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Ask HN: Do you want a pre-made tax avoidance structure (ie Apple's Double Irish)

1 points by husein10 ↗ HN
Balaji Srinivasan's comments at this year's Startup School rekindled my interest in pre-made corporate structures that would help people minimize tax bills. I'm interested in gauging interest in this sort of thing among the HN crowd. A tax lawyer indicated that while making this pre-made structure was certainly possible, he couldn't see a lot of demand for it. I didn't feel like wasting time using deductive reasoning based on questionable assumptions when I could just get data to help answer the question. Would love to hear your thoughts on this.<p>See also: http://en.wikipedia.org/wiki/Double_Irish_arrangement

10 comments

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qsymmachus
Why do Balaji Srinivasan and his admirers seem to share so much in common with Tea Partiers? At least the small government crowd (seems) to stand on principle, rather than just angle for new ways to make money. Don't try to weasel your way out of paying taxes.
husein10
It's interesting how your framing of the strategy by the use of the weasel metaphor seems to result in the conclusion that this is somehow inappropriate. I wonder if you would reach the same conclusion if you framed it as simply a smart way of legally reducing your tax burden by using a deep understanding of the tax code, which itself is a product of the same government that you're paying your taxes to.
qsymmachus
That's why we draw a distinction between following the letter of the law and the spirit of the law. Or, as the dude put it, "you're not wrong Walter, you're just an asshole."

Apple's tax structure rightly prompted outrage, and Ireland was shamed into closing the loophole: http://www.bbc.co.uk/news/business-24542794

husein10
Let's not forget that US corporations are also obligated to maximize shareholder value. Reconciling these oftentimes conflicting edicts is hardly a trivial matter and this illustrates how black and white simplifications do not capture the underlying complexity of the issue.
qsymmachus
"Maximizing shareholder value" is as pernicious an idea now as the day Friedman uttered it. At least post-2009 it's universally recognized as such:

http://articles.washingtonpost.com/2013-09-06/business/41816...

http://www.forbes.com/sites/stevedenning/2011/11/28/maximizi...

You have responsibilities other than making money. Paying your dues as a citizen is one of them.

husein10
Don't necessarily disagree with you about the usefulness (or lack thereof) of this idea. Check out http://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company for an illustration. But, however you want to characterize the idea, it is still an unavoidable constraint on US corporations. I only bring it up to illustrate the doctrinal ambiguity that is seen in almost every part of the law.
qsymmachus
I take your point. But what may seem ambiguous to a corporation is not at all ambiguous to most citizens – myself included – who tend to see such tax structures as an underhanded way to game the system.

To frame it in more pragmatic terms, deploying these tax structures may hurt a company more than it helps due to the opprobrium they attract. Of course it's difficult to quantify the effects of bad press. But not all decisions should boil down to a cost-benefit analysis – what's wrong is wrong.

philiphodgen
In order to gauge interest on HN you will need to tell them the price -- setup and annual maintenance.

Then compute the estimated tax savings. "Savings" means the present value of a deferred tax liability. Until the tax deferral is large this value is not worth chasing. Especially since the true cost is not in the money. It is the distraction to management.

It's a good idea. But compute the cost/benefit.

Disclaimer. I am an international tax lawyer. I fix these things when people fuck 'em up because they don't spend money on the maintenance.

Further. I really like the idea though. Much of the bespoke international tax stuff can be standardized and product-ized. If you pursue this idea do your analysis assuming setup costs are zero. They won't be but try it out. Assign all of the costs to annual maintenance. Assign a price to the penalty risks if the maintenance fails. See where your break even is. My guess is you won't bother until the foreign income generates US net (of foreign tax credit) tax liabilities of a couple of million a year.

Another idea -- offshore structures in a box for holding IP, especially IP under development.

Hold on. I'm at Chipolte. Must run to register internationaltaxlawyerinabox.com. :-)

husein10
Thanks for the input.

Re: Price - This was just a quick and dirty attempt to gauge interest before investing a ton of time figuring out exactly how much it would cost. Didn't see much of a point in figuring out the exact cost if nobody expressed any interest. I suspect that many HN readers understand that setting up this type of structure is likely a plus expected value play (assuming you have sufficient income to protect) given the fact that many major companies (apple, google, fb, twitter) have successfully implemented the Double Irish Arrangement.

Also, I'll shoot you an email about this later today. Interested in hearing more of your thoughts on this matter.

philiphodgen
Price is always relevant. I heard Nolan Bushnell talk at a VC lunch 20 years ago and he said (approximately) that all marketing research is bullshit until you say "What's your VISA card number?" This was the mid-90s and he was espousing lean startup philosophy then. But I digress.

The idea ("international tax structures in a box") can only be intelligently pitched as a money question.

E.g., "Your income tax liability this year is $2,000,000. You can postpone payment and use that money as working capital for one year, and you pay zero interest on that working capital "loan" from the IRS. At your gross profit margin of 40%, at the end of the year you will have $800,000 in profit that you would not have otherwise achieved. What's that worth to you, Dear CFO?"

Take what the CFO would pay for that result. This is the value you have delivered to the customer. Now you assign a price to that. Tell the CFO you will deliver a black box of magic that delivers $800,000 of pre-tax profit in exchange for $X.

This is how a CFO should look at these complex structures. And this, by the way, is how you do value pricing.

I look forward to your email.