-citizens. US bank accounts do not require citizenship. Nor does owning real estate. Nor forming companies.
You and your children have the right to return if you ever desire it.
As a US citizen, the US will send in the seals to rescue you from kidnappers, so you will get some benefits
Not sure why US citizens believe this. I've been in situations where there was genuine peril and the look of shock the US citizens had when someone from their embassy said the only thing they'd do is organize a convoy of private vehicles if everyone turned up at x time and place. They really expected the US army to turn up to save them. Honestly I don't think I've seen the US do any more than any other western country for their citizens in these situations.
https://www.theguardian.com/lifeandstyle/article/2024/sep/05...
As a US citizen, you're more likely to be captured by kidnappers and terrorists too. Real benefits there.
What benefits?
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The rights your passport gives you + the legal and embassy protections given to American citizens. Like the American civilians held in Russia that Biden recently traded Russian spies for.
You still have access to vote absentee, as well as collect social security benefits.
You can use US bank accounts and other institutions.
You and your children have the right to return if you ever desire it.
> You still have access to vote absentee,
Most other countries allow their expatriate population to vote without this taxation requirement. Why should the US be different?
>as well as collect social security benefits.
Absolutely incorrect. The times I've lived abroad have not count towards my SSN contributions; I've had to make up for them after returning, in a sense. I now have to figure out how to collect a smattering of "social security equivalent" payments once I retire from a foreign country as a result.
> You can use US bank accounts and other institutions.
Actually, you're not supposed to in most cases, and most banks will basically force you out if they find out you're not in the US. Only a few brokerages will actually work with you (ibkr is best iirc, Schwab can also work). Pretending to "exist" at a relatives house for your bank may be living on borrowed time, though in practice it is possible to do for years if one leaves. Newcomers can't open a bank account with US citizenship if they're non residents (again, except for a few brokerages).
> You and your children have the right to return if you ever desire it.
Why should I pay for the option to do so? Why not do like every other country and pay if I actually exercise the option and return (and pay taxes)? Just like every other country (except Eritrea and North Korea, but do we want to be in the same camp as them?).
> You can use US bank accounts and other institutions.
Recently found out that this is more and more difficult because most banks are requiring 2FA with a US phone number which is difficult to get if you don't live in the states.
My bank lets me use Google Authenticator as a 2FA.
It's not any more difficult than buying a phone and calling a carrier to activate it. They'll take a PO Box for a billing address no problem.
As others have pointed out, this is far from correct. If you have a US bank account and they find out your residence has moved to another country they are very likely to close the account immediately.
I have US citizen contractors right now who live abroad that I pay into their legal US bank accounts for years now.
So why does no other country in the world do it then?
I think it's because the US has the clout to indirectly compel foreign institutions to cooperate in a way that other western countries can't.
For example, for a US expat living in the UAE the various branches of the US government can threaten the UAE government, banks etc. to make them cooperate and tell them how much the US citizen is earning to ensure they pay their US taxes - if you're a bank anywhere in the world, you do not want to be cut off from the US dollar system.
If the UK, France, Germany etc. tried to tax their citizens globally it might work in other western countries, but in places like the Middle East they might struggle to get foreign entities to comply making it impossible to enforce.
Okay, well, “They do it because they have the power to” isn’t the moral argument I was originally presented with.
Honestly? Because they can't. If any other country had control of the world's reserve currency, they would do it, too.
It's the same reason why the US can place sanctions on Russian individuals in a way that, say, India cannot.
That is a completely warped and incorrect view. There is no political will to do so. I’ve never even seen it suggested even by the cringiest parties in any country in which I have lived. Besides, the simple fact that North Korea and Eritrea have comparable policies, and only them, is a strong indication that this idea is completely wrong. Neither has any kind of international clout to enforce this, and yet they have it for a reason.
Assuming that everyone else would do just like the US if they could get away with it is pure projection. Yes, it’s how the US work. No, it is not normal or even common.
> There is no political will to do so. I’ve never even seen it suggested even by the cringiest parties in any country in which I have lived.
No, you've just got MPs proposing to strip "tax exiles" of their citizenship and pointing to the US system at the same time: https://www.sudouest.fr/politique/depardieu-et-les-exiles-fi...
If you phrase it as "taxing expats" then, sure, no other country is proposing it. If you phrase it as "making sure the rich don't skip out on their taxes by moving to a low tax country" then it's going to be a lot more popular.
You realise that these things are completely different, right?
Stripping people from their citizenship as a punition for a crime has nothing to do with taxing people who renounce their citizenship. The only thing they have in common is that citizenship and taxes are involved. As an aside, because you mention France, there would be significant constitutional challenges to do this for something that is not high treason. It is not going to happen in the near future. The far right barks often, but when push comes to shove their only way to win votes is to soften their rhetoric and there is no support for this so they are not going to die on this hill.
> If you phrase it as "taxing expats" then, sure, no other country is proposing it.
That was the whole premise of the discussion, though.
> If you phrase it as "making sure the rich don't skip out on their taxes by moving to a low tax country" then it's going to be a lot more popular.
That's already being done. There is political will for that (though not from the fringe parties who'd be the most likely to go after expats, including the barking far right). It does not require sending a bill to people renouncing their citizenship, or taxing non-resident citizens.
Perhaps because no other country goes to the same lengths to help its citizens abroad in times of trouble. When there's geopolitical trouble brewing, it not uncommon for other nationalities to take advantage of American evacuations. Few countries come close the US in leveraging intelligence and logistics to help citizens; France is probably #2.
You know the usa bills people for evacuating them right :)?
https://travel.state.gov/content/travel/en/international-tra....
Also, read up on Americans stuck in Gaza with no way out.
