> "The treaty will need to be ratified via a two-thirds majority in the US Senate, which is unlikely given that it allows foreign countries to tax US companies, the Eurasia Group analysts said."
It will, just like in Ireland. That's the beauty of this deal. It's blackmail basically. If the US does not pass it, other countries will tax the difference even on US profits (company just needs to have presence in the EU). US would be shooting itself in the foot, especially being the one to propose it originally. Also, I am pretty US is already above 15% corporate tax rate.
> All we need is a change in party running the White House to torpedo our own ideas. See also: TPP.
TPP was opposed by both major-party candidates by the time of the general election; Hillary Clinton flip-flopped her position on it to pander to Bernie-inclined voters (or charitably, in order to better represent her constituents' views).
Regardless, our withdrawal from it had nothing to do with "a change in party running the White House", and we would've likely withdrawn regardless of who won the election. It was just a consequence of the populist wave that swept America across the political spectrum (and is sweeping much of the world).
I think it would’ve been unlikely for a Dem to torpedo such a signature piece of international policy as the TPP, even if they were mildly opposed to it. I never really liked it personally, so I wasn’t sad when it failed. But I still think the point stands: US foreign policy can shift substantially every few years depending on elections. See also: the Iran nuclear deal.
I agree, and I was never personally a fan of it. Still, it’s a good example of how mercurial it can be dealing with the US when the government changes so frequently. Another good example is the Iran nuclear deal.
That’s not blackmail, that’s the cost of access to those countries markets. Much like you could ignore GDPR if you never intended to touch the European market.
You can’t claim blackmail because a club charges you a cover to enter the door
They probably just meant to say extortion, since the OECD isn’t threatening to release any damaging information about the US. :)
That said, to your point, by definition a nation or group of nations can never commit extortion. They can treat other countries miserably and completely refuse to trade, if they want, and go to war if they choose to. Individuals have more restrictions on their interactions with others.
I think I quibble with that definition still. Something like the US sailing up to Japan and forcing them to trade at gunpoint would still be extortion but refusing to let you into their borders unless you comply with certain criteria is not.
I noticed this sort of illogical argument that preventing access to a market was aggression with the GDPR drama as well. Americans(I say as one) seem to be completely incapable of handling when other countries use access to their markets in negotiations despite the US using that lever constantly.
Certainly—I’d say it comes down to the necessity of access to the market in question, for the company or country outside of it. It quickly becomes subjective, hence the blindness to one’s own demands.
It’s literally not subjective. It’s their own land and country. The only way you can treat removing access to it as extortion or blackmail is if you feel you have a legitimate claim to it in which case you are by definition not recognizing their sovereignty.
That’s a position you can(and many countries have) take, but it’s an oxymoron to recognize a countries sovereignty and also expect a claim to their sovereign lands
Right, I started the thread by saying that. I tried to neutrally describe the double standard citizens of some countries have.
If you mean we should expect everyone to forgo holding opinions that benefit them selfishly: perhaps, but any success wouldn’t last past the next perceived opportunity or threat.
Reading through my previous reply I think I came off as accusatory when I said “you”. I meant that as in a general royal you type sense, not you in particular. I do understand you are trying to describe their double standard.
I guess my point is that we don’t have to mangle the language and redefine words just because they have a double standard. They can call it blackmail and extortion all they want but it’s not something we should go along with
For those like me who were confused by what's the deal with removing the "at least" 15% for Ireland:
> The vast majority of companies will not be impacted by the proposed increase in the 12.5 per cent corporate tax rate, Taoiseach Micheál Martin had said earlier in relation to this point.
> Speaking in Dublin ahead of a Cabinet meeting, he confirmed the Government’s intention was still to only apply the new 15 per cent rate to companies with turnovers of more than €750 million, in line with OECD proposals on the matter.
The reason is we (quite reasonably) don't want to sign up to something and then have the goalposts shifted in a few years such that the minimum rate is increased again. Frankly I'm a bit annoyed we even signed up to this. If the US really cared about tax avoidance by their MNCs they could fix the problem tomorrow.
Would you mind elaborating your thoughts on the last bit? I don't pretend to be an expert on international corporate taxation, but in the case of Ireland it didn't sound like US companies are avoiding taxes in the US. All the complaints are about revenues earned outside of the US, which should be taxed outside of the US. So I can definitely see why the EU would be upset with Ireland's policies, and support participating in treaties to make the situation more fair, but it seems inappropriate for the US to unilaterally "fix" a disagreement that is largely between EU member nations.
My understanding is that schemes are often employed to shift profits that occurred in high tax regimes to lower tax ones. E.g. company registers their IP to subsidiary in <low_tax_nation>. That subsidiary charges crazy royalties for the rest of the company to use the IP in <high_tax_nation>. The effective earnings in the high tax regime is low or zero because of the “cost” of licensing the IP. Meanwhile the subsidiary in low tax land makes bonkers profits on some extremely lucrative licensing.
You can try to shut down these shenanigans playing legal whack a mole, but the law moves slower than the corporations. Or you can just set a global floor on taxes and not have to worry about keeping up with the latest corporate nonsense.
Yeah, you have to wonder if the US cares more about this framework being in place and being able to dictate other countries policies more than actual tax rates.
It's not particular to the US. The US is doing this by pressure as a compromise because the European powers threatened something worse. The US would prefer to change absolutely nothing and let its major corporations continue to avoid taxes where they can internationally.
Germany and France are overwhelmingly supporting this, because they benefit from damaging competing nations that have lower corporate income tax rates (eg Lithuania, Ireland, Hungary, North Macedonia, Montenegro, Romania, Serbia, Switzerland, Albania, Armenia, Bosnia, Bulgaria, Croatia). Both Germany (30%) and France (26.5%) have higher corporate income tax rates than the US and stand to benefit more by forcing the rest of the world to a higher base and or otherwise preventing any further decline in rates. This helps those two nations re-level Europe to their advantage, and stop any further race to the bottom on rates (where Germany and France can't follow).
For those two nations it's a particularly relevant matter in Europe. They've watched as Ireland has rapidly become one of the richest nations in world history by leveraging a very low corporate income tax rate. Ireland is taking economy, growth, away from them. In the time that Ireland's GDP per capita has massively exploded higher, Germany has seen a GDP per capita decline over 26 years. Read that again. 26 years, an inflation adjusted GDP per capita decline ($31.6k in 1995; inflation adjusted that's $57k today; their present GDP per capita is around $46k). A generation has been nearly lost to economic stagnation in Germany. France is in the same stagnation boat. And how has Ireland's GDP per capita performed in that time? $19k to $84k; an inflation adjusted 150% gain roughly over 26 years. Yeah. Now you understand what's going on - it's about knee-capping countries like Ireland, stopping their incredible climb.
Ultimately this corporate income tax rule is a regressive attack by powerful nations on typically poorer, weaker or otherwise smaller nations. It dilutes a substantial means for them to compete to draw capital.
France and Germany on one side. All those other nations I listed before on the other. It's quite obvious what's going on.
This is bang on. Basically the US have been undercutting the EU for years ever since Clinton brought in the rules allowing companies to hold their profits offshore. Interesting figures regarding GDP, thanks. Regarding the headline rate of tax, although Germany and France have higher taxation rates, I think it's pretty well accepted that the effective rates are a lot less than the advertised rates.
Also, as per the other sibling comment, Ireland's GDP figure probably isn't the best measure of domestic wealth. And another thing to note is that Ireland had a lot of catching up to do for historical reasons (i.e. it was basically rinsed for hundred of years by the UK, followed by a punishing trade war after independence). Having said that, I think this move is probably for the best. It will be interesting to see if it gets past Congress.
Pretty sure it's global revenues. That's the point of a global tax no?
Edit:
> There are two pillars to this agreement. Pillar 1 will see a reallocation of a proportion of profits to the jurisdiction of the consumer. Pillar 2 will see the adoption of a new global minimum effective tax rate applying to multinationals with global revenues in excess of €750m
They might agree to raise the rate to 15%, but in reality they will turn around and give tax credits, exemptions, or some other mechanism to bring the effective rate back down to whatever level brings in business.
contains not 140 but 193 UN member states and 206 listed states.
Which are missing? Just to start, I don't see Algeria, Azerbaijan, Bangladesh, Bhutan, or Bolivia listed; to my knowledge those are ordinary nations like the four enumerated. Either it's not "all OECD" because those four are missing, or that list of four is very much incomplete. Or are they saying that those four support it but have not yet joined?
Either way, the hard part comes when individual countries have to legislate compliance with the treaty that their state departments have agreed to, and the really hard part comes when other countries have to collectively enforce the treaty when a signatory adds a loophole or ignores it...
The four countries mentioned are those that participated in the negotiation but are not signing the final agreement. Unfortunately the article doesn’t explain their objection.
