The Double Irish Dutch Sandwich: End of a Tax Evasion Strategy
(conversableeconomist.com)237 points by speckx 3 days ago
237 points by speckx 3 days ago
The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US - that's a condition of US citizenship. If you don't want to pay those taxes, then renounce your US citizenship once you have, say, gained UK citizenship, if that works for you.
A famous bloke once said (probably in Hebrew, written up in Aramaic or Greek and badly translated into middle, modern and somewhat strange English): "Pay unto Caesar, that which is due to Caesar and pay unto God that which is due to God" or words to that effect. Substitute IRS for God and you have a suitably cynical aside!
If your firm over here is good enough and you are reasonably settled then why not go all in? I'm not sure what the rules are on reconnecting with the US if you have formally renounced citizenship. However, I'm sure a birth cert from Yeehaw, TX or wherever will go some way. Even so, UK citizens are generally welcomed in the Land of the Free. An ESTA (great scheme IMO) costs about £20 for two years coverage - more than enough to visit the relos.
I know from second hand experience that our bureaucracy is just as convoluted as any other and it will take roughly one to two years (that was about 10 years ago) to get citizenship and probably involves a test that I would fail!
You might like to look into where your company is actually registered. A Ltd is not you - it is a separate legal entity and the UK (etc) is quite a complicated setup within quite a complicated environment. You might explore Jersey and the Isle of Man for places to headquarter. Don't overlook Eire either (EU with UK to the north, with special arrangements)
Anyway, the snag you have is solely US based and not UK (for a change).
> I'm not sure what the rules are on reconnecting with the US if you have formally renounced citizenship. However, I'm sure a birth cert from Yeehaw, TX or wherever will go some way.
It doesn't. Once you've renounced your US citizenship you're on exactly the same footing as any other foreigner in terms of visiting or living here.
And that's assuming you're smart enough not to admit to the government that you're renouncing your US citizenship for tax purposes. If you make that mistake, you've made yourself permanently inadmissible to the United States under INA 212(a)(10)(E).
"And that's assuming you're smart enough not to admit to the government that you're renouncing your US citizenship for tax purposes. If you make that mistake, you've made yourself permanently inadmissible to the United States under INA 212(a)(10)(E)."
Blimey, that's a bit harsh!
I wonder if Mr Adams and co, when throwing off the yoke of something, something, imperialism and that, and those jolly beastly Britons, would approve of INA 212(a)(10)(E)?
That is some legacy for those freedom fighters. cough terrorists (sorry - I'm a Brit, its only been 250 odd years!)
> If you don't want to pay those taxes, then renounce your US citizenship once you have
Haven't you heard of exit tax? If you renounce citizenship (or surrender your 8+ year green card), you must pay 30% of your worldwide assets' value (as if you sold it for cash) to the IRS. And if you own something illiquid, you're deep in trouble!
So no, people can't renounce their U.S. citizenship easily, the IRS has accounted for that...
That’s why you put everything into trust first.
I know a few folks who gave up their US citizenship over tax, and both had to plan for about a decade to do so without paying exit tax - and their lives continue to revolve around being tax exiles - 89 days here, 44 days there, etc. etc.
I’m glad to be a Brit, if only because the revenue doesn’t pursue me around the planet.
That doesn’t make any sense. I’m not a citizen any more, so clearly I’m not accountable for any tax.
> probably in Hebrew, written up in Aramaic or Greek
It is generally agreed upon by scholars that Jesus’ primary language, like in Palestine generally, was Aramaic, not Hebrew, which was already well on its way to becoming a liturgical language (although Jesus probably knew Hebrew well, as he was called “rabbi”, and likely Greek as well): https://en.m.wikipedia.org/wiki/Language_of_Jesus. Certainly for the context of this quote, it’s likely that he was speaking in Aramaic, given that in the chapter he was responding to questions from a variety of local people.
> The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US
No, I think you're missing the issue.
Suppose the company (let's call it XYZ Ltd) is owned 100% by my spouse. Let's say XYZ has $XYZPROFIT in one year. It then pays $XYZUKTAX on that profit, but the US isn't involved whatsoever. If it pays me $MYSALARY, XYZ reports that to the UK government and pays $MYUKTAX. I then report the US government $MYSALARY and $MYUKTAX, calculate $MYINCOME, and then calculate $MYUSTAX (which is normally $0, since UK taxes are higher than US taxes).
