You are describing the failure of an idea of corporate income tax. I mean, it should be completely obvious that tax doesn't work by considering this example:

Two companies A and B work in the same market, produce the same thing of the same quality and have the same labor/material costs and revenue. Both companies make 100M in the market. The difference is that A is a local company and pay corporate tax on that 100M and B is buys "brand" or "marketing strategy" from a company located somewhere else (maybe on some island in the middle of Caribbean Sea or something). The rights to use the brand cost 100M/year. Company B pays 0 income tax in the country it operates.

This is an obvious failure of the tax system. The solution is quite simple: get rid of corporate income tax, focus on consumption taxes. Then you won't need to chase anyone around trying to prove they overpayed or "hid" income. You just don't care at all about those things. You also invite other corporations to come to your country and pay salaries and then you get consumption/real estate/land taxes on that salaries as well (and maybe personal income taxes as well if you are into that). I mean it seems so obvious for anyone who ever did any business on any scale where international sales are involved and who has seen how easy it is to avoid paying income taxes and how it really is a tax on honesty and on how ethical you want to be.

> This is an obvious failure of the tax system. The solution is quite simple

Yes, it is indeed: 1) if a company does local business, they should pay local tax, and, 2) by making sure the company has physical presence instead of being a P.O. box. Ie. by flagging those companies who claim they are in the middle of the Caribbean Sea while they're clearly not as tax evaders who ought to be prosecuted 3) use whitelists on companies who are honest, and for those who are not: immediately distract the corporate income tax from their transactions (it is 2016, after all). EDIT: 4) the construction with fake companies who the companies deal with should also be pretty easy to catch with some ML/AI :)

Your solution:

> get rid of corporate income tax, focus on consumption taxes.

Would give corporations a free ride at the expense of consumers. It'd stimulate consumers to start fake corporations just to avoid tax. Finally, it'd lower the value of the money the consumer has as it is. Hardly a fair solution.

> Would give corporations a free ride at the expense of consumers. It'd stimulate consumers to start fake corporations just to avoid tax.

This depends a lot on the other details of the tax system. Giving corporations a "free ride" can be unfair if it benefits one group of people at the expense of others, but it can also make a lot of sense when you think about all the different ways corporations can be organized.

Just for a simple example, imagine two different pencils. Pencil A is made by a big company that owns graphite mines, logging equipment, factories, ships, warehouses, and retail stores. Pencil B is made by lots of small companies, one of which is a graphite mine, which sells raw materials to a pencil factory, which sells finished pencils to a distributor, etc etc.

We really don't want a system that taxes pencil B more than pencil A. Because corporations aren't "real"; they can get bought and sold and merged and split. So of course if pencil A is taxed less, then overnight the market would organize itself into nothing but giant pencil companies just to pay less in taxes. We need some way to decide what "share" of taxes each small company gets, so that all else being equal they add up to the same tax the big company was paying. We could do that with profits vs losses, or with value-added taxes, but we have to do it some way or another. How should we do it?

I think the framing is a bit distorted in your representation of the situation. Pencil B provides more value to society as any of of these small companies can compete to do business with other entities while Pencil A can choose to avoid the overhead of establishing and maintaining these relationships, closing the market to small players that might seek to purchase graphite for other purposes, for example.

In an ideal situation Pencil B should be taxed less than Pencil A, as taxes would offset this overhead and incent this shift toward many small independent actors participating in an open marketplace.

In the real world, we have the opposite scenario. Companies are incentivized to become more like Pencil A, forming large vertical monopolies that minimize overhead and lock smaller players out. Even worse, once they're big enough to do business across national borders, taxation becomes mired in international law and cross-jurisdictional quagmires. In this laissez faire world, nations race to the bottom and compete for these businesses by offering places to incorporate at the lowest rates they can accommodate.

There are legitimate advantages to big integrated companies too. The graphite mine doesn't have to spend money hiring salespeople if it already knows who's buying all the graphite. Things like that depend on the nitty gritty details of the market you're in, so I think it doesn't make sense to try to legislate them if we can avoid it.