While it may not pass in the US, this is bad news. The reason to do this is to collude to bar the exits to capital flight, and then impose exploitative policies that would not have been possible previously. Why wait for your economy to grow with supportive policy when you can just take from the people today? Humans are innovative, someone will find a new way to make more, and then you can take it from them again and give it to the few who keep you in power. This cynical logic is what makes revolutions inevitable, because this ruling view is that people are basically chattel. Words are just a way to part you from your stuff. We can dress it up as concern for others, but we all know that on these leveled playing fields, some are more equal than others. It is not the playing field that gets leveled, it's us.
True. As the recent Pandora Papers showed, there are a lot of innovative people who are forced to move their meager billions from country to country in order to avoid state oppression. /s
What was even more amazing about Pandora Papers is that no Americans were included. One almost suspects that in USA the billionaires don't have to worry about interference from the state!
> Humans are innovative, someone will find a new way to make more, and then you can take it from them again and give it to the few who keep you in power.
Which is exactly why preventing capital flight is important. Otherwise, exploitative business practices can take advantage of previously built infrastructure, hide away any profits resulting from use of that infrastructure, and then leave others holding the bill for the maintenance of that infrastructure.
there may be ulterior motives by government actors against the power being amassed by multinational corporations, but the connection to increased popular suppression seems tenuous at best. we need to be shrinking the power and reach of any large organization relative to the individual, so this agreement can be seen as a net win in that regard. the 750MM cliff however, is ripe for abuse (e.g., split into multiple subsidiaries that are just shy of 750). tax rates need to be severely progressive and continuous to avoid such shenanigans.
This is one of the too-rare cases where government is doing precisely what you said they aren't doing: leveling the playing field --increasing fairness, as opposed to giving sweetheart deals.
I have plenty of concerns with how my government is run and how their tax revenue is allocated, but tax avoidance is a basic problem of fairness and a problem to be solved.
From the perspective of a state, the rule of taxation is, "progressive, simple, enforceable: pick two." The US code gave up on simplicity and probably has 10% of GDP dedicated to dealing with the result.
Specifically, the playing field is being leveled between nations by their colluding against competitive countries to prevent capital from leaving them when their policies become unbearable.
> The reason to do this is to collude to bar the exits to capital flight, and then impose exploitative policies that would not have been possible previously.
Exactly! If a private organization tried something like this most major governments would be rushing to enforce anti-trust regulations against them. But when it's the governments colluding to set price floors, suddenly that's acceptable?
> The treaty will need to be ratified via a two-thirds majority in the US Senate
Says who? Just because the it is characterized as a treaty under international law doesn't mean it won't be implemented as a congressional-executive agreement [0] in US law, just like virtually every other important economic treaty in the last several decades.
Simple majorities in both houses is a lot easier than 2/3 in the Senate.
thank you for teaching me something I didn't know.
no thank you for being a teeny bit snarky about it, as if everybody obviously should already know this.
oh, and a small correction, it's not the "treaty under international law" aspect that's bothersome, it's the skirting of the treaty provisions of the US Constitution that raises eyebrows.
> no thank you for being a teeny bit snarky about it, as if everybody obviously should already know this.
I was responding to the article text; anyone writing a news article speaking to the prospects for an international agreement coming into force in US law ought to have a basic understanding of how that actually happens in practice in US law.
> it's the skirting of the treaty provisions of the US Constitution that raises eyebrows.
The treaty provision is a permissive mechanism that allows the President, with strong Senate support, to make agreements with foreign nations while bypassing the House of Representatives role in normal legislation.
It is not skirting that to make law within the scope of the legislative power through the normal Constitutional legislative process, just because the content of the legislation was agreed with foreign parties. The treaty power doesn't silently reduce the scope of the legislative power.
What are the practical differences between the two? Is it that we aren't making any binding agreement with sovereign countries like we would when ratifying a treaty, instead we just happen to change our laws in line with the accord, but are free to change them again at anytime?
> What are the practical differences between the two?
Historically (pre-17th Amendment), the treaty power allows government-to-government agreements without the directly elected representatives of the people intervening to screw things up; their interference was feared to complicate diplomacy.
But other than procedural differences, there aren't any practical differences, a treaty ratified by the Senate and a congressional-executive agreement passed by both Houses and the President, and normal legislation (with the President or over his veto), or, I guess, a hypothetical sole-congressional agreement [0] all have exactly the same legal force.
> Is it that we aren't making any binding agreement with sovereign countries like we would when ratifying a treaty, instead we just happen to change our laws in line with the accord, but are free to change them again at anytime?
The Supreme Court has found (and the fact that Congress in Art. I, Sec. 8, is given the power to define what is and isn't an offense against the law of nations suggests that this is correct) that Congress is free to amend ratified treaties for the purpose of domestic law by normal legislation, so that's not a difference (though it is definitely also true of congressional-executive agreements, which are normal legislation.)
[0] where Congress takes a text, say, adopted by an international conference and adopts it over a Presidential veto; active negotiation of such an agreement might have some other legal issues.
you are using a rhetorical sleight of hand when you say that (paraphrasal) "with strong Senate support the President can bypass the House, but otherwise a treaty can be considered normal simple majority legislation." That's not the way the Constitution is written, and treaties are not normal legislation.
I'm not saying that "you're wrong", I'm convinced that it's being done, but imho SCOTUS should overturn this style of treaty.
> I'm not saying that "you're wrong", I'm convinced that it's being done, but imho SCOTUS should overturn this style of treaty.
SCOTUS should overturn the Congress exercising using the legislative process to do things expressly within its legislative powers on...what basis?
OTOH, congressional-executive agreements aren't new, and have been litigated quite a bit. Heck, SCOTUS has even held a particular one to be included in the delegation by Congress of jurisdiction over treaty interpretation cases to the Courts of Appeal over a century ago. B. Altman & Co. v. United States, 224 U.S. 583 (1912).
That depends on the applicable Senate rules (including any special one-time exceptions) at the moment when it is considered. Constitutionally, no, because supermajority cloture isn’t a Constitutional requirement (and, indeed, a key motivation for the Constitution was frustration with the effect of supermajority requirements in the Articles of Confederation making legislation impossible.)
EDIT: To summarize some of the downthread discussion: Assuming no special action, if brought up right now under the existing rules, “yes”.
It does not need an exception. The thing about the filibuster rules is that they are only rules if the members of the Senate agree that they are. At any point they can change the rules, and can even just decide that a particular piece of legislation or legislative activity is so important that it can bypass the rules. A multi-national agreement that raises corporate tax rates on US companies operating outside the US is pure win for the party currently in control of both the legislative and executive branch; it plays well with the electorate, it is easy to weaponize against your opponents, and the actual impact to the companies caught up in the changes will not be as unpleasant as they may claim in public.
> A multi-national agreement that raises corporate tax rates on US companies operating outside the US is pure win for the party currently in control of both the legislative and executive branch; it plays well with the electorate, it is easy to weaponize against your opponents,
...and Manchin and Sinema will oppose any changes or exceptions to filibuster rules for it despite (or because of) all that, so it won't happen.
> I am asking if congressional-executive agreements have an exception in the rules.
Generally, no, not currently.
(“Fast track” authority for trade agreements includes, IIRC about the procedures associated with it, an exception for a specific subset of such agreements, but applies to agreements under guidelines and priorities set by Congress, which this agreement would not.)
Misleading title, it's just for large multinationals.
There will be a revenue treshold of 890$ million
This is good news for startups! Cancel that, this is good news for the vast majority of unicorns as well.
It's still early because we have to wait and see what the loophole seekers are gonna find, but in any event, as it stands it looks like a good development for startups and VCs.
Loophole seekers are disgusting and dumb, they engineer solutions that save billions in taxes for multinationals but aren't paid proportionally. A genius in the transfer pricing dept. at one of the big 4 makes like an above average lawyer in NYC or LA.
They are more instrumental to the public company profits than the CEO in many instances.
Oh wow! You found that ONE TRICK that governments HATE. Somehow thousands of legislators and economists around the world never, ever thought of that and are going to be completely fooled by a company that structures its revenues in this fashion. I am absolutely sure that will work...
Pretty sure you can create an index fund filled with all your sub 750M subsidiaries, redistribute the money that was gained by selling those and voila. You can even mix and match. Of course this is no cheap thing to materialise given that the law will probably be against such a thing but I’d give it a years time before the first ones raise their head with this approach.
I just hope the 750 million euro limit doesn't suddenly vanish "somewhere along the line" because "countries couldn't agree" and we end up with the whole Digital VAT Directive circus all over again - that is to say, that this minimal tax starts applying to small businesses it was never meant to apply to.
No, I mean removed so that everybody has to pay it. I'm just hoping they won't get to pull similar shenanigans this time since this is a global agreement.
I can only guess that they either have or might want to have in the future, some foreign companies come and base their businesses there to generate some much welcome money and jobs into the national economies.