Now let's suppose I own more than 10% but less than 50%. Now I basically have to report to the US the same information about XYZ's financials that the company reports to the UK government, as well as answer 40-60 questions each of which would take a few days to understand the meaning of. Thankfully that's where it ends under normal circumstances; pay an accountant to prove you're not cheating the system and you're done.
Now suppose XYZ is 100% owned by me. It has $XYZPROFIT for the year, and pays $XYZUKTAX on that profit. Now, by default, $XYZPROFIT is included in $MYINCOME, but $XYZUKTAX is not included in $MYUKTAX; meaning by default I'm going to be double-taxed. I can avoid this, but only with 1) extra paperwork, and 2) forgoing any tax breaks for start-ups that the UK government has.
> "Pay unto Caesar, that which is due to Caesar and pay unto God that which is due to God" or words to that effect.
As I said, I don't mind paying taxes, but I don't want to pay it twice.
> If you don't want to pay those taxes, then renounce your US citizenship once you have, say, gained UK citizenship, if that works for you.
Boris Johnson - the ex UK prime minister - was born in the US, and complained loudly and frequently about having to pay taxes to the US - and appears to have refused to do so atleast partially. Having to pay tax on profits from the sale of his family home (which is tax free in UK) was the trigger to get him to renounce citizenship.
https://www.forbes.com/sites/robertwood/2022/07/10/boris-joh...
> The "problem" you describe is your US citizenship requires you to pay tax on earnings from outside the US - that's a condition of US citizenship.
imo a feature, not a bug.
If you renounce your citizenship to avoid taxes, you are barred from ever entering the US or its territories again. Take one quick look at the EEZ of the US and tell me if you are OK with never traveling through those places again.
> The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.
Looking at all the corpo legal/HR departments really has to make you think - those are people that are paid to aggresively look for legal loopholes, to defeat the spirit of laws and to make sure that the corporation always has the advantage against the society and workforce they exist nearby. There's decades upon decades of man hours being put into chipping away the effectiveness of tax, workplace and other laws and finding loopholes to make them ineffective. We've been at war and we never even noticed.
This is completely unrelated to the post.
What you're complaining about is overreach by the IRS in relation to foreign assets held by US citizens (ie FATCA) and the reporting requirements (eg Form 7938 and FBAR). It's worth noting that real estate is carved out as an exception for reporting purposes somehow, even though it's a common vehicle for money laundering.
That has literally nothing to do the Double Irish Dutch sandwich, which has historically been used by US companies (particularly Big Tech companies) to avoid taxes by moving their IP to a foreign subsidiary and then paying "royalties" to avoid paying US taxes.
You seem to think that the IRS doing that just for a laugh, or just because they hate rich people, and that Big Tech companies are the only ones playing shell games with their revenue in order to shirk paying their fair share to support the society they've benefitted from.
I think it much more likely that rich people also play shell games with their assets / revenue to avoid paying their fair share to support the society they've benefitted from, and that the IRS requires the extra reporting to try to counteract that.
This article is specifically about a specific loophole invented by unethical accountants and lawyers, but it's also generally about all the effort spent by unethical accountants and lawyers to come up with such loopholes, causing not only harm to society (in the form of free-riding on those who are paying taxes), but which in turn forces effort on the part of tax agencies and legislatures, which then forces effort on normal people like me who just want to make some money and pay our fair share. It's pure wasted energy.
> and that the IRS requires the extra reporting to try to counteract that.
The extra reporting largely exists because of the fundamental and rather unique misdesign of the US tax system - taxing citizens’ worldwide income for life. Most countries only tax (1) worldwide income for residents (2) in-country income for non-residents
> What you're complaining about is overreach by the IRS in relation to foreign assets held by US citizens (ie FATCA) and the reporting requirements (eg Form 7938 and FBAR)
A big problem is the US is one of the few countries in the world which taxes its citizens (and green card holders) worldwide, for life, no matter how long they’ve been outside the United States. Most countries don’t tax non-resident citizens, or only do so for a limited period of a few years.
The only other country that does it, that I know of, is Eritrea - and it has been widely condemned by the international community for its “diaspora tax”. But no condemnation for the US diaspora tax, despite actually being far more onerous than Eritrea’s is
I believe they may have been referring to the Global Intangible Low-Taxed Income (GILTI) tax, which from what I've read is as bad as the OP describes in their post.
https://www.investopedia.com/global-intangible-low-taxed-inc...
>Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
Curious, what are the even more complicated ways?
Yeah it's become an absolute nightmare now if you're an individual or small business involved in anything cross border.
Even if you're not unlucky enough to be a US citizen, if you're tax resident in one country and incorporate in another for completely legitimate reasons, as an individual you're just screwed if you want to be compliant. Rocket science is significantly easier.
You need some KPMG-tier advisor to work it out for you for $crap-ton/hr. Few sole operators have the revenue to afford that.
The guild will get its due! Ironically this is also what the productivity gainsgames produce in the long run. All that excess human capability goes into bureaucracy labyrinths and highway robbery sometimes with the law behind and armed with subscription. The entrepreneur producing the beast that strangles him.
Would this be avoided if you renounced your US citizenship and became a UK citizen instead?
Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
This is the GILTI regime, which was intended to target foreign income from intangible assets. But, like most GOP legislation of the last two decades, it was written in a rush without regards to the practical consequences.
Note however that if the foreign income (from the company's perspective, local income) is being taxed at a higher rate than 90% of the applicable U.S. tax rate on that income (currently meaning, 18.9% foreign tax rate or higher) then the income does not get included in its owner's income (aka the high-taxed exception).
Also note that if you are for some reason subject to GILTI, you've basically just prepaid your taxes on actually receiving that income, meaning that you don't pay taxes again when the foreign corporation actually pays the income to you as a dividend.
This was super complicated for a year or two until the IRS released guidance clarifying some points. Now, for any accountant worth their salt, it's pretty straightforward and if they're still complaining about it, find a new accountant.
Bro what. It's very clearly meant to cover up a swear word.
They seem to think that [REDACTED] is something that hn automatically redacted and that dang will come check what the actual word was. Because this person assumes every negative comment about a lawyer must be antisemitic.
“ The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.”
I’d expect very little overlap between those talent pools.
Why? Talent goes where to best pay is, if you’re not paying taxes you can pay your agent more.
How many computer programmers moonlight as tax avoidance accountants?
Tangential, but a pet project I've been working on has been doing exactly that! Looking at US federal tax laws and using constraints solves to find optimal paths to the lowest taxes.
I don't really do anything besides play with it, my taxes are very simple and boring, but it's been a fun project to play around with.
How many people pursue business or accounting degrees instead of mechanical engineering or biotechnology degrees? The talent flows to what policy incentivizes, over the long run.
Your point, that people can't just switch careers willy nilly, actually reinforces the point of the article -- that incentivizing accounting games actually reduces time spent on impactful pursuits in the long run.
More like how many people with degrees in Business go into Management Consulting, would like to join a startup as a Product Manager, or accountants that want to be Associates at a VC firm rather than work a big 4.
But even for programmers, plenty of people make the decision to go into programming or medicine or law because they are well paid and respected careers. And interests in secondary school and university are influenced by parents, teachers and the culture promoting certain directions. Kids these days are bombarded by STEM everything.
Tons of people who get degrees in technical fields work outside that field. There are many people who have have spent at least part of their studies or career in hard science, SWE, IT, management consulting, law or finance before switching to something else in that list to improve their work/life balance, to make more money, to find employment more easily, or simply because learning the field and cracking its puzzles is engaging work for them no matter the exact technical field it's in.
High finance and crypto are two places where a high concentration of technical skills intersect with using those same skills to game our financial and legal systems.
If there were no need for tax avoidance accountants, they very well might have chosen to study to become software engineers instead. It's not like they were born a tax avoidance accountant and would be sitting in the field rotting if they couldn't find work avoiding taxes. Many would at least be regular accountants (efficiently allocating money is still more useful to all of us than efficiently avoiding taxes), or maybe some other sort of lawyer (your city's prosecutors AND your city's public defenders are both sorely overworked).
Tax avoidance is a legal problem instead of a tech problem, but it has many parallels wherever there are bad incentives. These are fundamentally not pro-social activities, but trying to get an unfair advantage through loopholes.
More computer programmers might moonlight as SEO gurus, if search engines didn't put up at least a token amount of resistance against scummy low-effort SEO tactics.
