I'm getting more and more frustrated by my own country's willingness to facilitate this. It just doesn't make any sense. From what I can tell it's all based on old-fashioned debunked economic theories in the same vain as "trickle-down-economy".
There's a growing resistance to the Netherlands as a "Doorsluisland", and our current administration's political turmoil will hopefully provide the momentum for actual change - so hopefully things will change.
Here's a nice (Dutch) article on it. The big take-away with other tax "havens" is that the money doesn't reside / stay in the Netherlands, it's just passed through it. Like Uber did.
I'm also Dutch, but I'm mainly frustrated that the press does a very poor job of explaining what is going on.
Uber has its corporate head quarters for the EU in Amsterdam. For a company the size of Uber to have 50 different entities is not particularly special, you will find several other multinationals there with the same number. It makes sense to have one for each jurisdiction they operate in, for example. The term "shell companies" seems to imply something nefarious, and that may very well be the case, but in itself having 50 entities in The Netherlands is not really a sign of that.
It's also important to point out that they do not choose The Netherlands for low corporate tax rates, they are not the lowest in the EU by far, but because of "tax rulings". Those are agreements they can make with the tax authorities that ascertain them how much tax they will pay this year as long as revenue, costs, etc, stay within a certain bandwidth. In the US it can take over a year for them to get any certainty on what their tax bill would be for the previous year, and shareholders hate that uncertainty.
No one thinks it's a good idea to compete in a "race to the bottom" of attractive tax laws, but as far as I'm concerned competing on better service is fair game. Many politicians screaming at The Netherlands tend to conveniently forget the part where their own country just delivers very poor service tax-wise.
As a French entrepreneur, I was advised several times to move my HQ to the Netherlands because of the extremely low taxes on intellectual property.
The HQ can invoice european subsidies/entities for the usage of the brand as well as the IP of internal software or patents. You calibrate this so that European subsidies makes little to no profit, so you don’t pay any local tax. Then, what amounts essentially to the profit of all your European subsidies is brought back to your NL headquarters under “revenue from intellectual property” on which you pay ~ no tax (I’ve been told around 5%).
I’m not an expert in taxes and I have not looked into this in details so this may all be wrong, but it’s advice we got from top 10 EU lawyer firms.
It was presented to us as a tax “optimisation” scheme.
There is indeed only a 5% tax on gains that can directly be attributed to innovation, which is probably what you are referring to. It's intended to give innovative companies a leg up against ones that don't innovate, and aimed to support start-ups.
This is a good idea in itself, but, of course, it's quite tricky to establish what part of profit is really owing to innovation, and several tax lawyers have found ways to abuse the scheme. By now that loophole has been mostly closed, but there will always be new ideas by politicians that will subsequently be abused, it's not really because they wanted to become a tax haven.
> they do not choose The Netherlands for low corporate tax rates, they are not the lowest in the EU by far, but because of "tax rulings". Those are agreements they can make with the tax authorities that ascertain them how much tax they will pay this year as long as revenue, costs, etc, stay within a certain bandwidth.
"They don't come to the Netherlands because the tax rate is low, but because they can negotiate an extremely low tax rate just for themselves"
> The term "shell companies" seems to imply something nefarious
Well considering they are mostly used by big corporations/capitalist firms to avoid all kinds of responsibilities to society, I seriously question your lack of critique here.
Maybe the way to frame this is that tax avoidance (or in corporate speak: 'tax planning') has become horribly normalized by the media.
I think most of the working class have no idea of the institutional terrorism that is going on on a daily basis, against their own interests. They are gaslit with propaganda day in day out (I'm looking at you Murdoch, yet also liberal news gives terrible systemic critiques - so you could argue that's actually worse since they claim to be a fair and objective news source).
Your arguments speak much too kindly about these firms (and the bourgeois government institutions that supposedly 'democratically' govern them), who are oh so happy to create as many 'externalities' as possible.
> It's also important to point out that they do not choose The Netherlands for low corporate tax rates, they are not the lowest in the EU by far, but because of "tax rulings". Those are agreements they can make with the tax authorities that ascertain them how much tax they will pay this year as long as revenue, costs, etc, stay within a certain bandwidth.
The way you're framing it, it sounds like you think this makes it fairer? The problem remains: multinational capitalist firms/corporations are leeches on the working class and are not adequately contributing back to society.
>Well considering they are usually used by corporations/capitalist firms to avoid all kinds of responsibilities to society, I question your lack of critique here.
Regardless of what the effective tax rate paid is having a corporate entity per country you operate in greatly simplifies the regulatory compliance situation for taxes, labor laws and any specific laws that cover whatever your business is.
> Well considering they are usually used by corporations/capitalist firms to avoid all kinds of responsibilities to society, I seriously question your lack of critique here.
No they're usually used by basically all companies that aren't tiny.
> institutional terrorism that is going on on a daily basis
Ummm...
> They are gaslit with propaganda
Eh take a hard look in the mirror. The marxist hate machine has never helped anyone.
> No they're usually used by basically all companies that aren't tiny.
This argument is just “everyone does it.”
The 50 companies likely has little to do with taxes; let’s say it is for liability. Is that a good thing? The profits move out of a company, leaving nothing for when others are seeking damages. Is that a positive?
> No they're usually used by basically all companies that aren't tiny.
Ummm... that's what I said. That's my point. It's become normalized for corporations to not take responsibility. The working class always ends up paying the price here. Collectively we in the working class now expect corporations to treat us badly and that we have to accept this abusive behavior. In the context of more and more of the working class now starting to work in "non-jobs" in the gig economy, this current trajectory is becoming a bigger and bigger nightmare for the working class all over the world (see Nomadland, Sorry to Bother You, The True Cost, Blood in the Mobile, Push (Fredrik Gertten)).
I argue that, along with banking and other rentierist institutions [1], tech corporations are a parasite on society because they monopolize and destroy our shared inheritance, and try to pretend they are immune to regulation because they see themselves as lone geniuses [2].
"By virtue of their position as digital middlemen, Silicon Valley companies are able to extract vast amounts of capital from all over the world. The most salient example is Apple: recently crowned the world’s most valuable company, Apple rakes in enormous quarterly profits even as the Chinese workers who actually assemble its products are driven to suicide.