They might also be suspicious of the motivations of the West.
The problem is real, many big tech paid less than 1% on non-USA income.
This is likely one of the best agreements in decades. Will increase tax collection by decreasing incentive to avoid taxes. Little burrocracy, huge increase.
Previous mesh of transfer prices and other meassures added huge amount of burrocracy on a lot of companies, yet still did not make much difference for the biggest avoiders.
And why is it so important that businesses pay a high corporate tax rate? Isn't it enough to tax the money when it actually leaves the business? (Is paid out.)
Some economists say that corporate taxes distort capital allocation.[0] A minimum global tax rate removes the ability for a country to decide for themselves whether they want this or not. Estonia, for example, is worried that their tax system has to change as a result, because they don't charge a corporate tax on money that's reinvested or retained.
Edit: apparently Estonia is banking on an exemption for reinvestment.
> why is it so important that businesses pay a high corporate tax rate?
It's not a high rate; 15% is low - is there a lower income tax rate for any entity?
It's important because societies need money to operate, including many things on which businesses depend such infrastructure; a good legal system; a healthy, educated, and prosperous population; security; stable, well-regulated markets; etc. If they don't pay their share, then others must or societies lose valuable things.
Are corporations people now? Do they have their own special set of rights and privileges like people do?
Ultimately, corporations are groups of people. Why isn't it sufficient to tax the money when the owners of the corporation are trying to cash out through dividends or in some other way? Why does it have to be taxed every year like income? Why is it necessary to tax money that the corporation would otherwise invest in R&D?
> Are corporations people now? Do they have their own special set of rights and privileges like people do?
Yes, that is why the legal structure exists: They've always been 'fictional persons'. That's what a corporation is: A separate entity where money can be pooled and personal liability (and taxes) limited, with it its own rights and privileges. It's fundamental to a corporation.
> Ultimately, corporations are groups of people. Why isn't it sufficient to tax the money when the owners of the corporation are trying to cash out through dividends or in some other way? Why does it have to be taxed every year like income? Why is it necessary to tax money that the corporation would otherwise invest in R&D?
That's called a partnership, and you are free to setup your business in that way. I'd talk to a lawyer first; there might be a reason that every major business is setup as a corporation - there must be something they like about it.
Why must I personally pay taxes on money I'd use to invest in other things? All money in the economy is productive, yet we must tax something. Why does the corporation get off free while, requiring me to pay more?
Your last argument could be reduced to "if evil happens to me, why not make it happen to others". If taxing investment is bad let's agree not to do it, instead of perpetuating the abuse. And no, definitely not all money is productive and it can be easily wasted on worthless products and services. Taxing the tools to create value is not the same as taxing for example vodka.
> Your last argument could be reduced to "if evil happens to me, why not make it happen to others".
It's not evil. Taxes are not evil at all. I want a functioning government, including the services it provides.
There's a trendy concept that all taxes are evil, but rationally that doesn't hold any water at all.
> definitely not all money is productive and it can be easily wasted on worthless products and services. Taxing the tools to create value is not the same as taxing for example vodka.
This undermines the free market, and basic freedom. I judge for myself, knowing my situation, the best place to spend my money. Sometimes vodka has the highest ROI, and don't forget that the money goes to the store which then spends it again. Macroeconomically, even if I gave the liquor store owner money for nothing, I haven't burnt the money. It's in new hands ready to be spent again (and the rate of transactions has a major impact on the economy).
But yes, we still can make some judgments about what to tax, and investment in fact often gets a tax break.
I did not say that taxes are evil per se, but bad taxes are bad.
"This undermines the free market (...)" - yes taxes obviously affect the free market. They are often meant to skew (regulate) it, like tax that targets unhealthy products eg cigarrets.
Also, the way we spend money is not neutral to the economy. By buying one product over another we send an important signal about what is valuable. If we, as a sociaty choose junk, we will get more junk, if we choose good products, we will get even better products in the future.
I recommend you read about "the broken window fallacy", since it is related.
Always have been, legally. That’s the defining feature of the corporate form, as opposed to classic partnerships.
> Why isn’t it sufficient to tax the money when the owners of the corporation are trying to cash out through dividends or in some other way? Why does it have to be taxed every year like income?
Its the insurance premium for the liability shield that comes with the corporate form.
> Why isn't it sufficient to tax the money when the owners of the corporation are trying to cash out through dividends or in some other way?
Because failing to tax capital formation in situ leads to all sorts of abuses.
Exhibit A: The entire security-based lending industry [0], which allows you to realize the benefit of appreciated stock price while retaining stock ownership and without triggering a taxable event
But those same abuses will happen anyway because we tax the corporations themselves and when the money is paid out from the corporation. Ie we will still have to deal with that exact same problem. It's just slightly smaller in scale.
Well, the thing is, some countries don't have these corporations to begin with. You can't tax a corporation that doesn't exist; and thus some countries are happy with the employment and economic activity these corps provide even if they pay no taxes (the employees still pay taxes, so these corps indirectly pay taxes).
That's why these countries offer a 0% tax rate. Because that's the only attraction they can provide.
This is a law that benefit the big rich countries.
Not quite as a lot of African countries get their small startups wiped out by the likes of FAANG and their local economy sees nothing back from it as all the revenue made gets taxed in Ireland and or some other haven. The countries with a 0% tax rate are not that many as far as I am aware and neither is the corporate presence there, if any.
You don't think companies strong-arm governments? I see it happen in the U.S. Imagine what they do in a small, poor country. The mining industry is an example.
> It's not a high rate; 15% is low - is there a lower income tax rate for any entity?
Yes, there are plenty of entities that pay no tax. There'd be a great number of clubs for example. Churches, charity and trusts often get some sort of exemption too depending on country and circumstance. The only reason it might seem like all entities pay taxes is because once something is taxable it has to be given sharp, forceful boundaries otherwise it disappears and gets renamed.
I don't actually mind a 15% global minimum, to me that seems like it can only hurt poor countries in theory so if they want to sign up for it that is their problem. But companies are part of the things societies need to operate. A society with no Apple had to wait another decade - maybe more - to see real smartphones. A country without an Amazon has measurably worse logistics & distribution than one that does. It is not at all obvious that companies should be taxed. All they do is work to benefit consumers (within a moral-less, economic understanding of the word benefit).
> There'd be a great number of clubs for example. Churches, charity and trusts often get some sort of exemption too depending on country and circumstance.
Excellent point.
> companies are part of the things societies need to operate
Agreed, and so are individuals, and in fact individuals are what society exists for. Companies have no special place or status - they idea that they are somehow superior to rather inferior to real persons, is shocking.
> All they do is work to benefit consumers
The theory is that all they do is work to benefit their shareholders, to maximize profit. Certainly, they do many things that provide no benefit to their customers; as a simple example, Apple could charge much less, benefiting consumers, be just as effective (they don't need trillions of dollars of assets), but that would reduce profits for shareholders. Capitalism, for good or ill, benefits the capital-holders.
> Apple could charge much less, benefiting consumers, be just as effective (they don't need trillions of dollars of assets)
If we ignored 2nd order effects yes. In practice, no. This is the only way for other phone companies to realise that their products are bad and that they need to improve. We can observe that when Apple came in to the market and started selling their phone at absurd volumes and profit margins, the other phone OEMs moved like lightening to catch up. The market for mobiles completely reformed in a few years.
If Apple had charged razor thin margins, it would have been much less obvious how much value was being created, and Apple wouldn't have had the cash reserves to reshape the market as fundamentally as it did. Consumers would have been much worse off. Since nearly nobody is forced to buy an iPhone, all that money that Apple has represents at least value created in the past and that value probably wouldn't exist had Apple been forced to go slowly and work with slim profits.
One of the fun observations of economics is while capitalists would like very high rates of profit they can't actually achieve them long term in a relatively free market. Other capitalists will figure out what is valuable, muscle in and bring the rates of profit down to a return consistent with the risk.
You say that, but the rise of Apple has pretty much revealed that the industry consumers rated as most in need of a shake-up was being run by vision-less suits who got shown up badly as having no idea what the future of phones looked like. In hindsight, it was an emergency - as has been revealed by the sickening amounts of money Apple managed to make by doing it right. We all had no idea how bad the situation was relative to where it needed to be.
It seems quite reasonable to speculate that the margins they were charging on phones were just too low to attract capable people. Apple smelt blood and took on pretty much an entire industry, and attracted the focus of the likes of Samsung, Google, Microsoft, Huawei. Prior to that it was the focus of, y'know. Nokia. Who turned out to be way out of their depth when serious people got involved.
If they'd gone with a lets just not make money strategy, the market just wouldn't have the sort of energy behind it that it actually attracted. It would have taken a lot longer to figure out what was going on.
For socialists it's never enough, money has to be taxed 10 times. And I'm not using it in the slur way that Americans usually do.
