[Closed] Minimal corporation tax, the return

I find when ever someone states some thingis obvious, or trivial or common sense, its none of the above.

We also know what determines average wages in a country: average productivity of labour.

if our rulers are too stupid to write decent laws that can't be twisted then more fool them.

This is another poor comment. Laws will always betwisted. Its due to the inexact nature of language. Add on top of that writing a law against something that lawyers and policy-makers struggle to define, be that tax evasion or "fairness" means that it will always be impossible to have a tight law.

That sounds terribly over-simplistic. Fewer labour multiplying machines = more jobs overall, for a start.

I find when ever someone states some thingis obvious, or trivial or common sense, its none of the above.

+1 it's normally just a smoke screen for a bias / political slant in the author's view.

+1
that's kind of where I was getting to. The jumps in logic said with such conviction that you're supposed to presume are incontrovertible...but I dont see how it can be extrapolated all the way to "0% corporation tax is a wonderful thing" without missing something on the way.

The brick +1

We also know...

As far as I can see the main flaw in his argument is that only some types of work are truly mobile. If I make toothpaste tubes, I can do that anywhere in the world. If I want to sell coffee and biscuits on the high street in the UK, then I have to be in the UK to do so, so I cannot just bugger off over seas (or rather I can, but the return on my capital in other countries might not be as good, as they don't like expensive coffee and biscuits).

"0% corporation tax is a wonderful thing" without missing something on the way.

Unless you happen to be a billionaire who owns a corporation, in which case it's fantastic and worth employing a whole marketing company to infiltrate as many media outlets as you can to spread your message. The Register appears to have been duped by them already.

If I want to sell coffee and biscuits on the high street in the UK, then I have to be in the UK to do so, so I cannot just bugger off over seas (or rather I can, but the return on my capital in other countries might not be as good, as they don't like expensive coffee and biscuits).

Seems to work for Starbucks but then again it's 'not the same company'.

What I don't like (and journalists never seem to mention) is the constant "but if we tax them, they'll go elswhere".

That may be true if you're trying to get Toyota, or LG to build a factory, you need to make it appealing to them compared to building it elswhere in Europe. But Starbucks can't really up sicks, they can't sell £400million of Coffee to British consumers without being in Britain. You could put whatever corperation tax you liked on Coffee chains yand if we weren't in th EU Starbucks would still be here selling coffee because it would be profitable. We're only loosing out because we're in the EU and some countries like Luxenburg take the piss with low rates.

I wonder if this might become a bargining chip for the EU budget, Cameron conceeds some rise, but gets changes in the Tax system. Seem's odd that they've brought out so many sticks at once with which to beet the EU.

[edit] damit, spent ages writing that and most fo the points ahve been made in the meantime!

The Register appears to have been duped by them already.

aha, I think we've just found the root cause of the problem people...

Worstall was the press officer for UK Independence Party in the year running up to the 2009 euro elections.

The Register, clearly making sure it's not [img] [/img]

I probably should have read up on the author first before trying to read too much into the piece 😉

Right wing propaganda dressed up as journalism.....

The Register just the Daily Mail without the column of celbrities in bikinis down the right hand side of the page.

The problem with that proposal - that employees pay tax and the company zero - is that companies will base their employees (all or most) offshore and just ship goods into the UK. The UK will be the big looser. This is already what Amazon, Google etc do and if the rules where changed as proposed this practice would spread.

Starbucks business model involves hiring cheap people in the UK, eg lots of part time people, who pay little tax and national insurance and then adding debt and licence costs into the business so that they pay little UK tax.

There needs to be a change in the law - perhaps licence payments should not be tax deductable, nor should inter company loans where funds are lent offshore

License payments between different parts of the same corporation should fall under a catch all for 'methods created solely for the purpose of avoiding / minimising tax'.

We're only loosing out because we're in the EU and some countries like Luxenburg take the piss with low rates.

<simpleton> I'd assume the tax gap caused by companies sheltering in Luxemborg is a problem for a lot of the bigger european countries, not just the UK. Would there be a net revenue gain to the rest of the EU if they simply booted out the little tax haven principalities? </simpleton>

Stoner - only read it quickly and once - its so badly written, I couldn't face doing more. His argument is poorly presented and jumbled/simplified.