Whereas we were once led to believe that the network society would produce an egalitarian world, we increasingly see tech as a machine for the commodification of information itself. Something that has the potential to be abundant is made artificially scarce, because capital finds it profitable to enclose the digital commons and dictate its terms of access. Facebook wants a monopoly over your social network so it can show you ads; Google is the internet’s directory; Netflix, Spotify, YouTube, and Apple Music are your tollbooths for cultural production; Amazon is the gateway for your retail needs. These corporations serve social functions integral to modern life, in ways similar to industries that were nationalised in the past — and yet, not only are they not publicly owned, they are immune to any sort of democratic control." [3]
[1] the UK working class pays £192,000,000 per day in interest payments to banks (we essentially pay extortionate 'rent' for the money we use in our daily lives): https://www.youtube.com/watch?v=ZzCegQVljdY
Partitioning your company into legal entities is like creating folders on your hard drive. Yes, shielding one entity from liabilities in another can be one reason to make a partition, but I really don't think that's the main driver here. It just helps your administration to group stuff logically.
For a company the size of Uber it would become a mess if they had one entity that worked in dozens of countries. Are you suggesting they should do that?
I'm from Scandinavia, and plenty of large US corporations pay zero taxes because of very complex arrangements. Regular people with smaller companies have to pay high taxes though.
It's called soft imperialism. The US / Transnational empire forces all countries to "open their markets", either via direct war, og in allied states, via soft power.
Then various firms like McKinsey or Goldman working more or less as extensions of the CIA sets up shops to takeover markets and siphon money from local markets towards a tiny US / Transnational elite.
It's a system that promotes "free markets" but is actually just rule by the VHNWI's.
In Europe in particular this power grab came especially after the clauses in the Marshal Plan that helped rebuild western europe after WW2, but in effect making them vassal states to the US.
So there is no "choice" here, that's why even in the richest northern European states american corporations pay zero taxes.
It's not just a US empire problem though - after a certain size companies just become above the law, just as with private equity for individuals, when a company can hire someone like Ernst & Young, Deloitte, PricewaterhouseCoopers etc. they can essentially just avoid taxes.
While I don't think you're wrong, to me, the issue is that those schemes they implement are legal.
Yes, they ago against the "spirit of the law", but that's pretty much it.
What frustrates me is this feeling I have that tax laws being Byzantine is actually a "feature", not a bug. As in the tax laws were designed this way. Maybe via "soft power" applied on the politicians by "moneyed interests", I don't know.
But clearly, there seems to be much too little action done to put a stop to this given how much noise politicians make about how Google et al. should pay more taxes.
They just come up with absurd schemes which of course won't be implemented, or again, will be but with loopholes such that Mom & Pop's store will have to pay a lot but BigCorp's army of lawyers will be able to dance around them.
The Chinese never opened up their markets for US/Western corporations. I observe that they have their own local, Chinese equivalents to Amazon and Google.
> its unfair and destroys local competition i.e a Starbucks vs mom's coffee bar.
Do you think tax compliance is higher in small local businesses than large mega corps? Based on my experience in the US, tax fraud is much easier and more common with small businesses. Think about how many small shops don't even have a proper point of sales system, encourage cash, and hire under the table. Stackbucks would not be able to get away with that
> The agency [IRS] estimates that it collects $458 billion a year less in taxes from all Americans than the government is actually due. Most of that “tax gap” is income that goes unreported, and the biggest chunk of it, by far — $125 billion — is individual business income.
American banking and tax system is archaic and really inefficient when compared to some places in Europe (especially the nordics).
Here cash heavy businesses are rare and meaning the money is going through the banks. And as the money is moving through the banks it is pretty much impossible to have income that the local tax office would not see. And the banks are by law required to ask for proof of any irregular money moving in/from your account.
For retail/coffee shops/any direct to consumer business you have to pay VAT and thus are required to always print a receipt to the customer. This means you have to input the sales into the register and now it is in the books and thus really hard to not end up paying all the taxes.
Also companies get a part of the VAT back so they really really want to register the sale into their system or they are out of that (VAT is 24% for most stuff at the moment here in Finland)
Basically the only business where just plain not reporting taxes is still happens sometimes is small scale construction (ie you pay some guy to come and rebuild your bathroom etc).
The divide here is certainly not between the US and much of Europe. If anything, the US is far closer to the Nordics than much of Europe based on the statistics I could find [1] and my own anecdotes from living in Western/Central Europe.
> For retail/coffee shops/any direct to consumer business you have to pay VAT and thus are required to always print a receipt to the customer.
For what it's worth, this is true in every European country and every part of the US and Canada I've been to. Virtually any store with a physical location will have some PoS system that manages this, and mobile businesses that provide services (such as the construction you mentioned) increasingly do so as well.
> This means you have to input the sales into the register and now it is in the books and thus really hard to not end up paying all the taxes.
These are typically cash heavy businesses ( as long as it is allowed ) and keeping revenue out of the books is as old as the Romans.
> Also companies get a part of the VAT back so they really really want to register the sale into their system or they are out of that (VAT is 24% for most stuff at the moment here in Finland)
Companies generally deduct all of the VAT on their expenses and it is not a fraction of the revenue. If the sum is negative, our IRS pays up.
Furthermore, in NL coffee is in the low bracket of VAT ( used to be 6%, is now 9% )
> Basically the only business where just plain not reporting taxes is still happens sometimes is small scale construction
> These are typically cash heavy businesses ( as long as it is allowed ) and keeping revenue out of the books is as old as the Romans.
Cash is used in less then 5% of transactions here in Finland (and it is roughly the same in the rest of Nordics last time I checked). Basically I have not carried any cash with me for the last 10 years or so. I am a bit of an extreme case but none of my friends carry any cash with them either these days. Having a cash only business here would just mean that people would not do business with you. If you go to a bar/restaurant/whatever and say "I want to pay" at the end the default is that they bring you the payment terminal.
> I think you are pretty naive here.
I am not that is just how it is here.