There's a kind of thinking that believes that money belongs to the person who earned it. There's another kind of thinking that treats everything as communal (but managed by elite class at the top of the system), taking anything away from the pile is evil then.
I think you would find many take issue with the concept that those getting rich are by definition the ones who "earned" it, or produced the value. Almost by definition I produced more value than my salary.
There's also the issue of resources. How is it that a corporation can own the oil under my land? Why should that common resource be controlled by some private entity rather than being used for the common good?
There's a balance in all things and attempting to boil this down to "there are two kinds of people" is reductive and unhelpful.
A corporation successfully reinvesting its profits makes shareholders wealthier. People are concerned about how wealthy those shareholders are getting.
Personal income tax is not a solution for wealth inequality. The problem as stated is not what rich people are selling, it's what they own.
Because billionaires never take the money out. They just take out loans using their assets as collateral. If they need to make payments they just take out more loans.
This is the real answer, but it’s not just billionaires. It’s pretty easy for a small business owner or even a sole trader to get away with using business assets for personal use.
And this new minimum tax changes things how? We still tax the money that is paid out from the company. Every incentive to do this scheme still exists, because personal income taxes are way higher than this minimum corporate tax.
> many big tech paid less than 1% on non-USA income.
paid to whom?
I ask because I have read that (for example) a U.S. company may pay the U.S. taxes of less than 1% on foreign income, but that's because that income was generated by (example) a German subsidiary which fully paid taxes in Germany, where it was earned.
Point is, taxes internationally are really a mess.
Perhaps you are unaware, but companies often shift revenue to countries where taxes are lower.
> these narratives sometimes look scandalous when they're actually following tax laws of foreign countries "correctly".
It could be both; nobody said it was illegal. Following the law doesn't make something right - many horrible things are illegal; the law isn't designed as optimal behavior. And in many situations, they write the laws for themselves.
Regardless, clearly they need to pay their share, and their share is more than 1%.
As parent said, in international terms, you can effectively shift profits wherever you want, assuming a sufficiently large and non-physical business. Which led to this entire recent mess.
It was less of a problem when steel needed to be bought here, and goods needed to be sold here. Can't very well claim that here is actually there.
But with intangible goods, you can! Who's to say what the fair price of using Google Nigeria using Google's brand is?
Which led to a game of "Where to put the profits, without being too obvious about it?" Which led to a race to the bottom in tax rates to attract business.
Effectively, this base rate is good for major developed countries (who typically didn't need to have the lowest rates), international businesses (who had to play convoluted shell games, without ever knowing the true rules, to stay competitive), and even smaller or developing countries (who now don't have to cut their own throats to attract businesses).
Which is probably why an agreement happened. Nobody liked the old game, but it was a competitive necessity.
> Effectively, this base rate is good for ... international businesses (who had to play convoluted shell games, without ever knowing the true rules, to stay competitive)
> Which is probably why an agreement happened. Nobody liked the old game, but it was a competitive necessity.
Also a good explanation of how regulations benefit businesses. Unregulated markets are highly inefficient, diverting many resources to that kind of BS. Also, most people actually don't like cheating each other, even if it's legal, and want to operate in places where there's not competitive pressure to do it. (Of course, not every regulation is beneficial to everyone.)
This is a welcome step, but I'd expect the non-uniformity of accounting and taxation policies around the globe to still leave a huge amount of latitude for suitably sized companies.
Why should US corps pay taxes for money they make overseas? That should go to the countries that they're in. Few countries are as greedy as the USA when it comes to taxes. Ask any America working overseas who not only has to fight the locals on taxes and make sure they get their fair part, the USA IRS is always looking over their shoulder and they aren't in the USA making money. Ultimately the consumer has to pay for it as well so essentially the "money" gets taxed multiple times, when it's made, when it's sold, sometimes even when it's used, the money paid to employees is taxed, (cars, boats etc with annual taxes). It's insane.
> Why should US corps pay taxes for money they make overseas?
Because US persons do as well.
> the USA IRS is always looking over their shoulder and they aren't in the USA making money
No the IRS wants you to pay the difference between local taxes and US taxes, no matter where you live and work.
And, btw, this applies to any US person, not just US citizens. A green card holder or temporary worker in the US inherits a rental property from a relative? Pay taxes on the rental income. Never mind that that property never had anything to do with the US.
> the "money" gets taxed multiple times
Yes, money does get taxed multiple times. I don't see how that matters.
"Alongside a minimum corporate tax rate, the pact includes provisions to ensure that multinational companies pay tax where they generate sales and profits, and not just where they have a physical presence. That could have major ramifications for tech companies such as Google and Amazon, which have amassed vast profits in countries where they pay relatively little tax."
I share your skepticism generally, but it seems like this agreement is a good step towards getting corporations to pay taxes. There's no point in starting a shell company in the Caymans if your taxes are paid based on where your products were purchased.
If I run an .io website selling services to the UK using AWS servers in Singapore and employ coders in India, where exactly do I generate revenue and profit?
Sounds like this could devolve into record-industry accounting.
So if I was previously incorporated in the US, and paying taxes in the US, does anyone think that the IRS, and more importantly Congress, is going to give up that tax revenue to the UK?
Sec. of Treasury Janet Yellen in a letter to Sen. Crapo, earlier this year:
"Treasury also takes seriously the protection of the U.S. fisc. Our Greenbook proposals will bring corporate tax revenue as a share of our economy closer to its 21st century average before the 2017 corporate tax cut. Meanwhile, our Pillar 1 comprehensive scope proposal will be largely revenue neutral for the United States since we will be on both the receiving and giving end of the proposed profit reallocations. Indeed, one interesting feature of Pillar 1 estimates is that they demonstrate the extent to which both U.S. and foreign-headquartered corporations have managed to shift profits derived from sales to U.S. customers outside the United States for years, including under the 2017 tax act."
I can't really answer your question because all of your premises are wrong. Your concern about the IRS is irrelevant: they enforce policy, they do not define it. Your concern about Congress is also irrelevant, since this change can be made through a different process.
The quote from the Secretary of the Treasury did answer the nature of your concern. She has been on reserve boards for almost 30 years, and is head of the department that is concerned with all financial matters in regards to the federal government. If that's not good enough, I'm not sure what would be satisfactory for you.
You're imagining that major corporations will move to Sri Lanka? Moving from SV to Texas is considered bold, but try persuading employees to move out of the OECD, and then finding talent there.
Also, businesses actually benefit from and prefer to operate in a well-funded, well-regulated, free society. Those are the societies with freedom, customers, competent and fair legal systems, safety, money, infrastructure, etc. The corporation is part of the society they operate in - they aren't a customer of it, they are the makers of it (just like you and me). They have a stake in making it work well. That will be true wherever they go.
They might observe that most leading businesses were developed in wealthy countries (wealthy localities, even) where those businesses pay taxes - more taxes than now in the US, for the most part. Even in the US - what great industry has come out of a low-tax area? Oil doesn't count.
> * the pact includes provisions to ensure that multinational companies pay tax where they generate sales and profits, and not just where they have a physical presence*
Will be interesting to see how Alibaba and other Chinese multinationals deal with this.
If they aren’t fully into this, then the whole thing will not work as intended.
China will be first in line for this, since it finances its own corporations already (meaning, any tax collected from party-controlled entities -- i.e. all of them -- is reinvested in the same, thus automatically conferring a competitive edge over foreign entities.
I distinctly remember the claim that most economists (left and right) believe the optimal corporate tax rate is 0%, but I can't find the source for this. The argument is that the corporate tax is simply an indirect income tax, and so as an alternative to raising income taxes, all it does is to penalize entrepreneurs for incorporating their businesses.
> most economists (left and right) believe the optimal corporate tax rate is 0%
Please provide some evidence, because I think only a narrow group of right-wing economists say that.
Taxes are generally applied where money is transacted, such as income and sales. For economic and legal purposes, corporations are entities just like people. They earn money, save it, pay it, invest it, etc. IME, they try to come up with every argument, sane or bizarre, to avoid contributing their share of taxes.
no transcript unfortunately, but the summary seems to be that economists across the political spectrum agrees with it.
edit: listened to the podcast. the relevant section is at around 12:30. the reasoning seems to be that corporate taxes discourages corporations from reinvesting their profits, and if want corporate taxes because corporations are mostly owned by rich people, you should tax them directly.
The problem I have with that is that it favors foreign asset ownership. I own some Apple stock and live in Germany. Now when Apple designs and develops an iPhone in California, manufactures it in China and sells it in Chicago should the tax on the profit (dividends or realized gains) only go to Germany or should the US and China also get a slice of the pie?
Apple definitely benefits from many resources the US and China provide, from roads to police.
>Apple definitely benefits from many resources the US and China provide, from roads to police.
Roads are already financed by vehicle registration/fuel taxes. Police are funded partially from property taxes. Besides, most businesses don't crime by themselves. They're mostly caused by humans, which are already taxed.