At its core is basic idea that corporation don't pay tax. Ok, this is a very old concept (he cites Seligman 1899 etc), ie, the "burden" of tax is not borne by an corporation but by one, or a combination of:

1. Its workers, through lower wages
2. Its provides of capital, through lower dividends
3. Its customers through higher prices.

Loads of work on this and plenty of debate. But fair to say that in general (1) does share the bulk of the burden. So he could probably end his argument there as this would be one simple point to debate. There is an obvious irony here in the whole debate, but lets leave that for the moment!!! What he then does is present a pretty jumbled analysis on labour productivity, capital allocation etc. If you are interested in the idea then one of the core works on this topic comes from the US in 2006.

The analysis in this widely quoted report suggests that (under certain assumptions), "domestic labor bears slightly more than 70 percent of the burden of the corporate income tax." The article is a crude summary of this report, although he could be quoting plenty of other ones as not surprisingly there is lots of work on this.

HTH

Luxemborg take the piss with low rates.

Why do we put up with this? Tax "havens" within the heart of Europe.

I'd be all for kicking them out of the EU and imposing massive taxes on anything coming out of there.

Am I right in thinking that the US taxes on Gross Revenue rather than profit? That would surely stop some of this intra-corporation lending.

cheers THM> Just off to flick through the CBO paper abstract then....

[i]We also know what determines average wages in a country: average productivity of labour.[/i]

Haha, that's a beautiful leap of logic

Is the argument 'force corporations to pay proper taxes and they will unfairly heap the burden on the lowest-paid workers'? Marvellous.

footflaps - Member
Right wing propaganda dressed up as journalism.....

You may be right. But if large bodies of research indicate that, on the contrary, workers "do actually" bear the brunt of increases in corporation tax and vice versa, then left wing politicians etc would do well to think carefully about it! The Law of Unintentional Consequences and all that - or more simply the irony in the current party posturing over the whole tax evasion debate!

Its like increasing wages - on its own that doesn't max the benefit of workers. Without increases in productivity it means that fewer workers will get paid more. Is that the best objective (of TUs)? Or is a better objective to maximise total wages or the number of employed. The classic TU dilemma! Of course to increase pay and employment, you have to increase productivity (as economists would say, in order to shift the demand curve for Labour to the right). Jumbled up somewhere in this article is this idea basic idea - I think!

methods created solely for the purpose of avoiding / minimising tax'.

If politicians and civil servants took that common sense approach to law writing, they'd all be out of a job - that's why it will never happen.

The rolling nineteenth-century prose of the Vagrancy Act 1824 made flashing an offence:- to "willfully, openly, lewdly and obscenely expose the person with intent to insult any female".

Seems simple enough to me!

Since then there are any of half a dozen laws that you could convict someone for the same thing with, covering reams of legal documents and acts and bills of parliament and books and lawyers and drafting and parliamentary time. None of which were needed, as it was already illegal...

druidh - Member
Am I right in thinking that the US taxes on Gross Revenue rather than profit? That would surely stop some of this intra-corporation lending.

Druidh, I dont think that you will find that to be the case (other than sales taxes). Are you thinking about the proposal to avoid the anomalies caused by tax evasion, that the tax bill is calculated normally (ie after expenses etc), but then paid according to where sales are generated? This is being proposed again at the moment.

You may be right. But if large bodies of research indicate that, on the contrary, workers "do actually" bear the brunt of increases in corporation tax and vice versa, then left wing politicians etc would do well to think carefully about it!

To me that would simply be further evidence that there should be some kind of legislation to enforce a certain ratio of worker pay/executive pay/shareholder dividend. It seems corporations can't be trusted not to be bastards, so we need to legislate to stop them being bastards.

I read all the comments on that last week and the commentards handed him his bottom on a plate towards the end of the list. It took a while though and I needed a dark room afterwards to calm down.

grum - the problem in this case I think is said to be that mobile capital will flee the burdens that it can leave on immobile labour. Legislation wont stop that, capital will still flee. Its not the capital that stays that is the problem, its the capital that has left ...I think.