Illegal tax evasion still happens but it is not done in the "lets just not put this transaction into our system" way. Most of it is just lying about deductible expenses after that is employing someone without an actual employment contract (and thus nobody is paying any taxes for anything on that). Small scale construction is the one field where the "I'll just take the money and write a fake receipt" is done in any meaningful amount here.
For the record the Finnish tax office collects somewhere between 92 to 96% of the tax revenue it should be receiving according to studies by them and the government. They believe they could get more but in their infinite wisdom every even slightly right leaning government in power has slashed their budgets (and thus less tax auditors) for the last couple decades even though every euro spent on the tax office budged brings in multiple times of that in tax revenue back (there is some limit where that is no longer the case but we are nowhere close to that)
That can be true while tax evasion is rife. There can't be too many reasons our plasterer expected £4000 worth of work paid in cash. Any honest business would worry about the costs involved in handling that much cash.
Of course plastering is a very labour intensive process and it would be easy to pay all of the guys cash in hand.
Another time I asked our plumber if she minded receiving a large amount of cash (which we'd been legally given by our grandparents) she said it made no difference, she would have to put it into her bank because she was applying for a mortgage.
Focusing on tax compliance is misleading; because tax avoidance is legal. The point is that BEPS techniques allow businesses to have lower than average tax burdens - the fact that they can do it without fraud makes it worse not better, because there is less disincentive.
Then there's the fact that large corporations intrinsically damage the marketplace by making it less fluid.
Unfortunately, I can't find any clear stats on what % of GDP is due to large corporations and set that next to their contribution via taxes. I suspect larger corporations pay relatively less taxes than smaller ones, but I don't know how to test that hypothesis - any ideas?
E.g. https://fivethirtyeight.com/features/big-business-is-getting... notes that the fortune 500 revenue rose gradually to reach around 75% of GDP in 2013, but obviously sum total national revenue is much higher than GDP, so that doesn't really say much...
To some extent this is true. It is easier to slide cash under the table to the owner, that said, most cafes where I live are not "mom and pop only" shops. They have employees, even if only a few, and thus tend to have POS etc. It is _very_ uncommon in The Netherlands to not have a POS in except in some market stalls. Almost everyone accepts PIN, and increasingly few people carry cash at all.
The main point is that even if you are only paying (eg 35%) tax on ~70% of your income, you are still paying more than some of these multi-nationals that are paying 0% on 100% of the income.
Specifically:
> Its nearest UK rival, Costa, recorded £377m sales last year, compared to Starbucks’s £398m in 2011, and its tax bill came to £15m, or 31 per cent of profits.
Costa is 100% not a mom and pop shop, they are a massive chain, like Starbucks.
it's not fraud as in "tax evasion" it's 100% legal albeit morally bankrupt "tax avoidance". the problem is that if you grow a company to a certain size the only way to compete is to be part of this rigged system. not a single fortune-500 company that is in the top 500 because they don't use thick layers of shell companies. the strategy is always to squeeze the supply end and the demand end while scooping the profits in the middle (the low-tax jurisdiction).
I do have to ask...why is it morally bankrupt?
Do you go out of your way to pay more tax than is legally required? If not, are you morally bankrupt? Of course not.
Tax laws are the rules of the game. If you don't like the rules, change them (democracy and all) and enjoy the positive and negative consequences as they unfold.
I think it's morally bankrupt because a direct analogy would be that it's not OK to bully someone unless you're strong enough that there won't be any repercussions.
right if you're a small company and you pay 0% tax you're probably getting shut down and owner is having some legal problems when they investigate you, if you're big enough you might get a small fine or maybe just have investigation dropped.
Not really. The main problem is that if you are small, you most likely don’t have expensive accountants who will find every possible way to find legal loop holes to reduce our tax burden plus you don’t have the political connections to lobbying for certain exclusions or deals by the politicians.
This is why small businesses are the ones which get hurt the most by things like raising taxes, minimum wage etc. There’s a reason why Amazon, Walmart etc are all pushing for those things- they know they can find loop holes and can afford to pay a bit more whereas the small business competition can’t and will legally eliminate competition.
Also I am not a financial genius but is the author of the article trying to deceive the readers with this:?
> In 2019, Uber claimed $4.5 billion in global operating losses (excluding the US and China) for tax purposes — in reality, it brought in $5.8 billion in operating revenue, according to CICTAR, an Australia-based research group.
“in reality” usually means contradiction but losses and revenue are not proving contradictions.
Framing this as an excercise in acquiring expensive accountants is missing the forest for the trees. Large corporations have such immense power that they can bend the legislation and receive special treatment from governments that smaller shops just can't. See all the tax breaks apple will be getting now, all the incentives programs that Amazon was shopping for when building HQ2.
Is the Netherlands in any way culpable in this - do they go the extra mile to help facilitate the evasion?
My layman understanding of the tax evasion schemes is that there's nothing special about Ireland or the Netherlands. They're chosen due to other factors, like English proficiency, stable and well known legal framework - but the essence of the schemes could be done in nearly any western country.
No, there re absolutely special features of Netherlands and Ireland.
Ireland specifically had a tax setup that allowed the creation of a "virtual" European Headquarters that was not in any tax jurisdiction that sales could be booked against.
Don't think that's accurate. All EU states allow a HQ like that.
What Ireland did differently was allow companies to offset huge amounts of tax with complex IP transfer agreements to offshore jurisdiacations (Bermuda primarily) - called the Double Irish.
And - more importantly - when this was "shut down" by the EU, there was another option called "Single Malt", which I believe is quasi shut down now or was meant to be in 2020. I'm not sure if there is a replacement but I imagine there is. You can read this all on the "Double Irish arrangement" on Wikipedia.
What Ireland has done differently is show multinational companies that even if the EU/whoever puts pressure on one scheme they will try and come up with another one. Personally, I think the tax loss is unjustifiable - I think Apple's EU corp tax rate was something like 0.002% or something. I don't have a problem with Ireland's aggressive 12.5% tax rate per se, but setting up schemes which deprives European states of corp tax revenue and charging far under <1% is not cool IMO.
