For those wondering how this compares to Panama and Paradise Papers, those were leaks from mostly one company. This one includes 14 spread across many jurisdictions.
Couldn't it just be a matter of scale? In order for the tax savings to outweigh the expensive consultant and account fees, you'd likely have to have a large sum of money to hide.
Yes, that is usually the barrier to entry. My go to example is how the Bezos of the world fund their lifestyles by taking out low interest loans backed by their stocks. The loans are rolled forward continually and only paid off once they die. This avoids capital gains, which is higher than the loan interest. This technique is legal for anyone, but good luck convincing Goldman Sachs to loan you money based on 0.001% of Facebook’s outstanding shares.
GP’s argument, I believe, is that if these techniques were usable by you and I they’d close the loop holes quickly. The reason why they’re not usable by the plebs is immaterial to the basic point. Tax code is very much a “rules for thee and not for me” area of the law.
You're directionally correct, but the threshold is lower. In the US, banks will give you a low-interest loan for up to 50% of your holdings with them (public equities, etc.), starting at $300k. Having $600k+ in liquid investments is unquestionably above middle class, but this strategy is well within reach for many tech people.
But that's for margin. Meaning you use the funds to trade.
It's different than taking a loan against 300k USD in FB shares, because that you can use for everything...ranging from buying a Ferrari to starting a new business.
Is that intentional from IKBR? I guess if they knew they'd raise their interest rate. If people start using this method more and more then it will disappear. Seen this pattern over and over again in many fields.
> having 500k in stocks, selling half of that to get $250k, withdrawing $250k, then rebuying $250k worth of the stocks using margin
Risking money in the financial markets vs. risking them (or again using them) in the real markets are 2 very different things.
There is no equivalent for the SP500 in real life, also real life is very illiquid compared to financial markets.
Plus unless you are very wealthy financial institutions tend to look down on people who want to spend money or have the arrogance to think they can start a business, they always punish such behaviors with higher interest rates.
Also once the money is out of the trading platform and into your checking account you could buy real bitcoin on Coinbase, withdraw to private wallet, flee to South America and never be heard from ever again
>Is that intentional from IKBR? I guess if they knew they'd raise their interest rate. If people start using this method more and more then it will disappear. Seen this pattern over and over again in many fields.
if you search around this method has been around for a while, so it's not some sort of glitch. Plus like I said earlier, it's not any different than using the money to buy stocks.
>Also once the money is out of the trading platform and into your checking account you could buy real bitcoin on Coinbase, withdraw to private wallet, flee to South America and never be heard from ever again
I don't think you understand how this works. They still have your stocks. If you flee to south america they don't really care. Should you fail to meet your maintenance margin your stocks will be liquidated to pay back the loan.
>Plus unless you are very wealthy financial institutions tend to look down on people who want to spend money or have the arrogance to think they can start a business, they always punish such behaviors with higher interest rates.
I think you're ascribing ill will where there isn't any. Banks charge high interest to business and/or personal loans not because they hate poor people or whatever, but because they're risky.
> I think you're ascribing ill will where there isn't any. Banks charge high interest to business and/or personal loans not because they hate poor people or whatever, but because they're risky.
I don't mean to accuse bankers, if anything I meant to stress that this method has something which doesn't add up .
Think about it , even if your net worth is 1M you still have to go through a conversation with the bank before they loan you money. They want to know your intentions, what are you going to do with it and so forth. They size you up, and the 1M net worth doesn't even count as a tool to reduce the burden of questions.
This method instead : you post some securities and you get a loan with no questions asked. It seems too good to be true or intentional from the financial institution side as it completely sidesteps the due diligence process.
>This method instead : you post some securities and you get a loan with no questions asked. It seems too good to be true or intentional from the financial institution side as it completely sidesteps the due diligence process.
It's not any different than going to a pawn shop and getting a loan, no questions asked. They don't ask any questions (aside from any mandatory AML/KYC ones) because they don't need to. The combination of easy to sell/liquid stock and the margin requirement makes it very unlikely that they'll lose their money. If you have $100k worth of stocks, SEC/FINRA regulations means that you can borrow up to $50k, and your portfolio can drop another $25k before they start liquidating your holdings. At that point you still have $75k worth of collateral for $50k worth of loans, so the chances of them losing money is slim.
>The loans are rolled forward continually and only paid off once they die. This avoids capital gains, which is higher than the loan interest.
1. Does this actually work? AFAIK you avoid capital gains, but at the same time you need to pay estate taxes.
2. According to wikipedia bezos is 57 years old. Using the figures from SSA[1], he still has 26 years to live. The 20 year treasury rate (ie. risk free rate) is 1.99% (annualized). Applying that rate over 26 years gets you 66.9%. That doesn't seem like much of a savings over the long term capital gains rate of 20%. The numbers make more sense if you use 3 or 5 year treasuries, but that also exposes you to interest rate risk in the future.
That's talking about something totally different. The parent poster is talking about the tax implications (the gains aren't taxed), whereas you and the article you linked is talking about the potential upside because you're effectively borrowing money to invest.
What is interesting is you can do this really easily in the crypto environment. There are plenty of services that are offering the ability to borrow against your gains to avoid capital gains.
Wouldn't the estate have to sell shares to cover the loan upon death? Or transfer shares directly, but pay the capital gains as though it were a sell + transfer transaction?
And isn't that exactly thing that makes this 'unfair'? If this was a way that everyone could use to lower their taxes, I would have no issue with such practices.
But - as you rightly point out - if that was the case, these loopholes would be closed first thing in the morning. These are loopholes created by the extensive lobbying of an exclusive club of people that do not want this to be available for the common plebs, but exclusive to the rich boys (and gals) club.
So long as wages for top politicians remain not top CEO-level (IMO causing corruption to make up for difficulty and investment made in getting into power) and countries compete in a race to the bottom for taxes and secrecy (which allows for such a system to exist) I really don't see the end of the offshore phenomenon. We really need to push our leaders to action on this issue. The global minimum tax initiative and corruption drives are a start. In my fantasy all-powerful yet noble leader of a country I'd go so far as embargos on nations and sanctions on wealthy individuals to discourage this tax cheating, alas. Shame on tax cheaters, you're stealing from your neighbours.
I see what you mean. I wonder if while cutting CEO pay if we're cutting into meritocracy as a path to financial success and just further enlarging the slice of the pie for existing holders of capital. Right? I understand that wages are obscene but at least they're wages paid to people actively working. Holders of capital have a job to play as well as they seek the best place to invest it, but I feel like capitalism isn't stretching well to the 21st century canvas.
The database does not divulge raw documents or personal information en masse. It contains a great deal of information about company owners, proxies and intermediaries in secrecy jurisdictions, but it doesn’t disclose bank accounts, email exchanges and financial transactions contained in the documents.
Without access to the raw data, you don't know what's being omitted. Say, for example, NK's Kim threatens the ICIJ journalists, and they remove any mention of his assets from their reporting. Who's to know?
IMHO, releasing the raw data in its entirety protects the journalists; if you're the gatekeeper, you automatically become a target.
Some of the people who defend the ultra-rich are also the ones who claim to be in favour of free markets. A small bit of economic orthodoxy is that for free markets to work, parties need to be informed (and externalities priced in, but that's another story). This is not just in terms of "this is the price of bananas" but also in terms of knowing eg what various salaries are, which businesses are profitable, etc.
How can we have free markets when we don't even know who owns what?
As for taxation, there needs to be an overhaul. Things need to be simpler, and I say this as someone who has used international tax advisors. There's no reason the tax guy's diagram of your business should be more complicated than your own diagram. Moving profits to other countries shouldn't be possible, or rather, it should be more fixed by the nature of the business than by the desires of the CFO. We simply hear too much about "selling IP rights" to subsidiaries and similar schemes that are clearly meant to lower tax rather than increase revenue. Granted some things will be legitimate, but it's important that some vague concept of fairness is adhered to. This again goes back to transparency. We invented corporations to help improve society, so we ought to know what kinds of things people are doing with them.
Edit:
Perhaps the way to see it is, if you say "we make money by selling coffees in the UK" you would expect that entity to report a tax structure that contains a bunch of coffee and UK related entries. Reporting to investors ought to mirror reporting to the taxman.
// How can we have free markets when we don't even know who owns what?
Free markets exist regardless of how you choose to assign property to people. Be it violence or consensus. Ownership is to be decided by the parties involved in the exchange. 3rd partys are an easy solution.
> Ownership is to be decided by the parties involved in the exchange.
No, ownership is to be decided by governments who use force to protect property rights. They may take advice from the parties involved in the exchange, they may decide that neither party involved in an exchange was the owner.
No- ownership determines disposition of property, not government.
For instance, in most jurisdictions, a dispute between two (claimed) property owners can only be decided by them, in full agreement, with the courts stepping in only when a stalemate is reached.
But the judge can only decide the dispute, and can't, for instance, arbitrarily issue an order giving the property to a 3rd party, or decide a dispute where one of the parties haven't first come to the court seeking that resolution.
Similarly, a property owner can summon police to help enforce their property rights in the case of a trespasser, but police can't arbitrarily enforce the rights of 3rd parties without request.
> We invented corporations to help improve society
I think it's easy to say this, but I'm not sure the history of corporations bears this out. Technically, the first corporations were colonial expeditionary forces (like the Dutch VOC) that were sent to Africa and the Caribbean to control various types of precious resources and we all know what happened there.
I guess it all depends on who "society" is in your statement, because someone has always has to lose in a corporate structure.
Firsr corporations were basically groups of people killing, torturing and exploiting less advanced civilizations overseas. Over the time capitalism has developed towards more peaceful culture, not the other way around as people often imply.
I'm certainly not trying to imply that capitalism is more or less peaceful than it was in the 17th century, I guess the main point that I'm trying to make is that corporations exist to generate profit, they never really existed to improve society.
A lot of the shifts towards a more humane version of capitalism came through outside forces like organized labor (i.e. the 40 hour workweek, the establishment of child labor law, etc.). These were not things that corporations volunteered, it took lots of people threatening to stop the system in order to achieve many of the benefits we enjoy today. We'd still be working 7 days a week starting as small children if those outside forces didn't establish many of those fundamental changes for us.
The VOC was established by the government because it didn’t like that there were many competing merchant companies. It wasn’t the first company, it was sort of the first public company.
Sure, I'm not trying to argue that VOC was the very first company. Companies of various types date back to the silk road. But large-scale corporations were largely conceptualized during mercantilism and their history is inextricably tied to colonialism, which can't be overlooked when people start saying things like "corporations were created to help society." They helped some people, but they also wiped out entire populations (see the Banda Islands).
That's not correct. Corporations, particularly in the limited-liability sense of the term, are created by society, not people. The laws of a jurisdiction provide a carve-out for a fictional entity that gets special rules to protect the people who act as its brain. But that's different from those people creating it.
And to this end, the only reason to create a corporation is to make society better. If they're not, we have the ability to revoke their charters, and we should use that more.
> And to this end, the only reason to create a corporation is to make society better
I'm sorry but this is patently false, the reason to create a corporation is to capture profit.
Want to make society better? There are numerous non-profit and government organizations that broadly aim for this goal which do not turn a profit. The goal of a corporation is to sell goods or services, and hopefully those goods or services do in fact better society. However, this is far too often not the case to make the argument that corporations exist to improve society. Look at how much control corporations have over our society today, they're practically invincible and indemnifiable in our current culture because they're so much more insulated legally than individuals.
Perhaps I was unclear, but you get that you're lecturing me about what I just said, right? What you are describing is the goal for a person to apply to have a corporation created for them to manage. That's not the reason that society allows corporate charters to exist. Society need not allow a corporate charter to be established that does not benefit that society, and can revoke them should they not be achieving the goals of the society that grants them.
What is the average person’s interest in creating laws aroubd i corporation? Doesn’t it stand to reason that it’s the people creating businesses that would be the ones suggesting the laws that protect themselves from liability?
The fact that corporate charters are never revoked points to the laws being in the corporations favor, not the citizens’
Sorry, I didn't mean to imply that LLC / incorporation has no benefit to society, it plainly does. I was responding to the conjecture that it's society at large that writes the rules. I figure the stakeholders writing the laws are the people who have the most to gain.
I read a lengthy account of US Corporate history in graduate school (whose exact title eludes me at the moment). My impression is that in the US, there was a desire to tie transportation to broader physical markets, and include decreasing costs by owning the warehouse and distribution infrastructure. On the marketing end, a common brand name for a family of products was also owned by the corporation. An important early US example is the National Biscuit Company NABISCO. There were no US national food companies, as each market had the combination of brands, storage and distribution for the food product. The corporation held assets large enough to tie market regions together. It was not a small feat and was very much the Big Markets Tech of the time. Sears and Roebuck from Chicago form a different model, with non-perishable goods.
For international finance, early 20th century oil played a special role, not adequately described here.
As far as the parent comment about corporations "killing people" .. this is true but naive.. since the Romans and before, brutality was the norm, not the exception. Every educated person and most others knew about extreme forms of collective abuse, it had happened again and again. The very formation of civilization, including merchant and trade functions, was generally meant to be an improvement on past forms. Rarely, but with serious circumstance, some merchant company would rape and murder their way to fortune for a while. But karma is a bitch as they say, and those things did change. The tame history I cite above, was specifically aimed at making a better economic engine, for profit by ownership, which upon consideration was the chosen path.
All that would not have been possible without the arrival of "modern" stock exchanges.
Also, their reorganization after each first generation of underhanded practices became recognized, otherwise attention could not have been as well diverted from the ability to leverage greed even more so than leverage the resources of the smaller investors.
>During the 17th century, stockbrokers were not allowed in the Royal Exchange due to their rude manners. They had to operate from other establishments in the vicinity, notably Jonathan's Coffee-House.
NYSE of course is where lots of the money ended up from the international slave trade, and not just from sales in North America.
Seems to me that's what allowed NYC to take the place of London as the world's financial center, since the UK frowned on slavery much eartier than the US.
Also early 20th century oil might have been the only thing with as good or better return than slavery had generated.
Assigned reading will frequently be listed on syllabi. Older versions can be found through the Wayback Machine, if posted online (and from the early 1990s through about a decade ago, many were, unfortunately, integrated school information systems have largely hidden these behind registration walls).
As OP isn't forthcoming with their corporate history text, one of which I'm familiar and can recommend is Charles Perrow, Organizing America: wealth, power, and the origins of corporate capitalism. As a sociologist specialising in organisational behaviour and structures, Perrow brings a deep expertise and excellent scholarship to the field.
They actually wanted a way to raise money for war effort to break free from the Spanish influence.
It was a massive public money raising campaign to build war ships, guns and hire mercenaries, all under the guise of "exploring exotic commercial opportunities overseas".
What I meant is their true motivation and intentions (war efforts) were different than what they made it appear with the VoC capital raising.
EDIT: in "The World's First Stock Exchange" [1], the author outlines this historical context of conflict between Netherlands and Spain, which spurred the VoC and - considered to be - the first stock market.
Yeah perhaps I should say I was thinking more about the limited liability form that got established sometime in the 1800s across a variety of western countries. The government orgs are a thing too, of course, but things that are that closely tied to government tend to have their own access to enforcement.
It's more that at one point during the industrial revolution, it became common that someone would make a private venture, incorporate it, and from there the law granted a number of modern considerations that we still live with. I'm thinking of limited liability and its effect on bankruptcy.
> Technically, the first corporations were colonial expeditionary forces (like the Dutch VOC) that were sent to Africa and the Caribbean
I don’t know the definitive origin, but one of Cæsar’s reforms in the Lex Julia was to require collegia be approved by the Senate (or Emperor) to be considered a legal body. The concept of corporations traces to at least then, almost certainly earlier, since corporate personhood is a logical result of the process of creating a legal system.
The novelty of the English and Dutch trading companies wasn’t their corporate personhood, but their distributed ownership as a joint-stock company.
Minor quibble - there is no single Lex Julia. Any law passed by Gaius Julius Caesar or his heir Gaius Julius Caesar would be called XYZ Lex Julia to distinguish it from previous and later legislation that happened to share the same name.
Sources - Caesar, Life of a Colossus and Augustus, First Emperor of Rome by Adrian Goldsworthy.
The first corporation depends of the definition used. If we are talking about joint-stock companies there were some form in China and in Europe before colonial expeditions to fund capital intensive enterprises like dams and mills (in the rare cases where it was not funded by the Lord/Abbey/State)
Like so
https://en.m.wikipedia.org/wiki/Bazacle_Milling_Company
OP probably also thought about other societies involved, like the Indonesians, who did not really benefit, quite the opposite, and with far more people.
Also interesting that one of the examples given is using Intellectual Property to fiddle taxes. IP itself is another thing that is sold as "being done for the good of society" but if you trace the history, it was basically a way of handing out the King's total ownership of society to his friends, giving them a monopoly on salt or whatever, very similar to giving them a monopoly on trade with india.
I do think both (intellectual property and corporations) can actually be good for society if properly regulated, I just don't think that was the original intention, nor the current status quo and it won't naturally develop in that direction without concerted effort.
one of the firsts things they taught in law school was that the legal system wasn't just created to uphold "justice" but really to protect the wealthy and powerful
"Free" and "market" are contradictions. Markets exist when individuals can amass capital irrespective of wider social needs, and this necessarily requires armed force, or the threat of armed force, to prevent people from collectively deciding about resource allocation. That's the state. Naturally the state also enforces many things besides ownership of capital, some of them better (like minimum wage and health and safety codes) and some worse. But the point is that even if you had the fantastical and anti-realistic "perfect information", markets wouldn't be "free".
At the same time, markets do "work". That is, the results of market interactions are what you might expect from market interactions: Accumulation of capital in fewer hands, economic cycles of various kinds, some motivation for innovation and lots of innovation for exploitation, war, scams and such...
Also, sadly, unmatched competetiveness in the real world. Markets and states evolved because they out-murdered and out-robusted all other forms of organizing.
And you even didn't say anything controversial, hardly any options, but simple facts and conclusions drawn from the facts.
We can even bring out the comments by the Chicago school of economics - the birthplace of neoliberal free market ideology. Who with assistance from the government 'helped' south American countries by implementing more free markets than in USA. And as the result those countries imploded both politically and economically, and what does Chicago say? well obviously markets were not free enough.
They laugh at communist who say failed soviet counties were not communist enough, yet they do exact same thing with their experiments (actually, the difference is that they inflicted it on other countries).