"It limits the reimbursement to the cost of a reasonable commercial airfare."
How kind of them :)
I just mentioned it because the real cost must be much, much higher in many cases, and I imagined being on the hook for a million dollars.
True, but it is kinda like paying for insurance and then when you need it you get a giant surprise bill.
Although ironically much like the American health care insurance system which is much the same. Pay every month for “insurance”, and when you need it you also pay for it.
Fun times.
I did come to think of how a US ambulance ride could be more costly than being evacuated...
maybe we can get the Marines to start running ambulances regionally :)
slap a turret on the ambulance and it can be training for the corpsmen
This doesn't apply for the majority of Americans living abroad, in safe countries where the USA recognises the taxation.
(The US is only extracting someone from the UK if they've killed a teenager while driving drunk.)
> France is probably #2
I don't know what it's like for Americans living abroad but indeed, as a French citizen living abroad I do believe that France spends enough resources to justify taxing me (with guarantees against double taxation, and the various complications and edge cases it implies).
As far as I know, American citizens can't really vote abroad (they have to be registered to a place inside the US and vote by correspondence, I think?) while we have voting booths in most countries where France has a consulate[0].
Since there are many French citizens where I live, there were 14 booths across this country for the last elections so you're probably never more than 50 kilometers from one (in addition to being able to vote through Internet). There were 23 of them in the US, 33 in Canada (20 of them in Montreal apparently), etc.
That's a whole lot of effort for people who are voting for things that will not affect them directly and who don't pay taxes (even a token tax) for France, and it's great, and I think it's normal to devote efforts for all citizens wherever they are, but it means I couldn't honestly complain about reasonable taxation.
[0]https://www.legifrance.gouv.fr/jorf/id/JORFTEXT000049516393
> As far as I know, American citizens can't really vote abroad (they have to be registered to a place inside the US and vote by correspondence, I think?) while we have voting booths in most countries where France has a consulate[0].
French expats also have their own representatives to the National Assembly, on top of voting for national elections (mostly presidential and the occasional referendum). It’s like if there were representatives for Europe in the US congress.
Let’s suppose I travel for business and am not a teenager working through power fantasies. What’s in it for me if my concerns are not childish?
> The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.
Looking at all the corpo legal/HR departments really has to make you think - those are people that are paid to aggresively look for legal loopholes, to defeat the spirit of laws and to make sure that the corporation always has the advantage against the society and workforce they exist nearby. There's decades upon decades of man hours being put into chipping away the effectiveness of tax, workplace and other laws and finding loopholes to make them ineffective. We've been at war and we never even noticed.
>Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
Curious, what are the even more complicated ways?
Yeah it's become an absolute nightmare now if you're an individual or small business involved in anything cross border.
Even if you're not unlucky enough to be a US citizen, if you're tax resident in one country and incorporate in another for completely legitimate reasons, as an individual you're just screwed if you want to be compliant. Rocket science is significantly easier.
You need some KPMG-tier advisor to work it out for you for $crap-ton/hr. Few sole operators have the revenue to afford that.
Be careful it might be more complicated than that. I am not 100% sure but I think you might be required to pay taxes on unrealized gains for your company (or whatever assets you are owning).
This is completely unrelated to the post.
What you're complaining about is overreach by the IRS in relation to foreign assets held by US citizens (ie FATCA) and the reporting requirements (eg Form 7938 and FBAR). It's worth noting that real estate is carved out as an exception for reporting purposes somehow, even though it's a common vehicle for money laundering.
That has literally nothing to do the Double Irish Dutch sandwich, which has historically been used by US companies (particularly Big Tech companies) to avoid taxes by moving their IP to a foreign subsidiary and then paying "royalties" to avoid paying US taxes.
You seem to think that the IRS doing that just for a laugh, or just because they hate rich people, and that Big Tech companies are the only ones playing shell games with their revenue in order to shirk paying their fair share to support the society they've benefitted from.
I think it much more likely that rich people also play shell games with their assets / revenue to avoid paying their fair share to support the society they've benefitted from, and that the IRS requires the extra reporting to try to counteract that.
This article is specifically about a specific loophole invented by unethical accountants and lawyers, but it's also generally about all the effort spent by unethical accountants and lawyers to come up with such loopholes, causing not only harm to society (in the form of free-riding on those who are paying taxes), but which in turn forces effort on the part of tax agencies and legislatures, which then forces effort on normal people like me who just want to make some money and pay our fair share. It's pure wasted energy.
> and that the IRS requires the extra reporting to try to counteract that.
The extra reporting largely exists because of the fundamental and rather unique misdesign of the US tax system - taxing citizens’ worldwide income for life. Most countries only tax (1) worldwide income for residents (2) in-country income for non-residents
> What you're complaining about is overreach by the IRS in relation to foreign assets held by US citizens (ie FATCA) and the reporting requirements (eg Form 7938 and FBAR)
A big problem is the US is one of the few countries in the world which taxes its citizens (and green card holders) worldwide, for life, no matter how long they’ve been outside the United States. Most countries don’t tax non-resident citizens, or only do so for a limited period of a few years.
The only other country that does it, that I know of, is Eritrea - and it has been widely condemned by the international community for its “diaspora tax”. But no condemnation for the US diaspora tax, despite actually being far more onerous than Eritrea’s is
I believe they may have been referring to the Global Intangible Low-Taxed Income (GILTI) tax, which from what I've read is as bad as the OP describes in their post.
https://www.investopedia.com/global-intangible-low-taxed-inc...
That might be so but it's also, like I said, completely unrelated to the post.
Like, how is it different from coming onto this thread and grinding an axe about laws against municipal broadband?
Would this encourage shell company ownership behavior?