It does seem that the US is finally fed up of this with the minimum corp tax proposals though.
One reason the Netherlands was used (in the past) was that royaltys and interest paid from the Netherlands didn't have a withholding tax, so you could freely move money from "high tax" countries to "low tax" countries. That tax was introduced in January 2021, so maybe there are other reasons now.
There are certainly special features that make the Netherlands attractive for foreign multinationals.
The Dutch government has, for a long time, actively presented itself (euphemistically) as a great place for foreign business. They of course would not openly advertise that as a tax avoidance opportunity, but you do the match.
While I'm not sure if this still happens today, the Dutch IRS used to have "special arrangements" with many big companies, for which the details were notoriously never made public. I believe this mostly applied to companies with a physical presence within the country (therefore also impacting the local society and economy and used as rhetorical justification for these deals). Still, since these deals where made behind closed doors, who knows what they may have arranged with foreign multinationals.
The problem with having any confidential deals, is that it becomes impossible to know what goes on as a whole (until a whistle-blower may steps forward). It doesn't mean there is any conspiracy going on, just that it becomes impossible (or at least really hard) to rule it out. History does have something to teach about what usually happens when opportunities for abuse are readily available, without much public scrutiny.
To drive this point a little further: Dutch citizens were relatively recently confronted with how their IRS turned out to not be quite the impeccable (or even legally operating) agency it is supposed to be. With that in mind, only God (and the IRS itself) knows what the agency exactly does with multinational corporation. I'd say they certainly lost the benefit of a doubt by now.
I think framing matters a lot here. I'm sure the dutch were particularly pragmatic in this regard, but fundamentally, the EU/US corporate tax system is based on profits, unlike for individuals, where it's based on revenue (aka income). And unfortunately, profits are largely a bookkeeping exercise - intrinsically so, not just due to tax loopholes. After all, who is to say which part of a multinational "created" the value? Between legal entities profit shifting via IP licenses or loans is indistinguishable from... actual IP license costs or loans.
As long as there are tax differences between jurisdictions and means to shift profits (but e.g. within the EU those are a given as part of the single market), this problem isn't going away.
I think the problem is in the whole concept of taxing profit, rather than revenue.
The problem with taxing revenue instead of profit is that it allegedly would stifle reinvestment. Whether that's actually true or just convenient storytelling (like e.g. with trickle down and patents) is a whole different story.
What you described certainly plays a role too. But it is not what I was pointing at.
What I wrote is no doubt speculative and only meant as contextual background. Still, here we have a country that literally wrote the book on capitalism. Which "just so happens" to be a popular tax haven for big multinational corporations. When in addition to that, the country's IRS has (or at least used to have) a "discretionary authority" to make secret arrangements, I sincerely wonder how much faith it takes to hold on to the idea that their role as a tax haven is just an inherent consequence of how profit tax works (or how companies can be creative with their bookkeeping).
The Dutch generally have a good reputation, but a lot of that might have more to do with their wealth (for those who own it, because over 1/3 of the country's population actually balances around the poverty line), clever PR and keeping the doors to their kitchen firmly shut. Strictly in accordance with their laws, of course.
The wikipedia page on the infamous double irish with a dutch sandwich has a considerable list of similar arrangements, and most of those do not involve the dutch tax authority - in fact, Ireland moved to make the tax avoidance possible without a dutch intermediary in 2007, which is, well... brazen.
To summarize wikipedia here; it's convenient to distinguish between conduit OFCs (i.e. countries that make it relatively easy to pass profits through) and sink OFCs (i.e. countries where the profits end up in with low or no taxes). And his interpretation (in 2018) according to wikipedia: "Research published by Zucman, Tørsløv and Wier in June 2018, showed that Ireland is the largest corporate tax haven in the world, even larger than the entire Caribbean corporate tax haven system.[4][5][6] This research also showed that tax disputes between high–tax jurisdictions and corporate tax havens are extremely rare, and that tax disputes really only occur between high–tax jurisdictions.[16]"
However, it's notable that the conduits are fairly large: "Ireland, Singapore, Switzerland, the Netherlands, and the United Kingdom"; whereas the sinks are a little more unusual: "British Virgin Islands, Luxemburg, Hong Kong, Jersey, Bermuda".
Much of this research is a little old however, and political will does seem to exist to change things; e.g. https://en.wikipedia.org/wiki/Multilateral_Convention_to_Imp... has entered into force in most places except greece and hungary where it will in july 2021 (and the United States isn't a party, oddly enough, but then again this would have been a Trump era decision, so perhaps that's not unexpected).
Whatever the current status; it surely can't harm to keep up the pressure on the Netherlands, Ireland and Luxembourg given their status as EU members. Given the significant role of British oversees territories, ironically I suspect that Brexit will help reduce tax-avoidance - after all, without the UK protecting their interests, it's unlikely jurisdictions like Jersey or the British Virgin Islands will be able to escape the current restrictions as they had been before.
Nevertheless, I think it's worth remembering that much of this focuses on outright tax avoidance, yet which tax rates are considered "low" is itself a choice - and here too the Irish rate is quite low: https://taxfoundation.org/2021-corporate-tax-rates-in-europe..., so even without outright BEPS, it's still a kind of tax haven within the EU. Frankly, the existance of differing corporate tax rates in a single market sounds problematic to me, but hey...
What you're saying is not entirely false, but it is naive at best.
Ireland, the Netherlands & co are fully aware of these tax loopholes, even if we give them the benefit of the doubt that they were not originally intentional. They like the arrangement because it gives them a tiny - compared tot he dodged taxes - tax benefit for basically free.
> it gives them a tiny - compared tot he dodged taxes - tax benefit for basically free.
Well, if I remember correctly, the Dutch government enabled avoiding something to the tune of 30-40 billion euros last year. The benefits for the Dutch treasury were something like 24 million. Yes, you read that right - even though I probably got the exact numbers wrong, this is the order of magnitude we're talking about.
Its not well known, but large multinationals actually get ("opinions", "guidance", etc.) from their tax authorities ahead of the implementation of a tax scheme.