Fewer tax avoidance accountants would still be tax avoidance accountants, if we made a bigger effort to prevent it. (And that doesn't mean accountants would have to be programmers instead, there are many other kinds of talent)
Wow. I can't believe people believe this is still true in 2024.
I worked in crypto sector which paid really well in some cases... Though compensation had little to do with talent and more to do with focus on political bs and alignment with the needs of corrupt authorities. Some could argue there was an inverse correlation between talent and compensation as the most corrupt people are often that way because they lack talent to begin with.
I've observed similar dynamics in big tech corporations, unfortunately. People are promoted on the basis of their incompetence and capacity for self-delusion as it creates the necessary blind-spots which allow organizations to occasionally poke their toes beyond red lines to reap massive profits.
Stupidity and incompetence are useful attributes within corporations because they instill a feeling of insecurity in the minds of the affected employees and this makes them highly loyal and controllable. Sometimes I think one of the main reasons these companies hire actual intelligent people is to make the incompetent people feel insecure 'imposter syndrome' and increase their degree of loyalty/compliance. They don't actually need intelligent people to run things because they have monopolies and the big profits are to be reaped in maintaining their monopolies which is achieved via dirty politics; not achieved via innovation.
I think many intelligent people have observed this reality in companies they worked for. We've seen the HR manager who will bend over backwards to deny reality to align with the goals of management.
The word chosen at the end of the article:
> I’m sure the international tax lawyers around the world are strategizing new tax evasion strategies even as I write these words.
It should be clear that tax avoidance and evasion are quite different things, and the Double Irish Dutch Sandwich was tax avoidance and not evasion.
Tax avoidance and evasion are not distinct categories. Some things are clearly legal. Some things are clearly illegal. And for many things, the legality can only be determined by a court after the fact.
Laws are inherently ambiguous. There is no objective classification that tells for each possible action whether it is legal or illegal. That's why courts and lawyers are needed.
"Tax avoidance and evasion are not ..."
Those are formally defined terms here in the UK [citation needed - must find one].
Tax avoidance is avoiding paying a tax by following some legally sanctioned rules. For example, in the UK, using an ISA, which is a form of bank savings account, for which the interest is paid tax free. ISAs were created by an Act of Parliament. By saving in an ISA you avoid paying some tax.
Tax evasion is avoiding paying tax ... by not paying tax that is due, according to the law of the land.
There are no grey areas these days. When you do "Self Assessment" in the UK, one of the early questions paraphrases to "have you done anything dodgy". I think it is something like: "Have you participated in any tax evasion schemes within the tax year considered here". Without looking it up now (which takes a while), it may even use the word avoidance instead of evasion.
Self assessment is similar to how the US and some other countries do taxation.
In the UK the norm is Pay As You Earn (PAYE). Your employer does everything - you earn a wage and tax (Income Tax and National Insurance) is extracted at source and the balance is paid to you. The taxes are passed on to His Majesty's Customs and Revenue (HMRC). You can fill in a Form P11D if you want to claim expenses for something you supplied or pay for benefits received from your employment. Most employees in the UK don't care about taxation too much - it just happens.
Tax avoidance and evasion are very different beasts. Do be careful.
Is that fair to say given that it's been found illegal?
It's more complicated because the Irish law people were following was found to be invalid, not that the people leveraging it we're breaking the law as understood at the time, but it still seems unfair to call this approach legitimate.
> It's more complicated because the Irish law people were following was found to be invalid,
It wasn’t found to be invalid per se. The European Court of Justice found that the tax breaks Ireland was offering were unlawful state aid (a corporate subsidy that violates EU law) in the case of large multinationals such as Apple. From what I understand of the ruling, it only applies to large multinationals, and Ireland is allowed to continue to offer the same tax breaks to smaller firms.
https://curia.europa.eu/jcms/upload/docs/application/pdf/202...
Also, while IANAL, I have read some EU law textbooks, and one thing they make clear is that ECJ decisions do not always have “direct effect” - the ECJ can declare a national law to be in violation of EU law, but whether that by itself invalidates the national law depends on the specific grounds the ECJ used. So, without having looked into the legal details of this specific ruling, I’m not even sure if it makes the Irish law invalid, as opposed to merely illegal. The distinction is, an illegal law, the national government is obliged to repeal/amend it, and if they fail the EU can punish them, but it remains in force until they repeal/amend it; whereas an invalid law they have to immediately stop enforcing it.