>>1) if a company does local business, they should pay local tax, and, 2) by making sure the company has physical presence instead of being a P.O. box. Ie. by flagging those companies who claim they are in the middle of the Caribbean Sea while they're clearly not as tax evaders who ought to be prosecuted 3) use whitelists on companies who are honest

This is delusional to be honest. There are many shades of gray when it comes to tax avoidance. Other than straight up fraud there are costs which really are needed but might be a bit overblown. Are you really going to use resources to prove this piece of software bought in Bermuda is worth 4M and not 5M? It's a fundamental problem with income tax which can't be fixed unless you have access to an oracle which just spits a real value for everything.

>>4) the construction with fake companies who the companies deal with should also be pretty easy to catch with some ML/AI :)

It doesn't need to be fake at all. You just overpay for software/advice/tours/coaching/brands here and there. It's fluid, there is no chance tax authorities catch all of those or prove they were in fact overpriced. It becomes tax on honesty/ethics again as people not willing to play the game will pay more.

>>Would give corporations a free ride at the expense of consumers.

No it wouldn't. Consumption taxes as well as corporate income taxes are 100% financed by what consumers pay.

>>It'd stimulate consumers to start fake corporations just to avoid tax.

It's way more difficult to avoid VAT than income tax. Avoiding VAT on any significant scale requires forgery while avoiding corporate income tax is as easy as overpaying a bit here and there and maybe getting "unlucky" with some risky purchases.

>>Finally, it'd lower the value of the money the consumer has as it is.

No it wouldn't. It doesn't matter if you tax a consumer or corporation the money comes from consumers anyway. It seems you are not very familiar with how consumption taxes work and how they the tax burden under them looks comparing to corporate income taxes. I don't want to suggest sources but as this is widely discussed issue by economists on all sides it's easy to google for it. There are issues mainly concerned with consumption taxes not being progressive (or regressive if you take immediate look) but "giving corporations free ride" isn't one of them.

Thanks for the explanations, they've broadened my viewpoint on the matter.

FWIW, I never said it was easy. I also never said I didn't want additional punishment on the crime. I do; and in addition to jail time. That way you hurt the criminals where it hurts. If the BSA, RIAA, MPAA can claim missed income with ludicrous amounts, why can't the tax departments? Oh wait, reading the article, they did, and apparently that is just 100% + interest. For maximum efficiency, go after the big fish _first_. But there's so much fish slipping through with regards to BSA, MPAA, RIAA, and also (corporate) income tax. Tech can help us here, but the legal system is flooded as it is. In practice there's out of court settlements which is less ideal since it creates a shadow justice system.

Now, if we do what you suggest, abolish income tax, VAT will go up due to loss of income from income tax, and the state needs income from somewhere. However the effective income of the consumer would go up as well which I forgot. Since there's so much corporate income tax evasion, the consumer and honest businessmen end up with a net advantage of purchasing power compared to the current situation, and we save money/time/lawyers/experts. Although I suppose some lawyers/experts lawyers need to respecialize.

A caveat is that we must implement it on a global scale. Else the VAT is higher in certain countries, while lower in other, which increases the incentive for fraud (buy by proxy). Also, it is too bad it won't work with any of the progressive tax systems. Which is what we in Europe have (YMMV). We could however, while abolishing income tax, move the weight of the progressive income tax to VAT, but what's gonna happen then? With physical items people would end up buying items for others. But like you said it is difficult on a large scale, and for something like a car that wouldn't work very well, since its pretty much bound to a driver's license and its movement is tracked via GPS. With items bound via DRM or service w/o resale value, there's no problem either. In other words, progressive VAT on service would work.

There's also the side effect that people sit on their money. If they spend it, it is (more) heavily taxed. I think that is going to create a massive black market, but perhaps that could be tackled in the 21st century. My main beef with your point is that you believe people are gonna keep getting away with it. I disagree. I believe technology is going to force^H^H^H^H^H us, on the longer run, more honest. But if we were to swap to a progressive VAT-only system we'd also be able to use tech.

EDIT PS: A way to avoid progressive VAT problem would be to rescale incomes. Well... yeah... I just don't see that happening...

corporations are consumers. what percent of software spending is enterprise consumption? what percent of pc sales are enterprise?