The polemic in the press is that the tax authorities 'uncovered' a scheme. This is more-often not the case.
It's a mistake to think of it as based on ideas or economic theory, debunked or otherwise. "Trickle-down-economy" is a marketing term, intended for rhetoric.
Tax policies, and other corporate friendly loophole machines are all about detail. At the detail level, both rhetorical slogans and technical theories have no meaning. Any given legislation can only be understood as accounting spreadsheets and scenario plans. There's no way to "narrate" it.
One side thinks in terms of objects that have independent moral implications, like shell companies. The other thinks in terms of objects that are a collection of accounting details, like pass-through entities.
There's an old business adage: "you name the price, I'll name the terms." In a startup context, that could mean investing in a company at valuation X, but with terms (eg liquidations preferences, performance goals, etc.) that make a mockery of X as a valuation. Many a vein founder has been scheisted this way. Proudly boasting their impressive, $X valuation and paper-wealth, while giving away the farm.
In corporate law and tax codes, one side has been consistently been winning this game.
> There's a growing resistance to the Netherlands as a "Doorsluisland", and our current administration's political turmoil will hopefully provide the momentum for actual change - so hopefully things will change.
I am really not holding my breath for this.
I am glad to see the awareness of tax avoidance (through postbusfirmas, 'double Irish with a Dutch sandwich', etc.) growing, yet until we do something about the root cause, all 'systemic solutions' proposed by the bourgeois political system will still be like proposing to cure a heart attack with a band aid (the heart attack here being mass exploitation by global capitalism [1]: exacerbated by climate change and impending civilizational collapse).
Because profits are easily gamed (e.g. via loans and IP licenses), the double Irish with a dutch sandwich depended not only on shifting profits (the dutch sandwich part) but also on a low-tax EU state (the double irish part, though that also involved bermuda iirc).
However, the loophole in Irish tax law was closed in 2015, and came fully into effect in 2020.
But the underlying problem still exists - after all, profit shifting isn't some tax loophole; it's an intrinsic possibility given IP law and intangible assets. I'm skeptical this is ever going to disappear - because how are you going to tell a legitimate low-margin firm that merely has high costs in the form of IP licenses and loan interest from a shell company that's engineered those costs to cancel out any income, such that all profit accrues to whoever holds that IP or granted the loan?
These tax avoidance techniques thus aren't really complex, and aren't trivial to solve - as long as you can shift profits into some jurisdiction with low or no taxes, but even more trivially simply by investing rather than making profits - resulting in lower-tax capital gains rather than income tax.
But even without outright tax havens like Jersey, profit shifting is a problem, because it encourages states to do a race to the bottom.
Personally, I think this game is lost; we should switch to taxing revenue and giving up on this profit-shifting whackamole; e.g. by much higher VATs instead.
I think the Fear is that if the loophole is closed, the businesses will move elsewhere, taking an X amount of jobs with them - from which the government earns some income taxes. They take the crumbs instead of nothing, because there's no chance they get the cake.
It may take EU wide legislation to fix, but even that is no guarantee because companies may just opt to not operate in the EU.
All three? These shell companies are often just a post address, sometimes an empty office with a plant (and someone to water the plant every week). The excuse is always that if we won't do it, someone else will and that we need international legislation. While that is true, someone needs to kick it off.
And I don't want the crumbs, they can stick those crumbs where the sun don't shine.
Ireland at least until recently didn't even require Irish companies to be administered from Ireland. It was also super laissez-fair on arm's length principles for valuing services provided between connected entities.
This is a fallacy. Sure government gets income tax, but that is nowhere near the billions that are siphoned out of the economy. The income tax come from workers, who then have less money to spend in the local economy and that causes further negative effects.
> that is no guarantee because companies may just opt to not operate in the EU.
Great. Tax dodging companies should be banned and because of that local competition will have a chance to grow.
If they banned Uber from operating EU wide, I am sure smaller local companies would have picked up the market and that would benefit economy much more.
> From what I can tell it's all based on old-fashioned debunked economic theories in the same vain as "trickle-down-economy".
As an aside, I find this (popular) sentiment quite amusing - what, exactly, is "trickle-down economics" and who can we credit for doing such an apparently thorough job of authoritatively debunking it?
I think "trickle-down economics" is usually a synonym for the Chicago School, promoted by Milton Friedman and exported (often forcefully) by the US government.
As for who's responsible for 'debunking' it, Thomas Piketty is the name I'd usually associate with popularising the skepticism towards the Chicago School.
No Friedman acolyte that I'm aware of would actually endorse wealth transfers to the rich in the hopes that it would "trickle down" to everyone else. It's a simplistic caricature of a broad system of thinking that seeks to maximize individual economic freedom and broadly minimize taxation and unnecessary regulation.
Which movie was that when someone wanted to arrest a guy in Curaçao and the local police was like: "No no! Can't do it front of the bank! It will scare off other clients"?
I googled 'bbc documentary cayman islands bank security guard' to try to find a documentary I saw a while ago. I found it, it's called 'Britain's Trillion Pound Island: Inside Cayman' which follows a guy who is trying to go inside a building in the Caymans that houses these infamous letterbox companies.
Jacques Peretti standing outside Ugland house: "Obama got it wrong: there are nearly 20,000 companies in there [not 12,000]":
The Netherlands' primary business model is facilitating tax evasion (and thereby stimulating an influx of shell corporations here that pay a nominal amount of money for a "tax deal"). I'm genuinely confused why you think it doesn't make sense in this specific case (or in general?).
Why doesn't it make a lot of sense? It requires for companies to have some representation here, probably the have a board of directors and a board of directors is where a retired politician usually goes to after their political career. You wouldn't want to scare the people away that will give you a really well paid job for hardly any work at all, would you?
We're still looking at the same people forming a new government after 10 years so the majority of Dutch people must absolutely love their achievements like the worst housing crisis since the Second World War or capitalism-presented-as-religion shit like this.
> Why doesn't it make a lot of sense? It requires for companies to have some representation here, probably the have a board of directors and a board of directors is where a retired politician usually goes to after their political career. You wouldn't want to scare the people away that will give you a really well paid job for hardly any work at all, would you?
