15% Global Minimum Corporate tax and tax evasion

[Number Six]

A good article in the NY Times on the proposed 15% minimum global tax on corporations: https://www.nytimes.com/interactive/202 ... e=Homepage

As the writer pointed out what corporations are engaging in by offshoring for lower taxes is in fact tax evasion:

"This is tax evasion, plain and simple. When a company logs billions of dollars in profit in a shell company, it violates the spirit of the Internal Revenue Code’s economic substance doctrine, which states that a transaction must have a purpose other than to reduce tax liability."

Also those enabling and facilitating such conduct are unethical and immoral business people.

[The Observer]

I wasn't able to read the article link since I am not a subscriber to the NY Times. But I do note that the article was labeled as an opinion piece, thus meaning it is a biased article and represents a particular point of view, regardless of any other facts that may tend to contradict or disprove its conclusion(s).

As many of us have pointed out before, tax evasion is a criminal act that breaks the laws that define income and what must be reported as taxable. If the law allows for a company or an individual to avoid tax by structuring or sheltering their income, then they have not evaded the tax, meaning they have not broken the law.

It is obvious the author of this piece is either ignorant of this fact of how the law works or simply ignores it. I cannot tell since the detail in the article is not available to me. But it is obvious that they are coming from a moral stance in regards to what they believe that businesses should be paying in taxes. That is fine as it goes - if Congress wants to change the laws to tax shell corporations at the same rate as the related corporation, then the author has every right to urge Congress to do so. But to call it tax evasion is legally incorrect, intellectually dishonest, and manipulative of the author's readership.

Not really a good article then, if the author has to stoop to those kind of tactics.

Also those enabling and facilitating such conduct are unethical and immoral business people.

No. Again, those people understand what the laws say and allow individuals and businesses to do with their income. Blaming them for immorality and being unethical (in spite of the fact that they are within the law) is typical behavior of childish envy and resentment.

[JamesVincent]

As the writer pointed out what corporations are engaging in by offshoring for lower taxes is in fact tax evasion:

No, it's not. As Obs and multiple others have pointed out tax evasion is a criminal act, moving your headquarters overseas is not and is much smarter than leaving it here in a high tax and hostile environment. And for companies that did quite a bit of sales overseas before the TCJA it was even smarter since they would have had to pay up to 35% in repatriation taxes just for the privilege of bringing their money back. Article looks like another one written by Johnston, or someone similar, that bitches about things they really have no clue about just to make a political point.

[AnOwlCalledSage]

...moving your headquarters overseas is not and is much smarter than leaving it here in a high tax and hostile environment.

Presumably Number Six also believes that companies that incorporate in Delaware are also criminals !

[JamesVincent]

...moving your headquarters overseas is not and is much smarter than leaving it here in a high tax and hostile environment.

Presumably Number Six also believes that companies that incorporate in Delaware are also criminals !

Or people that move to places like Florida since they have no personal income tax.

[wserra]

It is obvious the author of this piece is either ignorant of this fact of how the law works or simply ignores it.

I read the piece. The authors argue that the activities of companies like Apple and Facebook in doing what amounts to exporting profits (but not operations) to places like Ireland violate the "spirit" of the economic substance doctrine. I agree with Obs that this is badly imprecise, for a couple of reasons. First, of course, evasion is criminal by definition, and violating the "spirit" of a law is not. Second, the economic substance doctrine is itself imprecise, and lends itself poorly to use as a yardstick for alleging criminal behavior.

On the other hand, I agree with the authors that the business purpose of such activities does seem limited to avoiding taxes.

[AndyK]

If Congress is stupid enough (or subservient to donors) to pass legislation enabling these activities, then it is the corporations duty to their shareholders to take advantage of them.

Remember: avoidance good; evasion evil.

[JamesVincent]

On the other hand, I agree with the authors that the business purpose of such activities does seem limited to avoiding taxes.

I don't disagree. We've talked before about Apple moving their headquarters to Ireland since they had lower taxes in general and 0 taxes on exports if memory serves. However we should be learning from that and adjusting our own legislation if we want to stop that or make it more profitable to operate here. From what I've seen this country has some of the best personal taxes in the world, certainly much better than the EU nations that everyone seems to want to emulate. However our business taxes have always been among the worst. Even after the last set of cuts they were made to be almost competitive, still not even close to the best.

[The Observer]

We've talked before about Apple moving their headquarters to Ireland since they had lower taxes in general and 0 taxes on exports if memory serves.

Yes and Ireland isn't in favor of the proposed global 15% minimum. The reason is that they charge a 12.5% rate and that obviously is a very competitive rate to attract business. In essence, countries needing capital and foreign investment are going to be motivated to offer lower tax rates; agreeing to a global rate will remove that incentive as companies are not going to spend extra money to maintain a presence outside of their own country. Given the broad support for the global 15%, Ireland may have to accept it for political reasons, but I suspect over time, the agreement will be eroded by countries going through economic slumps or needing capital for infrastructure. Either they will lower the rate or else will offer some sort of kickback to companies that are willing to report income through their country.