Why would corporations not just move consumption offshore too? What happens when Ireland has 0% sales tax on software?

I agree, I think corporate taxation has many flaws (especially in a global context). But as long as it's in place it should be applied equally and fairly.

Most countries struggle only to make small changes to their tax-systems (just look at all the loopholes and flaws most countries have sprinkled throughout their tax code).

Or India, they've spent some ~25 years working on an update[1].

A global, synchronised overhaul of the tax-system would be very hard. Most likely, it'll have to be a gradual change.

I also think more emphasis on consumption tax (VAT) and real-estate taxes would be good. But any change will take time.

[1] http://www.nytimes.com/2016/08/04/world/asia/india-goods-and...

The problem as I see it is that it's actually impossible to enforce when we're talking Google, Facebook, etc scale....

Let's take BigCorp'inc or whoever which is selling stuff in the UK and not paying any corp tax; should the uk govt take them to court and try to reclaim money it feels its owed? The govt doesn't really have the teeth for that fight; it's in BigCorp's interest to fight incredibly hard and throw vast sums at that kind of problem.. I'm feeling like the endless pockets of these companies would force the govt to drop any case when the costs get high enough (with enough lawyers, how many years do you think even the frist phases of such a case could be drawn out, and at what taxpayer cost?) that would be a huge embarrassment and would mean publically admitting we can't actually enfore this and so we don't even try to do it...

So what's another option? We could attempt a sales ban, but that's a simple bit of math from BigCorp's side which makes it also pointless to attempt: If losing access said market forever costs less than paying taxes in all other countries where you are doing that kind of advoidance is, then goodbye to that market.. Right? If a sales ban on the UK worked, then the same thing would start happening everywhere -- it makes sense for them then to just walk away (certainly, it'll be cheaper).

So we can't force them to pay, and we can't threaten them with exclusion unless everyone else does too, so what else is possible? Drop corp tax and double vat?

Consumption taxes are typically seen as a bad solution because they are regressive.

If coupled with increased progressive taxation elsewhere this might be okay, but otherwise it's a big problem.

The truth is there isn't a 'simple' solution to this, which is part of the reason that status quo is unchanged (another part of the reason is obviously the lobbying power of large/multi-national corporates.

Consumption taxes aren't regressive unless you take a very narrow view of what happens in given year. Consumption taxes are linear as the money will be spent at some point and taxed there (and if it isn't spent it's fantastic as someone just provided free services to society and didn't want anything in return). Still if you are concerned about them being regressive in small time window then there are many ways to compensate for that:

-tax necessities at lower rate -give every citizen some way to get some of the consumption tax back (up to X amount) -introduce more social programs like some kind of unconditional payment; as this will be much bigger % of income for poorer people it will in effect make consumption tax progressive.

>>The truth is there isn't a 'simple' solution to this, which is part of the reason that status quo is unchanged (another part of the reason is obviously the lobbying power of large/multi-national corporates.

I think your "another part" is what is really going on here. I would add one more reason: people are not good at understanding economics and consequences of regulations. Even if you prove on paper that consumption tax is just more fair, will make companies pay in market they operate and therefore will lower tax burden on lower/middle class it's still easier for a politician to shout: "tax the rich CEO's!" and they will get people to follow them.

Robert H. Frank's Luxury Fever[1] advocates for a progressive consumption tax, and has some fairly compelling arguments. One of which is that it flips the "save money" incentive to consumers. This coupled with Piketty's wealth tax would be difficult, but probably effective in combatting wealth inequality, and making taxes a bit more "fair"

Basic Income combined with a Prebate seem like they would work rather well in consumption-tax land.

Until you start dealing with the fact that the largest taxpayers really don't consume that high a proportion of their annual income, and someone has to pick up the bill...

> The solution is quite simple: get rid of corporate income tax, focus on consumption taxes.

I feel the better solution is a global tax treaty. Where WTO nations or appropriate group all agree to have a minimum corporate tax rate if they want to trade. This will stop any race to the bottom by countries trying to attract companies via a double Irish type method and remove the incentive of corporations for this. All while allowing taxes to be collected at the corporate level in a global economy.