The best thing for the middle and working class would be broad-based tax cuts, and yet the political narrative in most developed countries continues to be unabashed "hose the rich" tripe that in every case results in a larger burden on working and middle class families, often indirectly through a higher cost of living.
It's rational for large companies to spend basically up to the amount they would lose to taxes to legally avoid them. No individual can marshal those kinds of resources.
The better solution than continuously trying to find more and more ways to tax everything is to simply lower taxes, thus reducing the incentive to avoid them.
I even see this as a moral imperative, since top marginal personal income tax rates > 50% (not even accounting for sales tax, property tax, payroll tax, etc.) in many developed countries are tantamount to theft in my view.
The real fix is taxing revenue, not profit. The 50 shell companies here are surely useful to Uber, but the core problem here is that Uber is at least on paper non profitable, and therefore doesn't owe taxes. The fact that it plays some kind of shell game is likely due to the fact that the concept of profit depends on how the boundaries are drawn, and it wants to ensure that it controls those boundaries, such that no part pays any taxes.
Overall however, in the current system used pretty much worldwide (I believe?) it's reasonable for a loss-making company like Uber to not pay any taxes. The problem is in the approach, not really in the ridiculous shell companies.
Assuming you (or the corporation) have no money - yes. That's exactly how it works for individuals, and how it should work for corporations too; they would need to take a loan (or dip into capital) to cover the 50$ loss, and would then similarly need to cover whatever tax was on revenue. Obviously taxes on revenue would not need to be as high as on profit to generate the same tax income, so for most businesses this is fine - but low margin businesses would need to raise prices slightly. On the other hand, if large corporations actually payed their share, income taxes would likely be lower, and it would be easier for smaller competitors to compete with larger corporations that can afford to profit-shift.
It would also be hell of a lot simpler, because all those crazy shell company incentives go away, and it's also much clearer what's deductible (not a whole lot).
> Obviously taxes on revenue would not need to be as high as on profit to generate the same tax income
No income has been generated by a business running at a loss. You had a number of things. Now you have less. Nothing was generated. You can distribute all you want, but you have less all of the time.
> It would also be hell of a lot simpler, because all those crazy shell company incentives go away
There's nothing wrong with shell companies. If you want to do anything, you have to register a business. It's just lazy journalism.
As an individual, if you spend more in a year than you earn, are you still required to pay taxes? Of course.
Whether or not a corporation is profitable is not relevant. A corporation that is consistently loss making may fold slightly more quickly - that sounds like a good thing.
But a corporation that has any control over its prices yet has low margins shouldn't be troubled by this - other competitors are likely in the same boat.
Taxing revenue instead of profit encourages high-margin businesses, which is fine by me; and it doesn't subsidize loss making - also, fine by me.
Shell companies aren't hugely problematic, but they are problematic.
Problem #1: every extra corporation is problematic, because of the built in risk-collectivization - i.e. excess profit is privatized, but excess risk is protected by bankruptcy. Having networks of cooperating corporations can make it easier to push losses onto others, which incentivizes worse than zero-sum economic behavior.
Problem #2: complexity. Complexity is bad; it simply introduces friction, and unforeseen consequences. Notably, stuff like the double irish with a dutch sandwich not only required various limitations in irish and dutch law, but also the ability to create arbitrary corporations. Each law taken by itself seems reasonable, but the interactions in combination with the complexity that shell companies enable allows for undesirable consequences.
Problem #3: Lack of transparency. It's easier to hide fraud or simple unwanted behavior when things get complicated, or even when things involve multiple jurisdictions. Economic actors - i.e. us - don't behave randomly, we look for opportunities. And people will take opportunities that are to the detriment of society, whether entirely legal or not. The ability to see those problems is critical to being able to mitigate their consequences, or solve them outright.
So yes, I do think shell companies have an intrinsic cost. I'm not sure what your background is, but to pick a simile - it's kind of like the cost of lock-free multithreading - it may appear to work, but the chaos can hide bugs that are hard to find, and hard to pin down, and fixing one may introduce another. Having decent, comprehensible abstractions helps, but legal systems aren't easily engineered top-down like that; they're evolved in each jurisdiction separately, and piece by piece, with lots of input from the very bad actors that are abusing the loopholes. It's unlikely we'll find ideal "abstractions" in that world if they even exist; so keeping things as comprehensible and simple as possible is a boon.
Shell companies without actual economic value represent complexity and are thus bad.
The US has ensured it gets its own share of the pie with jurisdictions like Nevada, New Mexico, Arizona and Delaware. The OECD offshore grey/black list is just a farce that ensured dark money moved from the traditional "Hollywood-jurisdictions" like Switzerland, Vanuatu and Cayman to places that are considered "clean".
Here is an excerpt from Treasure Islands: Tax Havens and the Men Who Stole the World[1]
> American corporations could cook up a version of what was known as a “Dutch Sandwich”—set up an offshore finance subsidiary in the Netherlands Antilles, then use it to issue tax-free Eurobonds and send the proceeds up to the American parent. The United States could argue that it did not have to tax this income from the Antilles, under the rules of its tax treaty with this former Dutch colony via its postcolonial relationship with the Netherlands.
The U.S. Internal Revenue Service could easily have decided that the Dutch Sandwich was a sham and taxed the
income. But it looked the other way. “These were Eurobonds, bearer bonds, which were virtually impossible to
tax,” explained Michael J. McIntyre, a top U.S. expert on international tax, who was one of very few people in the
United States to have opposed this at the time. “You British people were quite happy about (the tax-free, secretive Eurobond markets). And we wanted in. We wanted to attract the hot money too.”