Of course, with the US with a current 21% corporate rate, and the Biden administration wanting to increase that to 28%, there is probably no reason for Ireland to fear losing corporate taxes from US companies if they agree to the 15% global minimum.

[noblepa]

Everything that has been said is absolutely true.

No one, or no corporation, has an obligation to pay more in taxes than the law calls for. Violating the "spirit" of the law is not a crime.

However, I think that a lot of people are of the opinion that, the law allows corporations to pay less tax than they ought to, given the fact that they operate in a country that provides a business environment that allows them to thrive. The same is true for millionaires who pay little or no taxes.

I think that the proposed treaty is an attempt to change the laws, so that corporations can not avoid paying their "fair share", whatever that is. I suggest that zero is not a fair share, but don't ask me to define the term.

I think that there is something wrong with the law, when it allows Donald Trump to pay $750 in federal taxes, while you and I pay thousands. That $750 is a tiny fraction of one percent of his income, while most of us pay 15 percent or more. Or, when General Electric pays zero, which they did a few years ago.

I'm not suggesting that struggling companies be subjected to an additional tax burden, but many of these corporations are fabulously profitable. Apple, for example, has more cash on hand than many national economies.

[JamesVincent]

I think that there is something wrong with the law, when it allows Donald Trump to pay $750 in federal taxes, while you and I pay thousands. That $750 is a tiny fraction of one percent of his income, while most of us pay 15 percent or more.

Good thing he didn't and that is political.

[The Observer]

However, I think that a lot of people are of the opinion that, the law allows corporations to pay less tax than they ought to, given the fact that they operate in a country that provides a business environment that allows them to thrive. The same is true for millionaires who pay little or no taxes.

And that is an issue that gets down to politics because everyone will have an answer as to what they think a millionaire or a big corporation should pay - including the millionaire and big corporation. Thus, the reason for lobbyists, PACs, tax specialists, etc. to exist and to influence Congress to craft a tax law that meets their particular idea.

I think that the proposed treaty is an attempt to change the laws, so that corporations can not avoid paying their "fair share", whatever that is. I suggest that zero is not a fair share, but don't ask me to define the term.

Yes, as above, everyone has an idea what is "fair" but to reach a consensus of what is "fair" really is a rather hard task. But I suspect that even some countries will still have different ideas despite the global 15% agreement, some will think Apple should pay more (such as France, which levied surcharges against Apple over the years) and some will think Apple should pay less. At least the law has one thing in its favor that it is trying to level the playing field - in that sense, I would say the word "fair" is more accurate.

And I think that is the real issue behind the attempt by some to make it seem that the corporations are "illegally evading" paying taxes. Since they believe that they cannot win the debate on achieving whatever tax rate they believe should be imposed, they will try to force this into a issue over morality and ignore the fact that these corporations and millionaires are following the law as it currently exists. That is my issue with this thread: that failing to achieve a desired political result, the proponents of higher taxes want to manipulate people into believing the wealthy are committing crimes and are morally bankrupt. I certainly have ideas of how the wealthy should be taxed and how much of their income should be taxed, but that is pointless to bring up and would incur a political debate - which we don't do here.

[Arthur Rubin]

I think that there is something wrong with the law, when it allows Donald Trump to pay $750 in federal taxes, while you and I pay thousands. That $750 is a tiny fraction of one percent of his income, while most of us pay 15 percent or more.

What makes you think Trump has realized or recognized income? Best theory I've seen is that he borrows through enough shell corporations which then declare bankruptcy and do not issue 1099C's, and the bankruptcy court can't trace the funds to a corporation that still exists. This would be bankruptcy fraud, rather than tax evasion.

No, I don't have direct evidence of his current income. However, this is not political; he was (yes, there is evidence) doing this long before he became president, and would undoubtedly continue to do it as long as he is not caught.

[The Observer]

However, this is not political...

But it is drifting away from the thread topic and is tangential to politics. I recognize that you didn't start this drift and are only responding to an earlier remark. Given that Trump is a former president, he is an easy mark and too tempting of a target that would easily result in politics being injected into this topic.

Let's move on from the issue of Trump's taxes and get back to the core of the thread which is whether the article is accurate in regards to whether corporations are evading or avoiding tax. Otherwise I will lock the thread down.

[Burnaby49]

The consensus from commentators who've worked in tax (such as me) or are knowledgeable about the details of taxation is that it is avoidance. Entirely legal as long as you stay within the law regardless of the gyrations you have to make to do so. Commentators who think in moralistic terms, the nebulous and entirely subjective 'fair share' argument, think it is evasion. That's the argument that's been beaten to death and, since it comes from different world-views rather than through analysis of legislation, can't be resolved.

[Famspear]

[ . . ] Let's move on from the issue of Trump's taxes and get back to the core of the thread which is whether the article is accurate in regards to whether corporations are evading or avoiding tax.[ . . . ]

In fairness to Jesse Eisinger, Jeff Ernsthausen and Paul Kiel, the authors of the June 8th ProPublica article ("The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax"), if the word "evasion" appears in the article itself, I have missed it. Also, the authors say:

The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.