Everyone in Ireland [and almost everyone else] seems to be under the impression that this is what just happened with the CJEU ruling last week. But it's not.
Ireland, since the mid-1980s, has been offering Apple (and ONLY Apple) a bespoke tax arrangement which is not only unlawful state aid under EU rules but also straight-up illegal under Irish law as well. This "deal" was never codified in primary or secondary legislation in Ireland. The government of famously-not-crooked-in-any-way Charlie Haughey did this deal under the table, and all subsequent administrations have been behaving like it was legal. It never was.
This case was about Apple in particular and it is very important to understand that this has never at any point been the law in Ireland as it was understood at the time.
Apple was treated differently to all other companies -- those companies were subject to the laws at the time which allowed multijurisdictional shenanigans as described in the OP link. There was never any legal basis for Revenue's different level of enforcement for Apple alone.
> Is that fair to say given that it's been found illegal?
Those activities were not illegal at the time. If the laws have changed, then as a tax paying entity, these people/businesses will have to comply with the new laws and/or remove themselves from the jurisdiction where these laws preside.
Well, if I eat a steak this year and eating animals is made illegal next year, was it legitimate that I ate a steak this year?
This comment comes up every time tax evasion is discussed, and it's always presented as self-evident, when it really is not. I think there's no distinction, except an illusory one invented by tax evaders, and I've never seen a coherent argument to the contrary.
Tax avoidance and tax evasion are defined terms and the distinction between them is that the first one is the set of things that are legal. Some of these are obviously legal, like buying an electric car so you can get a tax credit you're eligible for if you buy an electric car. But companies will try to find and use all of these, including the ones that go right up to the line of what's allowed.
The actual problem is that tax codes are complicated enough to allow this game to be played. You want to try to assign the profits of a multinational supply chain to a particular jurisdiction and then end up surprised it ends up somewhere with low taxes? The premise is wrong. All of the revenue is somebody's profit/income. Just tax revenue where the final product is sold, allow deductions for cost of goods sold when the tax on that portion has already been collected by the supplier and stop having any other taxes that give the accountants complicated rules to game.
There is a clear legal distinction in fact between tax evasion and tax avoidance. Tax evasion is illegal. Tax avoidance is not. Tax evasion means you are doing something illegal to not pay taxes, taxes that you would otherwise owe for example if the government had total knowledge of your financial records. Tax avoidance means you are staying within the letter of the law and that your actions taken in the process of doing everything you can to limit the taxes you owe are legal actions.
It's quite simply the difference between taking legal and illegal action. And if the IRS were to be fully aware of what you've done, whether you have broken the law or not. With tax avoidance you do everything you can to not actually break the law (you want to take max advantage without crossing the line). With tax evasion you are breaking the law.
The IRS will almost always try to nail you for tax evasion if they find out what you're doing. The IRS will rarely be able to get you for something related to tax avoidance if you're very careful / strict about it and stay within the letter of the law. Obviously this applies in the US context, however I find that very commonly when people discuss tax evasion vs tax avoidance, they're talking about the premise I'm talking about: one is about taking illegal actions, one is legal and narrowly walks the letter of the law to limit taxes.
Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion? Courts are not generally very impressed by them - which is why it requires a captured government (Ireland) to do them and ideally some sort of multinational scheme so every challenge is a hugely difficult endeavour.
> Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion?
This is the kind of law politicians pass thinking they're being clever when they're really just being incoherent.
If the government makes renewable energy a tax deduction and then you invest in renewable energy to get the tax deduction, that's tax avoidance. The primary purpose of making the investment is to reduce your tax burden and if it wasn't a deduction (i.e. it didn't allow you to avoid taxes) then you'd have bought the power from the power company instead. But causing you to change your behavior in order to avoid taxes is the purpose behind making that a tax deduction.
If you're deciding where to put your facility and the decision comes down to which jurisdiction has a lower tax rate, that's tax avoidance. You're avoiding taxes in the higher tax jurisdiction by putting your operations in the lower tax jurisdiction. But that is likewise the intended purpose of the lower tax rate. That jurisdiction wants businesses to set up there, or wants local businesses to have more money so they build more facilities and hire more local people etc.
If the government raises the tax on cigarettes and that causes you to quit smoking... you get the idea.