Why is the top comment on this post a mostly unrelated rant about USA individuals being taxed in weird ways? The actual post is about global corporate shenanigans that enable them to evade astronomical amounts of taxes.
Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
This is the GILTI regime, which was intended to target foreign income from intangible assets. But, like most GOP legislation of the last two decades, it was written in a rush without regards to the practical consequences.
Note however that if the foreign income (from the company's perspective, local income) is being taxed at a higher rate than 90% of the applicable U.S. tax rate on that income (currently meaning, 18.9% foreign tax rate or higher) then the income does not get included in its owner's income (aka the high-taxed exception).
Also note that if you are for some reason subject to GILTI, you've basically just prepaid your taxes on actually receiving that income, meaning that you don't pay taxes again when the foreign corporation actually pays the income to you as a dividend.
This was super complicated for a year or two until the IRS released guidance clarifying some points. Now, for any accountant worth their salt, it's pretty straightforward and if they're still complaining about it, find a new accountant.
The guild will get its due! Ironically this is also what the productivity gainsgames produce in the long run. All that excess human capability goes into bureaucracy labyrinths and highway robbery sometimes with the law behind and armed with subscription. The entrepreneur producing the beast that strangles him.
Would this be avoided if you renounced your US citizenship and became a UK citizen instead?
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Bro what. It's very clearly meant to cover up a swear word.
They seem to think that [REDACTED] is something that hn automatically redacted and that dang will come check what the actual word was. Because this person assumes every negative comment about a lawyer must be antisemitic.
“ The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.”
I’d expect very little overlap between those talent pools.
Why? Talent goes where to best pay is, if you’re not paying taxes you can pay your agent more.
How many computer programmers moonlight as tax avoidance accountants?
Tangential, but a pet project I've been working on has been doing exactly that! Looking at US federal tax laws and using constraints solves to find optimal paths to the lowest taxes.
I don't really do anything besides play with it, my taxes are very simple and boring, but it's been a fun project to play around with.
Yeah, that is tax minimization, not tax avoidance. There's a big difference.
Very big! Minimization is when I do it, avoidance is when Apple does it.
According to this article, it’s actually evasion when Apple does it!
The great thing is nobody knows the difference between minimization and avoidance unit after years of very expensive litigation.
Those two concepts are very much the same thing. There is no literally distinction between legally minimising the taxes you have to pay, and legally avoiding a tax that you would otherwise have to pay. You just want to have a different word to use to criticise people/groups/companies you don’t like doing something you seem to otherwise approve of, so you don’t look like a hypocrite.
My accountant defined it this way… minimization is legal, avoidance is not.
Minimization is just taking advantage of the tax loopholes and strategies that are within bounds. Avoidance is lying or ignoring.
Yes it’s possible to minimize your taxes down to zero legally in many cases, but you’ll pay a good percentage of that savings to accounts and lawyers for managing that structure.
I’m struggling to believe that a qualified accountant said that. Tax avoidance is completely legal, if it becomes illegal, then that’s called tax evasion.
Avoidance and “minimisation” are the same thing, evasion is a crime.
Isn't it tax avoidance (legal) vs tax evasion (illegal)?
That is correct
How? There's a big difference between avoidance and evasion, but avoidance and minimization mean pretty much the same thing in this context.
I think of minimization as doing things like taking deductions, and avoidance as creating confusing structures of new entities in order to take advantage of gray areas and deciding that the cost of getting caught is not material.
Yeah, that's fair enough; outside of keeping as much money as I can in ETFs and index funds, my tax strategies are pretty much non-existent since I don't have enough money for it make a huge difference.
If there are any novel or situation-specific conclusions drawn, that sounds like an easy sell to CPAs and independent tax preparers. Maybe even individual tax optimizers.
My naive assumption is that sophisticated analysis will return the same few well-known recommendations almost all the time -- the taxation variant of eating properly, sleeping regularly, and getting appropriate exercise.
How many people pursue business or accounting degrees instead of mechanical engineering or biotechnology degrees? The talent flows to what policy incentivizes, over the long run.
Your point, that people can't just switch careers willy nilly, actually reinforces the point of the article -- that incentivizing accounting games actually reduces time spent on impactful pursuits in the long run.
More like how many people with degrees in Business go into Management Consulting, would like to join a startup as a Product Manager, or accountants that want to be Associates at a VC firm rather than work a big 4.
But even for programmers, plenty of people make the decision to go into programming or medicine or law because they are well paid and respected careers. And interests in secondary school and university are influenced by parents, teachers and the culture promoting certain directions. Kids these days are bombarded by STEM everything.
Interesting enough I read an article that there is going to be and there is to some degree, a large shortage of accountants over the next 10-20 years as people entering the profession are at record lows and retirements are at all time highs
If there were no need for tax avoidance accountants, they very well might have chosen to study to become software engineers instead. It's not like they were born a tax avoidance accountant and would be sitting in the field rotting if they couldn't find work avoiding taxes. Many would at least be regular accountants (efficiently allocating money is still more useful to all of us than efficiently avoiding taxes), or maybe some other sort of lawyer (your city's prosecutors AND your city's public defenders are both sorely overworked).
Tons of people who get degrees in technical fields work outside that field. There are many people who have have spent at least part of their studies or career in hard science, SWE, IT, management consulting, law or finance before switching to something else in that list to improve their work/life balance, to make more money, to find employment more easily, or simply because learning the field and cracking its puzzles is engaging work for them no matter the exact technical field it's in.
High finance and crypto are two places where a high concentration of technical skills intersect with using those same skills to game our financial and legal systems.
Tax avoidance is a legal problem instead of a tech problem, but it has many parallels wherever there are bad incentives. These are fundamentally not pro-social activities, but trying to get an unfair advantage through loopholes.