But that’s besides the point, these were just two examples of the way businesses benefit from the societal infrastructure around them. They should pay a part of that infrastructure.
How would taxing a rich person work if they’re filled to the brim with debt? If they’re just losing money it’ll be a hard thing to tax. Much like the transfer pricing is how it works currently already I believe.
>How would taxing a rich person work if they’re filled to the brim with debt?
You do realize that the debt eventually comes due, right? It's not like debt is a money printer. If you're against people being able to defer capital gains, there are other ways around it in addition to taxing corporations.
Why not take the debt to the grave? Debt doesn’t necessarily Have to come due as you can just tack the interest on top of it and or restructure as you wish to set the due date further away.
The point is that society wants to have a tasty revenge on rich people, not their heirs.
Very rich people don't ever want to spend every dollar they make , actually they are very restrained in their expenses ,so by using the margin loans against assets to finance what it is a proportionally modest lifestyle they get to have it their way while they are alive, which is having their number to be higher than everybody else, and being in the Forbes 400.
When the tax comes due at their death , they are not alive to witness their net worth cut in half or whatever it might be.
Society hates that because it wants to force rich people to do what they don't want and to face their own demise.
It has to be said, for all the hatred towards rich oil sheiks, they spend a lot because they know that their status in their country and in the Royal tribe is determined by the size and quality of their toys, their personal branding depends upon having the largest house, the most rare goldtop Ferrari etc.
America could use some of genuine appreciation for toys, because they dilute rich people into irrelevance.
In America people genuflect to a number instead. MarketCap, Unicorn status, Asset under managment, net worth. Once you decided to genuflect to something it might as well be toys.
Welcome to the future where only big companies survive. As a small business you don't have means to avoid taxes. As a multinational corp you just invent research, marketing and other fictitious expenses between your branches and always come up with expenses close to incomes, paying 15% corporate tax of close to zero net profits You operate very efficiently in the market where other participants have to carry the 15% deadweight as they are unable to avoid it like you.
After certain rounds of Mergers and Acquisitions to achieve ever bigger economies of scale incentivized by the tax system we end up with a few single players per market, if not only a single one. Such bureaucracies become almost indistinguishable from state owned companies operated under soviet union.
How that ended up you can find in history textbooks.
So it turns out that "But corporations would just move somewhere else" wasn't a valid argument against raising corporation tax all along, and countries could have agreed this 100 years ago.
Now let's create a wealth tax using the same international approach. The treaty could say that each country should have a wealth tax of say 8%, with the first $100m being tax free. For comparison, the average US household has a net worth of $120k and pays $10k in taxes every year.
If a billionaire lives in a country that doesn't join the treaty, then the countries which have joined can refuse to allow that billionaire to travel to or through their territory, or own any assets in their jurisdiction.
Counter-intuitively, this will just entrench the rich even more. A tax that only affects large multinationals will just make it harder to become a large multinational. You'll see a big discontinuity in the graph of corporation size. There will be corporations that are large enough to absorb this tax, and corporations that are too small to qualify for it. The "activation energy" to get across the gap will be significant.
In theory, you are correct. However, if companies don't pay taxes, then they build up huge cash hoards, and the stock price goes up and the execs (who get paid in shares) don't pay taxes. why? because they never sell, and just take out loans against their ginormous paper gains. And if they do sell, they pay lower capital gains rates for share-based instead of cash-based compensation.
What you are saying doesn't make any sense. The take-a-loan against your shares will work until you have to stop at some point or you die and your estate is taxed...
wow, unrelated to the article content, but... I was on the page and thought 'how come there is so little noise on this page and I can focus on the text?'
Didn't know there is a 'lite' CNN. I wish the internet would be like that again.
Apparently it's also possible to address the issue of shifting corporate profits to tax-havens even without a large scale international agreement, using what's called a border-adjustment tax. [1]
Basically, corporations have one place money comes in and two places it comes out, like so:
sales = expenses + profits
If you tax the sales, then deduct the expenses, that leaves the incidence of the tax on the profits. But importantly, unlike profits, it's usually clear to which country a sale belongs to.
Where this gets complicated is international borders, the solution there is to only deduct domestic expenses. At first that seems protectionist, but apparently changes to the currency exchange rates eventually balance out the effect and it ends up trade neutral.
This idea was actually seriously proposed a few years ago as part of a Republican tax reform initiative, and even economists like Paul Krugman seemed to think it checked out (who has a Nobel on trade, but is normally on the other side of the aisle). In the end it lost momentum after some big companies opposed it.
Even though that's maybe more ideal, just going for an agreement also seems reasonable since it's probably more achievable than in-depth reform (so it's likely solutions like this or nothing at least in the medium term).
If corporates have freedoms like individuals, they must also be taxed like individuals on the total revenues. I don't get to deduct my day to day expenses before paying income tax, why should a corporation be able to deduct it's expenses for tax.
Because it’s bad overall. It pushes for large monolithic corporations instead of specialized companies.
Also, you do get to deduct expense when doing value adding business activities. Just incorporate. Likewise corporations can’t deduct (loopholes aside) “leisure activities”
Then only tax individual income tax on savings as well because it's bad to see people struggle to make ends meet and the government on top making it more difficult by taxing on entire income
The practical reason is that this would penalize smaller companies working together over large, vertically integrated ones. If company A sells an item for $10 and buys $8 in parts from company B, who buys $6 in parts from company C, the total taxed amount will be $10+8+6 = $24, while a totally vertically integrated company would only pay tax on $10.
You can get around that by only taxing the value added ($10-$8 etc) which is a VAT tax and a popular way for countries to raise revenue.
The bigger issue is companies transact with consumers, workers, and shareholders. But when you have a tax, what matters is really what transaction you tax and not which side of the transaction pays the tax. For example, payroll and income taxes both reduce wages. If you tax revenue, that's basically taxing the transaction from consumer->company, so that tax (VATs, sales taxes, etc) falls on the consumers.
They can have different tax rates based on total revenues like how individuals with lower wages are taxed at lower rate. It's immortal when a corporation can deduct a party expense but a single mom earning minimum wages cannot deduct the expense of buying groceries or even a single restaurant meal.
> Wouldn't a % taxation at source be more effective in retaining money inside the borders?
If you're talking about taxing revenue and not deducting expenses like wages etc, yes that's basically how VATs work and they're very popular and can raise a lot of money. The main difference is that falls on consumers and not just shareholders.
basically it shifts the tax burden from multinationals onto the domestic consumers (and domestic producers for domestic market) and increases the tax on otherwise cheap foreign import like from China. No wonder the initiative didn't make it - while the government and multinationals are always happy to hit the consumers, that one is really too much.
>the solution there is to only deduct domestic expenses
it does nothing. A multinational will always be able to shift franchise fees, IP property leases, etc. so that would become "domestic expenses" where it will reduce the taxes most.
Global approach like the minimum tax rate is an adult step of recognition of reality of the borders being borders only for small players.
> increases the tax on otherwise cheap foreign import like from China
The domestic currency is supposed to appreciate in value in proportion to the tax, so for example 1 US dollar buying 20% more Yuan, which cancels out a 20% tax (although I have to admit this is not as intuitive as the other parts, so I'm trusting the economists to do the math there). I'm not sure if the Yuan specifically is a good example, since the Chinese government controls the exchange rate politics might be more important than economics there.
> and domestic producers for domestic market
If you have a pure domestic business, wouldn't you just deduct your domestic expenses and pay tax on what's left over? That's basically what happens now, so I don't see how it would make a difference.
> A multinational will always be able to shift franchise fees, IP property leases, etc. so that would become "domestic expenses" where it will reduce the taxes most.
You could set up a domestic subsidiary, but now that subsidiary will have to pay the tax. If it's not a domestic subsidiary, then you have to pay the tax (since you can't deduct it). I get that in the current system it's very easy to do these things, but can you explain in a little more detail how this would work with the border tax?
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[ 2.2 ms ] story [ 252 ms ] threadList of countries: https://www.oecd.org/tax/beps/oecd-g20-inclusive-framework-m...
So, it's not going to happen then?
That’s very “on brand” for the US. All we need is a change in party running the White House to torpedo our own ideas. See also: TPP.
TPP was opposed by both major-party candidates by the time of the general election; Hillary Clinton flip-flopped her position on it to pander to Bernie-inclined voters (or charitably, in order to better represent her constituents' views).
Regardless, our withdrawal from it had nothing to do with "a change in party running the White House", and we would've likely withdrawn regardless of who won the election. It was just a consequence of the populist wave that swept America across the political spectrum (and is sweeping much of the world).
You can’t claim blackmail because a club charges you a cover to enter the door
That said, to your point, by definition a nation or group of nations can never commit extortion. They can treat other countries miserably and completely refuse to trade, if they want, and go to war if they choose to. Individuals have more restrictions on their interactions with others.