There is no such thing as “free” markets in the US or any other country. All markets are defined and limited by the laws, rules, and regulations in place to enable the market to exist in the first place. Unless you are talking about the “free market” of a lawless failed stare.
You call it "economic orthodoxy" but it's really nothing of the sort. There's not even really a technical definition of "free markets" so I don't know where you're getting your assertions.
I think you're kind of gesturing at the concept of "perfect competition", which is rigorously defined and does have technical requirements [0], one of which is perfect information. But it actually doesn't really apply to the tax situation of the owner.
In other words, for political and ethical reasons, there's a lot of reform that can and should be done, but I wouldn't dress up the argument in the form of "economic orthodoxy", unless you're talking about actual economic orthodoxies like lowering corporate income tax and preferring VAT to personal income tax.
edit: I should soften my confidence here, it's been a while since I did economics. At least, I've never heard of transparency extending beyond the good or service being a requirement for perfect competition... do you have a source for that, or can you clarify how it would affect things?
> unless you're talking about actual economic orthodoxies like lowering corporate income tax and preferring VAT to personal income tax.
Those are more political ideologies than anything.
By economic orthodoxy, I simply mean that it's a fairly common economic teaching that bad things happen when parties are uninformed. For instance Akerlof lemons is about information asymmetry.
I'm not referring to any specific model (monopolistic competition etc) but to the general observation that a fair few economic models point out that having wrong information causes problems.
Are you so sure about that? Think about the CEOs themselves as the lemons... a lack of transparency can lead to the same adverse selection pressure that trends towards "lemon CEOs" flourishing, and pay transparency can help align the incentives somewhat.
I don't understand - there is a job market, and like most markets here is information asymmetry. Companies have more information about compensation than workers. In this situation, having less salary information enable employers to take advantage of employees.
> Reporting to investors ought to mirror reporting to the taxman.
This would be a nice simple GAAR: you pay either the current corporate rate or 20% of the GAAP profits you report in your stockmarket statement, whichever is the larger.
> How can we have free markets when we don't even know who owns what?
Good point, but take a number. We can't have free markets because most "regulation" is set up to favor some side or the other. There isn't even and fair competition. What we have is government sanctioned winners (and losers).
Before we get to who owns what, let's talk about how Uncle Sam can shamelessly put his thumb on the scale (read: bias and corruption) and too rarely be called out for doing so.
Maybe part of solution is higher sales taxes , and less (or zero) other taxes.
Ie tax mainly (only?) at the purchase of a good or service. I don’t recall seeing massive sales tax fraud scandals, atlease at any meaning scale.
Sales taxes are logistically simple but also highly regressive, so the wealthy wouldn't even have to use loopholes to enjoy an ultra-regressive tax system :).
> Why is the point to tax the wealthy more? Why do we want to kill the incentive for starting companies and becoming wealthy?
There isn't any evidence that tax rates much higher than those we currently have have been any obstacle to growth. Perhaps in theory, but many countries around the world and across history (including the United States!) have had much more progressive taxation regimes and it hasn't "kill[ed] the incentive for starting companies and becoming wealthy."
> Perhaps in theory, but many countries around the world and across history (including the United States!) have had much more progressive taxation regimes and it hasn't "kill[ed] the incentive for starting companies and becoming wealthy."
Which countries? And what happens when another country becomes more competitive than the US from a tax perspective? Will it destroy the country? certainly not. Will the US continue to be the world reserve currency and lead the world? Again, no.
The United States had very high income taxes from 1950 until 1980 (and also grew very fast during that period - much faster than in the period 1980-present). It is also worth noting that the United States was actually the leading advocate of very progressive income taxes during that period - convincing many other countries to adopt extremely high top tax rates on the wealthy. Today, most developed countries have higher top tax rates (and more progressive tax regimes) than the United States does - Germany, France, Sweden, Japan, etc. etc.
> And what happens when another country becomes more competitive than the US from a tax perspective?
This is a really important point and I'm glad you brought it up. The progressive taxation regime has been undermined over the past 30-40 years by the "Washington consensus" - the idea that free flows of goods and capital are paramount and that it should be US policy (as well as the policy of the IMF, World Bank, etc.) to pursue such ends via trade agreements and in exchange for loans. The issue is that free flows of capital leads to the exact problem you describe: a global race to the bottom on tax rates and a general nihilism about the possibility of an equitable tax regime. The long term challenge, then, is about building transnational agreements that are about more than just free flows of goods and capital: they must address issues of taxation as well.
The argument (with sales taxes) isn’t usually that they don’t let you soak the rich but that they’re too hard on the poor.
Almost by definition, somebody living paycheck-to-paycheck is spending all their income. So their sales tax bill is going to be basically whatever the sales tax rate is applied to their income (e.g., a 7% sales tax rate applied to all of their income). Somebody who saves some of their income isn’t spending that portion, so in a year their sales tax bill will be smaller than the sales tax rate (e.g., if they save 10% of their income, then they’re only paying sales tax on the 90% that they spent). You could say this isn’t hard enough of the rich, or it’s too hard on the poor. Usually “too hard on the poor” is an easier argument to make.
There are solutions, such as exempting food or other necessities (the poor probably spend a bigger portion of their income on food, so exempting food helps them more), or adding a luxury tax on things that the poor don’t buy, etc. Of course, then there’s an effort to define what should count as a necessity or what should count as a luxury. When I was a teenager, California sales tax did not apply to packaged food, but did apply to food bought at a restaurant. But there were exceptions to both of those cases: there was a snack tax that applied to some packaged foods (the list changed each year) so that some packaged foods were still taxed; and packaged food sold at a restaurant was exempt (I worked at Cinnabon, hot cinnamon rolls were taxed, after thirty minutes on the hot plate we let them cool down, refrosted and packaged them and they were no longer taxed; if somebody asked for packaged rolls when we were out, they got hot rolls in the box without paying sales tax).
It’s also true that “income” isn’t always the interesting number. Somebody with a million dollars in the bank and no income doesn’t pay income tax, but they do pay sales tax. Of course, if the money came from wages in a previous year, they paid income tax then. If the money was an inheritance, it might have been taxed but the US keeps changing the details of the estate tax.
> Because raising taxes isn't going to keep someone who would already be considering starting a business from starting a business.
How can you say that? Have you polled everyone starting businesses? This very thing happened to me with a distribution business in which taxes, and the potential for them being raised, made the business unprofitable compared to the same business running in China.
> Do most people who start a business actually become wealthy?
Subjective and impossible to calculate but by all means because not everybody can find a way we should kill it for everyone right? Because not everyone is smart enough to become a medical Dr, we should ban the profession or implement pay caps right?
> We simply hear too much about "selling IP rights" to subsidiaries and similar schemes that are clearly meant to lower tax rather than increase revenue.
Huh. Made me wonder if advocates of IP reform could claim improved tax sanity as a benefit.
Happily, not an original thought.
Here's the first hit via ddg:
Intellectual Property Law Solutions to Tax Avoidance [2015]
"Multinational corporations use intellectual property (IP) to avoid taxes on a massive scale, by transferring their IP to tax havens for artificially low prices. Economists estimate that this abuse costs the U.S. Treasury as much as $90 billion each year. Yet tax policymakers and scholars have been unable to devise feasible tax-law solutions to this problem.
This Article introduces an entirely new solution: change IP law rather than tax law. Multinationals’ tax-avoidance strategies rely on undervaluing their IP. This Article proposes extending existing IP law so that these low valuations make it harder for multinationals to subsequently litigate or to license their IP. For example, transferring a patent for a low price to a tax-haven subsidiary should make it harder for the multinational to demonstrate the patent’s validity, a competitor’s infringement, or entitlement to any injunctions. The low transfer price should also weigh toward lower patent damages and potentially even a finding of patent misuse. Extending IP law in such ways would thus deter multinationals from using IP to avoid taxes. Both case law and IP’s policy justifications support this approach."
Also...
> How can we have free markets when we don't even know who owns what?
Yup. Open markets require symmetrical information.
I think this hits the nail on the head. Wealth is protected by a vast array of national and international laws and institutions - everything from protection of intellectual property to the technicalities of making sure that you and I can't both own the same piece of property at the same time. In return for this, it's not unreasonable for national governments to require more transparency in terms of who owns what. (By the by, I think the real reason this doesn't happen is the obvious suspicion that it could lead to more progressive forms of taxation, e.g. wealth taxes.)
Alternatively, governments need to open up these schemes to everyone so they become accessible to every middle class person. BUT they 'll also have to compete with other governments about providing better and transparent taxation options. Right now the schemes are limited not only to the rich but to the well connected rich
> How can we have free markets when we don't even know who owns what?
Great. Let's add more paperwork to the incorporation/reporting process.
> As for taxation, there needs to be an overhaul.
Taxation has a hard time changing the current laws because these are revenue for government. It can't do an overhaul but it can make new rules/regulations. Great, more paperwork.
> Moving profits to other countries shouldn't be possible, or rather, it should be more fixed by the nature of the business than by the desires of the CFO.
More paperwork, regulations, rules and advisors. That should simplify your tax diagram.
> Perhaps the way to see it is, if you say "we make money by selling coffees in the UK"
Many economic players are way more complex than a company selling coffee in the UK. These also happen to be the most influential and important nodes in your economy.
tldr: Tax is a really complex issue. ICIJ is, surprisingly, not that transparent in its funding and the people doing the funding/leaking these documents; I'm really doubtful they are doing it because they have "good hearts" or on any goodwill to help "society".
> Great. Let's add more paperwork to the incorporation/reporting process.
Many of the systems required to create a more complete accounting of assets already exist. For example, in the United States financial institutions already generate 1040s for profits/losses/dividends on financial assets; it wouldn't be particularly difficult for those forms to also include the actual assets themselves and their values. Local governments already collect property taxes (which, at various points throughout history have included a lot more than just property - such as cars/boats/etc.; equipment, etc. - so the infrastructure already exists to tabulate these other categories too) - it wouldn't be hard to transmit that data. I'm not arguing that it wouldn't take any work to have a transparent accounting of who owns what, but it's certainly not impossible - after all, we do it for income and no one seems to bat an eyelid. Not to mention that we live in an age of fast and easy electronic communications. Transparent wealth accounts have existed before in much more difficult circumstances (e.g. wealth taxes imposed on war profiteering by various governments after WWII) and it didn't prove to be an insurmountable burden.
> Taxation has a hard time changing the current laws because these are revenue for government. It can't do an overhaul but it can make new rules/regulations. Great, more paperwork.
Taxation is law - in fact, the tax code and how it is structured is probably the most important part.
> More paperwork, regulations, rules and advisors. That should simplify your tax diagram.
There is already an incredible amount of paperwork, regulations, rules and advisors involved in the gaming of the global tax system that already occurs. More transparency around asset ownership would help lead to a simpler global tax regime, not a more complicated one.
> but it's certainly not impossible - after all, we do it for income and no one seems to bat an eyelid.
Certainly, given we’ve been to the moon, will be on mars soon, and are standing on the brink of cures for some of the worse diseases we could figure it out. But then you’ve removed a measure of privacy. Why does everybody need to know what everybody else owns? Then comes the difficulty in tabulating this data. The rich will pay someone to do it. The rest of us will spend even more time each year figuring out everything we own vs got rid of that year.
Progressive taxes are a failure. Millions of words are in the current tax code and it still failed. Why add more words? Flat tax, no deductions, pull it at the income source. QED.
OR, we can keep futzing around trying to implement a “fair” tax code, only to find out in the end it’s impossible
I don't think such a system of accounts would need to be publically accessible. It could work similarly to income taxes - where the public is able to look at robust aggregate data, the IRS is able to collect taxes as necessary, and central banks are able to make good monetary policy based on real data.
> The rest of us will spend even more time each year figuring out everything we own vs got rid of that year.
For the vast majority of wealth that the vast majority of people own (property and financial assets), nothing would be required because (as I mentioned above) there already exist reporting mechanisms for those types of assets.
> Progressive taxes are a failure. Millions of words are in the current tax code and it still failed.
Why do you think progressive taxes are a failure? Taxes used to be much more progressive during a period of much higher growth (1950-1980). Over the last 40 years we've gradually made the tax system more regressive by lowering rates and inserting more and more loopholes (which primarily benefit the wealthy)
> I don't think such a system of accounts would need to be publically accessible. It could work similarly to income taxes - where the public is able to look at robust aggregate data, the IRS is able to collect taxes as necessary, and central banks are able to make good monetary policy based on real data.
OK, what will this do? Nothing.
> For the vast majority of wealth that the vast majority of people own (property and financial assets), nothing would be required because (as I mentioned above) there already exist reporting mechanisms for those types of assets.
Again, it sounds like you’ve changed nothing.
> Why do you think progressive taxes are a failure? Taxes used to be much more progressive during a period of much higher growth (1950-1980). Over the last 40 years we've gradually made the tax system more regressive by lowering rates and inserting more and more loopholes (which primarily benefit the wealthy)
For a few reasons, including the left constantly saying they’ve failed and they don’t have enough money. Another reason is income tax was originally meant for the wealthy, then inflation caught up. With an inflationary currency taxes implemented for the rich only will eventually apply to all, as income tax does today but didn’t before. Not to mention the massive overhead to process all of this data, we literally picked the most complicated way to do this.
It will do several things. First of all, having robust publicly available aggregate data will spur better debate about the equitable distribution of wealth. Second, it will allow the IRS to easily collect wealth taxes should congress authorize those. Third, it will enable Central Banks to make better decisions - right now we're flying mostly blind, so to speak.
> For a few reasons, including the left constantly saying they’ve failed and they don’t have enough money.
I don't think "the left" is saying that income taxes have failed. I think "the left" is saying that income taxes are no longer as progressive as they once were for a number of reasons: (1) top tax rates are much lower than they once were; (2) income and capital gains are taxed differently; the low (and flat) rate of capital gains taxes mean that the wealthy pay effectively lower tax rates; (3) the huge number of loopholes introduced into the tax code predominantly help the wealthy and make the overall income tax regime more regressive than it would otherwise be.
I think the left also argues that income isn't the most accurate measure of an individual's capacity to pay taxes.
> Another reason is income tax was originally meant for the wealthy.
This is simply not true. Income taxes were introduced by most developed countries in the first half of the 20th century as (1) a check on inequality; (2) a reasonable way to expand the tax receipts of the federal government from something like 10% of national income to the 40+% of national income that countries require in order to invest in anything but purely regalian state functions. It has little to do with inflation, and tax brackets are constantly adjusted for inflation in every country that has implemented one. On the other hand, income taxes are progressive so by design they hit the wealthy harder (and always have done).
> Not to mention the massive overhead to process all of this data, we literally picked the most complicated way to do this.
The IRS budget is very small.
That point aside, progressive taxes are meant to tax people according to their ability to pay. A flat tax can never accomplish that. Most progressive taxes fall under three categories: wealth taxes, inheritance taxes, and income taxes. You need to collect a certain amount of data for all of them.
> First of all, having robust publicly available aggregate data
> I don't think such a system of accounts would need to be publically accessible.
Which one is it? Public or not?
> I don't think "the left" is saying that income taxes have failed. I think "the left" is saying that income taxes are no longer as progressive as they once were for a number of reasons
Yes, which I alluded to. Now tell me, when will this end? As I said, we have an inflationary currency, so of course todays taxes will not be enough in the future. Which is why this system is a joke to me. Why are you surprised the taxes are not enough anymore?
> This is simply not true. Income taxes were introduced by most developed countries in the first half of the 20th century as (1) a check on inequality; (2) a reasonable way to expand the tax receipts of the federal government from something like 10% of national income to the 40+% of national income that countries require in order to invest in anything but purely regalian state functions. It has little to do with inflation, and tax brackets are constantly adjusted for inflation in every country that has implemented one. On the other hand, income taxes are progressive so by design they hit the wealthy harder (and always have done).
The first income tax applied to those making more than $600/yr, which means the poor didn't pay. Today, the poor still pays, as that limit was never updated to the new "wealthy" level. Also because the left wanted a larger taxable base, for more $$$$.
Please avoid "other countries" as we're talking about the US and I have no clue or care about other countries tax codes or history.
> That point aside, progressive taxes are meant to tax people according to their ability to pay. A flat tax can never accomplish that.
How so? If you tax everybody at the same low rate, say 15%, then every can pay? Whatever the minimum bracket is in the current system, use that. This will result in less tax revenue, which is why the left hates this system.
Another way to put all of this, if you want Obamacare, lets open up those medical records to the public so we can decide if:
The aggregate data would be public and the underlying data points would not be. Just in the same way it's possible to have a robust discussion of income equality but I can't look up how much money my neighbor earns.
> Yes, which I alluded to. Now tell me, when will this end? As I said, we have an inflationary currency, so of course todays taxes will not be enough in the future. Which is why this system is a joke to me. Why are you surprised the taxes are not enough anymore?
No, this is not true. Income tax brackets are updated every year, and always have been, to account for inflation.
> The first income tax applied to those making more than $600/yr, which means the poor didn't pay. Today, the poor still pays, as that limit was never updated to the new "wealthy" level. Also because the left wanted a larger taxable base, for more $$$$.
The 19th-century income tax only lasted a few years, was not particularly progressive, raised very little revenue, and generally bears little to no resemblance to our current income tax. The income tax we have today dates to the early 20th century.
> Please avoid "other countries" as we're talking about the US and I have no clue or care about other countries tax codes or history.
But we should care about other countries because their experiences can inform ours.
> How so? If you tax everybody at the same low rate, say 15%, then every can pay? Whatever the minimum bracket is in the current system, use that. This will result in less tax revenue, which is why the left hates this system.
If you want to construct a modern state, you need progressive taxation to raise the 40-70% of national income a year in tax revenue (all "developed" modern states do this. Places like India and South Africa don't, which explains a lot...). If you believe we should go back to a 19th-century state which collects low taxes and does little redistribution, (1) inequality would balloon; and (2) I've got bad news for you, because most people in the United States support significantly more progressive taxation. (Not to mention that the United States would quickly fall behind the rest of the world due to lack of investment in education, which is one of the primary drivers of productivity growth.)
> The aggregate data would be public and the underlying data points would not be.
So now leaves the question, what does this report look like?
> Just in the same way it's possible to have a robust discussion of income equality but I can't look up how much money my neighbor earns.