More computer programmers might moonlight as SEO gurus, if search engines didn't put up at least a token amount of resistance against scummy low-effort SEO tactics.
Fewer tax avoidance accountants would still be tax avoidance accountants, if we made a bigger effort to prevent it. (And that doesn't mean accountants would have to be programmers instead, there are many other kinds of talent)
Yes and those few software devs who work in the accounting sector on facilitating tax evasion aren't exactly changing the world for the better. Not exactly the best use of their skills.
100% of the ones that do it on a contract basis…
Wow. I can't believe people believe this is still true in 2024.
I worked in crypto sector which paid really well in some cases... Though compensation had little to do with talent and more to do with focus on political bs and alignment with the needs of corrupt authorities. Some could argue there was an inverse correlation between talent and compensation as the most corrupt people are often that way because they lack talent to begin with.
I've observed similar dynamics in big tech corporations, unfortunately. People are promoted on the basis of their incompetence and capacity for self-delusion as it creates the necessary blind-spots which allow organizations to occasionally poke their toes beyond red lines to reap massive profits.
Stupidity and incompetence are useful attributes within corporations because they instill a feeling of insecurity in the minds of the affected employees and this makes them highly loyal and controllable. Sometimes I think one of the main reasons these companies hire actual intelligent people is to make the incompetent people feel insecure 'imposter syndrome' and increase their degree of loyalty/compliance. They don't actually need intelligent people to run things because they have monopolies and the big profits are to be reaped in maintaining their monopolies which is achieved via dirty politics; not achieved via innovation.
I think many intelligent people have observed this reality in companies they worked for. We've seen the HR manager who will bend over backwards to deny reality to align with the goals of management.
Interesting anecdotal response but it’s pretty obvious that top pay attracts top talent, basic market dynamics. Obviously grifters gravitate to where money is, that doesn’t mean all to talent at high pay is a grifter. Correlation != causation
Tax law is the highest paid field within law. High pay attracts smart people. Smart people could do something more beneficial to society with their time. (Source: I'm married to a tax lawyer)
In the short or long term?
The word chosen at the end of the article:
> I’m sure the international tax lawyers around the world are strategizing new tax evasion strategies even as I write these words.
It should be clear that tax avoidance and evasion are quite different things, and the Double Irish Dutch Sandwich was tax avoidance and not evasion.
Tax avoidance and evasion are not distinct categories. Some things are clearly legal. Some things are clearly illegal. And for many things, the legality can only be determined by a court after the fact.
Laws are inherently ambiguous. There is no objective classification that tells for each possible action whether it is legal or illegal. That's why courts and lawyers are needed.
"Tax avoidance and evasion are not ..."
Those are formally defined terms here in the UK [citation needed - must find one].
Tax avoidance is avoiding paying a tax by following some legally sanctioned rules. For example, in the UK, using an ISA, which is a form of bank savings account, for which the interest is paid tax free. ISAs were created by an Act of Parliament. By saving in an ISA you avoid paying some tax.
Tax evasion is avoiding paying tax ... by not paying tax that is due, according to the law of the land.
There are no grey areas these days. When you do "Self Assessment" in the UK, one of the early questions paraphrases to "have you done anything dodgy". I think it is something like: "Have you participated in any tax evasion schemes within the tax year considered here". Without looking it up now (which takes a while), it may even use the word avoidance instead of evasion.
Self assessment is similar to how the US and some other countries do taxation.
In the UK the norm is Pay As You Earn (PAYE). Your employer does everything - you earn a wage and tax (Income Tax and National Insurance) is extracted at source and the balance is paid to you. The taxes are passed on to His Majesty's Customs and Revenue (HMRC). You can fill in a Form P11D if you want to claim expenses for something you supplied or pay for benefits received from your employment. Most employees in the UK don't care about taxation too much - it just happens.
Tax avoidance and evasion are very different beasts. Do be careful.
Sure, there are two different terms with two different legal statuses. Unfortunately those paying taxes and those collecting them don't always draw the same line between them.
For tax strategies that hadn't been ruled on by court, and are ambigious based on the law as written, are they tax avoidance, evasion, or are they just untested tax strategies?
Is that fair to say given that it's been found illegal?
It's more complicated because the Irish law people were following was found to be invalid, not that the people leveraging it we're breaking the law as understood at the time, but it still seems unfair to call this approach legitimate.
> It's more complicated because the Irish law people were following was found to be invalid,
It wasn’t found to be invalid per se. The European Court of Justice found that the tax breaks Ireland was offering were unlawful state aid (a corporate subsidy that violates EU law) in the case of large multinationals such as Apple. From what I understand of the ruling, it only applies to large multinationals, and Ireland is allowed to continue to offer the same tax breaks to smaller firms.
https://curia.europa.eu/jcms/upload/docs/application/pdf/202...
Also, while IANAL, I have read some EU law textbooks, and one thing they make clear is that ECJ decisions do not always have “direct effect” - the ECJ can declare a national law to be in violation of EU law, but whether that by itself invalidates the national law depends on the specific grounds the ECJ used. So, without having looked into the legal details of this specific ruling, I’m not even sure if it makes the Irish law invalid, as opposed to merely illegal. The distinction is, an illegal law, the national government is obliged to repeal/amend it, and if they fail the EU can punish them, but it remains in force until they repeal/amend it; whereas an invalid law they have to immediately stop enforcing it.
Everyone in Ireland [and almost everyone else] seems to be under the impression that this is what just happened with the CJEU ruling last week. But it's not.
