The code is not written *specifically* to allow for it, in the way that legislators slip perks in for their supporters. It's more a bug in the concept of taxing income when applied to a multinational entity.
Standard accounting practice makes it easy to create fictitious expenses and income. This is a feature, not a bug; it enables you do do things like charge back departmental services for example to justify the money spent on them. It's a management tool. But doing this necessarily creates fictitious
Neh, the concept is even simpler than this and it really cannot be fixed. Imagine you make a product which costs you a dollar, and you can sell it for $10. You can sell it yourself and book $9 revenue, or you buy a company in a low tax jurisdiction, and that company strikes a massive volume discount price of $1.50, then you book $0.50 revenue per product, while the other company, which you own 100% but is abroad, books $8.50. Your revenue is low, but your stock value goes up because your company owns 100% s
Revenue is taxed where the sale takes place, not where the selling company is domiciled.
Can you imagine the headaches of that though if you sell in multiple countries? It's bad enough figuring out sales tax remittance, which is relatively static in terms of calculations. But having to file income tax in multiple countries and multiple states? It would be crazy. You'd be dealing with potentially hundreds of tax codes. And where do expenses get booked?
Wrong. Sales tax is taxes on the sale price. Revenue is income, hence you can deduct the costs from revenue, but you cannot deduct the cost from sales tax.
Consider this: * you buy an item for $1,000 * you sell the item for $2,500
The sales tax applies to $2,500. You can exempt the initial purchase of $1,000 from sales tax (so the government doesn't get the sales tax twice on the $1,000), but in the end the government collects: * sales tax on $2,500 * revenue/income tax on $1500 (assuming you had no other costs to deduct)
Really? (Score:5, Insightful)
"lawmaker claimed that it and other large corporations 'exploit loopholes"
Loopholes that said 'lawmakers' left in the tax legislation either by accident (incompetent) or by design (corrupt).
Just change the laws to close the loopholes but don't ask people to pay more than YOUR laws expect them to.
Re: (Score:2, Interesting)
In some cases, sure, but offshoring profits to tax havens isn't a legislative loophole, but an accounting trick that multinational companies can use.
Re: (Score:4, Informative)
offshoring profits to tax havens isn't a legislative loophole
Yes it is.
The tax code is written to allow the offshoring of profits.
The most obvious way to fix it would be to tax revenue, payroll, or dividends rather than profits.
Re: (Score:4, Informative)
The code is not written *specifically* to allow for it, in the way that legislators slip perks in for their supporters. It's more a bug in the concept of taxing income when applied to a multinational entity.
Standard accounting practice makes it easy to create fictitious expenses and income. This is a feature, not a bug; it enables you do do things like charge back departmental services for example to justify the money spent on them. It's a management tool. But doing this necessarily creates fictitious
Re: (Score:3)
Neh, the concept is even simpler than this and it really cannot be fixed. Imagine you make a product which costs you a dollar, and you can sell it for $10. You can sell it yourself and book $9 revenue, or you buy a company in a low tax jurisdiction, and that company strikes a massive volume discount price of $1.50, then you book $0.50 revenue per product, while the other company, which you own 100% but is abroad, books $8.50. Your revenue is low, but your stock value goes up because your company owns 100% s
Re: (Score:2)
Revenue is taxed where the sale takes place, not where the selling company is domiciled.
Re: (Score:2)
Revenue is taxed where the sale takes place, not where the selling company is domiciled.
Can you imagine the headaches of that though if you sell in multiple countries? It's bad enough figuring out sales tax remittance, which is relatively static in terms of calculations. But having to file income tax in multiple countries and multiple states? It would be crazy. You'd be dealing with potentially hundreds of tax codes. And where do expenses get booked?
Re: (Score:2)
A revenue tax is a sales tax, not an income tax.
Re:Really? (Score:2)
Wrong. Sales tax is taxes on the sale price. Revenue is income, hence you can deduct the costs from revenue, but you cannot deduct the cost from sales tax.
Consider this:
* you buy an item for $1,000
* you sell the item for $2,500
The sales tax applies to $2,500. You can exempt the initial purchase of $1,000 from sales tax (so the government doesn't get the sales tax twice on the $1,000), but in the end the government collects:
* sales tax on $2,500
* revenue/income tax on $1500 (assuming you had no other costs to deduct)