Who's having these discussions? Certainly not the entirety of the political landscape is involved. This is a leftist idea, so perhaps the people on the left are having a robust discussion about wages, but the people on the right and some of the moderates (like myself) are tired of people saying they don't make enough (being self made from a poor family myself). Your idea here is yet another extension of this. You want to know what people make and own so you can determine how much tax they should pay, and if they're paying enough. I can short circuit this for you. We all know the left wants more taxes, the right wants less, and the majority of the moderates are siding with the right right now. We can safely avoid this massive headache and know the outcome desired by all parties involved.
> No, this is not true. Income tax brackets are updated every year, and always have been, to account for inflation.
OK you missed this one completely so I'll walk you through it a bit more. The value represented by the currency never changes. However the representation of that value does change over time and with an inflationary currency it keeps increasing. So the reason the the tax brackets and taxes are increased or updated, is because they need more money to get the same value from taxes as the previous year. With the left wanting to implement full on socialism, this will never end and we will go broke as a nation. Or put more simply, when 100% tax is implemented, and we need more, what happens then?
> The 19th-century income tax only lasted a few years, was not particularly progressive, raised very little revenue, and generally bears little to no resemblance to our current income tax. The income tax we have today dates to the early 20th century.
OK?
> But we should care about other countries because their experiences can inform ours.
No.
> If you want to construct a modern state, you need progressive taxation to raise the 40-70% of national income a year in tax revenue (all "developed" modern states do this. Places like India and South Africa don't, which explains a lot...). If you believe we should go back to a 19th-century state which collects low taxes and does little redistribution, (1) inequality would balloon; and (2) I've got bad news for you, because most people in the United States support significantly more progressive taxation. (Not to mention that the United States would quickly fall behind the rest of the world due to lack of investment in education, which is one of the primary drivers of productivity growth.)
So how did the US become the greatest nation prior to high taxation? How come high taxes was literally the trigger that started the rebellion? Some people have an idea that the only way to a prosperous nation is via socialism, and to those people I'd say they're brainwashed as the schools in the US have been doing for about 4 decades now.
My point remains, if we continue on this path, and seek to justify further taxes we will ultimately end up with 100% income tax. And that's really the point of all of this, to implement socialism.
> So now leaves the question, what does this report look like?
You can slice and dice the data how you like. Again, exactly how we currently do it with income data.
> Who's having these discussions? Certainly not the entirety of the political landscape is involved.
The entire political landscape is involved, as evidenced by your comment that you want lower taxes.
> You want to know what people make and own so you can determine how much tax they should pay, and if they're paying enough.
This is literally the goal of progressive taxation.
> We all know the left wants more taxes, the right wants less, and the majority of the moderates are siding with the right right now.
Polls show overwhelming support for increasing taxes on the wealthy.
> OK you missed this one completely so I'll walk you through it a bit more.
$1 doesn't have any inherent value by itself. The value of a dollar is determined by what you can exchange it for. $1 in 1921 was significantly more valuable than $1 in 2021 - you could buy a lot more with it. This is called inflation. As long as inflation remains relatively low and predictable, it doesn't really matter in the abstract whether something costs $1 or $10 or $100 (if inflation rises quickly, that's another story of course!) There exists a metric called the Consumer Price Index which measures this inflation, and therefore the value of a dollar across time. Income tax bracket cutoffs aren't increased over time in order to raise more revenue. They are increased in order to raise the same amount of revenue after adjusting for inflation. But again, this doesn't mean anything, because inflation theoretically increases the price of everything - wages, prices, etc.
> Or put more simply, when 100% tax is implemented, and we need more, what happens then?
The United States had a top marginal income tax rate of 80-90% for most of the period 1950-1980. The United States economy grew much faster during this period than the period 1980-present, when top marginal tax rates were much lower. The point isn't to implement a 100% income tax. It's to make the tax system more progressive, which enables further investments in education, research, and health care, which fuels growth.
> So how did the US become the greatest nation prior to high taxation?
By most economic measures, the United States wasn't the strongest country in the world until the first half of the twentieth century. Some of the reasons for that include lower levels of inequality with respect to education in the late 19th century compared to most European nations; the earlier implementation of progressive income taxes compared to those nations; greater investments in education compared to France and Germany (and especially the UK) that led to higher per capita productivity; not suffering as much economic damage from the two World Wars; etc.
> How come high taxes was literally the trigger that started the rebellion?
The revolution had nothing to do with high taxes (taxes were very low, in fact - see https://taxfoundation.org/taxation-representation-american-r...). It had to do with unfair taxation. And that's exactly what this whole argument is about: the wealthy pay unfairly low taxes because of tax havens and an inability to properly tax wealth.
-Abolish patents as these simply limit free market competition and are a ploy to try to claim ownership on something that usually is one tiny fragment of human knowledge.
-Public tax records for everyone. Sunlight is the best disinfectant (and the best way to allocate resources)!
- allow government to force-purchase static businesses that are profitable but not innovating.
- require government to monitor such port folio and privatize where innovation is failing. Privatization of this kind should not be rushed and aim to get good value for the assets.
- print money against the new government assets minus earnings from privatization
Government has to make money some how. While it is good to extract wealth from people with deep pockets I believe profiting from transactions though taxation for the most part is discouraging economic activity.
I and many other people have a laundry list of skills that I could offer to others only if I fill out piles of paper work.
If little jimmy wants to wash 1 car he needs to register a business and get the business bank account?
If big Joe has 100 car washes and he is earning a stable income without expanding or innovating to much government could make a bid on it and offer him a job.
If say the US gov wants to force-purchase the google search engine it should pay handsomely for it. Say 1800 billion. Alphabet would do just fine bidding on the advertisement slots and selling them to their customers. (Such a large purchase should probably involve a referendum)
It is our government. If we want it to sell beer in town hall it should be up to us. If you and many others are against it it obviously shouldn't happen.
Which "bailouts" are you referring to? The 2008 crisis, where the "bailouts" were actually loans, which were repaid with interest, providing profits for the taxpayer, or the current COVID bailouts, which provide the people with money, not needing repaid, that look like they're adding significantly to inflation?
They were bailouts, because, without Fed's guarantees, no financial institution would loan money to most of these badly-managed, reckless corps. And they are doing the exact same thing again, knowing they will be bailed out again.
"Profits for the taxpayer" - did you get a penny of the "profits"? The only people who profited were the executives of the bailed out companies - who deserved to lose their jobs, not double their wealth.
If i go to cassino and bet my life saving on black that's rekless. If I go to cassino and bet your life savings then 50% of times I am genius investor, or 50% of times i am really really sorry for your loss.
The problem is that those corporations are playing a game they cannot loose. Its only logical for them to push risk (therefore profits) more and more. They themselves created 'too big to fail' term.
I am not trying to make excuses for them, they are the people who captured regulatory institutions, and de-facto are self regulating - and in practice we all know where that leads. They are responsible for what happened and is happening.
> Abolish patents as these simply limit free market competition and are a ploy to try to claim ownership on something that usually is one tiny fragment of human knowledge.
Think this one through, what’s the incentive to invent or make a thing of there’s no protection? Because someone wants to?
A common bit of knowledge here on HN is that "Ideas are worthless, execution is everything". Most ideas do not occur to just one person at a time... typically dozens of people and groups are working on the next incremental advance in human knowledge. Patents are awarded to whoever has the most aggressive lawyers, not necessarily who actually had the idea first. Beyond that, most innovation is funded by government grants and universities and should be public domain, not some professors property. And most importantly - patents stop all new further innovation, especially when a company owns many patents in an area. Why do you think there is only 2 airplane companies - Boeing and Airbus? They own all the patents you would need to start a competitor.
Great, so then require a parent to be actioned upon. And patents don’t last forever so eventually Boeing and Airbus will have, in great detail, explained how their thing worked so others can copy it.
As far as the taxes bit, at least here in the USA I always felt that we should just get rid of corporate taxation entirely, and instead tax ya know, the CEOs etc the difference, which in effect means taxing capital gains like regular income for instance.
That would do wonders for businesses to simplify the tax schemes and really moves the taxation portion to the individuals.
I’m sure like any tax reform this has edge cases and stuff I know I haven’t considered but wouldn’t the upside be taxation happens more uniformly as a result?
If we get rid of corporate income tax (and we should), we should absolutely bill corporations for ALL use of publicly-funded infrastructure.
- use of public highways (reimburse in proportion to wear-and-tear, etc).
- use of public regulatory agencies like the FCC and FAA (to permit broadcast spectrum and airspace to be useful resources without everyone grabbing all of it all at once).
- very expensive use of US military to enforce international law, or to protect assets in foreign countries.
- use of publicly funded education to train their workforce.
I could probably go on for pages and pages but these are probably the big ones we spend the most money on.
I think a few months of this system and most corporations would be BEGGING to go back to simple income tax where they can game the system and scam their way out of paying what they owe.
>A small bit of economic orthodoxy is that for free markets to work, parties need to be informed
Free markets: my definition, almost complete lack of rules on how to trade, exchange information, barter etc. ( except bare minimum rules of protecting one's property, life etc. from direct harm)
I guess just like the Panama papers, leading journalists will be killed, investigations stop being reported in mainstream media, and the world goes quiet again with nothing changing.
E.g. In Denmark, the country’s tax minister cited the Panama Papers to justify hiring hundreds of new employees to bolster the fight against tax fraud.
It was high news and had consequences. There is much work to be done, but 'nothing changing' is not the case.
Well hopefully it'll show a few more people that our current PM Babiš isn't the anti-corruption people-lover he paints himself to be. Election's next week, so no time for investigations to fade away.
On superficial reading, this story conflates tax minimization with cases of corruption.
Corruption means a politician becoming wealthy in an inappropriate way from their position of power. Even if they were to pay taxes this is still a huge negative for society. Wherhers it's the president of Azerbaijan or Nancy Pelosi, it's should rise to the level of criminal enrichment if properly investigated.
On the flip side are people who made their money legitimately and employ legal strategies available to them to minimize their tax bill. I have a hard time moralizing this because we all do it. Be it writing off donations, using tax loss harvesting, holding on to investments just long enough to not trigger capital gains taxes, etc - we all use strategies available to us to pay no more tax that we have to. I would expect nothing else from a more wealthy person. I would be totally fine if society made moves to close loopholes but I can't blame people for leveraging loopholes that exist because we should all do that.
These stories always do that as it fulfills a fetish.
But in any case, would your opinion change if the tax resident or provider wrote the tax law that got passed? In Mossack Fonsaco’s case that is what they did in a variety
of island nations.
> I would be totally fine if society made moves to close loopholes but I can't blame people for leveraging loopholes..
The first step in the right direction, then, is for people to become aware of these highly unsavory (but legal) practices. It's not going to be an easy fight. The kind of people that setup multiple shell companies to obfuscate the ownership of their assets have worked deliberately to extract wealth and game the system to a level that is unimaginable (at least for me before I heard about the related Panama Papers story that broke a couple years ago).
Ultimately, as we approach a global society with insane levels of wealth inequality and where public infrastructure and social safety nets have started to come apart at the seams, it's imperative that these "loopholes" get closed. Otherwise, we're going to be revisiting Feudalism in 21st century western democracies. Sadly some people seem to want that. They see it as a kind of gilded age lords and their servants.
> They see it as a kind of gilded age lords and their servants.
The vexing thing is that everyone thinks that they are going to end up on the "lord" side of this duality. I think this is the biggest lie of the 20th and 21th century; that this game is in any way, shape or form a fair one. The game is rigged and while everyone seems to recognize this on some level, almost everyone is trying to keep it rigged in the delusion that they be the masters one day.
Meritocracy is a giant myth (often completely unconnected to the underlying data), but it's important to recognize that it's just the latest in a long line of myths that have been told to justify inequality. For centuries, the wealth of the nobility and the clergy vis-a-vis the third estate was justified by appealing to the harmony of a tripartite society. In the ownership societies of the 19th century, inequality was often justified by pointing to the various rules and laws that governed and sacralized property rights (which were theoretically available to anyone) upon which stability and good governance depended.
As others on this thread have pointed out, tax laws generally outlaw sham loans, licensing arrangements, etc. When that kind of cleverness works, it usually needs a boost from corruption since the tax laws already exclude it.
> I would be totally fine if society made moves to close loopholes but I can't blame people for leveraging loopholes that exist because we should all do that.
You can still blame for bribing politicians to create these loopholes in the first place.
>On superficial reading, this story conflates tax minimization with cases of corruption.
Yes but many of the tax loopholes are just the result of the corruption of power (legal or not). It's only obvious to the people who benefit from it, so no one bats an eye.
While I see what you're saying, I don't think that I completely agree with you because the wealthy using these techniques (especially if they are politicians, but even if not) are undermining public confidence in the tax regime. If Nancy Pelosi or the President of Azerbaijan are conducting their own affairs in one way while advocating for something else, why should I believe their supposed commitments to a socially equitable taxation regime or desire to make the world a better place?
This touches on something that HN readers should be quite familiar with. The immediate issue here in every case is not legality, ethics, morality, etc., it is privacy.
As we can see demonstrated by this story, some folks do have things they want to hide. Tech employees supporting efforts to violate people's privacy at mass scale, collecting data about people to feed advertising-dependent business plans, and creating conditions for data breaches that leak personal information, please take note.
It is always about balancing public, the interest of many, over private, the interest of one. When transaction size goes to millions and publicly funded politicians get involved, the public interest becomes more dominant. Especially if you have crooked deals like a friend of Putin buying a movie theater price under the market value, funded by a government loan.
Hmm.. the article reads more like biased, sensationalism than unearthing some grand cosnpiracy. If there are some actual crimes mixed up in this they undercut the importance of those with foaming-at-the-mouth hype bits like "billionaire owns a $22mil home in france".. Are they saying it was purchased with tax payer money? or bribes? That is just one exmaple of the overwrought nature of the piece. I think they do justice a disservice by trying to imply (without explicitly calling _or_ substantiating) wrong-doing everywhere there may be wealth. Focus on the actual crimes..
Normally they don't pay taxes on offshore havens - so what they are trying to say is that these leaders and billionaires don't pay taxes like us normal ppl.
Before transferring the money to an offshore you earn them, which includes paying all of the taxes, like normal ppl.
When you get money from the offshore (as dividends or whatever) you pay taxes on that income, like normal ppl.
What happens with the money between these moments is different story though. Depends on how the money are spent. And to my understanding, if they used to buy a property, say in US, the offshore still pays the US property taxes.
In some respects, true, but that isn't always the case.
Say you own a company in the UK which sells widgets, but you also own an offshore company that also sells widgets. If you are dealing with a Chinese company, you could use the offshore company to do the deal, paying little to no tax. The money then resides in the offshore company and has never gone through the UK - either as a business or personal. As an individual you could own a credit card that you use to spend in the UK, which goes back to the offshore company. In additional, the offshore company could buy property in the UK and no tax is paid. There are various other tricks and nuances that can be employed to help minimise tax paid - completely legally.
I bet it isn't always the case too, right? I actually wanted to say that the fact of owning a foreign corp doesn't mean anything. It may be used to avoid some taxes, or may not.
I can even give opposite examples, like when someone comes to the US to run a startup in California. For the country of their origin they definitely opened an offshore corp (in the US in this case) and don't pay taxes on it (they still pay to the US gov though). It's just more convenient to have a US corp rather that a corp in their home country, and not because of taxes which may be higher in the US.
The broader question and sentiment of this piece is: how exactly have people who supposedly work in Public Service amassed such wealth when these positions are paid so low, and what lengths will they go to do so, especially in developing countries. The subtext being if their are conflicts of interest in their investments which happen to also be tied to offshore havens.
This outrage is warranted, because it underscores how tiered the legal system is World wide (The US is least represented in the Pandora release but 2 Federal Reserve Presidents have just stepped down due to insider trading [0]) for those closest to power, whereas tax evasion is one of the most effective ways to get a criminal indictment for the average citizen in most of the World.
Agree with some of that. It is a concern when an elected official, with no other source of income, becomes wealthy in office. But their leading bullet point isn't about that. It's a billionaire, who _then_ ran for office. It's very clearly trying to equate wealth with wrong-doing by association and implication, without any specific claims or substantiation. And it undercuts the story where it is cases of bribes, theft, and corruption.
> This outrage is warranted, because it underscores how tiered the legal system is World wide (The US is least represented in the Pandora release but 2 Federal Reserve Presidents have just stepped down due to insider trading [0]) for those closest to power, whereas tax evasion is one of the most effective ways to get a criminal indictment for the average citizen in most of the World.
For those closest to the power, the easiest way to get around the law... is to follow it to the letter.
Biggest, and most famous Russian mafiosos live in the open in London, while diligently paying taxes on their multi-billion ill gotten wealth, and without using any offshore structures, or shady law firms at all.
And the British establishment, Downing St., is very happy with this arrangement.
What people forget about these things is that those offshores are a refuge for at most second grade rogue economic players, whose main rationale hiding their wealth is to hide it from other much bigger gangsters, and mafias from their home countries.
They themselves choose places like London not because it's a rich city to live in, but because of London offering much better protection from being gunned down in broad daylight than cities in their home countries.
> For those closest to the power, the easiest way to get around the law... is to follow it to the letter.
I'd agree but not for the reason(s) you've outlined, what they they will do is get their crimes legalized. Or, if they get caught as in the case with Christine Lagrade [0], they will get convicted but serve no sentence and remain in their position. Proving that selective application of the Law, nepotism and the failing up method is as prevalent as ever within these circles.
The City of London Corporation is nearly autonomous to the greater UK with it's own political and legal framework [1], and given it's incredibly checkered past, you'd do well to keep that in mind when you decide to be an apologist for Russian tycoons and oligarchs.
To be clear: I'm not against wealth or the wealthy, I'm merely pointing out the hypocrisy (and my disdain) for those who use their relation to the State for their own largess.
> The broader question and sentiment of this piece is: how exactly have people who supposedly work in Public Service amassed such wealth when these positions are paid so low
Usually, those folks come from money to begin with, which makes the situation even worse.
I saw this a lot living down in Texas, state congressional pay is so low that you basically have to come from money in order to run and hold state office (base pay is $7.2K annually and tops out at $40k for a two year period, depending on how many days they're in session, basically minimum wage). Even though it's technically not a full-time job, it's demanding enough of one's time that they need a prior career with enough flexibility in order both hold office and make extra income, which excludes the vast majority of the population.