Ireland, since the mid-1980s, has been offering Apple (and ONLY Apple) a bespoke tax arrangement which is not only unlawful state aid under EU rules but also straight-up illegal under Irish law as well. This "deal" was never codified in primary or secondary legislation in Ireland. The government of famously-not-crooked-in-any-way Charlie Haughey did this deal under the table, and all subsequent administrations have been behaving like it was legal. It never was.
This case was about Apple in particular and it is very important to understand that this has never at any point been the law in Ireland as it was understood at the time.
Apple was treated differently to all other companies -- those companies were subject to the laws at the time which allowed multijurisdictional shenanigans as described in the OP link. There was never any legal basis for Revenue's different level of enforcement for Apple alone.
> Is that fair to say given that it's been found illegal?
Those activities were not illegal at the time. If the laws have changed, then as a tax paying entity, these people/businesses will have to comply with the new laws and/or remove themselves from the jurisdiction where these laws preside.
Well, if I eat a steak this year and eating animals is made illegal next year, was it legitimate that I ate a steak this year?
It would be legitimate. If you ate an animal thinking it was lawful, but it was not lawful, then it would not have been legitimate.
semantic quibbling
This comment comes up every time tax evasion is discussed, and it's always presented as self-evident, when it really is not. I think there's no distinction, except an illusory one invented by tax evaders, and I've never seen a coherent argument to the contrary.
Tax avoidance and tax evasion are defined terms and the distinction between them is that the first one is the set of things that are legal. Some of these are obviously legal, like buying an electric car so you can get a tax credit you're eligible for if you buy an electric car. But companies will try to find and use all of these, including the ones that go right up to the line of what's allowed.
The actual problem is that tax codes are complicated enough to allow this game to be played. You want to try to assign the profits of a multinational supply chain to a particular jurisdiction and then end up surprised it ends up somewhere with low taxes? The premise is wrong. All of the revenue is somebody's profit/income. Just tax revenue where the final product is sold, allow deductions for cost of goods sold when the tax on that portion has already been collected by the supplier and stop having any other taxes that give the accountants complicated rules to game.
There is a clear legal distinction in fact between tax evasion and tax avoidance. Tax evasion is illegal. Tax avoidance is not. Tax evasion means you are doing something illegal to not pay taxes, taxes that you would otherwise owe for example if the government had total knowledge of your financial records. Tax avoidance means you are staying within the letter of the law and that your actions taken in the process of doing everything you can to limit the taxes you owe are legal actions.
It's quite simply the difference between taking legal and illegal action. And if the IRS were to be fully aware of what you've done, whether you have broken the law or not. With tax avoidance you do everything you can to not actually break the law (you want to take max advantage without crossing the line). With tax evasion you are breaking the law.
The IRS will almost always try to nail you for tax evasion if they find out what you're doing. The IRS will rarely be able to get you for something related to tax avoidance if you're very careful / strict about it and stay within the letter of the law. Obviously this applies in the US context, however I find that very commonly when people discuss tax evasion vs tax avoidance, they're talking about the premise I'm talking about: one is about taking illegal actions, one is legal and narrowly walks the letter of the law to limit taxes.
Exactly. The Roth IRA is tax avoidance.
Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion? Courts are not generally very impressed by them - which is why it requires a captured government (Ireland) to do them and ideally some sort of multinational scheme so every challenge is a hugely difficult endeavour.
> Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion?
This is the kind of law politicians pass thinking they're being clever when they're really just being incoherent.
If the government makes renewable energy a tax deduction and then you invest in renewable energy to get the tax deduction, that's tax avoidance. The primary purpose of making the investment is to reduce your tax burden and if it wasn't a deduction (i.e. it didn't allow you to avoid taxes) then you'd have bought the power from the power company instead. But causing you to change your behavior in order to avoid taxes is the purpose behind making that a tax deduction.
If you're deciding where to put your facility and the decision comes down to which jurisdiction has a lower tax rate, that's tax avoidance. You're avoiding taxes in the higher tax jurisdiction by putting your operations in the lower tax jurisdiction. But that is likewise the intended purpose of the lower tax rate. That jurisdiction wants businesses to set up there, or wants local businesses to have more money so they build more facilities and hire more local people etc.
If the government raises the tax on cigarettes and that causes you to quit smoking... you get the idea.
It makes no sense for it to be illegal for you to do the thing the government intentionally passed law to give you the incentive to do. But more than that, how are they supposed to prove it? They claim you quit smoking to avoid the tax, you claim it was because you didn't want to get cancer.
Hypothetically they could uncover some email in which you were complaining about the high taxes before you quit, but that doesn't actually prove anything -- the tax could make you chafe even if your primary purpose was to avoid cancer. Moreover, the well-counseled entity is not going to write that email, which makes it a law against writing something down rather than a law against doing something, and those are the worst because the evil megacorps who know they're doing something shady make sure to cross all their t's and the ones who get punished are the guileless ones who didn't know there was effectively a law against complaining about taxes.
To summarize, as one silicon valley CEO once put it: "pay as little tax as you can legally get away with".
Same with any legislation applying to company operations - get as close to the line of what is legal/illegal without crossing it.
This is a technicality created by legal tax evaders. To evade is to avoid. If you're avoiding tax you're evading tax. Sometimes it's moral, many times it's legal.
The word evade has a specific meaning in English, implying avoidance by trickery. And it has a specific legal meaning, which is knowingly bending or breaking the law. They are not synonyms, especially in a tax context.
So are you telling us when you prepared your recent tax return, you spent zero time ensuring you paid only the required amount?
Avoiding paying taxes you are not legally required to pay is not tax evasion.
That's correct. Deliberately restructuring your activities beyond common sense in order to reduce taxes even further, however, is legally evading them, by the normal definition of the English word "evade".