The problem of removing corporate tax is corporate vehicles will become a holding vessel for profit hoarding. E.g for someone like me that likes to save rather than pay my tax bill each year on investment earnings I'll set up a company and put all my savings into this. Each year these invest profits will be retained tax free as I continue to save. This will pull massive tax revenue from the economy as people do this at scale. For this reason shifting to consumption tax only will just open another tax avoidance option.

I don't like it. There are too may countries, local governments with various degree of corruption. Legislation with various kind of rebates and laws which allow you to deduct all kind of different things. Global treaties like that can't work in a world with so many realities and cultures.

>>The problem of removing corporate tax is corporate vehicles will become a holding vessel for profit hoarding.

I don't mind it. Sooner or later they spent the money. If we have inflation at some decent level that will serve as a tax on hoarding.

>>E.g for someone like me that likes to save rather than pay my tax bill each year on investment earnings I'll set up a company and put all my savings into this. Each year these invest profits will be retained tax free as I continue to save.

I don't see the problem. It's a basic arithmetic property of multiplication that it doesn't matter if you save more first and then are taxed at 23% (or w/e the rate) or are taxed first and save later. If you are buying assets then some other people get the money to spend.

>>This will pull massive tax revenue from the economy as people do this at scale

I think encouraging savings is good, it stops over the top consumption and allows building capital to finance new ventures and therefore allow for faster progress of our civilization. If you never spend the money it's great for everyone (you provided free services and didn't want anything in return), if you spend it: you are taxed. If you buy some assets you will be taxed on that and some other people will have your money to spend and be taxed there. I just don't see it as a problem as long as there is at least minimal inflation (aka tax on keeping cash).

I read an article that said we should move away from all taxes except for one tax on moving money around. Something like 0.01% on all transactions(bank to bank, c2b, b2c, etc.). The taxes would be taken at the point of use and wouldn't need to be progressive because for most people it wouldn't cost much for typical use. Large businesses or very rich people would have to pay that tax to move money off shore etc. Not sure how feasible it would be, but it's an idea to ponder at least.

Ideally we should tax things that take us away from our collective values and reward or leave alone things that contribute to it.

IMO, we should tax things that don't contribute to actual growth. Basically companies that merely extract wealth from the system without contributing anything of value like high frequency trading and predatory patent trolls.

Taxing income makes no sense to me. Isn't that a disincentive to work? Work is one of the primary drivers of creating prosperity.

Please list a few of "our collective values"

"Life, liberty, and the pursuit of happiness"

Wouldn't such a policy disincentivize transactions, at least to a degree? I thought the whole reason for the federal reserve bank's monkeying with interest rates was to keep money in motion and being used, instead of just sitting piled idle in various accounts, because the former is better. In my mind money in motion necessarily implies lots and lots of transactions. Taxing transactions seems like it would make people want to keep money in their accounts instead of using it.

It would, yes, I'd imagine. I looked up what it's called and it's the Financial transaction tax[1]. What some propose is to make it 0.3% on all transfers of money. Right now it costs $21.80 to send $1,000,000. The same payment under the new scheme would be $3,000. I have no idea what can of worms it would open up but it's an interesting thought experiment.

1. https://en.wikipedia.org/wiki/Financial_transaction_tax#Unit...

This is rather wishful thinking, because a high proportion of the "moving money around" transactions that take place either won't take place if you charge 0.01% to do it (market making/HFT, day trading, shifting money between theoretical business units that can be consolidated) or are directly or indirectly taxed at a much higher rate at present.

Nah it's not really good. We need to just tax rich people if that's what we're going to do. Taxing a corporation takes operating money away from that corporation to spend on other things. Normally this is where people say "they'll just enrich their shareholders", to which I reply, then tax rich people.

> Taxing a corporation takes operating money away from that corporation to spend on other things.

(1) Does that mean rich people should incorporate?

(2) Taxing a rich person takes operating money away from that rich person to spend on other things.

https://en.wikipedia.org/wiki/Luxury_tax#Luxury_tax_in_the_U...