> The United States sells financial secrecy not just at the federal level but at the state level too. Delaware is the biggest state provider of offshore corporate secrecy, but Nevada and Wyoming are the most opaque: They allow
bearer shares, a vehicle of choice for mobsters and drugs smugglers, and they are particularly lax on allowing
company directors and other officers to be named, hiding the identities of the real owners. Nevada does not share tax
or incorporation information with the federal government and does not require a corporation to report where it does
business. The IRS has no way of knowing whether a Nevada corporation has filed a federal tax return. Arkansas,
Oklahoma, and Oregon are also routinely used for fraud by eastern Europeans and Russians, and, as noted, Texas and
Florida are havens for illicit Latin American wealth. In the 1990s, the U.S. government gave millions in aid to
help the former Soviet Union countries improve the security at their nuclear power plants. Much of it went missing. When the U.S. Department of Justice went looking for the money, investigators finally tracked it to anonymous shell
companies in Pennsylvania and Delaware. Most cases involving financial market manipulations that the FBI has
studied have involved U.S. shell companies from these states. The notorious “merchant of death” Viktor Bout,
inspiration for the character played by Nicholas Cage in the Hollywood film Lord of War, alleged arms runner to the
Taliban and other murderous organizations around the globe, operated through businesses in Texas, Delaware, and
Florida.
As soon as I read "In 2019, Uber claimed $4.5 billion in global operating losses ... in reality, it brought in $5.8 billion in operating revenue." I think either whoever wrote this has no idea what they are talking about, or they are trying to trick readers.
"in reality" implies there is a contradiction or fraud, when it's totally possible to have $5.8 billion in operating revenue and still make a $4.5 loss. All this actually says is that Uber spent $10.3 billion in costs (or thereabouts, depending on how they account for other things).
Don't get me wrong. Uber probably are doing something dodgy, with all these shell companies, but this opening remark just shouts "Don't trust this source - they don't know what they are talking about".
> Uber probably are doing something dodgy, with all these shell companies, but this opening remark just shouts "Don't trust this source - they don't know what they are talking about".
Uber, like all massive companies, are always doing dodgy tax avoidance things. But, even if they're doing tax avoidance, it's still legal as long as it's not blatant fraud.
Like all media companies, Business Insider has manipulated the content to cause outrage with their target markets for readers.
Though, on the topic of wording data, it's always interesting to see how media organizations & companies as a whole swing things, for example:
"Uber claimed $4.5 billion in global operating losses ... in reality, it brought in $5.8 billion in operating revenue" could've been written as:
"Uber brought in $5.8 billion in operating revenue, however, declared a loss of $4.5 billion"
or
"In a 2019 filing, Uber declared a $4.5 billion loss, despite earning $5.8 billion in operating revenue."
Business Insider either does not understand the difference between revenue and profit or they would like to manufacture outrage among their readers
Corporate taxes are paid on profit, not revenue.
As a consolation for those begrudging their tax accounting scheme, operating Cashflow is still negative, meaning they are bleeding cash. How would you turn a profit while losing money from operations?
If that does not improve, Uber in the end may not be a viable business.
I earn 300k, pay the rent at 50k, then my right hand pays 450k to my left hand and I claim a 200k loss.
Not that I disapprove of that, I just wish I could pull the same trick with HMRC - I'm just not rich enough or in friendly terms with governments overseas to do that.
One would think that the logo of the company would be enough to make sure everyone knows where the name comes from :)
At first I though it was kind of macabre, but then I got reminded that it's basically standard practice, exterminators frequently have bugs as their logo, bacon packages have happy pigs and so on.
Weirdly, I read this whole thread and assumed people were referring to shell in the form of an empty sea shell, representing an analogy to remnants of a now-dead life form. Which is what crude oil pretty much is.
I didn't even think "shell corporation" until I read your comment.
Uber might be very sophisticated in its tax avoidance, but it's probably not a good example for research... inasmuch as the research has a policy focus.
Uber lose money. Corporate income tax is paid on profit.
These article frustrate me: "In 2019, Uber claimed $4.5 billion in global operating losses (excluding the US and China) for tax purposes — in reality, it brought in $5.8 billion in operating revenue."
Unless I'm missing something, these aren't contradictory. Uber really does lose money. That doesn't mean that there's nothing more to say, but it doesn't imply what the article article seems to think it does.
A business publication should have basic accounting literacy. This feels like a collection of other people's tweets, with more information lost than added. I suspect the author has not even read his own sources, beyond headlines.
If Uber lost 4.5 billion, that also means they spent at least that much money. That's a lot of people who were able to sell good and services. That's actually a good thing. And while spending this money, Uber provided a useful service.
Besides the journalist apparently not understanding how taxation works, the phrasing is used to make the situation sound nefarious without providing any evidence. 50 shell companies? Ok...? What if it was 20, would that still be suspicious? Or just 1? How many are ok? What are they used for? No info at all. The entire 'article' is a bunch of random remarks with no context.
This is not journalism. This unresearched text belongs far down in somewhere in a comment field.
Why this isn't stamped out ruthlessly?
Because of this we don't have good competition. How can you compete with a company that don't pay taxes?
Unless you are backed by bottomless VC, you cannot.
Maybe that's the thing - these big investors and big corporations have money to make sure politicians won't do anything about it.
Even if it was to segregate liability for individual pieces of IP, it still seems excessive
Many jurisdictions offer a single entity with segregated limited liability. Specifically “Segregated Portfolio Companies” or Series LLCs offering the same concept in other jurisdictions.
Would seem out of character for the Netherlands not to have this in their catalogue of entities, since they were the first to do the modern share company.
> Why is this not written in international law and closed once and for all?
Because there is no single document for "international law" that you can just change. International law is basically word-of-mouth agreements and norms bunch of countries have, of what they agree to follow, without anyone actually being responsible for creating, maintaining and enforcing them.
Basically, international law is as far away from "law" as you can get in the traditional sense, and a bit of a gentlemen agreement today.
The laws come from EC and they can keep pushing it until it passes as with many things. There must be a conflict of interest in the EC if they don't do it. Such changes should be a no brainer - the famous levelling of the playing field.
Its pretty much pointless though, if you can't move all your revenue to an ip holding company, you just have to make it slightly more realistic.
In case of Starbucks: they move a ton of their profit to a coffee bean exporter from Switzerland which they own themselves. And how should a government say how expensive those beans can be?
Any company can outsource part of their revenue to a subsidiary in a different country like that and it would be extremely hard to encode in law when they wouldn't be allowed to do this "because of taxation". Uber could for example move their cloud management costs to some company in a low tax country, or maybe have their developers outsourced to some low tax country. How would you decide that is "valid" outsourcing vs "tax cheating" outsourcing?