It's really long but did you read even half of it? Because:
Czech Prime Minister Andrej Babis, one of his country’s richest men, rose to power promising to crack down on tax evasion and corruption. In 2011, as he became more involved in politics, Babis told voters that he wanted to create a country “where entrepreneurs will do business and will be happy to pay taxes.”
The leaked records show that, in 2009, Babis injected $22 million into a string of shell companies to buy a sprawling property, known as Chateau Bigaud, in a hilltop village in Mougins, France, near Cannes.
Babis has not disclosed the shell companies and the chateau in the asset declarations he’s required to file as a public official, according to documents obtained by ICIJ’s Czech partner, Investigace.cz. In 2018, a real estate conglomerate indirectly owned by Babis quietly bought the Monaco company that owned the chateau.
Sounds like at the very lest it was unreported. We have half the story, which in a lot of cases sounds like fraud. The other half of the story is in tax documents.
ETA: The other thing is a lot of these people have the power to fix these systems that enable corruption, and like Babis, publicly say they will. But are they going to fix the system if they're using it?
It is interesting since recent OFAC enforcement was against crypto exchange in Czech republic and I did have some other indications of CZ becoming an interesting nexus for otherwise unsavory or questionable activities ( from US perspective anyway ).
A lot of tax avoidance is legal (Tony Blair example: there's stamp duty (transaction tax) on real estate in the UK, but no stamp duty on transactions involving companies that own UK real estate).
But my prior is, that if the public knew about it (in general "these are the ways the elites use to pay less tax than you", as well as specifically "this career public official actually amassed $100m wealth on $100k salary"), the laws would change (e.g. introduction of wealth tax, or equalization of capital and labour taxes).
The Guardian article does read like sensationalism and is suspiciously devoid of actual crimes. On the other hand, this full report direct from the ICIJ is much more damning and relates each leader's tax evasion directly with the poor conditions faced by their citizens.
> “If the Jordanian monarch were to display his wealth more publicly, it wouldn’t only antagonize his people, it would piss off Western donors who have given him money,”
...
> Marwan Kheireddine, Lebanon’s former minister of state and the chairman of Al Mawarid Bank, also appears in the secret files. In 2019, he scolded former parliamentary colleagues for inaction amid a dire economic crisis. Half the population was living in poverty, struggling to find food as grocers and bakeries closed.
> “There is tax evasion and the government needs to address that,” Kheireddine said.
> That same year, the Pandora Papers reveal, Kheireddine signed documents as owner of a BVI company that owns a $2 million yacht.
> Al Mawarid Bank was one of many in the country that restricted customers’ U.S. dollar withdrawals to stem economic panic.
> Wafaa Abou Hamdan, a 57-year-old widow, is among the regular Lebanese who remain angry at their country’s elites. Because of runaway inflation, her life savings plummeted from the equivalent of $60,000 to less than $5,000, she told Daraj, an ICIJ media partner.
Since the beginning of written history there have been taxes and there has been corruption. And people respond very strongly to financial incentives - notice how people drive out of their way to save a few pennies on gas.
Now imagine you have millions or billions of dollars. You do not want to hand over 50% of your income to tax authorities, especially if a legal way exists not to. And if you make the current legal ways illegal, the money will just keep flowing to invented ways. There will never be a way to avoid this, unless you have a centralized AI super computer that cannot be manipulated by fallible humans watching everyone’s cash globally and enforcing strict rules. And that will never happen.
Most of the Panama Papers revelations were not illegal behavior. This article says most of this is perfectly legal. I’m not sure what the scandal here is other than humans don’t want to give half their money away to the government.
if people respond to financial incentives they likely will respond to other incentives as well. As a hypothetical, making tax evasion punishable by death, like in antiquity, would probably be a good incentive to comply. The consequences for tax evasion are quite mild, in the US and elsewhere. You get letters, more letters, maybe a visit, and finally, if you're really unlucky or obstinate, a little jail time.
Given how terrible bureaucracies are the world over, and how many people are jailed innocently, it will be quite sad when people are literally murdered by the state for not paying their tax bill. And most likely the most popular and famous people!
Yeah, there are no perfect solutions to the problem, yet that doesn't mean tat our current imperfect solutions don't work to deter and reduce it, if anything it shows that these imperfect solutions need to be expanded upon, not discarded due their inherent human imperfection
Rather than playing the same failed whack-a-mole that has been attempted since the beginning of civilization, maybe we should try and keep taxes low, services more efficient, and have alternatives to government-provided services for features we want of society. You may feel better when taxes are changed / raised but they will fail to do what you intend.
> maybe we should try and keep taxes low, services more efficient, and have alternatives to government-provided services for features we want of society.
Yes, but the army of parasites whose livelihood depend on the inefficiencies you describe beg to differ, and do so most efficiently.
It turns out that the Pandora Papers were released by a centralized AI super computer, and is testing humanity to see how each individual reacts.
Congratulations! You've been placed on team "no one's allowed to complain about things that were bad in the past and also things will never get better and plus anyway it's not illegal".
Are you sure that's the team you want to be on (Y/N)?
What I see here is tax evasion. But done in a roundabout legal loopholish kind of way.
1. Establish profitable company in your home country.
2. Establish 2nd company in a tax haven country.
3. Give 2nd company some kind of ownership, and then pay rental fees, licensing fees, or simply set up a high interest loan that the 2nd company loaned the first.
4. Once you set up a way to make it look like you owe the 2nd company tons of money, now your 1st company no longer is "profitable" and actually in debt losing money, which means it doesn't need to pay taxes on the massive profit it's making.
While I believe it's legal it hinges on bad ethical practice. But many large companies do this, such as cruise ships and I think Apple.
The existence of valid licensing fees does not mean all licensing fees are valid. Surgeons are allowed to legally cut people, that doesn't mean we can't figure out when someone was illegally stabbed.
Any time legislatures have a hard time defining the line between legal and illegal behavior, courts tend to take a “we’ll know it when we see it” approach. Justice might be served but rule of law is diminished.
a major difference between continental law and common law is the intent of the law though.
If the court can prove that they did not handle with the intent of the law, it can still be decided that this is fraud. In a common law system this is not possible.
Common law is based on precedent and common sense application of the law, so it is generally common law systems which are described as being open to interpretation.
Common sense has nothing to do with common law after a couple generations morph any type of sense a law could have made into something nigh unrecognizable. Go digging through case law in different jurisdictions and marvel at the contradictory interpretations that arise. This is why strategic changes in jurisdiction are a valuable part of litigative strategy.
Not really. “Fictive” just means “not real,” and courts have processes for judging whether things are real or not. The fact that courts still have to judge the actual facts of the matter doesn’t mean the legislature isn’t doing its job or that rule of law is diminished. It’s no different than courts judging the truth value of claims in a murder case or a fraud case.
"oh no, our publicly very profitable company actually doesn't make any money because of all the.. license fees we pay, that we are clearly in a position to bargain for better, yet mysteriously do not! oh its such a coincidence that everyone in the C-Suite still makes money off the the shell company."
You can obfuscate fraud. But don't try that post-modern horseshit "what is being, man" on us.
If a profitable company is making a loan it does not need to a subsidiary it controls, that's a fictive loan used to disguise a transfer.
When licensing costs are paid to a shell company with 3 employees in a country that is neither the place where the HQ are or where the company originates from, that's fictive.
Once a company becomes big enough it turns into 'yet another big one' that inherits the branding and the original activities but simply starts doing whatever else is doing to min-max everything beyond human ethics.
It's like having a very small company with only a few people. There won't be any HR because that kind of overhead isn't something you can afford or make use of. So you work 'for the boss' and if you need something your boss is also the person who makes the decisions. But when the company gets bigger, you now get HR between you and the boss, and suddenly you are insulated. You work for the company, and are beholden to HR. Every step after that is just more insulation, more min-maxing and just making things worse for the sake of scale. Usually.
HR does not get between you and the boss, but middle-management (hence the name) does. HR gets between the company and you if there is a chance of you damaging the company, other than that it is mostly (regulatory) window dressing and to save some cost on recruiting and onboarding.
Movies too. The studio charges the movie, so the studio is positive while the movie is in debt. Actors get a lumpsum and a percentage on the movie benefits.
In this case, it’s not shell companies, the studios actually have in-house expertise (=shooting most of the movie) while the movie mostly drives the scenario and the actors, so it’s harder to define what is illegal.
McDonalds also has a franchise system, although it’s easier to control whether the pricing offered to the franchisees is constant or proportional to benefits.
The UK shouldn’t really raise its voice here, easily half the tax havens are UK dependencies: Cayman Isles, Virgin Isles, Jersey, Guernsey, Isle of Man, Gibraltar. It is inconceivable to me that the UK lacks influence to stem these activities, so the only conclusion is that it willingly accepts status quo.
There is a reason that London was the financial headquarters of the EU while it lasted. They are going to try to do what they can to attract EU capital now that the last of these rules no longer apply to them, and will be the de-facto tax haven for the rest of the world except for the five-eyes.
Well, the UK is well suited to finance in many ways, most of the legit. The way courts work for example. Maybe a bit like France and Italy have a natural talent for couture, say.
But the shady stuff is sure there, and shady. UK high end property market seems to be a Monopoly-esque money laundering machine, with the extra inconvenience of having physical real estate attached to it.
IANAL but I understand UK courts have a reputation for being quick, pragmatic, fair and unbureaucratic. Finance often turns on 'legal innovation', or introducing entirely new financial constructs, and where on the Continent a more prescriptive legal system is in place, UK law is more interpretation-based.
Possibly not a concern with many EU countries, but with some for sure: the legal system is also stable, doesn't change on the whims of the politicians, and appears to be genuinely un-politicised.
Since Finance heavily relies on parties promising huge contingent payments to each other, having a trustworthy and reliable arbiter is key. If I enter into an agreement where I pay upfront, and I'm guaranteed insurance-type payments for 20 years into the future, the legal apparatus is the backstop to my claims.
This is debatable... The City of London is not really a tax haven as it has the same tax rate as the rest of the UK.
As the document whispers, what the City of London is, is a massive financial hub, that accommodates the offices and sales arms of many tax planning companies which sell professional services in London that would design structures to tunnel profits to various Crown Dependencies.
But you would find such services in any supercity. London is simply sitting at the crossroads of multiple hubs so it facilitates a lot of what's despised — but in itself, there's no haven in town!
> In 2016–17, foreign firms paid 80% of Irish corporate tax, employed 25% of the Irish labour force (paid 50% of Irish salary tax), and created 57% of Irish OECD non-farm value-add. As of 2017, 25 of the top 50 Irish firms were U.S.–controlled businesses, representing 70% of the revenue of the top 50 Irish firms. (Wikipedia)
Are you sure about that?
If the EU enforces what they preach and Ireland loses its tax haven state they could lose a huge chunk of their GDP.
The step here that is illegal is the moment company 1 takes out a high interest loan from company 2.
Company 1's directors have to do what is in the best interests of the company. If they choose to sign up to a high interest loan which will take all their profits, that isn't decision-making in the best interests of company 1. That's the point they can be put in prison.
I just don't quite understand how nobody is prosecuting them...
They need to make decisions in the best interest of Company 1 and Company 2 separately.
An action done on behalf of Company 1 which slightly hurts company 1 but provides large gains to company 2 would be illegal (unless they can argue that it was part of a larger strategy to benefit company 1).
> Once you set up a way to make it look like you owe the 2nd company tons of money, now your 1st company no longer is "profitable" and actually in debt losing money, which means it doesn't need to pay taxes on the massive profit it's making.
Short of a revenue (as opposed to income) corporate tax or VAT, it’s a very tricky problem to address. Maybe an excise tax on foreign remittances to match the highest corporate bracket.
Or you just scrap corporate tax entirely because it’s a terrible idea anyway.
The best way to "tax" the rich is to make them spend all their money. The more the rich consume, the more the less rich benefit. It's turtles all the way down after that.
So please order that custom yacht now, all you HN unicorns.
What if the point of taxes is not simply to redirect and redistribute funding, but also to reduce economic activity and, by extension, emissions and inflation?
It only redistributes work toward what rich people want.
Investing into something actually useful would be much better.
Scenario A: yacht is bought - economy is redirected toward luxurious yacht building, people get paid to work on building a yacht
Scenario B: investment into housing - economy is redirected toward house building, people get paid to build houses
scenario A can be a good one only when this people would be unemployed and seeking a work otherwise. Or if you think that building luxurious yachts is more important than alternatives.
> The best way to "tax" the rich is to make them spend all their money.
What a catastrophic idea. Do you want economy tuned to the tastes of the vain, wasteful, and capricious? In such economy there is no car, real estate, mobile phone, or clothes for you.
Except they don't. They create corporations to do it for them.
As long as creating a legal fiction is a mere matter of having someone else do paperwork, you either need to extract tax from legal fictions, or kiss a big chunk of taxable activity goodbye.
I don't think that's accurate if we're talking about large publicly listed companies, the only way for shareholders to spend the money on themselves is to take it out via dividends or sell the stock for a capital gain.
To pay back the loan they need to sell the stock which is a capital gains event.
The two main tax avoidance strategies would be people running and retiring overseas just before selling, or never selling and waiting for the cost basis to be reset upon their death.
Incidentally, this is the real reason why "Western" states are so hung-up on copyright enforcement: nevermind the movie bullshit, IP is a door throughout which profits can be arbitrarily shuffled around by the rich and the powerful. It creates a parallel reality where imaginary goods can be transferred from jurisdiction to jurisdiction, creating infinite possibilities for transfer pricing. And if anyone objects? Ahh, they clearly want to starve artists and creatives!
It's genius, and we all go along with it because how can you hate art and imagination? It's such a fundamental side of human nature. By turning its output into pseudo-goods, we think we're moving up in the civilization scale, whereas we're just enabling a parasitical accumulation of capital.
In general, every country you do business in will charge taxes based on the profit you make within that country. So what you do is:
* Set up a company in the country where you'd like to pay taxes, and give it all of your intellectual property.
* Set up subsidiaries in the countries where you don't want to pay taxes. Have them pay licensing fees to the first company for the IP, making sure to set the licensing fee high enough that the subsidiaries don't make much profit.
* Now most of your profit lives in the first country, no matter how much business you do elsewhere.
Imagine that there are two opposing views of a subject and then a big middle ground of people who don't care.
If the middle ground uses a term to describe a thing, then the wings have to use it as well. Or there has to be a real push by someone spending a lot of money on advertising to recast the concept. If someone goes around at the individual level making a thing of talking about "imaginary property" they are just going to look like an isolated crank. It isn't helpful.
On the other hand, when the attention of the middleground people is on exactly the aspect of the concept that one wishes to highligt, then that seems like the right time to highligt.
Tax-evasion done by money-transfers based on fictional value attributions of something. Seems exactly like "imaginary property" to me.
You can try. But the likely outcome is you'll spend a lot of time defending picking emotive word choices and the conversation is going to get distracted from substantive arguments.
I agree with both of you. I think the concept has to be recast, and that's going to be a very hard thing to do. I think a lot of money and effort was spent to cast these things as "Intellectual Property" in the first place.
However, it was on HN that I first saw the term "Imaginary Property", and I've seen that more and more lately. So there's hope. If usage of the term grows exponentially, it might happen.
Genuine question: does this require IP though? What prevents the subsidiary from paying the parent for "consultancy" or any other amorphous but non-IP service instead?
Most activities can be quantified, at worst by looking at sector averages. There is already plenty of tax law around those, about what you can and cannot realistically expect tax authorities to believe. The IP field, though, has massive value swings, that make it fundamentally uncontrollable. How much is the word "Starbucks" worth? How much is "Nespresso" or "Linizio"...? These can move hundreds of millions in one go, whereas you would struggle to achieve it with murky consultancy contracts over several years.
Groups where the ultimate parent is responsible for roughly over 1Bn in revenue are required to submit Country By Country Reports covering all cross border transactions their details and their transfer pricing methodology, and, in many cases, the underlying documentation of those transactions (contracts, loan agreements etc.). These are digitally submitted via your local jurisdictions Tax authority and shared with all member countries. Companies as part of that group are required to lodge more detailed information at a local level on just their cross border transactions with others in the group. This allows for some level of check that information being reported is globally consistent between tax authorities, who are then able to identify and place controls on unwanted behaviours.
What I never understood is, (how) does the money get transferred to the home country eventually? Doesn't it need to do that to have some utility? Otherwise, what's the point of just accumulating money offshore that you can't eventually use where you actually are?
There's a lot you can do, such as borrow against it as collateral, transfer it to other offshore companies in return for services (the entire deal happening in the tax haven - therefore not taxed), or even have it hold property which you can then use.
But if you use it to pay someone else offshore, presumably you get something in return at the home country, right? And you didn't pay for it there, right? So isn't the fair market value (or something along those lines) of whatever you eventually receive in the home country therefore taxable income? I don't understand how the value loop can legally close without taxation one way or another.
Offshore entities can own properties in most open economies. They don't typically get taxed where they own the property or good, but where a profit is realized or an action takes place.
For example, in TFA it's mentioned that the Blairs bought an offshore company that owned a building in London; they really bought the building, but doing it this way allowed them to avoid property taxes in the UK that relate to ownership transfers ("stamp duty"). They could then hire out offices, and if they do that through the offshore company that "taxable income" would similarly disappear. Her Majesty's Revenues & Customs might eventually object to the arrangement, but if the offshore owners are not known, what are they going to do, bulldoze a historical central London property? Obviously not.
> what are they going to do, bulldoze a historical central London property?
Seize the property and auction it off to the highest bidder. The process would be quite similar to a foreclosure. The problem the UK has is more that the stamp duty has countless loopholes. If he doesn't actually owe tax, then legally that's the end of the discussion.
I have little faith that all the loopholes in a stamp tax can be closed. It would be much easier to enforce a property tax system. Events are abstract and ephemeral, but real property is tangible and immovable.
Survey the area to assess a property tax each year. Mail the assessment to the property's address, and include a unique account number for payment. You can audit that all land in the tax jurisdiction has been assessed, and that all assessments have been paid. The only thing you really need to be careful about is what criteria you use for the assessment. Market value is relatively safe for that.
That's effectively what Council Tax was originally meant to be, but after a while nobody could be bothered with the survey activity. They even closed the door to piecemeal re-classification, after enough people started challenging the band their property sat in, by passing legislation that basically states the band is fixed as it is until Parliament says otherwise (i.e. likely forever).
