> 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).