I think for companies that big, they should be required to launch a tender just like public sector e.g. for a supply of beans. This means their own beans company would be excluded because of conflict of interest. It won't stop them from delivering beans to other companies though, but it will make a tax fiddle much more difficult.
AFAIK, most countries like the US go for a tax on profits, but profits of a multinational country are extremely hard to "locate", as in: in which country was the profit made?
Some obvious examples are IKEA stores licensing the rights to the IKEA brand from some company in the Netherlands, which means most stores in the US almost have no profits.
Or starbucks USA buying extremely expensive (but high quality they say) beans from a company in Switserland... which is also part of the multi-national Starbucks holding.
These are obvious examples, but it is almost inherently hard to define where profits are made for a multi-national company as they almost always have revenue streams going in many directions and who says which national company is really adding value while others are almost profitless?
Otoh a revenue based system would also be rather hard to manage, especially if you want to prevent double taxation (both countries in the equation taxing the same revenue) as that almost requires profit based taxation again.
This is why I'm keen on seeing corporation tax on profits abolished because it's pointless most of the time.
If you want to tax it properly, rather:
- tax sales in the country where things are sold, this is the price of access to that market.
- tax distribution of income and profits to shareholders and staff where they work and live, that's the price of access to the society they live and work in.
- tax distribution of the gains of selling shareholdings where the beneficiaries of these live and work.
- if people spend in a country different from where their earnings are taxed, the sales tax will still get them.
The above is actually how the vast majority of tax is collected anyway, it doesn't really matter if a company paid 0% corporation tax on profits when they generated much more sales and income tax than any tax on their profits will ever be. It just doesn't make great rage inducing headlines and soundbites for politicians.
I think the best political strategy would be restructure corporation tax to simply be a component of the above sales and income taxes
The question is how much tax they should pay. To be fair and avoid double taxation, you'd roughly want to tax revenue in the US minus costs made to create that revenue. That quickly devolves into an endless fight to define exactly what contributes to US revenue, and which costs are made to create the US revenue.
It's easier to workaround that endless fight by ensuring that it doesn't matter where tax is paid.
Lol. The government provides stable society which allows for any company to function. Without government, Musks and Jobs of the world wouldn't even get to their first million, as they'd just be robbed and killed on their way there.
My six years of dept free, tuition free education in computer science earning me a M.Sc. with government student housing subsidies and monthly pay is "the government doing absolutely nothing"?
And it is morally warranted that I do what I can to avoid paying taxes when I employ online?
You mean all those companies that grew and educated their employees in test tubes on Mars from whence they telecommute using their own inter-planetary network infrastructure?
Or, we can enforce the spirit of the law (companies with equal profit pays equal amount of tax or similar) rather than enforcing the letter of the law. You know, how we deal with lawbreakers otherwise. It's exactly the reason we have space for interpretation in laws in the first place.
The problem is that there is a risk/compliance trade-off.
"The law" is not a compiler that compiles or not. Heck, companies can report whatever they want and get away with a certain chance. If you do the math it might even be probabilistically beneficial. But that does not make these actions social or socially beneficial or morally right.
Yeah, I too hate it. Just because something is legal does not make it moral. We could use the same argument for the bankers who caused the subrime mortgage crash or for dictators who rob their own countries blind.
It's convenient to think this is some simple tax loophole that needs closing, but that's unlikely. Those 50 legal entities likely have no profit (on paper) due to fairly arbitrary pricing of intellectual property and the loans. It'd be interesting to see where the profit ends up disappearing into - if anywhere at all, because Uber isn't profitable IIRC, and it's profits that are taxed in major jurisdictions (IIRC, IANAL, I bet there are thousands of exceptions).
The real problem here isn't the dutch sandwich, it's the very notion of taxing profits. We should not tax profits nor capital gains; we should tax revenue and ownership - those are much harder to game. After all, that's what we do with individuals too.
Such taxes are, in principle, not new: VAT is such tax. When implemented properly, those taxes have the additional benefit that they encourage participation - after all, you get to deduct VAT already payed on your inputs when paying VAT on your outputs.
This is a much more resilient model, and thus a better basis for for corporate taxation; and it's open to tweaks (e.g. discouraging hyper-complex legal structures by allowing less than 100% deduction for input VAT); it's potentially regressive, but if you acknowledge that, you can attempt to compensate for that by altering (or even dramatically reducing) income tax, and considering measures such as universal basic income, and choosing to have lower tax on human consumables (food) than on e.g. services (vacations or medical care).
Fundamentally though, the real problem here is that profit is a mirage; it's much too easily distorted, especially with flexibly interpreted valuations of ever more intangible goods we have today. Transactions however, are at least a little harder to fake, so those should be where taxation takes place if possible.
Another advantage of VAT is that it can be levied by a consuming country; the US could simply impose this, and mostly ignore whatever shenanigans in corporations try to pull in foreign jurisdictions.
Which isn't to say VAT doesn't have it's issues (e.g. https://en.wikipedia.org/wiki/Missing_trader_fraud ) - but by and large those are much more easily dealt with, and easier to clearly label as fraud, not merely clever and antisocial but legal tax avoidance. And perhaps somebody can come up with something even better than VAT; but regardless - I'm pretty sure playing whack-a-mole with profit-shifting tax avoidance isn't going to lead anywhere very quickly.
If I were playing the game at that level, I’d do it too. The best I can do to evade my taxes is to get customers to pay me via cryptocurrency which I then sell to people locally in person in cash for a 10% discount.
The real issue right there. This set up is actually costly and is only beneficial above a certain revenue. If anybody could do that, then it wouldn't be a problem, the fact that it can only profit big companies and not the little guy is the very moral issue with that tax set up. They roughly spend a few millions to save a few hundred of millions in taxes.
Basing a business on the availability of roads and traffics regulation (lights, etc.), payed by the public and not paying money for it shows us lots of the psychology of the decision makers: "We are not the stupid, tax paying public, we are something better."