If you are running a business and someone points out you can reduce taxes by registering a corporation, that's normal - most businesses are some type of corporation.
If someone points out you can reduce taxes even further by registering an Irish subsidiary and sending them license fees, that's abnormal, and now you're using trickery to avoid taxes. UNLESS your business really does do R&D in Ireland at an arms-length subsidiary which charges license fees. In that case, the legal structure mirrors what is actually happening, so it's fine!
> however, is legally evading them
In tax law, this is considered avoidance, ie. you are avoiding overpayment.
If you so much as use any tax preparation software, you are actively avoiding overpayment of your taxes.
There will always be legal (but arguably immoral) ways to minimise your taxes, and there will always be illegal ways to minimise your taxes. Those are different problems with different solutions. It's a useful distinction to make, that warrants having different words.
The point people are making (to mostly deaf ears) is that many tax "avoidance" strategies are just unprosecuted tax evasion strategies. If you claim deductions you don't qualify for, that's obviously just tax evasion, but most taxpayers will get away with it. Does their lack of a conviction mean they're just tax avoiding? Of course not.. so when some company dreams up a scheme where the 'owner' of a laptop changes 6 times to various subsidiaries in countries that laptop has never entered, is that just sophisticated tax avoidance? Or is the obviously illegal scheme tax evasion? (Illegal in the sense that almost every jurisdiction has laws that will pierce transactions that only occur to minimize taxes).
Its a technicality created by government tax authorities and prosecutors
They say avoidance is legal, evasion is illegal and the name of a prosecutable crime
Does that mean that U2 will no longer be a Dutch band ?
https://taxfoundation.org/blog/u2-abandons-ireland-name-taxe...
Thats hilarious that this social activist who promoted progressive, socialist movements chooses to (quite literally) not put his money where his mouth is/was.
I'm not really mad at companies for doing this, I'm sad that the same ways are not available to ordinary overtaxed people.
Ordinary people can't do this because they missed the window, but also because their labor has a clear nexus. This scheme worked because when a product is designed in one locale, built in another, and sold in a third, there's some reasonable question of what the nexus of the income is.
Ordinary people that have written books or songs or otherwise earn royalties from creative works on a regular basis could probably have arranged for ownership of their royalties to be owned by a complex corporate structure as well, but I don't know that very many ordinary people earn enough in royalties that tax avoidance is worth the setup and maintenance costs.
I mean, the clear way to deal with this is to make them choose, and allow import tariffs. Get taxed where the nexus is, and pay to bring the value to other jurisdictions.
I understand that the web of various tax laws and trade agreements makes this impossible though. 80 years of cruft is too much to sift through to improve things in one fell swoop I suppose.
> the clear way to deal with this is to make them choose
My understanding is that the whole problem stems from companies being able to choose. Apple chose to pay taxes in Ireland for some things, because Ireland gave them a tax advantage, thus avoiding taxes in other European countries.
Allowing import tariffs between EU countries would maybe help with this but cause other problems. The EU free market isn't a whim, it has good reasons to exist and significant benefits.
There is no "clear way" to fix this. If there was, it would be used already.
Maybe part of the reason ordinary people are "overtaxed" is that companies are able to do this.
It can definitely contribute to the feeling of being stretched thin
No it’s because an un-elected class of political invents new ways to launder our money over and over. How else does a politician with a small salary end u on millionaire over and over? They do not get book and consulting deals out of the goodness of the public hearts
Well, apart from medicine, irrigation, health, roads, cheese and education, baths and the Circus Maximus, what have the Romans ever done for us?
Great so that’s like .05% off the tax i paid. Whered the rest go
Is there a reason you don't seem to be considering that companies lobby politicians to allow this?
Of course they do. But "lower taxes on ordinary people by defunding corruption" is a very different proposal than "sustain funding for corruption by raising taxes".
The amount of money given by companies to congresspeople to save on taxes is necessarily lower than the amount of money not paid in taxes by doing so. I would be surprised if the return was less than 10x.
Indeed. Once is a great idea for the vast majority who don't benefit. The other eventually leads to gradual collapse or violent revolutions.
@knodi123, what is partisan about fleabagmange's statement? They don't mention any politician, political party, or even political ideology.
More to the point, it isn't the politicians of only one party who are getting rich this way.
It's fine to believe this. But you should be aware it's a partisan political opinion, and it's inflammatory to present it as an objective fact. Is this site really the place for partisan political opinions?
How is it partisan? They mentioned no parties or politicians. What they said applies equally to all politicians regardless of leaning.
Given that 100% tax compliance at the highest rates would not solve any high tax nation’s budget holes
You should be asking the same questions that companies are asking: instead of “why arent we getting hosed equally” its “why are we getting hosed at all”
Improving IRS tax collection enforcement could generate significant funds
In fiscal year 2021 the IRS managed more than $4.1 trillion in tax revenue. The annual tax gap was estimated at $688 billion in 2021, with $625 billion remaining uncollected even after enforcement efforts.
16.7 percent.
So collecting all those extra taxes would cover somewhere south of 25% of the budget deficit for 2021. You aren’t wrong, but the parent isn’t wrong either.
and you don’t realize that this proves my point?
~$5.3 trillion doesn't solve the US’ budget holes, while the US government tells you what transactions to make to not be taxed
That's the amount of taxes that companies/people legally owe but don't pay (and are collectable).
It's not really related to the amount of taxes that are legally avoided by big businesses through techniques like this "double Irish Dutch sandwich."
I’m aware
What is your preferred outcome?
I'm not sure that my preferred outcome is relevant to what the other person meant, but I would like a simpler tax structure and higher-than-current effective rates for wealthy entities.