Council tax was never meant to be anything like property tax and was structured specifically to act in a different way.
For example: councils don't actually set their council tax rates by band. They set one rate which is the Band D rate. The rates of the other bands are then set based on fixed %s from that rate and the highest English rate (H) is only 200% of the Band D rate.
The value of the lowest valued band H (based on the 1991 price levels) property relative to the highest band D is 3.6x. So right away we see that as a % of property value the typical household (D is the most common) in any given place pays more than the highest valued local properties. Of course it is also the case that band H is open-ended.
There is then the fact that these are set and collected exclusively locally. That means that some of the lowest council tax rates in the country are in some of the richest places. Westminster and Wandsworth have Band D council tax in the £800s, Blaenau Gwent is over £2000!
> Council tax was never meant to be anything like property tax
Well, it was meant to look like a property tax, while at the same time ensuring it would disproportionately affect the lower classes, for sure. It was a Conservative measure, after all (which Tony Blair was obviously "intensely relaxed about", since it directed money to local authorities Labour controlled, hence it was never repealed). As wikipedia reports: "the Valuation Tribunal Service [...] states that: "The tax is a mix of a property tax and a personal tax".
> They set one rate which is the Band D rate.
Yeah, and they can't even be arsed to figure out if a Band D property in 1991 is still a Band D today - the roof might have fallen off since then, but hey, who's got time to do periodic surveys? Local councils have better things to do, obviously.
First of all, you can spend money on things outside your home country (second/nth house, buying a new yacht, etc.) and depending on how those are structured you can avoid that being taxable income. If someone takes a direct distribution or benefit in their country of residence and domicile then yes, those are definitely taxable events and careful tax avoiders pay their tax on these transactions.
Second your intuition is correct, often people do break the law at this point, it's just very hard to detect without files like this which is why the previous Panama/Paradise leaks have led to so many prosecutions and tax recovery actions. They made clear what otherwise was secret.
A common tactic is using the funds to buy property in which you then live as a tenant. In most countries (certainly in the UK) tenancy contracts are purely bilateral and non-public. There is no way for the government to know whether you are:
1) living in a property owned by a third party ownership company that you genuinely have no links to - btw many rich people do this for at least some of their homes so it's not like its an inherently suspicious activity. You can rent whole houses in central London for 10s of thousands a week.
2) living in a property owned by a company of which you are secretly the beneficial owner and paying market rent (to yourself). This may be allowed under some very carefully structured circumstances but usually not.
3) Like 2 but not actually paying rent. Definitely not allowed.
Technically they could find the difference between 2 and 3 if they audited your outgoings but they would first have to have a reason to even start doing that. It's not like you can take a tax deduction for rent, so this doesn't even show up on your taxes, they would literally have to pull your bank records to look for the expected outgoing rent. Telling the difference between (1) and (2) is impossible without the secret ownership information.
Another favourite is to use offshore accounts to buy things like jewellery, clothes, furniture, almost anything that isn't registrable property (i.e. anything other than real estate or vehicles). That is certainly illegal since you're taking a benefit which should be counted as income and taxed but good luck proving that.
Probably stock buybacks. Company 2 then spends the profit on buying company 1's stock, which they basically burn. Stock prices go up and owners recoup value through capital gains.
It boggles my mind that two companies can own each other cyclically like this, but regardless:
I still don't get the "poof" part. So we're saying C2 is paying C1 for its stock, and I imagine that revenue doesn't count as income for tax purposes since C2 now "owns" part of C1 in return. As I see it, that means C1 is effectively getting a loan from C2, putting part of itself as collateral. It can spend the loan to grow, which is nice, sure. Let's say it does that. Now you're saying C1 performs a stock buyback? Wouldn't that mean it has to pay more for the stocks (since they rose in value)? It'd have to bring that money from somewhere... but where? I mean all it can do at this point is pay back the money it got from C2, but then it's even, right? There's nothing left over after that, it's just repaying a loan as I see/understand it.
From growth. Remember, half the point of these havens is to shelter money from being taxable. Nothing else matters. You move it over there for favorable treatment. Company 2 received back money from Company 1 that they invested in, so it's off Company 1's books virtually, but not in reality.
This is the hell created by multi-jurisdictional legal fictions. Short of a multi-national crackdown, being able to nail down the vagueries a bunch of well compensated international accounting firms and lawyers can get up to is unlikely at best.
I mean even if the company grew 10x, it'd have to pay 10x to buy back its shares, so it wouldn't be profiting, right?
If I'm understanding this correctly, there are 2 things I'm taking away from this:
1. Cyclic ownerships should be illegal.
2. The investors (i.e. the public, for a public company) are getting scammed here. But it's not because of tax avoidance, but because company valuations (and therefore share prices) are just utterly meaningless, and people are... too oblivious to this? I mean, a "growth" in valuation would (to me) be coupled to increase in the company's net assets. So if company 1 sells a lot of its product and its valuation rises... that means it's gaining assets somewhere. Either that increase in assets is due to sales revenue at home (in which case it'd be getting taxed normally) or it's the stake it has in company 2, and presumably company 2's valuation is growing. But company 2's valuation is just coupled to company 1's, so there's no logical reason for it to rise independently. If it does, and the company is getting rich that way, that just means to me that people are behaving irrationally and paying more for the same thing, and that's what's making companies richer (rather than tax avoidance)? Alternatively if you look at it as company 2 having revenue and thus company 1's stake increasing in value, wouldn't there be an eventual tax on that money before any person can realize it at home, and thus shouldn't that correct the stock price downward? Or am I completely misunderstanding something here?
Edit: I think I'm seeing one way this works: the stock price does get corrected downward, but not enough to cancel out the growth, since the offshore company did gain material assets. But then who (as in which person) is getting rich without paying taxes at home, exactly? Either C1's shareholders are selling long-term capital gains taxes (in which case the complaint is about long-term capital gains taxes) or they're doing it short-term (in which case they're still paying income-equivalent taxes). Who's avoiding taxes here?
Step 4 glosses over a ton of details but is sufficiently correct in Apple's case, which pioneered the Double Irish. That was supposed to stop in 2020, but unless you keep up with the world of corporate finance and global tax law, things keep shifting.
Apple's easy to pick on, they're one of the richest companies in the world and should pay more taxes. But for companies that are less successful, it's entirely possible that the second company is actually losing money. Without an appropriately sized army to track through the 200th company (tracking transactions between two companies is simplified to make the tax evasion easy to understand. Real world tax evasion is dramatically more complicated.)
It is technically tax avoidance. Tax evasion = not paying taxes you legally owe, is a crime. Tax avoidance = using legal means to reduce the amount of tax you owe, not a crime (by definition).
This is why I support taxes such as those that France levies on digital revenue originating within their country. I also think it makes sense to wholly eliminate corporation taxes (which are not only avoidable, but are a form of double taxation) and replace them with these revenue taxes.
Australia has specific laws to stop the abuse of tax avoidance [1]. While at a high level they seem reasonable they haven't resulted in us getting the desired amount of income from multinationals [2]. The article I linked relates to big tech though, and maybe that's a separate argument when very little of the innovation happens in Australia, mostly just sales.
>Of the more than 300 politicians and public officials unearthed in the PandoraPapers, we profiled more than 50 of the biggest names – and their secret offshore holdings — in the Power Players interactive.
It also seems a foregone conclussion that if you are wealthy, you don't deserve privacy. Admittedly, some of that gets fuzzy if you run for a public office, but that isn't really the underlying notion being put forward here.
Since the beginning of written history there have been taxes and there has been corruption. And people respond very strongly to financial incentives - notice how people drive out of their way to save a few pennies on gas.
Now imagine you have millions or billions of dollars. You do not want to hand over 50% of your income to tax authorities, especially if a legal way exists not to. And if you make the current legal ways illegal, the money will just keep flowing to invented ways. There will never be a way to avoid this, unless you have a centralized AI super computer that cannot be manipulated by fallible humans watching everyone’s cash globally and enforcing strict rules. And that will never happen.
Most of the Panama Papers revelations were not illegal behavior. This article says most of this is perfectly legal. I’m not sure what the scandal here is other than humans don’t want to give half their money away to the government.
Amen. While far from being super wealthy, many if not most people on HN could probably benefit significantly from better tax planning on their own personal incomes.
>many if not most people on HN could probably benefit significantly from better tax planning on their own personal incomes.
Those people are comfortable, well into the top 10% of earners. And I think it's nice that they don't spend money hiring a slimeball tax accountant to help avoid paying their part to society. I think it's sick that there are people making 6 or 7 figures a year helping cunts to save 7 or 8 figures a year that should be going into schools and infrastructure, and it's even sicker that those people are looked up to because they drive nice cars and wear expensive suits.
But that's not what these papers are about - they're about systematic secretive theft, from all society, on a massive scale. And this at a time when people are still dying from hunger and deprivation even in the richest countries.
In Canada, shell companies -- run by the owner's lawyers -- can hold property and there is no way to trace the property back to the original owners. The courts have found that the lawyers cannot be compelled to divulge the property ownership under lawyer-client confidentiality.
It is kind of insane that this is even allowed. How do you plan to tackle money laundering, corruption, and transparency when you cannot even figure out who owns the property in the first place?
How could you cut off City of London Corp from international financial circuits. Or the Netherlands, which is one big tax paradise even though it may seem it is not. Luxembourg? Don't think that tax heavens are some remote, distant islands governed by some petty lord.
Taxation is really hard to enforce in the modern World. The biggest problem is that small, local companies cannot compete with big ones because they don't have resources to overcome taxation.
For me it make sense more sense to abandon corporate tax at all and make sure that all the resources, public services that company uses in a given country are paid by the company. If company uses trucks, it should pay for roads, etc.
I don't think that Facebook that operates from US and uses US resources and services should pay CIT tax in, say, France. If it uses internet infrastructure, just make Facebook to pay for it fair amount and that's all.
>Taxation is really hard to enforce in the modern World.
No, City of London only exists as it is, because the rest of the country let it do its thing and destroy the fabric of the society.
It's not hard to enforce taxation when those who make the laws actually intend to have it enforced. Right now, those who write and enforce the law keep siding with those who evade taxes. Maybe we should change the people in power, and that is not that hard. The problem is that most media are owned by the ones who evades taxes, so the level of noise made these scandals remains under control.
Not to mention that the Panama Papers leaker did indeed contact Wikileaks and they've never responded. From the manifesto published afterwards:
> The media has failed. Many news networks are cartoonish parodies of their former selves, individual billionaires appear to have taken up newspaper ownership as a hobby, limiting coverage of serious matters concerning the wealthy, and serious investigative journalists lack funding. The impact is real: in addition to Süddeutsche Zeitung and ICIJ, and despite explicit claims to the contrary, several major media outlets did have editors review documents from the Panama Papers. They chose not to cover them. The sad truth is that among the most prominent and capable media organizations in the world there was not a single one interested in reporting on the story. Even Wikileaks didn’t answer its tip line repeatedly.
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[ 0.27 ms ] story [ 272 ms ] threadGP’s argument, I believe, is that if these techniques were usable by you and I they’d close the loop holes quickly. The reason why they’re not usable by the plebs is immaterial to the basic point. Tax code is very much a “rules for thee and not for me” area of the law.
It's different than taking a loan against 300k USD in FB shares, because that you can use for everything...ranging from buying a Ferrari to starting a new business.
Interest rates will naturally be higher.
nope, you can withdraw it. https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-...
Also, there's nothing functionally different between:
1. having 500k in stocks and borrowing $250k from it
2. having 500k in stocks, selling half of that to get $250k, withdrawing $250k, then rebuying $250k worth of the stocks using margin
Is that intentional from IKBR? I guess if they knew they'd raise their interest rate. If people start using this method more and more then it will disappear. Seen this pattern over and over again in many fields.
> having 500k in stocks, selling half of that to get $250k, withdrawing $250k, then rebuying $250k worth of the stocks using margin
Risking money in the financial markets vs. risking them (or again using them) in the real markets are 2 very different things.
There is no equivalent for the SP500 in real life, also real life is very illiquid compared to financial markets.
Plus unless you are very wealthy financial institutions tend to look down on people who want to spend money or have the arrogance to think they can start a business, they always punish such behaviors with higher interest rates.
Also once the money is out of the trading platform and into your checking account you could buy real bitcoin on Coinbase, withdraw to private wallet, flee to South America and never be heard from ever again
if you search around this method has been around for a while, so it's not some sort of glitch. Plus like I said earlier, it's not any different than using the money to buy stocks.
>Also once the money is out of the trading platform and into your checking account you could buy real bitcoin on Coinbase, withdraw to private wallet, flee to South America and never be heard from ever again
I don't think you understand how this works. They still have your stocks. If you flee to south america they don't really care. Should you fail to meet your maintenance margin your stocks will be liquidated to pay back the loan.
>Plus unless you are very wealthy financial institutions tend to look down on people who want to spend money or have the arrogance to think they can start a business, they always punish such behaviors with higher interest rates.
I think you're ascribing ill will where there isn't any. Banks charge high interest to business and/or personal loans not because they hate poor people or whatever, but because they're risky.
I don't mean to accuse bankers, if anything I meant to stress that this method has something which doesn't add up .
Think about it , even if your net worth is 1M you still have to go through a conversation with the bank before they loan you money. They want to know your intentions, what are you going to do with it and so forth. They size you up, and the 1M net worth doesn't even count as a tool to reduce the burden of questions.
This method instead : you post some securities and you get a loan with no questions asked. It seems too good to be true or intentional from the financial institution side as it completely sidesteps the due diligence process.
It's not any different than going to a pawn shop and getting a loan, no questions asked. They don't ask any questions (aside from any mandatory AML/KYC ones) because they don't need to. The combination of easy to sell/liquid stock and the margin requirement makes it very unlikely that they'll lose their money. If you have $100k worth of stocks, SEC/FINRA regulations means that you can borrow up to $50k, and your portfolio can drop another $25k before they start liquidating your holdings. At that point you still have $75k worth of collateral for $50k worth of loans, so the chances of them losing money is slim.
Collateralized lending is very common such that its not newsworthy.
1. Does this actually work? AFAIK you avoid capital gains, but at the same time you need to pay estate taxes.
2. According to wikipedia bezos is 57 years old. Using the figures from SSA[1], he still has 26 years to live. The 20 year treasury rate (ie. risk free rate) is 1.99% (annualized). Applying that rate over 26 years gets you 66.9%. That doesn't seem like much of a savings over the long term capital gains rate of 20%. The numbers make more sense if you use 3 or 5 year treasuries, but that also exposes you to interest rate risk in the future.
[1] https://www.ssa.gov/oact/STATS/table4c6.html
>This technique is legal for anyone, but good luck convincing Goldman Sachs to loan you money based on 0.001% of Facebook’s outstanding shares.
They'll happily loan you money based on the equity in your home though. https://en.wikipedia.org/wiki/Reverse_mortgage
https://www.bloomberg.com/news/newsletters/2021-07-26/money-...
But - as you rightly point out - if that was the case, these loopholes would be closed first thing in the morning. These are loopholes created by the extensive lobbying of an exclusive club of people that do not want this to be available for the common plebs, but exclusive to the rich boys (and gals) club.
Remember, of course, that there are two ways to fix this.
Maybe we should be paying politicians less and having a cap on their net wealth instead.
And before you say anything - there are plenty of very very competent people who would do the job, just not the rich.
ICIJ: stop being the gatekeepers.
That would be a massive break of journalistic integrity.
IMHO, releasing the raw data in its entirety protects the journalists; if you're the gatekeeper, you automatically become a target.
They are journalists not vigilante hackers.
Some alliteration fetish.
Panama - well, Mossack Fonseca was in Panama.
Some of the people who defend the ultra-rich are also the ones who claim to be in favour of free markets. A small bit of economic orthodoxy is that for free markets to work, parties need to be informed (and externalities priced in, but that's another story). This is not just in terms of "this is the price of bananas" but also in terms of knowing eg what various salaries are, which businesses are profitable, etc.
How can we have free markets when we don't even know who owns what?
As for taxation, there needs to be an overhaul. Things need to be simpler, and I say this as someone who has used international tax advisors. There's no reason the tax guy's diagram of your business should be more complicated than your own diagram. Moving profits to other countries shouldn't be possible, or rather, it should be more fixed by the nature of the business than by the desires of the CFO. We simply hear too much about "selling IP rights" to subsidiaries and similar schemes that are clearly meant to lower tax rather than increase revenue. Granted some things will be legitimate, but it's important that some vague concept of fairness is adhered to. This again goes back to transparency. We invented corporations to help improve society, so we ought to know what kinds of things people are doing with them.
Edit:
Perhaps the way to see it is, if you say "we make money by selling coffees in the UK" you would expect that entity to report a tax structure that contains a bunch of coffee and UK related entries. Reporting to investors ought to mirror reporting to the taxman.
Free markets exist regardless of how you choose to assign property to people. Be it violence or consensus. Ownership is to be decided by the parties involved in the exchange. 3rd partys are an easy solution.
No, ownership is to be decided by governments who use force to protect property rights. They may take advice from the parties involved in the exchange, they may decide that neither party involved in an exchange was the owner.
For instance, in most jurisdictions, a dispute between two (claimed) property owners can only be decided by them, in full agreement, with the courts stepping in only when a stalemate is reached.
But the judge can only decide the dispute, and can't, for instance, arbitrarily issue an order giving the property to a 3rd party, or decide a dispute where one of the parties haven't first come to the court seeking that resolution.
Similarly, a property owner can summon police to help enforce their property rights in the case of a trespasser, but police can't arbitrarily enforce the rights of 3rd parties without request.
I think it's easy to say this, but I'm not sure the history of corporations bears this out. Technically, the first corporations were colonial expeditionary forces (like the Dutch VOC) that were sent to Africa and the Caribbean to control various types of precious resources and we all know what happened there.
I guess it all depends on who "society" is in your statement, because someone has always has to lose in a corporate structure.
A lot of the shifts towards a more humane version of capitalism came through outside forces like organized labor (i.e. the 40 hour workweek, the establishment of child labor law, etc.). These were not things that corporations volunteered, it took lots of people threatening to stop the system in order to achieve many of the benefits we enjoy today. We'd still be working 7 days a week starting as small children if those outside forces didn't establish many of those fundamental changes for us.