I noticed this sort of illogical argument that preventing access to a market was aggression with the GDPR drama as well. Americans(I say as one) seem to be completely incapable of handling when other countries use access to their markets in negotiations despite the US using that lever constantly.
That’s a position you can(and many countries have) take, but it’s an oxymoron to recognize a countries sovereignty and also expect a claim to their sovereign lands
If you mean we should expect everyone to forgo holding opinions that benefit them selfishly: perhaps, but any success wouldn’t last past the next perceived opportunity or threat.
I guess my point is that we don’t have to mangle the language and redefine words just because they have a double standard. They can call it blackmail and extortion all they want but it’s not something we should go along with
"just"?
These are 136 countries finding in agreement, not one country imposing its willpower on the rest of the world using threats of force.
> The vast majority of companies will not be impacted by the proposed increase in the 12.5 per cent corporate tax rate, Taoiseach Micheál Martin had said earlier in relation to this point.
> Speaking in Dublin ahead of a Cabinet meeting, he confirmed the Government’s intention was still to only apply the new 15 per cent rate to companies with turnovers of more than €750 million, in line with OECD proposals on the matter.
https://www.irishtimes.com/news/politics/ireland-s-corporate...
You can try to shut down these shenanigans playing legal whack a mole, but the law moves slower than the corporations. Or you can just set a global floor on taxes and not have to worry about keeping up with the latest corporate nonsense.
Germany and France are overwhelmingly supporting this, because they benefit from damaging competing nations that have lower corporate income tax rates (eg Lithuania, Ireland, Hungary, North Macedonia, Montenegro, Romania, Serbia, Switzerland, Albania, Armenia, Bosnia, Bulgaria, Croatia). Both Germany (30%) and France (26.5%) have higher corporate income tax rates than the US and stand to benefit more by forcing the rest of the world to a higher base and or otherwise preventing any further decline in rates. This helps those two nations re-level Europe to their advantage, and stop any further race to the bottom on rates (where Germany and France can't follow).
For those two nations it's a particularly relevant matter in Europe. They've watched as Ireland has rapidly become one of the richest nations in world history by leveraging a very low corporate income tax rate. Ireland is taking economy, growth, away from them. In the time that Ireland's GDP per capita has massively exploded higher, Germany has seen a GDP per capita decline over 26 years. Read that again. 26 years, an inflation adjusted GDP per capita decline ($31.6k in 1995; inflation adjusted that's $57k today; their present GDP per capita is around $46k). A generation has been nearly lost to economic stagnation in Germany. France is in the same stagnation boat. And how has Ireland's GDP per capita performed in that time? $19k to $84k; an inflation adjusted 150% gain roughly over 26 years. Yeah. Now you understand what's going on - it's about knee-capping countries like Ireland, stopping their incredible climb.
Ultimately this corporate income tax rule is a regressive attack by powerful nations on typically poorer, weaker or otherwise smaller nations. It dilutes a substantial means for them to compete to draw capital.
France and Germany on one side. All those other nations I listed before on the other. It's quite obvious what's going on.
So what stops a big corp from splitting itself into subsidiaries with turnover below that magic number?
Edit:
> There are two pillars to this agreement. Pillar 1 will see a reallocation of a proportion of profits to the jurisdiction of the consumer. Pillar 2 will see the adoption of a new global minimum effective tax rate applying to multinationals with global revenues in excess of €750m
https://www.gov.ie/en/press-release/59812-ireland-joins-oecd...
Biden won’t remember anyway ;)
But this list:
https://en.wikipedia.org/wiki/List_of_sovereign_states
contains not 140 but 193 UN member states and 206 listed states.
Which are missing? Just to start, I don't see Algeria, Azerbaijan, Bangladesh, Bhutan, or Bolivia listed; to my knowledge those are ordinary nations like the four enumerated. Either it's not "all OECD" because those four are missing, or that list of four is very much incomplete. Or are they saying that those four support it but have not yet joined?
Either way, the hard part comes when individual countries have to legislate compliance with the treaty that their state departments have agreed to, and the really hard part comes when other countries have to collectively enforce the treaty when a signatory adds a loophole or ignores it...
The four countries mentioned are those that participated in the negotiation but are not signing the final agreement. Unfortunately the article doesn’t explain their objection.
Incorporation is a government act. It also is irrelevant if it is not recognized by the governments of the places where you try to do business.
Which is exactly why preventing capital flight is important. Otherwise, exploitative business practices can take advantage of previously built infrastructure, hide away any profits resulting from use of that infrastructure, and then leave others holding the bill for the maintenance of that infrastructure.
I have plenty of concerns with how my government is run and how their tax revenue is allocated, but tax avoidance is a basic problem of fairness and a problem to be solved.
Specifically, the playing field is being leveled between nations by their colluding against competitive countries to prevent capital from leaving them when their policies become unbearable.
Exactly! If a private organization tried something like this most major governments would be rushing to enforce anti-trust regulations against them. But when it's the governments colluding to set price floors, suddenly that's acceptable?
Says who? Just because the it is characterized as a treaty under international law doesn't mean it won't be implemented as a congressional-executive agreement [0] in US law, just like virtually every other important economic treaty in the last several decades.
Simple majorities in both houses is a lot easier than 2/3 in the Senate.
[0] https://legal-dictionary.thefreedictionary.com/Congressional...
no thank you for being a teeny bit snarky about it, as if everybody obviously should already know this.
oh, and a small correction, it's not the "treaty under international law" aspect that's bothersome, it's the skirting of the treaty provisions of the US Constitution that raises eyebrows.
I was responding to the article text; anyone writing a news article speaking to the prospects for an international agreement coming into force in US law ought to have a basic understanding of how that actually happens in practice in US law.
> it's the skirting of the treaty provisions of the US Constitution that raises eyebrows.
The treaty provision is a permissive mechanism that allows the President, with strong Senate support, to make agreements with foreign nations while bypassing the House of Representatives role in normal legislation.
It is not skirting that to make law within the scope of the legislative power through the normal Constitutional legislative process, just because the content of the legislation was agreed with foreign parties. The treaty power doesn't silently reduce the scope of the legislative power.
Historically (pre-17th Amendment), the treaty power allows government-to-government agreements without the directly elected representatives of the people intervening to screw things up; their interference was feared to complicate diplomacy.
But other than procedural differences, there aren't any practical differences, a treaty ratified by the Senate and a congressional-executive agreement passed by both Houses and the President, and normal legislation (with the President or over his veto), or, I guess, a hypothetical sole-congressional agreement [0] all have exactly the same legal force.
> Is it that we aren't making any binding agreement with sovereign countries like we would when ratifying a treaty, instead we just happen to change our laws in line with the accord, but are free to change them again at anytime?
The Supreme Court has found (and the fact that Congress in Art. I, Sec. 8, is given the power to define what is and isn't an offense against the law of nations suggests that this is correct) that Congress is free to amend ratified treaties for the purpose of domestic law by normal legislation, so that's not a difference (though it is definitely also true of congressional-executive agreements, which are normal legislation.)
[0] where Congress takes a text, say, adopted by an international conference and adopts it over a Presidential veto; active negotiation of such an agreement might have some other legal issues.
I'm not saying that "you're wrong", I'm convinced that it's being done, but imho SCOTUS should overturn this style of treaty.
SCOTUS should overturn the Congress exercising using the legislative process to do things expressly within its legislative powers on...what basis?
OTOH, congressional-executive agreements aren't new, and have been litigated quite a bit. Heck, SCOTUS has even held a particular one to be included in the delegation by Congress of jurisdiction over treaty interpretation cases to the Courts of Appeal over a century ago. B. Altman & Co. v. United States, 224 U.S. 583 (1912).
That depends on the applicable Senate rules (including any special one-time exceptions) at the moment when it is considered. Constitutionally, no, because supermajority cloture isn’t a Constitutional requirement (and, indeed, a key motivation for the Constitution was frustration with the effect of supermajority requirements in the Articles of Confederation making legislation impossible.)
EDIT: To summarize some of the downthread discussion: Assuming no special action, if brought up right now under the existing rules, “yes”.
...and Manchin and Sinema will oppose any changes or exceptions to filibuster rules for it despite (or because of) all that, so it won't happen.
Generally, no, not currently.
(“Fast track” authority for trade agreements includes, IIRC about the procedures associated with it, an exception for a specific subset of such agreements, but applies to agreements under guidelines and priorities set by Congress, which this agreement would not.)
https://news.ycombinator.com/item?id=28801537
Same domain, different url format.
There will be a revenue treshold of 890$ million
This is good news for startups! Cancel that, this is good news for the vast majority of unicorns as well.
It's still early because we have to wait and see what the loophole seekers are gonna find, but in any event, as it stands it looks like a good development for startups and VCs.