(emphasis added).

The authors' problems come with statements like these:

The confidential tax records obtained by ProPublica show that the ultrarich effectively sidestep this system.

America’s billionaires avail themselves of tax-avoidance strategies beyond the reach of ordinary people. Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell.

I think that the authors are trying to give the impression that these tax-avoidance strategies are "beyond the reach of ordinary people." That is arguably false. The wealthy individual can, however, arguably use such strategies to greater benefit than can the average person.

The authors are also giving the false impression that the general U.S. Federal income tax law rule (that unrealized gains are not normally included in gross income) somehow does not also apply to the gross income of low net worth and moderate net worth individuals.

One thing the authors are failing to do is to clearly describe their motivation for the article, based on what appears to be their conscious, semi-conscious, sub-conscious, or unconscious feelings. (Disclaimer: I have no expertise in psychology.) As I noted earlier in this thread, the feeling appears to be that being a billionaire is unfair. Large disparities in net worth among individuals is, for these guys, a fundamental unfairness. Disclosure of one's motivation for writing an article is not necessarily always something that should be "required" but, in this case, I would argue that motivation is particularly important.

My sense is that the article is an attempt to appear to be presenting an objective analysis of one aspect of the U.S. Federal tax system, but that the article is really an attempt to express a subjective feeling or belief about the unfairness of having some people be very wealthy while other people are not wealthy.

This does not necessarily mean that the authors have not made some cogent arguments that the entire system -- income tax, estate tax, gift tax, etc., should not be reformed.

[The Observer]

I think that the authors are trying to give the impression that these tax-avoidance strategies are "beyond the reach of ordinary people." That is arguably false. The wealthy individual can, however, arguably use such strategies to greater benefit than can the average person.

But even certain strategies may be beyond the reach of much of the wealthy, and only available to the ultrawealthy. Today there is an article based on the Pro Publica leakage that shows that LeBron James paid 3 times the tax that Steve Ballmer paid, even though James earned $500 million less than Ballmer. Turns out that purchasing a sports team allows owners to a big chunk of write-offs against their income - and all legally. Owning a professional team is very expensive and certainly LeBron James, no matter how well he plays, is going to be able to purchase one on his own (though he probably could do so in league with other people in the same boat, it's just not clear if he could reap the same amount of write-offs to defer the same percentage of income that Ballmer did).

[The Observer]

In fairness to Jesse Eisinger, Jeff Ernsthausen and Paul Kiel, the authors of the June 8th ProPublica article ("The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax"), if the word "evasion" appears in the article itself, I have missed it.

The article I was referring to was the one that is the subject of this thread, the NY Times article. Not the Pro Publica one. The
NY Times article does use the word - and of course since it is an opinion article, they can get away with doing it. But both articles were prompted by motivation on the respective authors' parts and I agree with you that in the interest of intellectual honesty they should openly divulge that motivation rather than just focus on manipulating the conversation, hoping that people will come up with the term "evasion" on their own and jump to conclusions.

In other words, they should just say it is unfair that Apple, Ballmer, Bill Gates, etc. have billions of dollars and that they should pay more tax. Then they should come up with logical and cogent arguments why that should be so.

[Duke2Earl]

I worked in the tax world for 40 years before I retired. I know all about avoidance and evasion. But I also know about perception and fairness. The law must be changed to eliminate "gyrations." It is simply not acceptable for the rich and ultra profitable businesses to pay little or no tax. If they do so within the law then that only proves that there is something seriously wrong with the law and it must be changed. This is not some sort of game that if you hire the right people and make the right moves you can win. What we are talking about is the very basis of democracy and self government....that all people are treated equally. This is a part of what fuels the anger we see everywhere these days. People are angry because they believe they aren't treated equally or fairly. The "gyrations" of the rich are pouring gasoline on that anger. Fixing the tax system to create fairness is critical.

[AnOwlCalledSage]

If they do so within the law then that only proves that there is something seriously wrong with the law and it must be changed.

But this often happens if there is something "seriously wrong". In the UK I worked with people I managed, who did the same work as me, but who set themselves up as "self-employed contractors" and my company paid them on unending contracts as it benefited them both. HMRC enacted IR35 rules which said that they were de-facto employees and still had to pay income tax and NI. There was a lot of squealing from my reportees. How I laughed!

The problem is not normally taxing income, it is "wealth". This is not usually income until it is realised. Most countries do tax it in some form when it is. I have no real answer to how you tax wealth where it consists largely of unrealised assets. An old widow living on her own in an expensive house could just as easily be swept up in any clampdown. Some might say the asset rich bitch deserves it and should move into a caravan. My pension cash transfer value currently is over £1/2m. Should I be taxed yearly on the pot value, when I'll pay tax as I draw it down?

It's more complicated than rich bastards need to be taxed on assets until their eyes pop.