Uhm, who says that? Corporations were always created by people who wanted to cooperate to pursue their common interests.
And to this end, the only reason to create a corporation is to make society better. If they're not, we have the ability to revoke their charters, and we should use that more.
I'm sorry but this is patently false, the reason to create a corporation is to capture profit.
Want to make society better? There are numerous non-profit and government organizations that broadly aim for this goal which do not turn a profit. The goal of a corporation is to sell goods or services, and hopefully those goods or services do in fact better society. However, this is far too often not the case to make the argument that corporations exist to improve society. Look at how much control corporations have over our society today, they're practically invincible and indemnifiable in our current culture because they're so much more insulated legally than individuals.
The fact that corporate charters are never revoked points to the laws being in the corporations favor, not the citizens’
From where I stand, corporations should be afraid of the societies that grant them their charters.
This encourages entrepreneurship. I don't think you'd see as many people trying to build widgets if they had to put their family's home on the line.
In exchange for those protections, we get widgets.
For international finance, early 20th century oil played a special role, not adequately described here.
As far as the parent comment about corporations "killing people" .. this is true but naive.. since the Romans and before, brutality was the norm, not the exception. Every educated person and most others knew about extreme forms of collective abuse, it had happened again and again. The very formation of civilization, including merchant and trade functions, was generally meant to be an improvement on past forms. Rarely, but with serious circumstance, some merchant company would rape and murder their way to fortune for a while. But karma is a bitch as they say, and those things did change. The tame history I cite above, was specifically aimed at making a better economic engine, for profit by ownership, which upon consideration was the chosen path.
Also, their reorganization after each first generation of underhanded practices became recognized, otherwise attention could not have been as well diverted from the ability to leverage greed even more so than leverage the resources of the smaller investors.
Good historical reference sections on Wikipedia:
https://en.wikipedia.org/wiki/London_Stock_Exchange
>During the 17th century, stockbrokers were not allowed in the Royal Exchange due to their rude manners. They had to operate from other establishments in the vicinity, notably Jonathan's Coffee-House.
https://en.wikipedia.org/wiki/Philadelphia_Stock_Exchange
https://en.wikipedia.org/wiki/Tontine_Coffee_House
https://en.wikipedia.org/wiki/New_York_Stock_Exchange
NYSE of course is where lots of the money ended up from the international slave trade, and not just from sales in North America.
Seems to me that's what allowed NYC to take the place of London as the world's financial center, since the UK frowned on slavery much eartier than the US.
Also early 20th century oil might have been the only thing with as good or better return than slavery had generated.
Assigned reading will frequently be listed on syllabi. Older versions can be found through the Wayback Machine, if posted online (and from the early 1990s through about a decade ago, many were, unfortunately, integrated school information systems have largely hidden these behind registration walls).
https://www.worldcat.org/title/organizing-america-wealth-pow...
Archive.org don't appear to have this, though ZLibrary / LibGen do.
https://openlibrary.org/works/OL4468926W/Organizing_America
Which links to: https://archive.org/details/organizingameric00perr/
It was a massive public money raising campaign to build war ships, guns and hire mercenaries, all under the guise of "exploring exotic commercial opportunities overseas".
It's not a guise when other countries monopolize trade routes. It's simply a cost of doing business.
EDIT: in "The World's First Stock Exchange" [1], the author outlines this historical context of conflict between Netherlands and Spain, which spurred the VoC and - considered to be - the first stock market.
[1] https://www.goodreads.com/book/show/18847884-the-world-s-fir...
It's more that at one point during the industrial revolution, it became common that someone would make a private venture, incorporate it, and from there the law granted a number of modern considerations that we still live with. I'm thinking of limited liability and its effect on bankruptcy.
I don’t know the definitive origin, but one of Cæsar’s reforms in the Lex Julia was to require collegia be approved by the Senate (or Emperor) to be considered a legal body. The concept of corporations traces to at least then, almost certainly earlier, since corporate personhood is a logical result of the process of creating a legal system.
The novelty of the English and Dutch trading companies wasn’t their corporate personhood, but their distributed ownership as a joint-stock company.
Sources - Caesar, Life of a Colossus and Augustus, First Emperor of Rome by Adrian Goldsworthy.
They both work in most contexts.
I do think both (intellectual property and corporations) can actually be good for society if properly regulated, I just don't think that was the original intention, nor the current status quo and it won't naturally develop in that direction without concerted effort.
At the same time, markets do "work". That is, the results of market interactions are what you might expect from market interactions: Accumulation of capital in fewer hands, economic cycles of various kinds, some motivation for innovation and lots of innovation for exploitation, war, scams and such...
And you even didn't say anything controversial, hardly any options, but simple facts and conclusions drawn from the facts.
We can even bring out the comments by the Chicago school of economics - the birthplace of neoliberal free market ideology. Who with assistance from the government 'helped' south American countries by implementing more free markets than in USA. And as the result those countries imploded both politically and economically, and what does Chicago say? well obviously markets were not free enough.
They laugh at communist who say failed soviet counties were not communist enough, yet they do exact same thing with their experiments (actually, the difference is that they inflicted it on other countries).
Which begs a question, if neoliberals believe in what they preach then why they only export it?
I think you're kind of gesturing at the concept of "perfect competition", which is rigorously defined and does have technical requirements [0], one of which is perfect information. But it actually doesn't really apply to the tax situation of the owner.
In other words, for political and ethical reasons, there's a lot of reform that can and should be done, but I wouldn't dress up the argument in the form of "economic orthodoxy", unless you're talking about actual economic orthodoxies like lowering corporate income tax and preferring VAT to personal income tax.
edit: I should soften my confidence here, it's been a while since I did economics. At least, I've never heard of transparency extending beyond the good or service being a requirement for perfect competition... do you have a source for that, or can you clarify how it would affect things?
[0] https://en.m.wikipedia.org/wiki/Perfect_competition#Idealizi...
Those are more political ideologies than anything.
By economic orthodoxy, I simply mean that it's a fairly common economic teaching that bad things happen when parties are uninformed. For instance Akerlof lemons is about information asymmetry.
I'm not referring to any specific model (monopolistic competition etc) but to the general observation that a fair few economic models point out that having wrong information causes problems.
Akerlof lemons have zero to do with knowing the salary of the CEO of the lemon company.
We're talking about this https://en.wikipedia.org/wiki/The_Market_for_Lemons right?
This would be a nice simple GAAR: you pay either the current corporate rate or 20% of the GAAP profits you report in your stockmarket statement, whichever is the larger.
Good point, but take a number. We can't have free markets because most "regulation" is set up to favor some side or the other. There isn't even and fair competition. What we have is government sanctioned winners (and losers).
Before we get to who owns what, let's talk about how Uncle Sam can shamelessly put his thumb on the scale (read: bias and corruption) and too rarely be called out for doing so.
My opinion, the left will only be happy with a 100% income tax and socialism.
There isn't any evidence that tax rates much higher than those we currently have have been any obstacle to growth. Perhaps in theory, but many countries around the world and across history (including the United States!) have had much more progressive taxation regimes and it hasn't "kill[ed] the incentive for starting companies and becoming wealthy."
Which countries? And what happens when another country becomes more competitive than the US from a tax perspective? Will it destroy the country? certainly not. Will the US continue to be the world reserve currency and lead the world? Again, no.
> And what happens when another country becomes more competitive than the US from a tax perspective?
This is a really important point and I'm glad you brought it up. The progressive taxation regime has been undermined over the past 30-40 years by the "Washington consensus" - the idea that free flows of goods and capital are paramount and that it should be US policy (as well as the policy of the IMF, World Bank, etc.) to pursue such ends via trade agreements and in exchange for loans. The issue is that free flows of capital leads to the exact problem you describe: a global race to the bottom on tax rates and a general nihilism about the possibility of an equitable tax regime. The long term challenge, then, is about building transnational agreements that are about more than just free flows of goods and capital: they must address issues of taxation as well.
Almost by definition, somebody living paycheck-to-paycheck is spending all their income. So their sales tax bill is going to be basically whatever the sales tax rate is applied to their income (e.g., a 7% sales tax rate applied to all of their income). Somebody who saves some of their income isn’t spending that portion, so in a year their sales tax bill will be smaller than the sales tax rate (e.g., if they save 10% of their income, then they’re only paying sales tax on the 90% that they spent). You could say this isn’t hard enough of the rich, or it’s too hard on the poor. Usually “too hard on the poor” is an easier argument to make.
There are solutions, such as exempting food or other necessities (the poor probably spend a bigger portion of their income on food, so exempting food helps them more), or adding a luxury tax on things that the poor don’t buy, etc. Of course, then there’s an effort to define what should count as a necessity or what should count as a luxury. When I was a teenager, California sales tax did not apply to packaged food, but did apply to food bought at a restaurant. But there were exceptions to both of those cases: there was a snack tax that applied to some packaged foods (the list changed each year) so that some packaged foods were still taxed; and packaged food sold at a restaurant was exempt (I worked at Cinnabon, hot cinnamon rolls were taxed, after thirty minutes on the hot plate we let them cool down, refrosted and packaged them and they were no longer taxed; if somebody asked for packaged rolls when we were out, they got hot rolls in the box without paying sales tax).
It’s also true that “income” isn’t always the interesting number. Somebody with a million dollars in the bank and no income doesn’t pay income tax, but they do pay sales tax. Of course, if the money came from wages in a previous year, they paid income tax then. If the money was an inheritance, it might have been taxed but the US keeps changing the details of the estate tax.
Because raising taxes isn't going to keep someone who would already be considering starting a business from starting a business.
Do most people who start a business actually become wealthy?
How can you say that? Have you polled everyone starting businesses? This very thing happened to me with a distribution business in which taxes, and the potential for them being raised, made the business unprofitable compared to the same business running in China.
> Do most people who start a business actually become wealthy?
Subjective and impossible to calculate but by all means because not everybody can find a way we should kill it for everyone right? Because not everyone is smart enough to become a medical Dr, we should ban the profession or implement pay caps right?
Huh. Made me wonder if advocates of IP reform could claim improved tax sanity as a benefit.
Happily, not an original thought.
Here's the first hit via ddg:
Intellectual Property Law Solutions to Tax Avoidance [2015]
https://www.uclalawreview.org/pdf/62-1-1.pdf
"Multinational corporations use intellectual property (IP) to avoid taxes on a massive scale, by transferring their IP to tax havens for artificially low prices. Economists estimate that this abuse costs the U.S. Treasury as much as $90 billion each year. Yet tax policymakers and scholars have been unable to devise feasible tax-law solutions to this problem. This Article introduces an entirely new solution: change IP law rather than tax law. Multinationals’ tax-avoidance strategies rely on undervaluing their IP. This Article proposes extending existing IP law so that these low valuations make it harder for multinationals to subsequently litigate or to license their IP. For example, transferring a patent for a low price to a tax-haven subsidiary should make it harder for the multinational to demonstrate the patent’s validity, a competitor’s infringement, or entitlement to any injunctions. The low transfer price should also weigh toward lower patent damages and potentially even a finding of patent misuse. Extending IP law in such ways would thus deter multinationals from using IP to avoid taxes. Both case law and IP’s policy justifications support this approach."
Also...
> How can we have free markets when we don't even know who owns what?
Yup. Open markets require symmetrical information.
Great. Let's add more paperwork to the incorporation/reporting process.
> As for taxation, there needs to be an overhaul.
Taxation has a hard time changing the current laws because these are revenue for government. It can't do an overhaul but it can make new rules/regulations. Great, more paperwork.
> Moving profits to other countries shouldn't be possible, or rather, it should be more fixed by the nature of the business than by the desires of the CFO.
More paperwork, regulations, rules and advisors. That should simplify your tax diagram.
> Perhaps the way to see it is, if you say "we make money by selling coffees in the UK"
Many economic players are way more complex than a company selling coffee in the UK. These also happen to be the most influential and important nodes in your economy.
tldr: Tax is a really complex issue. ICIJ is, surprisingly, not that transparent in its funding and the people doing the funding/leaking these documents; I'm really doubtful they are doing it because they have "good hearts" or on any goodwill to help "society".
Many of the systems required to create a more complete accounting of assets already exist. For example, in the United States financial institutions already generate 1040s for profits/losses/dividends on financial assets; it wouldn't be particularly difficult for those forms to also include the actual assets themselves and their values. Local governments already collect property taxes (which, at various points throughout history have included a lot more than just property - such as cars/boats/etc.; equipment, etc. - so the infrastructure already exists to tabulate these other categories too) - it wouldn't be hard to transmit that data. I'm not arguing that it wouldn't take any work to have a transparent accounting of who owns what, but it's certainly not impossible - after all, we do it for income and no one seems to bat an eyelid. Not to mention that we live in an age of fast and easy electronic communications. Transparent wealth accounts have existed before in much more difficult circumstances (e.g. wealth taxes imposed on war profiteering by various governments after WWII) and it didn't prove to be an insurmountable burden.
> Taxation has a hard time changing the current laws because these are revenue for government. It can't do an overhaul but it can make new rules/regulations. Great, more paperwork.
Taxation is law - in fact, the tax code and how it is structured is probably the most important part.
> More paperwork, regulations, rules and advisors. That should simplify your tax diagram.
There is already an incredible amount of paperwork, regulations, rules and advisors involved in the gaming of the global tax system that already occurs. More transparency around asset ownership would help lead to a simpler global tax regime, not a more complicated one.
Certainly, given we’ve been to the moon, will be on mars soon, and are standing on the brink of cures for some of the worse diseases we could figure it out. But then you’ve removed a measure of privacy. Why does everybody need to know what everybody else owns? Then comes the difficulty in tabulating this data. The rich will pay someone to do it. The rest of us will spend even more time each year figuring out everything we own vs got rid of that year.
Progressive taxes are a failure. Millions of words are in the current tax code and it still failed. Why add more words? Flat tax, no deductions, pull it at the income source. QED.
OR, we can keep futzing around trying to implement a “fair” tax code, only to find out in the end it’s impossible
I don't think such a system of accounts would need to be publically accessible. It could work similarly to income taxes - where the public is able to look at robust aggregate data, the IRS is able to collect taxes as necessary, and central banks are able to make good monetary policy based on real data.
> The rest of us will spend even more time each year figuring out everything we own vs got rid of that year.
For the vast majority of wealth that the vast majority of people own (property and financial assets), nothing would be required because (as I mentioned above) there already exist reporting mechanisms for those types of assets.
> Progressive taxes are a failure. Millions of words are in the current tax code and it still failed.
Why do you think progressive taxes are a failure? Taxes used to be much more progressive during a period of much higher growth (1950-1980). Over the last 40 years we've gradually made the tax system more regressive by lowering rates and inserting more and more loopholes (which primarily benefit the wealthy)
OK, what will this do? Nothing.
> For the vast majority of wealth that the vast majority of people own (property and financial assets), nothing would be required because (as I mentioned above) there already exist reporting mechanisms for those types of assets.
Again, it sounds like you’ve changed nothing.
> Why do you think progressive taxes are a failure? Taxes used to be much more progressive during a period of much higher growth (1950-1980). Over the last 40 years we've gradually made the tax system more regressive by lowering rates and inserting more and more loopholes (which primarily benefit the wealthy)
For a few reasons, including the left constantly saying they’ve failed and they don’t have enough money. Another reason is income tax was originally meant for the wealthy, then inflation caught up. With an inflationary currency taxes implemented for the rich only will eventually apply to all, as income tax does today but didn’t before. Not to mention the massive overhead to process all of this data, we literally picked the most complicated way to do this.
It will do several things. First of all, having robust publicly available aggregate data will spur better debate about the equitable distribution of wealth. Second, it will allow the IRS to easily collect wealth taxes should congress authorize those. Third, it will enable Central Banks to make better decisions - right now we're flying mostly blind, so to speak.
> For a few reasons, including the left constantly saying they’ve failed and they don’t have enough money.
I don't think "the left" is saying that income taxes have failed. I think "the left" is saying that income taxes are no longer as progressive as they once were for a number of reasons: (1) top tax rates are much lower than they once were; (2) income and capital gains are taxed differently; the low (and flat) rate of capital gains taxes mean that the wealthy pay effectively lower tax rates; (3) the huge number of loopholes introduced into the tax code predominantly help the wealthy and make the overall income tax regime more regressive than it would otherwise be.
I think the left also argues that income isn't the most accurate measure of an individual's capacity to pay taxes.
> Another reason is income tax was originally meant for the wealthy.
This is simply not true. Income taxes were introduced by most developed countries in the first half of the 20th century as (1) a check on inequality; (2) a reasonable way to expand the tax receipts of the federal government from something like 10% of national income to the 40+% of national income that countries require in order to invest in anything but purely regalian state functions. It has little to do with inflation, and tax brackets are constantly adjusted for inflation in every country that has implemented one. On the other hand, income taxes are progressive so by design they hit the wealthy harder (and always have done).
> Not to mention the massive overhead to process all of this data, we literally picked the most complicated way to do this.
The IRS budget is very small.
That point aside, progressive taxes are meant to tax people according to their ability to pay. A flat tax can never accomplish that. Most progressive taxes fall under three categories: wealth taxes, inheritance taxes, and income taxes. You need to collect a certain amount of data for all of them.
> I don't think such a system of accounts would need to be publically accessible.
Which one is it? Public or not?
> I don't think "the left" is saying that income taxes have failed. I think "the left" is saying that income taxes are no longer as progressive as they once were for a number of reasons
Yes, which I alluded to. Now tell me, when will this end? As I said, we have an inflationary currency, so of course todays taxes will not be enough in the future. Which is why this system is a joke to me. Why are you surprised the taxes are not enough anymore?
> This is simply not true. Income taxes were introduced by most developed countries in the first half of the 20th century as (1) a check on inequality; (2) a reasonable way to expand the tax receipts of the federal government from something like 10% of national income to the 40+% of national income that countries require in order to invest in anything but purely regalian state functions. It has little to do with inflation, and tax brackets are constantly adjusted for inflation in every country that has implemented one. On the other hand, income taxes are progressive so by design they hit the wealthy harder (and always have done).
https://en.wikipedia.org/wiki/Legal_history_of_income_tax_in...
The first income tax applied to those making more than $600/yr, which means the poor didn't pay. Today, the poor still pays, as that limit was never updated to the new "wealthy" level. Also because the left wanted a larger taxable base, for more $$$$.
