One trick used to push profits offshore is to use "transfer pricing": transactions are made with a subsidiary based in a tax haven (either part of the same legal entity, or a partner/shell company used to the same effect), with prices skewed so that the offshore company comes out with a huge profit. (Googling around, I found http://repository.essex.ac.uk/8098/ which seems to my untrained eye to give a reasonable overview of this).

For example, the subsidiary company might have ownership of a trademark, and the onshore company pays a ludicrous amount to license that trademark. The accounts show this as a cost for the onshore company, lowering its profits; whilst the offshore company makes a large profit. An example I've come across (but can't find/verify them at the moment) is pencils being bought from an oversea office for thousands of dollars each.

If corporations were charged based on location of costs rather than profits, as you suggest, I can imagine this being used the other way: almost all of a company's assets, from across the globe, are funnelled into an offshore division, in order to pay a ludicrous amount for some trivial local item (e.g. rent and security guard for their empty 1-room office).

PS: I think these sorts of tricks are the reason the article keeps using the phrase "tangible assets", rather than just "assets".

Doesn’t Hollywood pull stuff like this to cheat collaborators out of their percentage?

Certain cult classic movies that look like flops on paper. I always wonder if the money went down a subsidiary black hole to keep insiders happy.

That's what coined the term, Hollywood Accounting:

https://en.wikipedia.org/wiki/Hollywood_accounting

All large multi-national corporations do this. For example, NYT did a piece about Apple doing it[0]. Wikipedia has a list of companies that used the Double Irish setup[1]. The double-irish has been closed (via regulation) and most companies will be moving off of it by 2020.

[0] https://www.nytimes.com/2017/11/06/world/apple-taxes-jersey....

[1] https://en.wikipedia.org/wiki/Double_Irish_arrangement#US_mu...

They'll figure out an alternative. eg, Liechtenstein only has 2.5% corporate tax rates for IP & royalties. So create a shell there, sell it your IP, and then license it back.

> U.S. IP-heavy multinationals now employ a quarter of Ireland's private sector workforce,[28] pay 80% of Irish business tax,[29] pay 50% of Irish salary tax and VAT,[30] and create 57% of economic value-add.[28]

Doesn’t that mean Ireland is fucked in 2020?

The article itself points out the difficulty with this. The numbers are hard to obtain. It's why they don't go after them in the first place.

Taxing budget would be akin to penalizing employment. In that a company would be incentivized to decrease spending in your country. Which is why it's more politically palatable to tax profits.

That said, this isn't rocket science. As the article points out, it's simply an unwillingness by the host countries to hold multinationals who utilize tax havens to account.

Does that risk pushing their spending to low tax jurisdictions?

Probably some amount but I reason this would be much harder. You must pay workers where they live and buy resources from where they are produced. It's easier to offshore a made up entity like a corporation than a bunch of people and their hardware.

> You must pay workers where they live and buy resources from where they are produced.

If tax law provides the incentives, companies can do all sorts of gymnastics to obfuscate those two things. There is always a loophole if you look hard enough for it.

Pay workers where they live? Why not hire them through an offshore firm that pays them as international contractors?

Buy resources where they are produced? Buy the rights to the resources from an offshore company who owns the IP rights to the method of production.

These are convoluted examples but the point is, companies can always add a level of misdirection to fit within a loophole.

Nothing wrong with a sales tax being part of a possible solution.

The problem is that sales taxes are regressive, disproportionally impacting those for whom consumption is a large % of their total income. Particularly poor people.

And sales taxes (vs. VAT) is a terrible idea overall, it is a tax on consumers, not on companies, as it only applies on the final sale to consumer.

> And sales taxes (vs. VAT) is a terrible idea overall, it is a tax on consumers, not on companies, as it only applies on the final sale to consumer.

you are correct that sales tax is almost always regressive, but please be careful making this kind of "just so" argument regarding taxes. the place in the production pipeline where taxes are collected has almost nothing to do with who ultimately bears the burden of the tax. see https://en.wikipedia.org/wiki/Tax_incidence if you're interested in learning more.