Rich people were taxed, the industries that depended on them suffered (I'm from Florida, and yacht manufacturing industry alone laid off tens of thousands in the state).

---

Your distinction is arbitrary (especially considering point #1).

(1) It's not legal to run your personal expenses through a corporation to evade taxes. People do it, but it's not allowed and they could get fined or worse if audited.

It can be done, but it's annoying.

Your sweaters-for-cats company can pay for a cruise if it's a sales trip to promote the product. So promote the product.

Super annoying, but if it saves a lot of money, people will do it.

(2) is good, right? If people stop buying luxury goods then the resources are going to move to other things which is generally what we want.

> what we want

We being the operative word. Do "we" want people to buy more soylent green and fewer flatscreen TVs? Depends on who "we" is.

I submit that in aggregate what "we" want is what "we" are already buying.

> Does that mean rich people should incorporate

The IRS is already ahead of you there. Although it is a common statement here, you'd be very lucky to pull it off with any reasonable success.

There are some workable tax avoidance strategies, but they typically involve already having a bunch of money and family trusts.

(1) Nonsense. (2) Trickle down economics doesn't work.

I would also like to add that a luxury tax is very different than taxing rich people. I am not a fan of luxury tax at all.

> Trickle down economics doesn't work.

Trickle up economics (is that what you call a luxury tax?) doesn't work.

> August 1993, the Congress decided to eliminate the “luxury tax” since it did not achieve its main objective...According to the tax's critics, these revenues were disappointing and unsatisfactory and also negatively impacted the incomes of the sellers of the luxury items.

Yes the luxury tax is foolish. I Made that comment

In response to (2) pretend that we weren't talking about wealthy people exclusively. If we were arguing about putting money in the hands of individuals to grow demand would you still disagree?

> Taxing a corporation takes operating money away from that corporation

You nailed it. We need a system where "corporate taxes" should be entirely at the shareholder level, and corporations should be allowed to propagate tax liabilities all the way to individual shareholders (so that holding entities aren't taxed). Then we should apply a progressive income tax on any capital gains made by shareholders. That would make our the system fair and economically efficient.

We should apply a progressive income tax on any capital gains, period. They're income. There's no reason why they should be taxed at the rate lower than sweat-of-the-brow income, except to economically advantage the rentier class at the expense of the worker class (since the overall tax bill is the same, you're just shifting money paying for it between these two groups by applying different rates).

I agree that capital gains should be taxed like income except for the fact of inflation. If you hold, say a house for 10 years, and inflation averages 8% a year (remember the 1970's), and then you sell it at the same inflation adjusted value, you will pay a bunch of tax on no real gain. Maybe we could adjust capital gain tax to inflation. This would have added benefit of having a constituency that wants a higher CPI against those who would like to keep it low (for example to keep Social Security payments or other retirement payments from increasing).

Problem is inflation statistics can (and often are) manipulated. Just look at how the government swaps things out of the "inflation basket" when the levels start getting too high. Food, rent, healthcare, college education, etc some of the fastest growing (also unavoidable costs) that are not taken into account for CPI.

Thanks. I would rather have money in the hands of people and companies so that they can do stuff with it. I'm not anti-government, but I believe that people and corporations spend money more effectively for themselves than the government can. We obviously need taxes to fund programs that the free market cannot handle efficiently (healthcare, national parks, national defense, and these are just general categories for rhetorical purposes only).

I mostly agree with that answer, although think that there are virtually no politicians pushing it: those that want to cut one tax want to cut the other two, rather than a revenue neutral adjustment.

Doesn't it create some kind of weird cross-border investing incentives though? I.e. we drop the corporate tax in the US, we could raise the income tax to recoup some of that, but not all of it, due to foreign investors who get taxed in their home countries.

This isn't about taxing individuals vs. taxing corporations.

The unfair part is that small companies (startups and others) can't do any of this fancy tax-dodging.

(there are many arguments for/against taxing individuals/corporations; I think there are good arguments on both sides, but this isn't about that)

You're right. It's about fixing the corporate tax problem.