It makes no sense for it to be illegal for you to do the thing the government intentionally passed law to give you the incentive to do. But more than that, how are they supposed to prove it? They claim you quit smoking to avoid the tax, you claim it was because you didn't want to get cancer.
Hypothetically they could uncover some email in which you were complaining about the high taxes before you quit, but that doesn't actually prove anything -- the tax could make you chafe even if your primary purpose was to avoid cancer. Moreover, the well-counseled entity is not going to write that email, which makes it a law against writing something down rather than a law against doing something, and those are the worst because the evil megacorps who know they're doing something shady make sure to cross all their t's and the ones who get punished are the guileless ones who didn't know there was effectively a law against complaining about taxes.
The word evade has a specific meaning in English, implying avoidance by trickery. And it has a specific legal meaning, which is knowingly bending or breaking the law. They are not synonyms, especially in a tax context.
That's correct. Deliberately restructuring your activities beyond common sense in order to reduce taxes even further, however, is legally evading them, by the normal definition of the English word "evade".
If you are running a business and someone points out you can reduce taxes by registering a corporation, that's normal - most businesses are some type of corporation.
If someone points out you can reduce taxes even further by registering an Irish subsidiary and sending them license fees, that's abnormal, and now you're using trickery to avoid taxes. UNLESS your business really does do R&D in Ireland at an arms-length subsidiary which charges license fees. In that case, the legal structure mirrors what is actually happening, so it's fine!
There will always be legal (but arguably immoral) ways to minimise your taxes, and there will always be illegal ways to minimise your taxes. Those are different problems with different solutions. It's a useful distinction to make, that warrants having different words.
The point people are making (to mostly deaf ears) is that many tax "avoidance" strategies are just unprosecuted tax evasion strategies. If you claim deductions you don't qualify for, that's obviously just tax evasion, but most taxpayers will get away with it. Does their lack of a conviction mean they're just tax avoiding? Of course not.. so when some company dreams up a scheme where the 'owner' of a laptop changes 6 times to various subsidiaries in countries that laptop has never entered, is that just sophisticated tax avoidance? Or is the obviously illegal scheme tax evasion? (Illegal in the sense that almost every jurisdiction has laws that will pierce transactions that only occur to minimize taxes).
Does that mean that U2 will no longer be a Dutch band ?
https://taxfoundation.org/blog/u2-abandons-ireland-name-taxe...
The complexity in the tax code is why we end up with things like AMT (Alternative Minimum TAx) and the 15% minimum corporate tax. There are so many carved-out special interest exceptions that it's almost impossible to unravel, like the carried interest tax credit for hedge fund management fees.
I think we've reached the point where we need revenue apportinment of profit. That means if 50% of your revenue comes from the US, then (at least) 50% of your profit is taxable in the US.
It's worth noting that there are various schemes for multinationals to avoid taking profits in the US. One of the most common is transfer pricing. Example: Company A sells sofas to US consumers for $1000. It buys them from subsidiary B (in Bermuda) for $900. Subsidiary B buys the sofas from Subsidiary C in China for $300 each. So $600 in profit is moved to a 0% tax haven like Bermuda. That's transfer pricing and it's illegal.
The Double Irish Sandwich is an example of profit shifting. What's the difference between profit shifting and transfer pricing? Profit shifting is legal. Transfer pricing isn't. That's functionally the difference.
So an argument against revenue appointment of profit is you can use similar schemes to hide profits but you really can't. For one, companies need to report profits to shareholders so the IRS has that data point. For another, the IRS can and does go after companies to figure out beneficial ownership and whether transactions really are at arm's length or not.
For anyone saying they can benefit from this by buying shares in $BIG_TECH$, I promise you that you would benefit more from that company paying taxes to fund the roads, bridges and schools that you would from your 100 shares going up by an extra 1%.
I'm not really mad at companies for doing this, I'm sad that the same ways are not available to ordinary overtaxed people.
Ordinary people can't do this because they missed the window, but also because their labor has a clear nexus. This scheme worked because when a product is designed in one locale, built in another, and sold in a third, there's some reasonable question of what the nexus of the income is.
Ordinary people that have written books or songs or otherwise earn royalties from creative works on a regular basis could probably have arranged for ownership of their royalties to be owned by a complex corporate structure as well, but I don't know that very many ordinary people earn enough in royalties that tax avoidance is worth the setup and maintenance costs.