“Given that 100% tax compliance at the highest rates would not solve any high tax nation’s budget holes“
Can I ask where this claim originated from please?
yeah absolutely, I look at the nation’s debt load - which it does pay interest on from tax revenues - and its increase of debt load alongside actual spending of debt sale proceeds, and compare that to how much it collects in taxes
I use that government’s official sources to do that math
Additionally, in some nations, there are underfunded liabilities, future necessary spending
And it all far eclipses what the nation makes in revenue from taxes, tariffs and productive industries it owns - if any
If there an aspect of accounting that I’m misunderstanding, by all means enlighten me
> I use that government’s official sources to do that math
You mean the source of the claim is you, you personally did the math for all "high tax nations" whatever those are, and you're presenting the claim without any of the math or explaining any qualifier like "high" from "high tax"?
Swell.
I typically look at the US, France, Germany, UK
And most important questions: why is the government so expensive, do we really need all of this, is it efficient? How is the efficiency evaluated?
I really despise some of these anarcho capitalist arguments.
A society that isn't lifted by redistributing wealth through taxes creates nothing but a more inequal and dangerous society for everyone.
We can all argue about inefficiencies, what is the right amount of spending and funding, but redistributing taxes by creating socially needed projects, from roads that you use, to ports through your shipments to policing streets so your daughter is safer when she goes out with friends. The list is so long.
People don't even realize how much wealth and prosperity has been created by redistributing wealth through taxes.
People would be mich happier if the taxes were 50% less, the waste and corruption would be gone. And services were at similar level. Right now, US health care is redistributing money from poor people to rich.
> A society that isn't lifted by redistributing wealth through taxes creates nothing but a more inequal and dangerous society for everyone.
I mean.... the government is taking tax money from the "poor" (so, normal workers, who cannot avoid paying taxes the way the article described, and whatever new way will be used after the changes), and giving them to a few friendly corporations who give back a percentage to politicians and normal peple usually get nothing.
This is again worth debating, but many comments here imply that the best amount of taxes is 0.
I don't think they realize the kind of place they would end up living in.
Capitalism only works if someone gets hosed. And of course as we all know, the only alternative to capitalism is communism which is scary and evil! Don't you see how good you have it under the hose?
Given the nature of the human being, there’s no way to live in a free society without someone being hosed. And even then, capitalism has improved the life conditions of those hosed. Communism removes the freedom for everyone and it is effectively hosing everyone at the same time.
That's not true, Soviet communism generated wealthy elites just like any other dictatorship, they just didn't have formal wealth.
It’s been very tightly intertwined with the position. When you retire, your wealth is gone, and sometimes retirement equals a purge. I wouldn’t call this being among the wealthy elite by any means. Today, you live in the center of Moscow, and tomorrow you’re an ‘enemy of the people’—good luck proving otherwise.
> and sometimes retirement equals a purge
That's just dictatorships man, you gotta keep playing the game well or you end up tortured to death in a salt mine.
That is right. Communism only brings wealth to those high in their political hierarchy.
I personally am.
Because people are often overtaxed due to high tax elusion/avoidance/evasion.
E.g. in Italy, around 10 to 15% taxes are evaded in many ways. That bill is then paid by regular taxpayers.
If even more people avoided taxes that would just make the issue worse.
This seems like a really backward way of thinking. You seem to be advocating for complex tax loopholes to be opened for individuals rather than advocating for simple, but lowered taxes.
I understood it more as "the individuals should be taxed the same (so, much lower amount) as corporations".
If company X can pay just <small percent> of their income as taxes (all together), why can't random bobby do the same?
The law requires you to have a fire extinguisher in your office? Sure, buy one, but since it's a cost of doing business, that money comes from the pre-tax pile and is not taxed extra. The law requires me to wear pants when I go out, why do i have to buy them from post-tax pile of money (so, after ~50% gone to the government), and still pay 9.5% VAT on them? I can buy those same black jeans as a company (eg. consider black jeans a work uniform), and avoid all those taxes). Rent? Pre-tax money for a comoany, post-tax for an individual. In some countries (eg. mine, slovenia) you have even bigger stupidities... you have a CO2 tax (and some other) on gasoline (and other fuels), and you pay VAT on top of that tax... the co2 tax included in the base to calculate the VAT... you literally pay taxes on taxes. Again, businesses don't have to pay that VAT (they deduct it) because well.. they need the company car to do business.
The distinction is business vs personal, not company vs individual. A sole trader can usually do avoid income and VAT on all those things (except some deductions pertaining to payroll benefits). Some countries have an alternative arrangement where very small traders pay VAT but also retain VAT on the products they sell rather than actually netting out the VAT on a return.
what's backwards about that? driving to the neighboring town for cheaper gas (because the gas tax happens to be lower) is just as legal as these complex multijurisdiction incongruencies
yes, I believe car ownership should be more accessible to people to be able to ponder such a drive
It's advocating for equality! how could you call that "backward"?
> I'm not really mad at companies for doing this
I am, regardless of the effect on individuals, it skews the market away from smaller entrants and allows those that have reached enough of a size to be able to afford to play these games to leverage a huge advantage.
As well as killing local competition there's also the pure hypocrisy of firms such as Apple (and they're not the only offender) passing themselves off as some kind of moral authority whist at the same time aggressively refusing to pay taxes towards hospitals and schools in the local markets they operate in.
They can present themselves anyway they like but it does leave a bad taste in the mouth.
Frankly I don't even understand why companies are taxed at all. Taxes are proportional to individuals' income so that the pain of contributing to the collective good is distributed fairly. Companies don't feel any pleasure or pain, they need money as a commodity- it pays people, investments, innovation, talent. Money and other benefits should be taxed when they are transferred to individuals, not before.