Every "tax rich people" discussion turns into politicians appealing to the non-rich masses by taxing higher and higher levels of income. When the politicians themselves and the other rich people, simply don't categorize the bulk of their annual earnings as income.

Though somehow a lot of these really big corporations seem to have massive amounts of cash sitting around and are not spending it, at the same time as many governments are imposing austerity on their populations.

Taxes on profits don't hurt companies that actually reinvest. The problem here is companies that act like they reinvest the money and have no profit, while they actually have tons of profits.

It depends what you reinvest in; I know that the (hardware) business which I work for gets taxed on the revenue it spends on capital goods (machinery and tooling) as if it were profit (then we sometimes get to write off some taxes in the future).

One of the reasons 'hardware is hard' is because the government makes it hard.

An expense must be ordinary and necessary and you have to be able to make the argument that the expense had a reasonable intent to make profit down the road.

What is your definition of hurt? Taxing the profit sure seems to me like it "hurts" the company as they have less resources.

Companies that reinvest most of their revenue make small profits. Companies that don't make larger profits, and thus pay more corporation tax where corporate taxes exists.

(By extension, those wanting to abolish corporation tax should come up with an argument why companies that reinvest profits to research or expand should pay more tax - on the goods and services they buy to improve - than companies that do nothing with their large piles of cash except hope it's enough of a war chest to deter others from investing in competing with it)

> Everyone know they make boatloads of money in Europe (just as everywhere else). Of course they should pay taxes on this profit.

The difference between revenue and profit is really important here. You can have a lot of revenue without any profits if you're reinvesting the money, I think? So even if there are a lot of games you can play in terms of which profits you reinvested, I don't think it's as simple as "doing lots of business = owing lots of taxes".

Yes, totally, this is the trick. They come up with bogus costs, usually something vague.

"We have to pay our headquarters Y billion to use 'their' very valuable logo". And this amount Y just so happened to match our gross profit X in market A. So X - Y = 0 profit in market A.

My point is that this doesn't make any sense. If the company actually didn't make any profit year after year they wouldn't stay. Everyone knows this is true. Any other argument is just PR-bullshit to justify the tax dodging.

–––

Another common trick is to buy something with intangible assets, for example software, in a market where you have untaxed profits (as described above).

Then you wait a few months and suddenly realize that this was a stupid mistake and that all this software is now worth zero.

You make a huge write-down (which is a cost) that can help you reduce your (bookkeeping) profit to 0.

You still actually made money though + your 'worthless' asset [the software] is still around, and will keep generating money in the future.

I think the best known example for this is Hollywood Accounting, which is how a $19m movie with $150m worldwide can 'lose money'.

https://www.techdirt.com/articles/20121018/01054720744/holly...

I've also seen this happen in real estate. You can make a ton of profit, but if your on-paper amortizations outweigh your in-real-life profit then you on-paper lose money even though in the real world you're richer than you were before.

There's something called an Arms Length Test. Basically the criterion is that a business can not set up an arrangement purely for tax benefits if they wouldn't be willing to make the same arrangement with another company they didn't own.

It is designed to prevent abusive income shifting practices.

They might be able to make this case for Apple but it's really a subjective call.

Apple can argue that any other company would agree to the same Ireland IP licensing because they can make a profit.

It really comes down to a subjective argument of how much profit is needed to make it attractive to 3rd parties at arms length.

They also make boatloads of profits. Somehow they argue that those profits are largely happening in the Bermuda's, not in the EU and also not in the US. How convenient for them, that there's no corporate tax in the Bermuda's, and also no transparency.

Everyone can see that these are all tax avoidance tricks that may or may not be legal, but they certainly are not based on economic reality, they are not in line with the intentions of law and can't be defended to public opinion. These companies get access to markets, use public infrastructure and get support of the US and EU governments. They should simply pay the taxes where they are due, mostly in the US and also in the EU.

Insurance companies keep re-domiciling to Bermuda and Ireland.

Hedge funds have preserved material gains via Bermudan tax laws for years. They park money in Bermudan insurance companies whose investment arms manage the funds, while deferring tax payment on trading profits. Eye-opening to learn about...