Oh, I know, all the splitting up on price-elasticity of demand and so on.

But the issue with sales taxes is that it is applied on the final sale, which generate distortions when the products are being imported, or have a long supply chain spread across a country, as it is a tax on the consumer, the value is only capture at the consumer location, not along the supply chain (that's what I meant as a terrible idea).

I'm not sure if you oppose sale tax only or also VAT. Both are regressive but VAT, while more complex, is based on taxing the added value so it is collected along the supply chain. In the supply chain everybody is charging VAT on their sales invoice and deduce VAT on their purchase invoice. BTW, you must pay to the tax authority the VAT your charged you client even if he/she didn't pay you.

https://tax.thomsonreuters.com/blog/onesource/sales-and-use-...

I don't oppose a production/consumption tax, it is necessary given the intricacies of the world, but we need to keep in mind that it is regressive, and will impact the poor more, when making decisions about taxation.

But between VAT and sales tax, I strongly oppose a pure sales tax, although I would be ok with VAT charging a final tax which is allocated to the consumer location (vs. the location of the business).

Pure VAT: taxed where value is generated.

Pure Sales: taxed where the consumer is based.

Mixed VAT-Sales: mostly taxed where the value is generated, plus where the consumer is based.

The mixed VAT-Sales model would generate a better allocation of tax funds across the entire supply chain, all the way to the consumer.

in theory, when all transactions happens between participants on a free market, then the real value added by a participant tend to be their sale price minus all their cost.

I think it's only when you have non perfect market condition (like monopoly, monopsony, captive company) that the real added value is not visible and where your idea of mixed taxes is needed. Do you think it make sense or do you something other in your mind?

my apologies for the taxes 101 spiel, a lot of HNers don't seem to understand tax incidence. we are in complete agreement on US style sales tax.

No worries, and no need to apologize, I don't take offense when people assume I don't know something (particularly economics and business topics on HN).

OK I admit I was thinking of VAT when I made the comment (I'm in the UK), and also the typical exclusions from VAT for food, books etc and partial liability on businesses (sales minus allowable purchases).

Undoubtedly a sales tax can be regressive but don't those exceptions move it far enough into being a tax on discretionary purchases? There doesn't seem much anti-VAT feeling in the UK outside of occasional axe-grinding from the popular press.

Europeans have a more friendly relationship with taxes than Americans. But VAT, despite being regressive, is still required, as today we have very complex businesses and you want to prevent gaming, where corporations optimize for allocating their value into a certain channel that is untaxed.

For example, by placing their operations in a separate country with lower taxes and shipping from there. So you need income tax, sales/vat tax, and corporate taxes to prevent any gaps.

> The problem is that sales taxes are regressive, disproportionally impacting those for whom consumption is a large % of their total income.

So? That is a problem for necessities like food, housing. But not for advertising, phones and computers, gas, cars, etc...

> Large companies should be taxed where the value is created.

Tax land.

What does that mean? Some companies have no physical presence.

I'll explain. You probably wouln't collect much in land taxes from these large tech companies.

But why this eagerness to tax them so much in the first place? Because of unfairness relative to smaller companies and employees who carry the whole burden of taxation and those tech giants pay close to zero.

In land based tax system you wouldn't collect much from large tech, but you wouldn't collect much from small businesses and employees either. Fairness achieved.

Now you might ask, wouldn't we be really short in tax revenues if we kept only land taxation? The answer is pretty surprising that it would likely collect even more revenue that current system based on sales tax, income, vat, etc., but I encourage the careful reader to study land based tax systems on their own to discover their simplicity and beauty.

I'll just hint that there is so much value stored in real estate (of which the biggest part is its location value, ie. land) that it dwarfs world stock and bond markets together. So just imagine making it a base for a tax.