Loophole seekers are disgusting and dumb, they engineer solutions that save billions in taxes for multinationals but aren't paid proportionally. A genius in the transfer pricing dept. at one of the big 4 makes like an above average lawyer in NYC or LA.
They are more instrumental to the public company profits than the CEO in many instances.
The 890 million treshold is calculated for the holding, not the subsidiaries
Why not?
They might also be suspicious of the motivations of the West.
This is likely one of the best agreements in decades. Will increase tax collection by decreasing incentive to avoid taxes. Little burrocracy, huge increase.
Previous mesh of transfer prices and other meassures added huge amount of burrocracy on a lot of companies, yet still did not make much difference for the biggest avoiders.
I always felt like we were being ruled by donkeys...
Some economists say that corporate taxes distort capital allocation.[0] A minimum global tax rate removes the ability for a country to decide for themselves whether they want this or not. Estonia, for example, is worried that their tax system has to change as a result, because they don't charge a corporate tax on money that's reinvested or retained.
Edit: apparently Estonia is banking on an exemption for reinvestment.
[0] https://ec.europa.eu/economy_finance/publications/economic_p...
It's not a high rate; 15% is low - is there a lower income tax rate for any entity?
It's important because societies need money to operate, including many things on which businesses depend such infrastructure; a good legal system; a healthy, educated, and prosperous population; security; stable, well-regulated markets; etc. If they don't pay their share, then others must or societies lose valuable things.
Ultimately, corporations are groups of people. Why isn't it sufficient to tax the money when the owners of the corporation are trying to cash out through dividends or in some other way? Why does it have to be taxed every year like income? Why is it necessary to tax money that the corporation would otherwise invest in R&D?
Yes, that is why the legal structure exists: They've always been 'fictional persons'. That's what a corporation is: A separate entity where money can be pooled and personal liability (and taxes) limited, with it its own rights and privileges. It's fundamental to a corporation.
> Ultimately, corporations are groups of people. Why isn't it sufficient to tax the money when the owners of the corporation are trying to cash out through dividends or in some other way? Why does it have to be taxed every year like income? Why is it necessary to tax money that the corporation would otherwise invest in R&D?
That's called a partnership, and you are free to setup your business in that way. I'd talk to a lawyer first; there might be a reason that every major business is setup as a corporation - there must be something they like about it.
Why must I personally pay taxes on money I'd use to invest in other things? All money in the economy is productive, yet we must tax something. Why does the corporation get off free while, requiring me to pay more?
It's not evil. Taxes are not evil at all. I want a functioning government, including the services it provides.
There's a trendy concept that all taxes are evil, but rationally that doesn't hold any water at all.
> definitely not all money is productive and it can be easily wasted on worthless products and services. Taxing the tools to create value is not the same as taxing for example vodka.
This undermines the free market, and basic freedom. I judge for myself, knowing my situation, the best place to spend my money. Sometimes vodka has the highest ROI, and don't forget that the money goes to the store which then spends it again. Macroeconomically, even if I gave the liquor store owner money for nothing, I haven't burnt the money. It's in new hands ready to be spent again (and the rate of transactions has a major impact on the economy).
But yes, we still can make some judgments about what to tax, and investment in fact often gets a tax break.
"This undermines the free market (...)" - yes taxes obviously affect the free market. They are often meant to skew (regulate) it, like tax that targets unhealthy products eg cigarrets.
Also, the way we spend money is not neutral to the economy. By buying one product over another we send an important signal about what is valuable. If we, as a sociaty choose junk, we will get more junk, if we choose good products, we will get even better products in the future.
I recommend you read about "the broken window fallacy", since it is related.
Always have been, legally. That’s the defining feature of the corporate form, as opposed to classic partnerships.
> Why isn’t it sufficient to tax the money when the owners of the corporation are trying to cash out through dividends or in some other way? Why does it have to be taxed every year like income?
Its the insurance premium for the liability shield that comes with the corporate form.
Corporations are treated the same as people in some legal contexts.
This is more practical than having two parallel sets of laws to keep in sync. It does not mean corporations are people.
Because failing to tax capital formation in situ leads to all sorts of abuses.
Exhibit A: The entire security-based lending industry [0], which allows you to realize the benefit of appreciated stock price while retaining stock ownership and without triggering a taxable event
[0] https://www.investopedia.com/terms/s/securitiesbased-lending...
That's why these countries offer a 0% tax rate. Because that's the only attraction they can provide.
This is a law that benefit the big rich countries.
Yes, there are plenty of entities that pay no tax. There'd be a great number of clubs for example. Churches, charity and trusts often get some sort of exemption too depending on country and circumstance. The only reason it might seem like all entities pay taxes is because once something is taxable it has to be given sharp, forceful boundaries otherwise it disappears and gets renamed.
I don't actually mind a 15% global minimum, to me that seems like it can only hurt poor countries in theory so if they want to sign up for it that is their problem. But companies are part of the things societies need to operate. A society with no Apple had to wait another decade - maybe more - to see real smartphones. A country without an Amazon has measurably worse logistics & distribution than one that does. It is not at all obvious that companies should be taxed. All they do is work to benefit consumers (within a moral-less, economic understanding of the word benefit).
Excellent point.
> companies are part of the things societies need to operate
Agreed, and so are individuals, and in fact individuals are what society exists for. Companies have no special place or status - they idea that they are somehow superior to rather inferior to real persons, is shocking.
> All they do is work to benefit consumers
The theory is that all they do is work to benefit their shareholders, to maximize profit. Certainly, they do many things that provide no benefit to their customers; as a simple example, Apple could charge much less, benefiting consumers, be just as effective (they don't need trillions of dollars of assets), but that would reduce profits for shareholders. Capitalism, for good or ill, benefits the capital-holders.
If we ignored 2nd order effects yes. In practice, no. This is the only way for other phone companies to realise that their products are bad and that they need to improve. We can observe that when Apple came in to the market and started selling their phone at absurd volumes and profit margins, the other phone OEMs moved like lightening to catch up. The market for mobiles completely reformed in a few years.
If Apple had charged razor thin margins, it would have been much less obvious how much value was being created, and Apple wouldn't have had the cash reserves to reshape the market as fundamentally as it did. Consumers would have been much worse off. Since nearly nobody is forced to buy an iPhone, all that money that Apple has represents at least value created in the past and that value probably wouldn't exist had Apple been forced to go slowly and work with slim profits.
One of the fun observations of economics is while capitalists would like very high rates of profit they can't actually achieve them long term in a relatively free market. Other capitalists will figure out what is valuable, muscle in and bring the rates of profit down to a return consistent with the risk.
If Apple charged less, they's have even more market share, reducing competitor profits even more. Other companies would get the message.
It seems quite reasonable to speculate that the margins they were charging on phones were just too low to attract capable people. Apple smelt blood and took on pretty much an entire industry, and attracted the focus of the likes of Samsung, Google, Microsoft, Huawei. Prior to that it was the focus of, y'know. Nokia. Who turned out to be way out of their depth when serious people got involved.
If they'd gone with a lets just not make money strategy, the market just wouldn't have the sort of energy behind it that it actually attracted. It would have taken a lot longer to figure out what was going on.
There's also the issue of resources. How is it that a corporation can own the oil under my land? Why should that common resource be controlled by some private entity rather than being used for the common good?
There's a balance in all things and attempting to boil this down to "there are two kinds of people" is reductive and unhelpful.
Personal income tax is not a solution for wealth inequality. The problem as stated is not what rich people are selling, it's what they own.
paid to whom?
I ask because I have read that (for example) a U.S. company may pay the U.S. taxes of less than 1% on foreign income, but that's because that income was generated by (example) a German subsidiary which fully paid taxes in Germany, where it was earned.
Point is, taxes internationally are really a mess.
> these narratives sometimes look scandalous when they're actually following tax laws of foreign countries "correctly".
It could be both; nobody said it was illegal. Following the law doesn't make something right - many horrible things are illegal; the law isn't designed as optimal behavior. And in many situations, they write the laws for themselves.
Regardless, clearly they need to pay their share, and their share is more than 1%.
It was less of a problem when steel needed to be bought here, and goods needed to be sold here. Can't very well claim that here is actually there.
But with intangible goods, you can! Who's to say what the fair price of using Google Nigeria using Google's brand is?
Which led to a game of "Where to put the profits, without being too obvious about it?" Which led to a race to the bottom in tax rates to attract business.
Effectively, this base rate is good for major developed countries (who typically didn't need to have the lowest rates), international businesses (who had to play convoluted shell games, without ever knowing the true rules, to stay competitive), and even smaller or developing countries (who now don't have to cut their own throats to attract businesses).
Which is probably why an agreement happened. Nobody liked the old game, but it was a competitive necessity.
> Which is probably why an agreement happened. Nobody liked the old game, but it was a competitive necessity.