Please avoid "other countries" as we're talking about the US and I have no clue or care about other countries tax codes or history.
> That point aside, progressive taxes are meant to tax people according to their ability to pay. A flat tax can never accomplish that.
How so? If you tax everybody at the same low rate, say 15%, then every can pay? Whatever the minimum bracket is in the current system, use that. This will result in less tax revenue, which is why the left hates this system.
Another way to put all of this, if you want Obamacare, lets open up those medical records to the public so we can decide if:
a) we can afford you being on it
b) if your conditions are correctable
The aggregate data would be public and the underlying data points would not be. Just in the same way it's possible to have a robust discussion of income equality but I can't look up how much money my neighbor earns.
> Yes, which I alluded to. Now tell me, when will this end? As I said, we have an inflationary currency, so of course todays taxes will not be enough in the future. Which is why this system is a joke to me. Why are you surprised the taxes are not enough anymore?
No, this is not true. Income tax brackets are updated every year, and always have been, to account for inflation.
> The first income tax applied to those making more than $600/yr, which means the poor didn't pay. Today, the poor still pays, as that limit was never updated to the new "wealthy" level. Also because the left wanted a larger taxable base, for more $$$$.
The 19th-century income tax only lasted a few years, was not particularly progressive, raised very little revenue, and generally bears little to no resemblance to our current income tax. The income tax we have today dates to the early 20th century.
> Please avoid "other countries" as we're talking about the US and I have no clue or care about other countries tax codes or history.
But we should care about other countries because their experiences can inform ours.
> How so? If you tax everybody at the same low rate, say 15%, then every can pay? Whatever the minimum bracket is in the current system, use that. This will result in less tax revenue, which is why the left hates this system.
If you want to construct a modern state, you need progressive taxation to raise the 40-70% of national income a year in tax revenue (all "developed" modern states do this. Places like India and South Africa don't, which explains a lot...). If you believe we should go back to a 19th-century state which collects low taxes and does little redistribution, (1) inequality would balloon; and (2) I've got bad news for you, because most people in the United States support significantly more progressive taxation. (Not to mention that the United States would quickly fall behind the rest of the world due to lack of investment in education, which is one of the primary drivers of productivity growth.)
So now leaves the question, what does this report look like?
> Just in the same way it's possible to have a robust discussion of income equality but I can't look up how much money my neighbor earns.
Who's having these discussions? Certainly not the entirety of the political landscape is involved. This is a leftist idea, so perhaps the people on the left are having a robust discussion about wages, but the people on the right and some of the moderates (like myself) are tired of people saying they don't make enough (being self made from a poor family myself). Your idea here is yet another extension of this. You want to know what people make and own so you can determine how much tax they should pay, and if they're paying enough. I can short circuit this for you. We all know the left wants more taxes, the right wants less, and the majority of the moderates are siding with the right right now. We can safely avoid this massive headache and know the outcome desired by all parties involved.
> No, this is not true. Income tax brackets are updated every year, and always have been, to account for inflation.
OK you missed this one completely so I'll walk you through it a bit more. The value represented by the currency never changes. However the representation of that value does change over time and with an inflationary currency it keeps increasing. So the reason the the tax brackets and taxes are increased or updated, is because they need more money to get the same value from taxes as the previous year. With the left wanting to implement full on socialism, this will never end and we will go broke as a nation. Or put more simply, when 100% tax is implemented, and we need more, what happens then?
> The 19th-century income tax only lasted a few years, was not particularly progressive, raised very little revenue, and generally bears little to no resemblance to our current income tax. The income tax we have today dates to the early 20th century.
OK?
> But we should care about other countries because their experiences can inform ours.
No.
> If you want to construct a modern state, you need progressive taxation to raise the 40-70% of national income a year in tax revenue (all "developed" modern states do this. Places like India and South Africa don't, which explains a lot...). If you believe we should go back to a 19th-century state which collects low taxes and does little redistribution, (1) inequality would balloon; and (2) I've got bad news for you, because most people in the United States support significantly more progressive taxation. (Not to mention that the United States would quickly fall behind the rest of the world due to lack of investment in education, which is one of the primary drivers of productivity growth.)
So how did the US become the greatest nation prior to high taxation? How come high taxes was literally the trigger that started the rebellion? Some people have an idea that the only way to a prosperous nation is via socialism, and to those people I'd say they're brainwashed as the schools in the US have been doing for about 4 decades now.
My point remains, if we continue on this path, and seek to justify further taxes we will ultimately end up with 100% income tax. And that's really the point of all of this, to implement socialism.
You can slice and dice the data how you like. Again, exactly how we currently do it with income data.
> Who's having these discussions? Certainly not the entirety of the political landscape is involved.
The entire political landscape is involved, as evidenced by your comment that you want lower taxes.
> You want to know what people make and own so you can determine how much tax they should pay, and if they're paying enough.
This is literally the goal of progressive taxation.
> We all know the left wants more taxes, the right wants less, and the majority of the moderates are siding with the right right now.
Polls show overwhelming support for increasing taxes on the wealthy.
> OK you missed this one completely so I'll walk you through it a bit more.
$1 doesn't have any inherent value by itself. The value of a dollar is determined by what you can exchange it for. $1 in 1921 was significantly more valuable than $1 in 2021 - you could buy a lot more with it. This is called inflation. As long as inflation remains relatively low and predictable, it doesn't really matter in the abstract whether something costs $1 or $10 or $100 (if inflation rises quickly, that's another story of course!) There exists a metric called the Consumer Price Index which measures this inflation, and therefore the value of a dollar across time. Income tax bracket cutoffs aren't increased over time in order to raise more revenue. They are increased in order to raise the same amount of revenue after adjusting for inflation. But again, this doesn't mean anything, because inflation theoretically increases the price of everything - wages, prices, etc.
> Or put more simply, when 100% tax is implemented, and we need more, what happens then?
The United States had a top marginal income tax rate of 80-90% for most of the period 1950-1980. The United States economy grew much faster during this period than the period 1980-present, when top marginal tax rates were much lower. The point isn't to implement a 100% income tax. It's to make the tax system more progressive, which enables further investments in education, research, and health care, which fuels growth.
> So how did the US become the greatest nation prior to high taxation?
By most economic measures, the United States wasn't the strongest country in the world until the first half of the twentieth century. Some of the reasons for that include lower levels of inequality with respect to education in the late 19th century compared to most European nations; the earlier implementation of progressive income taxes compared to those nations; greater investments in education compared to France and Germany (and especially the UK) that led to higher per capita productivity; not suffering as much economic damage from the two World Wars; etc.
> How come high taxes was literally the trigger that started the rebellion?
The revolution had nothing to do with high taxes (taxes were very low, in fact - see https://taxfoundation.org/taxation-representation-american-r...). It had to do with unfair taxation. And that's exactly what this whole argument is about: the wealthy pay unfairly low taxes because of tax havens and an inability to properly tax wealth.
For free markets to work, we need the following:
-Bankruptcy without bailouts to clear dead wood.
-Abolish patents as these simply limit free market competition and are a ploy to try to claim ownership on something that usually is one tiny fragment of human knowledge.
-Public tax records for everyone. Sunlight is the best disinfectant (and the best way to allocate resources)!
-Wealth tax instead of income tax.
I would also..
- allow government to compete on the free market.
- allow government to force-purchase static businesses that are profitable but not innovating.
- require government to monitor such port folio and privatize where innovation is failing. Privatization of this kind should not be rushed and aim to get good value for the assets.
- print money against the new government assets minus earnings from privatization
So then we should disallow government from regulating the market? There is a conflict of interest in your conjecture.
I and many other people have a laundry list of skills that I could offer to others only if I fill out piles of paper work.
If little jimmy wants to wash 1 car he needs to register a business and get the business bank account?
If big Joe has 100 car washes and he is earning a stable income without expanding or innovating to much government could make a bid on it and offer him a job.
If say the US gov wants to force-purchase the google search engine it should pay handsomely for it. Say 1800 billion. Alphabet would do just fine bidding on the advertisement slots and selling them to their customers. (Such a large purchase should probably involve a referendum)
It is our government. If we want it to sell beer in town hall it should be up to us. If you and many others are against it it obviously shouldn't happen.
So why call it free market?
"Profits for the taxpayer" - did you get a penny of the "profits"? The only people who profited were the executives of the bailed out companies - who deserved to lose their jobs, not double their wealth.
Can you explain how they were rekless?
If i go to cassino and bet my life saving on black that's rekless. If I go to cassino and bet your life savings then 50% of times I am genius investor, or 50% of times i am really really sorry for your loss.
The problem is that those corporations are playing a game they cannot loose. Its only logical for them to push risk (therefore profits) more and more. They themselves created 'too big to fail' term.
I am not trying to make excuses for them, they are the people who captured regulatory institutions, and de-facto are self regulating - and in practice we all know where that leads. They are responsible for what happened and is happening.
Think this one through, what’s the incentive to invent or make a thing of there’s no protection? Because someone wants to?
That would do wonders for businesses to simplify the tax schemes and really moves the taxation portion to the individuals.
I’m sure like any tax reform this has edge cases and stuff I know I haven’t considered but wouldn’t the upside be taxation happens more uniformly as a result?
- use of public highways (reimburse in proportion to wear-and-tear, etc).
- use of public regulatory agencies like the FCC and FAA (to permit broadcast spectrum and airspace to be useful resources without everyone grabbing all of it all at once).
- very expensive use of US military to enforce international law, or to protect assets in foreign countries.
- use of publicly funded education to train their workforce.
I could probably go on for pages and pages but these are probably the big ones we spend the most money on.
I think a few months of this system and most corporations would be BEGGING to go back to simple income tax where they can game the system and scam their way out of paying what they owe.
Just something to keep in mind.
Why would we need to know who owns what in order to have a free market?
Free markets: my definition, almost complete lack of rules on how to trade, exchange information, barter etc. ( except bare minimum rules of protecting one's property, life etc. from direct harm)
https://archive.is/rwHBj
https://www.icij.org/investigations/paradise-papers/
There were no earth shattering mass arrests and government topplings, but it's unrealistic to expect such a thing.
E.g. In Denmark, the country’s tax minister cited the Panama Papers to justify hiring hundreds of new employees to bolster the fight against tax fraud.
It was high news and had consequences. There is much work to be done, but 'nothing changing' is not the case.
I guess you are referring to Daphne Caruana Galizia. That would still be singular, though.
https://en.m.wikipedia.org/wiki/Daphne_Caruana_Galizia
Corruption means a politician becoming wealthy in an inappropriate way from their position of power. Even if they were to pay taxes this is still a huge negative for society. Wherhers it's the president of Azerbaijan or Nancy Pelosi, it's should rise to the level of criminal enrichment if properly investigated.
On the flip side are people who made their money legitimately and employ legal strategies available to them to minimize their tax bill. I have a hard time moralizing this because we all do it. Be it writing off donations, using tax loss harvesting, holding on to investments just long enough to not trigger capital gains taxes, etc - we all use strategies available to us to pay no more tax that we have to. I would expect nothing else from a more wealthy person. I would be totally fine if society made moves to close loopholes but I can't blame people for leveraging loopholes that exist because we should all do that.
But in any case, would your opinion change if the tax resident or provider wrote the tax law that got passed? In Mossack Fonsaco’s case that is what they did in a variety of island nations.
The first step in the right direction, then, is for people to become aware of these highly unsavory (but legal) practices. It's not going to be an easy fight. The kind of people that setup multiple shell companies to obfuscate the ownership of their assets have worked deliberately to extract wealth and game the system to a level that is unimaginable (at least for me before I heard about the related Panama Papers story that broke a couple years ago).
Ultimately, as we approach a global society with insane levels of wealth inequality and where public infrastructure and social safety nets have started to come apart at the seams, it's imperative that these "loopholes" get closed. Otherwise, we're going to be revisiting Feudalism in 21st century western democracies. Sadly some people seem to want that. They see it as a kind of gilded age lords and their servants.
The vexing thing is that everyone thinks that they are going to end up on the "lord" side of this duality. I think this is the biggest lie of the 20th and 21th century; that this game is in any way, shape or form a fair one. The game is rigged and while everyone seems to recognize this on some level, almost everyone is trying to keep it rigged in the delusion that they be the masters one day.
The fools.
You can still blame for bribing politicians to create these loopholes in the first place.
Yes but many of the tax loopholes are just the result of the corruption of power (legal or not). It's only obvious to the people who benefit from it, so no one bats an eye.
https://www.bbc.com/news/world-58780465
https://www.theguardian.com/news/2021/oct/03/pandora-papers-...
https://www.washingtonpost.com/business/2021/10/03/takeaways...
As we can see demonstrated by this story, some folks do have things they want to hide. Tech employees supporting efforts to violate people's privacy at mass scale, collecting data about people to feed advertising-dependent business plans, and creating conditions for data breaches that leak personal information, please take note.
It's shared amongst journalists worldwide who analyse it for a few weeks/months.
Then they all release on the same day. It allows local coverage and doesn't give those mentioned a heads up.
When you get money from the offshore (as dividends or whatever) you pay taxes on that income, like normal ppl.
What happens with the money between these moments is different story though. Depends on how the money are spent. And to my understanding, if they used to buy a property, say in US, the offshore still pays the US property taxes.
Say you own a company in the UK which sells widgets, but you also own an offshore company that also sells widgets. If you are dealing with a Chinese company, you could use the offshore company to do the deal, paying little to no tax. The money then resides in the offshore company and has never gone through the UK - either as a business or personal. As an individual you could own a credit card that you use to spend in the UK, which goes back to the offshore company. In additional, the offshore company could buy property in the UK and no tax is paid. There are various other tricks and nuances that can be employed to help minimise tax paid - completely legally.
I can even give opposite examples, like when someone comes to the US to run a startup in California. For the country of their origin they definitely opened an offshore corp (in the US in this case) and don't pay taxes on it (they still pay to the US gov though). It's just more convenient to have a US corp rather that a corp in their home country, and not because of taxes which may be higher in the US.
The broader question and sentiment of this piece is: how exactly have people who supposedly work in Public Service amassed such wealth when these positions are paid so low, and what lengths will they go to do so, especially in developing countries. The subtext being if their are conflicts of interest in their investments which happen to also be tied to offshore havens.
This outrage is warranted, because it underscores how tiered the legal system is World wide (The US is least represented in the Pandora release but 2 Federal Reserve Presidents have just stepped down due to insider trading [0]) for those closest to power, whereas tax evasion is one of the most effective ways to get a criminal indictment for the average citizen in most of the World.
0: https://wgno.com/news/business/dallas-feds-kaplan-to-leave-i...
For those closest to the power, the easiest way to get around the law... is to follow it to the letter.
Biggest, and most famous Russian mafiosos live in the open in London, while diligently paying taxes on their multi-billion ill gotten wealth, and without using any offshore structures, or shady law firms at all.
And the British establishment, Downing St., is very happy with this arrangement.
What people forget about these things is that those offshores are a refuge for at most second grade rogue economic players, whose main rationale hiding their wealth is to hide it from other much bigger gangsters, and mafias from their home countries.
They themselves choose places like London not because it's a rich city to live in, but because of London offering much better protection from being gunned down in broad daylight than cities in their home countries.
I'd agree but not for the reason(s) you've outlined, what they they will do is get their crimes legalized. Or, if they get caught as in the case with Christine Lagrade [0], they will get convicted but serve no sentence and remain in their position. Proving that selective application of the Law, nepotism and the failing up method is as prevalent as ever within these circles.
The City of London Corporation is nearly autonomous to the greater UK with it's own political and legal framework [1], and given it's incredibly checkered past, you'd do well to keep that in mind when you decide to be an apologist for Russian tycoons and oligarchs.
To be clear: I'm not against wealth or the wealthy, I'm merely pointing out the hypocrisy (and my disdain) for those who use their relation to the State for their own largess.
0: https://www.bbc.com/news/world-europe-38369822 1: https://en.wikipedia.org/wiki/City_of_London_Corporation
Highly doubt it. A targeted assassination would be as easy in London as anywhere else.
Usually, those folks come from money to begin with, which makes the situation even worse.
I saw this a lot living down in Texas, state congressional pay is so low that you basically have to come from money in order to run and hold state office (base pay is $7.2K annually and tops out at $40k for a two year period, depending on how many days they're in session, basically minimum wage). Even though it's technically not a full-time job, it's demanding enough of one's time that they need a prior career with enough flexibility in order both hold office and make extra income, which excludes the vast majority of the population.
Czech Prime Minister Andrej Babis, one of his country’s richest men, rose to power promising to crack down on tax evasion and corruption. In 2011, as he became more involved in politics, Babis told voters that he wanted to create a country “where entrepreneurs will do business and will be happy to pay taxes.”
The leaked records show that, in 2009, Babis injected $22 million into a string of shell companies to buy a sprawling property, known as Chateau Bigaud, in a hilltop village in Mougins, France, near Cannes.
Babis has not disclosed the shell companies and the chateau in the asset declarations he’s required to file as a public official, according to documents obtained by ICIJ’s Czech partner, Investigace.cz. In 2018, a real estate conglomerate indirectly owned by Babis quietly bought the Monaco company that owned the chateau.
Sounds like at the very lest it was unreported. We have half the story, which in a lot of cases sounds like fraud. The other half of the story is in tax documents.
ETA: The other thing is a lot of these people have the power to fix these systems that enable corruption, and like Babis, publicly say they will. But are they going to fix the system if they're using it?
But my prior is, that if the public knew about it (in general "these are the ways the elites use to pay less tax than you", as well as specifically "this career public official actually amassed $100m wealth on $100k salary"), the laws would change (e.g. introduction of wealth tax, or equalization of capital and labour taxes).
> “If the Jordanian monarch were to display his wealth more publicly, it wouldn’t only antagonize his people, it would piss off Western donors who have given him money,”
...
> Marwan Kheireddine, Lebanon’s former minister of state and the chairman of Al Mawarid Bank, also appears in the secret files. In 2019, he scolded former parliamentary colleagues for inaction amid a dire economic crisis. Half the population was living in poverty, struggling to find food as grocers and bakeries closed.
> “There is tax evasion and the government needs to address that,” Kheireddine said.
> That same year, the Pandora Papers reveal, Kheireddine signed documents as owner of a BVI company that owns a $2 million yacht.