As designed
Ordinary people can buy the stock of the said companies and benefit from the tax saved. Probably they already own them through pension funds.
Which, to me, looks very subpar rather than companies paying taxes in the country where they actually make profit
Ordinary people do not buy stock. Most people here are in the highest percentile and it shows.
That take feels kinda... Detached from the average person to me? I don't know how to take it, just like when you hear gates saying a banana cost 10$. Common Joe would benefit much more from taxes being actually paid than profits being accumulated by companies just so they can crush the competition more and earn more and (...)
> just like when you hear gates saying a banana cost 10$
When was that?
I've never seen a real video, it may as well be a common saying after being on the internet for a so long time. However, there is a video of gates trying to guess grocery prices on the internet, and he's not that bad. I think at this point it's just an internet meme that exist to reference billionaires being disconnected from reality
> I've never seen a real video, it may as well be a common saying after being on the internet for a so long time.
I mean, I can show you the video: https://www.youtube.com/watch?v=Nl_Qyk9DSUw
But that has nothing to do with Bill Gates or any other person named Gates. (You might be aware that Bill Gates isn't a woman.) It's a joke on a comedy show. It's not something anyone has ever said.
Likely that they conflated it with this video of Bill Gates guessing grocery prices on the Ellen show: https://www.youtube.com/watch?v=ad_higXixRA
But ordinary people can buy stock, and should buy index funds at least.
There are plenty of reasons why they do not, but in almost all cases they are not good reasons. There are some extreme exceptions, but then you're outside of "ordinary".
You get a 401k from working at McDonalds. Yes ordinary people own stock.
I don't know about the majority, but plenty of people have 401Ks (over 34%). It wouldn't be too shocking if 16% more people had stocks.
And presumably some of the 66% are either children/students who have never had a job but will have a 401k or similar when they get one, or retirees who cashed out their 401k and bought an annuity (perhaps not the absolute smartest thing to do, but something a decent number of people do).
That's what I call a "let them eat cake" response.
They can't, because companies these days only go public after most of their growth has already been captured by private equity (if at all).
Curiosity questions is the revenue that is localized in Ireland and the Netherlands because of the double sandwich, of any significance in terms of percentage of total taxed revenue in those countries?
From memory Ireland and the Netherlands are also the biggest contributors to EU funding. So I am wondering how this shift would affect EU dynamics as a whole?
They're not large contributors to eu finance: 10th and 5th, respectively https://www.statista.com/statistics/316691/eu-budget-contrib...
France and Germany account for nearly 50% of the funding.
Perhaps the infograph I saw was per capita?
Yeah -- Ireland and Netherlands are both top contributors on a per capita basis. Though this was only accelerated recently i.e. the 2023 budget not the 2021 budget. Ireland on many occasions has be a net recipient before this while the Dutch have a longer history of being a net contributor.
https://www.icaew.com/insights/viewpoints-on-the-news/2024/j...
Perhaps you're mistaken?
Nah; Ireland's the biggest per capita contributor, and the Netherlands is fourth (after Luxembourg and Belgium).
(Not sure what's going on with Belgium; Ireland, Luxembourg and to some extent the Netherlands have rather inflated GDPs, which drives up contribution amounts, but Belgium's isn't particularly high.)
The complexity in the tax code is why we end up with things like AMT (Alternative Minimum TAx) and the 15% minimum corporate tax. There are so many carved-out special interest exceptions that it's almost impossible to unravel, like the carried interest tax credit for hedge fund management fees.
I think we've reached the point where we need revenue apportinment of profit. That means if 50% of your revenue comes from the US, then (at least) 50% of your profit is taxable in the US.
It's worth noting that there are various schemes for multinationals to avoid taking profits in the US. One of the most common is transfer pricing. Example: Company A sells sofas to US consumers for $1000. It buys them from subsidiary B (in Bermuda) for $900. Subsidiary B buys the sofas from Subsidiary C in China for $300 each. So $600 in profit is moved to a 0% tax haven like Bermuda. That's transfer pricing and it's illegal.
The Double Irish Sandwich is an example of profit shifting. What's the difference between profit shifting and transfer pricing? Profit shifting is legal. Transfer pricing isn't. That's functionally the difference.
So an argument against revenue appointment of profit is you can use similar schemes to hide profits but you really can't. For one, companies need to report profits to shareholders so the IRS has that data point. For another, the IRS can and does go after companies to figure out beneficial ownership and whether transactions really are at arm's length or not.
For anyone saying they can benefit from this by buying shares in $BIG_TECH$, I promise you that you would benefit more from that company paying taxes to fund the roads, bridges and schools that you would from your 100 shares going up by an extra 1%.
What do you mean “transfer pricing is illegal”?
Transfer pricing is a normal part of business and done all the time and is legal.
Presumably you mean “hiding profit through transfer pricing is illegal”?
Cat and mouse game, tax evaders always find a way
Cats always take enough mice to fill their bellies.
What? No one's mentioned how firms have been leveraging Malta as the new leg of the Double Irish / Dutch Sandwich? How disappointing.
can't we just add following to tax law:
"if your company structure contains additional complexity which main purpose is the avoidance of tax it's a crime"
I mean law has the fundamental benefit of allowing you to define what is a crime based on the outcome (tax evasion) instead of needing to explicitly rule out any way you might reach that outcome. I mean e.g. for killing people the law also does state it's not allowed without listing every way you could kill a person. So why can't we do the same for clear cases of tax evasion?
Makes sense to me, I'm sure there's a way to word it legally
That taxation exists and is widely regarded as necessary (evil) in the first place is a sobering reminder of the average IQ of the populace.
did you forget that you can move, right now, to a country with no income tax?
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