I mean, the clear way to deal with this is to make them choose, and allow import tariffs. Get taxed where the nexus is, and pay to bring the value to other jurisdictions.
I understand that the web of various tax laws and trade agreements makes this impossible though. 80 years of cruft is too much to sift through to improve things in one fell swoop I suppose.
> the clear way to deal with this is to make them choose
My understanding is that the whole problem stems from companies being able to choose. Apple chose to pay taxes in Ireland for some things, because Ireland gave them a tax advantage, thus avoiding taxes in other European countries.
Allowing import tariffs between EU countries would maybe help with this but cause other problems. The EU free market isn't a whim, it has good reasons to exist and significant benefits.
There is no "clear way" to fix this. If there was, it would be used already.
> There is no "clear way" to fix this. If there was, it would be used already.
What do you mean by "this"? When I said "this", I meant this specific form of tax avoidance. There is a clear way to fix it, as I mentioned.
When you say "this" it seems like you mean tax avoidance in general, in which case I would agree that there is no clear way to fix it.
Maybe part of the reason ordinary people are "overtaxed" is that companies are able to do this.
No it’s because an un-elected class of political invents new ways to launder our money over and over. How else does a politician with a small salary end u on millionaire over and over? They do not get book and consulting deals out of the goodness of the public hearts
@knodi123, what is partisan about fleabagmange's statement? They don't mention any politician, political party, or even political ideology.
More to the point, it isn't the politicians of only one party who are getting rich this way.
Is there a reason you don't seem to be considering that companies lobby politicians to allow this?
Given that 100% tax compliance at the highest rates would not solve any high tax nation’s budget holes
You should be asking the same questions that companies are asking: instead of “why arent we getting hosed equally” its “why are we getting hosed at all”
Improving IRS tax collection enforcement could generate significant funds
In fiscal year 2021 the IRS managed more than $4.1 trillion in tax revenue. The annual tax gap was estimated at $688 billion in 2021, with $625 billion remaining uncollected even after enforcement efforts.
16.7 percent.
Capitalism only works if someone gets hosed. And of course as we all know, the only alternative to capitalism is communism which is scary and evil! Don't you see how good you have it under the hose?
> I'm not really mad at companies for doing this
I am, regardless of the effect on individuals, it skews the market away from smaller entrants and allows those that have reached enough of a size to be able to afford to play these games to leverage a huge advantage.
As well as killing local competition there's also the pure hypocrisy of firms such as Apple (and they're not the only offender) passing themselves off as some kind of moral authority whist at the same time aggressively refusing to pay taxes towards hospitals and schools in the local markets they operate in.
They can present themselves anyway they like but it does leave a bad taste in the mouth.
I personally am.
Because people are often overtaxed due to high tax elusion/avoidance/evasion.
E.g. in Italy, around 10 to 15% taxes are evaded in many ways. That bill is then paid by regular taxpayers.
If even more people avoided taxes that would just make the issue worse.
This seems like a really backward way of thinking. You seem to be advocating for complex tax loopholes to be opened for individuals rather than advocating for simple, but lowered taxes.
I understood it more as "the individuals should be taxed the same (so, much lower amount) as corporations".
If company X can pay just <small percent> of their income as taxes (all together), why can't random bobby do the same?
The law requires you to have a fire extinguisher in your office? Sure, buy one, but since it's a cost of doing business, that money comes from the pre-tax pile and is not taxed extra. The law requires me to wear pants when I go out, why do i have to buy them from post-tax pile of money (so, after ~50% gone to the government), and still pay 9.5% VAT on them? I can buy those same black jeans as a company (eg. consider black jeans a work uniform), and avoid all those taxes). Rent? Pre-tax money for a comoany, post-tax for an individual. In some countries (eg. mine, slovenia) you have even bigger stupidities... you have a CO2 tax (and some other) on gasoline (and other fuels), and you pay VAT on top of that tax... the co2 tax included in the base to calculate the VAT... you literally pay taxes on taxes. Again, businesses don't have to pay that VAT (they deduct it) because well.. they need the company car to do business.