I worked for an employer who used the Bermuda shell corporation trick. To keep the IRS happy they had to actually do some real work in Bermuda -- it wasn't just a PO box. And let me tell you, it probably cost as much as it saved in terms of yahoos doing things suboptimally based on misunderstandings. It might have been something that could be cleared up with frequent trips to Bermuda for business stakeholders, but that would have cost some money too.

Then introduce a tax they will pay. Otherwise you will always be in the business of "how much that investment strategy/brand/trips" to Bermuda were really worth. It's the game that can't be won. It's frustrating to me that this point is missed. I suspect it's because people who write tax law rarely has any meaningful business experience and little understanding of economic reality.

> It's the game that can't be won.

Only as long as countries and politicians don't really try you are right. Giving up on trying to make corporations pay taxes they should pay because "you can't win" seems like a very weak way to handle this.

Corporations will immediately start discussing income tax or VAT and invent avoidance schemes on that, playing countries against each other, and that game also can't be won. There's no end.

The big economic regions like EU and US should completely stop accepting all these transfer pricing and IP deals, and tax these multinational companies on something that is based on the profit that they report to their shareholders, divided by the approximate regional share of the company's total market.

To be more specific, what they are doing is called income shifting, not reinvesting.

Tax agencies typically use the Arm's Length Test to determine if this income shifting is allowed.

The basics of the test come down to:

Would another company agree to the same arrangement if they weren't owned by the same company / person.

Only Ivory Tower mad scientist can come up with idea like that. I mean, it's not at all realistic to assess "real value" of those transactions. Investment strategy from Bermuda for 5M, are you going to argue it should really be 3.5M? How are you going to go around proving it? Is this really something public resources should be dedicated to? I mean it just can't work and is ridiculous idea.

This is not some proposed idea from an Ivory Tower, this is common practice and common sense, practiced by pretty much every tax agency in the world.

Like many laws, there are subjective components and that is what precedents and courts are for.

Tax agencies understand that businesses exist to make a profit and try to come up with systems that are compatible with that.

Just because everyone is doing it doesn't mean it's a sensible idea. It's a huge failure which makes honest ethical people to pay more in a world where everyone else "optimizes" to bigger or lesser degree. It's a system where the only question is how much you go into shady area. This is a problem at every scale from micro companies to big corps.

>>Like many laws, there are subjective components and that is what precedents and courts are for.

But this is not similar to subjective laws where you need to come-up with interpretation for some case. Here you would need to assess "real value" of every transaction out there which is just not possible.

>>Tax agencies understand that businesses exist to make a profit and try to come up with systems that are compatible with that.

This is not an argument. There exist taxes which are simple in structure and which are not possible to evade without committing forgery. VAT is one such tax, taxing revenue (but not income) is another idea. Income tax isn't like that.

Your conclusion does not follow from your the issue you outline. The unfair advantage could easily be removed by simply not taxing corporations at all. Taxing someone (or in this case, a whole bunch of people) just to keep them down seems like quite a bad motivation.

That's a separate argument. Laissez-faire vs. government (or the optimal level of taxation).

My argument is that a set of tax laws exist today and as long as they do all companies should be treated the same.

> just to keep them down

As an aside, Ireland's corporate tax is 12.5%, roughly 1/3 of the US corporate tax rate (35%). So it's not like Apple is being horribly 'kept down' here.

Doesn't have to be, no. There are other things to tax than corporations, people and transactions being the obvious candidates.

Unless Apple's going to start paying to keep the roads, energy infrastructure and primary education that keeps their business and staff going they better start paying up.

Its not really Apple's responsibility though.

Well, legally it is if the tax code says it is (or multinational agreements say the tax code should say it is). And ethically, I don't see why an artificial entity which exists purely because governments are benevolent enough to bestow special privileges like limited liability upon its shareholders should carry less responsibility for the maintenance of the civil society required for its continued existence than the average person living in that country.

So governments should print the money they need instead?

I've made no arguments about if its right or wrong to collect taxes.

But you assume that not taxing companies is an option.

Sure. Because it is. Alternatives could be to simply tax transactions, tax capital, tax people or not taxing anyone at all.