Also a good explanation of how regulations benefit businesses. Unregulated markets are highly inefficient, diverting many resources to that kind of BS. Also, most people actually don't like cheating each other, even if it's legal, and want to operate in places where there's not competitive pressure to do it. (Of course, not every regulation is beneficial to everyone.)
Because US persons do as well.
> the USA IRS is always looking over their shoulder and they aren't in the USA making money
No the IRS wants you to pay the difference between local taxes and US taxes, no matter where you live and work.
And, btw, this applies to any US person, not just US citizens. A green card holder or temporary worker in the US inherits a rental property from a relative? Pay taxes on the rental income. Never mind that that property never had anything to do with the US.
> the "money" gets taxed multiple times
Yes, money does get taxed multiple times. I don't see how that matters.
I share your skepticism generally, but it seems like this agreement is a good step towards getting corporations to pay taxes. There's no point in starting a shell company in the Caymans if your taxes are paid based on where your products were purchased.
Sounds like this could devolve into record-industry accounting.
"Treasury also takes seriously the protection of the U.S. fisc. Our Greenbook proposals will bring corporate tax revenue as a share of our economy closer to its 21st century average before the 2017 corporate tax cut. Meanwhile, our Pillar 1 comprehensive scope proposal will be largely revenue neutral for the United States since we will be on both the receiving and giving end of the proposed profit reallocations. Indeed, one interesting feature of Pillar 1 estimates is that they demonstrate the extent to which both U.S. and foreign-headquartered corporations have managed to shift profits derived from sales to U.S. customers outside the United States for years, including under the 2017 tax act."
https://mnetax.com/wp-content/uploads/2021/06/Yellen_letter_...
The quote from the Secretary of the Treasury did answer the nature of your concern. She has been on reserve boards for almost 30 years, and is head of the department that is concerned with all financial matters in regards to the federal government. If that's not good enough, I'm not sure what would be satisfactory for you.
Also, businesses actually benefit from and prefer to operate in a well-funded, well-regulated, free society. Those are the societies with freedom, customers, competent and fair legal systems, safety, money, infrastructure, etc. The corporation is part of the society they operate in - they aren't a customer of it, they are the makers of it (just like you and me). They have a stake in making it work well. That will be true wherever they go.
They might observe that most leading businesses were developed in wealthy countries (wealthy localities, even) where those businesses pay taxes - more taxes than now in the US, for the most part. Even in the US - what great industry has come out of a low-tax area? Oil doesn't count.
Will be interesting to see how Alibaba and other Chinese multinationals deal with this.
If they aren’t fully into this, then the whole thing will not work as intended.
Please provide some evidence, because I think only a narrow group of right-wing economists say that.
Taxes are generally applied where money is transacted, such as income and sales. For economic and legal purposes, corporations are entities just like people. They earn money, save it, pay it, invest it, etc. IME, they try to come up with every argument, sane or bizarre, to avoid contributing their share of taxes.
https://www.npr.org/sections/money/2012/07/18/156928675/epis...
no transcript unfortunately, but the summary seems to be that economists across the political spectrum agrees with it.
edit: listened to the podcast. the relevant section is at around 12:30. the reasoning seems to be that corporate taxes discourages corporations from reinvesting their profits, and if want corporate taxes because corporations are mostly owned by rich people, you should tax them directly.
Optimal for what objective?
Apple definitely benefits from many resources the US and China provide, from roads to police.
Roads are already financed by vehicle registration/fuel taxes. Police are funded partially from property taxes. Besides, most businesses don't crime by themselves. They're mostly caused by humans, which are already taxed.
But that’s besides the point, these were just two examples of the way businesses benefit from the societal infrastructure around them. They should pay a part of that infrastructure.
“general efficiency” is not a thing. A thing is efficient in terms of how much of some good it provides in return for how much of some cost.
You do realize that the debt eventually comes due, right? It's not like debt is a money printer. If you're against people being able to defer capital gains, there are other ways around it in addition to taxing corporations.
Very rich people don't ever want to spend every dollar they make , actually they are very restrained in their expenses ,so by using the margin loans against assets to finance what it is a proportionally modest lifestyle they get to have it their way while they are alive, which is having their number to be higher than everybody else, and being in the Forbes 400.
When the tax comes due at their death , they are not alive to witness their net worth cut in half or whatever it might be.
Society hates that because it wants to force rich people to do what they don't want and to face their own demise.
It has to be said, for all the hatred towards rich oil sheiks, they spend a lot because they know that their status in their country and in the Royal tribe is determined by the size and quality of their toys, their personal branding depends upon having the largest house, the most rare goldtop Ferrari etc.
America could use some of genuine appreciation for toys, because they dilute rich people into irrelevance.
In America people genuflect to a number instead. MarketCap, Unicorn status, Asset under managment, net worth. Once you decided to genuflect to something it might as well be toys.
Ugh.
After certain rounds of Mergers and Acquisitions to achieve ever bigger economies of scale incentivized by the tax system we end up with a few single players per market, if not only a single one. Such bureaucracies become almost indistinguishable from state owned companies operated under soviet union.
How that ended up you can find in history textbooks.
Now let's create a wealth tax using the same international approach. The treaty could say that each country should have a wealth tax of say 8%, with the first $100m being tax free. For comparison, the average US household has a net worth of $120k and pays $10k in taxes every year.
If a billionaire lives in a country that doesn't join the treaty, then the countries which have joined can refuse to allow that billionaire to travel to or through their territory, or own any assets in their jurisdiction.
These taxes are poor, because they obscure who is really being taxed.
Is it the owners? The employees? The consumers? Most likely the last two groups.
https://en.wikipedia.org/wiki/Stepped-up_basis
Basically, corporations have one place money comes in and two places it comes out, like so:
sales = expenses + profits
If you tax the sales, then deduct the expenses, that leaves the incidence of the tax on the profits. But importantly, unlike profits, it's usually clear to which country a sale belongs to.
Where this gets complicated is international borders, the solution there is to only deduct domestic expenses. At first that seems protectionist, but apparently changes to the currency exchange rates eventually balance out the effect and it ends up trade neutral.
This idea was actually seriously proposed a few years ago as part of a Republican tax reform initiative, and even economists like Paul Krugman seemed to think it checked out (who has a Nobel on trade, but is normally on the other side of the aisle). In the end it lost momentum after some big companies opposed it.
Even though that's maybe more ideal, just going for an agreement also seems reasonable since it's probably more achievable than in-depth reform (so it's likely solutions like this or nothing at least in the medium term).
[1] https://en.wikipedia.org/wiki/Border-adjustment_tax
Also, you do get to deduct expense when doing value adding business activities. Just incorporate. Likewise corporations can’t deduct (loopholes aside) “leisure activities”
You can get around that by only taxing the value added ($10-$8 etc) which is a VAT tax and a popular way for countries to raise revenue.
The bigger issue is companies transact with consumers, workers, and shareholders. But when you have a tax, what matters is really what transaction you tax and not which side of the transaction pays the tax. For example, payroll and income taxes both reduce wages. If you tax revenue, that's basically taxing the transaction from consumer->company, so that tax (VATs, sales taxes, etc) falls on the consumers.
Tbh some people here do have a decent point. A private individual can't deduct rent and such. One could argue those are neede to keep working.
If you're talking about taxing revenue and not deducting expenses like wages etc, yes that's basically how VATs work and they're very popular and can raise a lot of money. The main difference is that falls on consumers and not just shareholders.
basically it shifts the tax burden from multinationals onto the domestic consumers (and domestic producers for domestic market) and increases the tax on otherwise cheap foreign import like from China. No wonder the initiative didn't make it - while the government and multinationals are always happy to hit the consumers, that one is really too much.
>the solution there is to only deduct domestic expenses
it does nothing. A multinational will always be able to shift franchise fees, IP property leases, etc. so that would become "domestic expenses" where it will reduce the taxes most.
Global approach like the minimum tax rate is an adult step of recognition of reality of the borders being borders only for small players.
The domestic currency is supposed to appreciate in value in proportion to the tax, so for example 1 US dollar buying 20% more Yuan, which cancels out a 20% tax (although I have to admit this is not as intuitive as the other parts, so I'm trusting the economists to do the math there). I'm not sure if the Yuan specifically is a good example, since the Chinese government controls the exchange rate politics might be more important than economics there.
> and domestic producers for domestic market
If you have a pure domestic business, wouldn't you just deduct your domestic expenses and pay tax on what's left over? That's basically what happens now, so I don't see how it would make a difference.
> A multinational will always be able to shift franchise fees, IP property leases, etc. so that would become "domestic expenses" where it will reduce the taxes most.
You could set up a domestic subsidiary, but now that subsidiary will have to pay the tax. If it's not a domestic subsidiary, then you have to pay the tax (since you can't deduct it). I get that in the current system it's very easy to do these things, but can you explain in a little more detail how this would work with the border tax?