The distinction is business vs personal, not company vs individual. A sole trader can usually do avoid income and VAT on all those things (except some deductions pertaining to payroll benefits). Some countries have an alternative arrangement where very small traders pay VAT but also retain VAT on the products they sell rather than actually netting out the VAT on a return.
what's backwards about that? driving to the neighboring town for cheaper gas (because the gas tax happens to be lower) is just as legal as these complex multijurisdiction incongruencies
yes, I believe car ownership should be more accessible to people to be able to ponder such a drive
Frankly I don't even understand why companies are taxed at all. Taxes are proportional to individuals' income so that the pain of contributing to the collective good is distributed fairly. Companies don't feel any pleasure or pain, they need money as a commodity- it pays people, investments, innovation, talent. Money and other benefits should be taxed when they are transferred to individuals, not before.
Ordinary people can buy the stock of the said companies and benefit from the tax saved. Probably they already own them through pension funds.
Which, to me, looks very subpar rather than companies paying taxes in the country where they actually make profit
That take feels kinda... Detached from the average person to me? I don't know how to take it, just like when you hear gates saying a banana cost 10$. Common Joe would benefit much more from taxes being actually paid than profits being accumulated by companies just so they can crush the competition more and earn more and (...)
And presumably some of the 66% are either children/students who have never had a job but will have a 401k or similar when they get one, or retirees who cashed out their 401k and bought an annuity (perhaps not the absolute smartest thing to do, but something a decent number of people do).
Curiosity questions is the revenue that is localized in Ireland and the Netherlands because of the double sandwich, of any significance in terms of percentage of total taxed revenue in those countries?
From memory Ireland and the Netherlands are also the biggest contributors to EU funding. So I am wondering how this shift would affect EU dynamics as a whole?
They're not large contributors to eu finance: 10th and 5th, respectively https://www.statista.com/statistics/316691/eu-budget-contrib...
France and Germany account for nearly 50% of the funding.
Yeah -- Ireland and Netherlands are both top contributors on a per capita basis. Though this was only accelerated recently i.e. the 2023 budget not the 2021 budget. Ireland on many occasions has be a net recipient before this while the Dutch have a longer history of being a net contributor.
https://www.icaew.com/insights/viewpoints-on-the-news/2024/j...
Nah; Ireland's the biggest per capita contributor, and the Netherlands is fourth (after Luxembourg and Belgium).
(Not sure what's going on with Belgium; Ireland, Luxembourg and to some extent the Netherlands have rather inflated GDPs, which drives up contribution amounts, but Belgium's isn't particularly high.)
can't we just add following to tax law:
"if your company structure contains additional complexity which main purpose is the avoidance of tax it's a crime"
I mean law has the fundamental benefit of allowing you to define what is a crime based on the outcome (tax evasion) instead of needing to explicitly rule out any way you might reach that outcome. I mean e.g. for killing people the law also does state it's not allowed without listing every way you could kill a person. So why can't we do the same for clear cases of tax evasion?
Makes sense to me, I'm sure there's a way to word it legally
That taxation exists and is widely regarded as necessary (evil) in the first place is a sobering reminder of the average IQ of the populace.
> The obvious loss is to government revenue, but the more subtle and still very real loss is the diversion of high-powered talent from what could have been gains in efficiency and productivity to focus instead on corporate reorganizations and tax evasion games.
It's also a loss to all of us who find ourselves owning a "foreign" corporation for legitimate reasons, and having to do a lot of work proving that we're not playing shell games.
I'm an American living in the UK; I've started what's now a one-man bootstrapped company and it just makes sense for it to be incorporated in the UK. I don't mind paying taxes, but I don't want to have to pay them twice. UK taxes are generally higher than US taxes, and there are tax treaties to avoid double taxation, so no problem, right?
Wrong. First, if a US citizen owns more than 10% of a foreign corporation, there's an insanely complicated form you have to fill out, two pages of which are incomprehensible questions ("Is your company considered an X corporation under sections Y and Z of the Blablablah act?") that simply require an expert to fill out.
Secondly, if a US citizens owns more than 50% of a foreign company, by default, income from that company counts as personal income, but taxes paid by the company to another government don't count as personal taxes. You can get around this, apparently, but it's even more complicated.
So because of [REDACTED] lawyers and accountants that have come up with these schemes, I have to spend precious starting capital to a bunch of accountants to prove I'm not evading taxes, rather than actually doing something useful with that money (and that accountant doing something more useful with their time).