> Al Mawarid Bank was one of many in the country that restricted customers’ U.S. dollar withdrawals to stem economic panic.
> Wafaa Abou Hamdan, a 57-year-old widow, is among the regular Lebanese who remain angry at their country’s elites. Because of runaway inflation, her life savings plummeted from the equivalent of $60,000 to less than $5,000, she told Daraj, an ICIJ media partner.
Now imagine you have millions or billions of dollars. You do not want to hand over 50% of your income to tax authorities, especially if a legal way exists not to. And if you make the current legal ways illegal, the money will just keep flowing to invented ways. There will never be a way to avoid this, unless you have a centralized AI super computer that cannot be manipulated by fallible humans watching everyone’s cash globally and enforcing strict rules. And that will never happen.
Most of the Panama Papers revelations were not illegal behavior. This article says most of this is perfectly legal. I’m not sure what the scandal here is other than humans don’t want to give half their money away to the government.
Yeah, there are no perfect solutions to the problem, yet that doesn't mean tat our current imperfect solutions don't work to deter and reduce it, if anything it shows that these imperfect solutions need to be expanded upon, not discarded due their inherent human imperfection
Yes, but the army of parasites whose livelihood depend on the inefficiencies you describe beg to differ, and do so most efficiently.
Congratulations! You've been placed on team "no one's allowed to complain about things that were bad in the past and also things will never get better and plus anyway it's not illegal".
Are you sure that's the team you want to be on (Y/N)?
For a large number of people, this is very clearly a crime.
1. Establish profitable company in your home country.
2. Establish 2nd company in a tax haven country.
3. Give 2nd company some kind of ownership, and then pay rental fees, licensing fees, or simply set up a high interest loan that the 2nd company loaned the first.
4. Once you set up a way to make it look like you owe the 2nd company tons of money, now your 1st company no longer is "profitable" and actually in debt losing money, which means it doesn't need to pay taxes on the massive profit it's making.
While I believe it's legal it hinges on bad ethical practice. But many large companies do this, such as cruise ships and I think Apple.
Let's not give up without even trying.
If the same owner is behind both, and there seems to be no other reason that avoiding taxes, guilty.
If the court can prove that they did not handle with the intent of the law, it can still be decided that this is fraud. In a common law system this is not possible.
You can obfuscate fraud. But don't try that post-modern horseshit "what is being, man" on us.
When licensing costs are paid to a shell company with 3 employees in a country that is neither the place where the HQ are or where the company originates from, that's fictive.
It's like having a very small company with only a few people. There won't be any HR because that kind of overhead isn't something you can afford or make use of. So you work 'for the boss' and if you need something your boss is also the person who makes the decisions. But when the company gets bigger, you now get HR between you and the boss, and suddenly you are insulated. You work for the company, and are beholden to HR. Every step after that is just more insulation, more min-maxing and just making things worse for the sake of scale. Usually.
In this case, it’s not shell companies, the studios actually have in-house expertise (=shooting most of the movie) while the movie mostly drives the scenario and the actors, so it’s harder to define what is illegal.
McDonalds also has a franchise system, although it’s easier to control whether the pricing offered to the franchisees is constant or proportional to benefits.
But the shady stuff is sure there, and shady. UK high end property market seems to be a Monopoly-esque money laundering machine, with the extra inconvenience of having physical real estate attached to it.
Maybe one good replacement market for NFTs.
What do you mean?
Possibly not a concern with many EU countries, but with some for sure: the legal system is also stable, doesn't change on the whims of the politicians, and appears to be genuinely un-politicised.
Since Finance heavily relies on parties promising huge contingent payments to each other, having a trustworthy and reliable arbiter is key. If I enter into an agreement where I pay upfront, and I'm guaranteed insurance-type payments for 20 years into the future, the legal apparatus is the backstop to my claims.
[0] https://platform-production.s3.amazonaws.com/therules-134-Ci...
As the document whispers, what the City of London is, is a massive financial hub, that accommodates the offices and sales arms of many tax planning companies which sell professional services in London that would design structures to tunnel profits to various Crown Dependencies.
But you would find such services in any supercity. London is simply sitting at the crossroads of multiple hubs so it facilitates a lot of what's despised — but in itself, there's no haven in town!
This is literally their entire economy lmao.
Are you sure about that?
If the EU enforces what they preach and Ireland loses its tax haven state they could lose a huge chunk of their GDP.
Company 1's directors have to do what is in the best interests of the company. If they choose to sign up to a high interest loan which will take all their profits, that isn't decision-making in the best interests of company 1. That's the point they can be put in prison.
I just don't quite understand how nobody is prosecuting them...
An action done on behalf of Company 1 which slightly hurts company 1 but provides large gains to company 2 would be illegal (unless they can argue that it was part of a larger strategy to benefit company 1).
It’s called “transfer pricing” and it’s been going on for decades: https://en.wikipedia.org/wiki/Transfer_pricing
Short of a revenue (as opposed to income) corporate tax or VAT, it’s a very tricky problem to address. Maybe an excise tax on foreign remittances to match the highest corporate bracket.
Or you just scrap corporate tax entirely because it’s a terrible idea anyway.
If you scrap corporate tax would rich people hold all their wealth in corporations so as not to pay any personal income tax?
So please order that custom yacht now, all you HN unicorns.
It only redistributes work toward what rich people want.
Investing into something actually useful would be much better.
Scenario A: yacht is bought - economy is redirected toward luxurious yacht building, people get paid to work on building a yacht
Scenario B: investment into housing - economy is redirected toward house building, people get paid to build houses
scenario A can be a good one only when this people would be unemployed and seeking a work otherwise. Or if you think that building luxurious yachts is more important than alternatives.
What a catastrophic idea. Do you want economy tuned to the tastes of the vain, wasteful, and capricious? In such economy there is no car, real estate, mobile phone, or clothes for you.
As long as creating a legal fiction is a mere matter of having someone else do paperwork, you either need to extract tax from legal fictions, or kiss a big chunk of taxable activity goodbye.
The two main tax avoidance strategies would be people running and retiring overseas just before selling, or never selling and waiting for the cost basis to be reset upon their death.
Spending would turn into various non-monetary and indirect compensations. It is going already but would get even more efficient.
It's genius, and we all go along with it because how can you hate art and imagination? It's such a fundamental side of human nature. By turning its output into pseudo-goods, we think we're moving up in the civilization scale, whereas we're just enabling a parasitical accumulation of capital.
* Set up a company in the country where you'd like to pay taxes, and give it all of your intellectual property.
* Set up subsidiaries in the countries where you don't want to pay taxes. Have them pay licensing fees to the first company for the IP, making sure to set the licensing fee high enough that the subsidiaries don't make much profit.
* Now most of your profit lives in the first country, no matter how much business you do elsewhere.
A concept invented by and for lawyers. Call it imaginary property.
If the middle ground uses a term to describe a thing, then the wings have to use it as well. Or there has to be a real push by someone spending a lot of money on advertising to recast the concept. If someone goes around at the individual level making a thing of talking about "imaginary property" they are just going to look like an isolated crank. It isn't helpful.
Tax-evasion done by money-transfers based on fictional value attributions of something. Seems exactly like "imaginary property" to me.
I agree with both of you. I think the concept has to be recast, and that's going to be a very hard thing to do. I think a lot of money and effort was spent to cast these things as "Intellectual Property" in the first place.
However, it was on HN that I first saw the term "Imaginary Property", and I've seen that more and more lately. So there's hope. If usage of the term grows exponentially, it might happen.
(Talking as someone who likes the concept of private property).
Then the owners will just get less salary but will have the corporation pay for their housing, transport food etc.
How does that help in making the system fair?
[https://www.oecd.org/tax/beps/]
Groups where the ultimate parent is responsible for roughly over 1Bn in revenue are required to submit Country By Country Reports covering all cross border transactions their details and their transfer pricing methodology, and, in many cases, the underlying documentation of those transactions (contracts, loan agreements etc.). These are digitally submitted via your local jurisdictions Tax authority and shared with all member countries. Companies as part of that group are required to lodge more detailed information at a local level on just their cross border transactions with others in the group. This allows for some level of check that information being reported is globally consistent between tax authorities, who are then able to identify and place controls on unwanted behaviours.
There's another post in this thread about changing IP law itself to disincentivize these arrangements. Seems like a good idea.
For example, in TFA it's mentioned that the Blairs bought an offshore company that owned a building in London; they really bought the building, but doing it this way allowed them to avoid property taxes in the UK that relate to ownership transfers ("stamp duty"). They could then hire out offices, and if they do that through the offshore company that "taxable income" would similarly disappear. Her Majesty's Revenues & Customs might eventually object to the arrangement, but if the offshore owners are not known, what are they going to do, bulldoze a historical central London property? Obviously not.
Seize the property and auction it off to the highest bidder. The process would be quite similar to a foreclosure. The problem the UK has is more that the stamp duty has countless loopholes. If he doesn't actually owe tax, then legally that's the end of the discussion.
I have little faith that all the loopholes in a stamp tax can be closed. It would be much easier to enforce a property tax system. Events are abstract and ephemeral, but real property is tangible and immovable.
Survey the area to assess a property tax each year. Mail the assessment to the property's address, and include a unique account number for payment. You can audit that all land in the tax jurisdiction has been assessed, and that all assessments have been paid. The only thing you really need to be careful about is what criteria you use for the assessment. Market value is relatively safe for that.
For example: councils don't actually set their council tax rates by band. They set one rate which is the Band D rate. The rates of the other bands are then set based on fixed %s from that rate and the highest English rate (H) is only 200% of the Band D rate.
The value of the lowest valued band H (based on the 1991 price levels) property relative to the highest band D is 3.6x. So right away we see that as a % of property value the typical household (D is the most common) in any given place pays more than the highest valued local properties. Of course it is also the case that band H is open-ended.
There is then the fact that these are set and collected exclusively locally. That means that some of the lowest council tax rates in the country are in some of the richest places. Westminster and Wandsworth have Band D council tax in the £800s, Blaenau Gwent is over £2000!
Well, it was meant to look like a property tax, while at the same time ensuring it would disproportionately affect the lower classes, for sure. It was a Conservative measure, after all (which Tony Blair was obviously "intensely relaxed about", since it directed money to local authorities Labour controlled, hence it was never repealed). As wikipedia reports: "the Valuation Tribunal Service [...] states that: "The tax is a mix of a property tax and a personal tax".
> They set one rate which is the Band D rate.
Yeah, and they can't even be arsed to figure out if a Band D property in 1991 is still a Band D today - the roof might have fallen off since then, but hey, who's got time to do periodic surveys? Local councils have better things to do, obviously.
Second your intuition is correct, often people do break the law at this point, it's just very hard to detect without files like this which is why the previous Panama/Paradise leaks have led to so many prosecutions and tax recovery actions. They made clear what otherwise was secret.
A common tactic is using the funds to buy property in which you then live as a tenant. In most countries (certainly in the UK) tenancy contracts are purely bilateral and non-public. There is no way for the government to know whether you are:
1) living in a property owned by a third party ownership company that you genuinely have no links to - btw many rich people do this for at least some of their homes so it's not like its an inherently suspicious activity. You can rent whole houses in central London for 10s of thousands a week.
2) living in a property owned by a company of which you are secretly the beneficial owner and paying market rent (to yourself). This may be allowed under some very carefully structured circumstances but usually not.
3) Like 2 but not actually paying rent. Definitely not allowed.
Technically they could find the difference between 2 and 3 if they audited your outgoings but they would first have to have a reason to even start doing that. It's not like you can take a tax deduction for rent, so this doesn't even show up on your taxes, they would literally have to pull your bank records to look for the expected outgoing rent. Telling the difference between (1) and (2) is impossible without the secret ownership information.
Another favourite is to use offshore accounts to buy things like jewellery, clothes, furniture, almost anything that isn't registrable property (i.e. anything other than real estate or vehicles). That is certainly illegal since you're taking a benefit which should be counted as income and taxed but good luck proving that.
The money still changes hands. Once you realize enough growth, you do a stock buyback. those stocks you issued to yourself? poof.
The magic of finance.
I still don't get the "poof" part. So we're saying C2 is paying C1 for its stock, and I imagine that revenue doesn't count as income for tax purposes since C2 now "owns" part of C1 in return. As I see it, that means C1 is effectively getting a loan from C2, putting part of itself as collateral. It can spend the loan to grow, which is nice, sure. Let's say it does that. Now you're saying C1 performs a stock buyback? Wouldn't that mean it has to pay more for the stocks (since they rose in value)? It'd have to bring that money from somewhere... but where? I mean all it can do at this point is pay back the money it got from C2, but then it's even, right? There's nothing left over after that, it's just repaying a loan as I see/understand it.
This is the hell created by multi-jurisdictional legal fictions. Short of a multi-national crackdown, being able to nail down the vagueries a bunch of well compensated international accounting firms and lawyers can get up to is unlikely at best.
If I'm understanding this correctly, there are 2 things I'm taking away from this:
1. Cyclic ownerships should be illegal.
2. The investors (i.e. the public, for a public company) are getting scammed here. But it's not because of tax avoidance, but because company valuations (and therefore share prices) are just utterly meaningless, and people are... too oblivious to this? I mean, a "growth" in valuation would (to me) be coupled to increase in the company's net assets. So if company 1 sells a lot of its product and its valuation rises... that means it's gaining assets somewhere. Either that increase in assets is due to sales revenue at home (in which case it'd be getting taxed normally) or it's the stake it has in company 2, and presumably company 2's valuation is growing. But company 2's valuation is just coupled to company 1's, so there's no logical reason for it to rise independently. If it does, and the company is getting rich that way, that just means to me that people are behaving irrationally and paying more for the same thing, and that's what's making companies richer (rather than tax avoidance)? Alternatively if you look at it as company 2 having revenue and thus company 1's stake increasing in value, wouldn't there be an eventual tax on that money before any person can realize it at home, and thus shouldn't that correct the stock price downward? Or am I completely misunderstanding something here?
Edit: I think I'm seeing one way this works: the stock price does get corrected downward, but not enough to cancel out the growth, since the offshore company did gain material assets. But then who (as in which person) is getting rich without paying taxes at home, exactly? Either C1's shareholders are selling long-term capital gains taxes (in which case the complaint is about long-term capital gains taxes) or they're doing it short-term (in which case they're still paying income-equivalent taxes). Who's avoiding taxes here?
Apple's easy to pick on, they're one of the richest companies in the world and should pay more taxes. But for companies that are less successful, it's entirely possible that the second company is actually losing money. Without an appropriately sized army to track through the 200th company (tracking transactions between two companies is simplified to make the tax evasion easy to understand. Real world tax evasion is dramatically more complicated.)
This is why I support taxes such as those that France levies on digital revenue originating within their country. I also think it makes sense to wholly eliminate corporation taxes (which are not only avoidable, but are a form of double taxation) and replace them with these revenue taxes.
[1] https://www.ato.gov.au/general/tax-and-corporate-australia/a... [2] https://www.smh.com.au/politics/federal/tech-giants-pay-reco...
DISCLAIMER: Not a tax expert
Not true for Apple of course... but an appeal to ethics won't work either, the laws need to be adapted. Business ethics itself is a funny term anyway.
https://twitter.com/ICIJorg/status/1444703221558259714
https://www.icij.org/investigations/pandora-papers/power-pla...
These discussions assume people didn't pay taxes before purchasing assets elsewhere.
Cute.
Now imagine you have millions or billions of dollars. You do not want to hand over 50% of your income to tax authorities, especially if a legal way exists not to. And if you make the current legal ways illegal, the money will just keep flowing to invented ways. There will never be a way to avoid this, unless you have a centralized AI super computer that cannot be manipulated by fallible humans watching everyone’s cash globally and enforcing strict rules. And that will never happen.
Most of the Panama Papers revelations were not illegal behavior. This article says most of this is perfectly legal. I’m not sure what the scandal here is other than humans don’t want to give half their money away to the government.
Those people are comfortable, well into the top 10% of earners. And I think it's nice that they don't spend money hiring a slimeball tax accountant to help avoid paying their part to society. I think it's sick that there are people making 6 or 7 figures a year helping cunts to save 7 or 8 figures a year that should be going into schools and infrastructure, and it's even sicker that those people are looked up to because they drive nice cars and wear expensive suits.
But that's not what these papers are about - they're about systematic secretive theft, from all society, on a massive scale. And this at a time when people are still dying from hunger and deprivation even in the richest countries.
So that it doesn't affect their source of income? (The taxes we ordinary ppl pay)
Maybe because the people actually want to tax the rich? And because the politicians who evade taxes don't intend to pay their fair share anyway?
It is kind of insane that this is even allowed. How do you plan to tackle money laundering, corruption, and transparency when you cannot even figure out who owns the property in the first place?
We let this happen. We don't have to.
https://www2.gov.bc.ca/gov/content/housing-tenancy/real-esta...
Taxation is really hard to enforce in the modern World. The biggest problem is that small, local companies cannot compete with big ones because they don't have resources to overcome taxation.
For me it make sense more sense to abandon corporate tax at all and make sure that all the resources, public services that company uses in a given country are paid by the company. If company uses trucks, it should pay for roads, etc.
I don't think that Facebook that operates from US and uses US resources and services should pay CIT tax in, say, France. If it uses internet infrastructure, just make Facebook to pay for it fair amount and that's all.
No, City of London only exists as it is, because the rest of the country let it do its thing and destroy the fabric of the society.
It's not hard to enforce taxation when those who make the laws actually intend to have it enforced. Right now, those who write and enforce the law keep siding with those who evade taxes. Maybe we should change the people in power, and that is not that hard. The problem is that most media are owned by the ones who evades taxes, so the level of noise made these scandals remains under control.
[0] https://www.forbes.com/sites/toddganos/2019/09/19/worlds-bes...
> The media has failed. Many news networks are cartoonish parodies of their former selves, individual billionaires appear to have taken up newspaper ownership as a hobby, limiting coverage of serious matters concerning the wealthy, and serious investigative journalists lack funding. The impact is real: in addition to Süddeutsche Zeitung and ICIJ, and despite explicit claims to the contrary, several major media outlets did have editors review documents from the Panama Papers. They chose not to cover them. The sad truth is that among the most prominent and capable media organizations in the world there was not a single one interested in reporting on the story. Even Wikileaks didn’t answer its tip line repeatedly.
https://panamapapers.sueddeutsche.de/articles/572c897a5632a3...