However, Id still like to see a corporate version of the US AMT http://en.wikipedia.org/wiki/Alternative_Minimum_Tax
(alternative minimum tax) which sets a floor that is calculated as a rate of turnover. SO that to an [i]acceptable[/i] extent, corporations can minimise their tax bill by offsetting investment or interest costs, BUT not take the piss.

EDIT: First rule of online journalism: NEVER read comments. Whether it be Daily Mail, CiF in the Guardian or The Register.

Allister Heath wrote a similar piece in the Daily Telegraph which can be found [url= http://www.telegraph.co.uk/finance/comment/9675603/We-have-a-mad-and-indefensible-tax-system-which-is-why-we-need-revolutionary-change.html ]here[/url]. I think this is a better piece but I must admit I have not read the underlying studies so can not judge how fairly their conclusions are reported.

I see where both are coming from, it is could be presented as simply an extension of the argument that withholding taxes stifle efficient capital movement and therefore hinder economic growth. They are saying tax at a corporate level is equivalent to a withholding tax and therefore a similar conclusion applies. All interesting stuff. The questions I have are first how do you recognise the ability to defer taxes at the corporate level when there is the ability to realise the return through sale of shares rather than by dividends or interest. Secondly, how does theory hold for intangible assets such as processes etc?

The questions I have are first how do you recognise the ability to defer taxes at the corporate level when there is the ability to realise the return through sale of shares rather than by dividends or interest

Surely the sale of any asset "pregnant" with tax is reflected in the transfer price? The selling shareholder has not avoided any tax at that stage since the asset he's sold is still discounted for the deferral? No?

grum - the problem in this case I think is said to be that mobile capital will flee the burdens that it can leave on immobile labour. Legislation wont stop that, capital will still flee. Its not the capital that stays that is the problem, its the capital that has left ...I think.

Aye, which is why we need a worldwide socialist revolution. 🙂

after you comrade...

A one, a two, a one two three four....

[i]The people's flag is deepest red,
It shrouded oft our martyr'd dead
And ere their limbs grew stiff and cold,
Their hearts' blood dyed its ev'ry fold.[/i]

Surely the sale of any asset "pregnant" with tax is reflected in the transfer price? The selling shareholder has not avoided any tax at that stage since the asset he's sold is still discounted for the deferral? No?

What happens if the purchaser is a pension fund? If the income can be "washed", the market will generally find a way to "wash" it leading to a market tax assumption close to the lowest rate available.

Its like increasing wages - on its own that doesn't max the benefit of workers.

Depends on whether the cost is lower dividends to shareholders or less workers. Higher wages doesn't necessarily mean fewer employees.

Are we talking about tax on dividend/capital gains or corporation tax here, mefty?

Another point, is distribution of wealth - a small increment to those least well off (low paid workers) will be circulated in the economy very quickly as they will most likely spend the wage increase due to suppressed demand (low wages). An extra billion or two for a 'fat cat' share holder will have a much reduced effect as it is less likely to get spent.

So to boost the economy, you're much better off increasing wages and cutting dividends.

footflaps - I think the argument goes, if you increase wages, and therefore lower dividends you lower the total return available to capital. If capital wont get out of bed for less than X, then less capital will be made available until the fixed amount of profit delivers a return of X. Less capital means smaller economy (less investment in labour using equipment etc) means less jobs etc etc.

SINGS SECOND VERSE

Tears rolling down cheeks

So to boost the economy, you're much better off increasing wages and cutting dividends.

What about the trickle down effect?

Hang on

the "burden" of tax is not borne by an corporation but by one, or a combination of:

1. Its workers, through lower wages

Isn't corporation tax paid on profits? So you can still spend as much as you need to on wages/investment and corporation tax doesn't matter? So if you employ minimum wage workers it would actually reduce your overall TAX liability than if you just drew profit - surely?

If capital wont get out of bed for less than X, then less capital will be made available until the fixed amount of profit delivers a return of X.

An oft quoted argument, but not one I've seen substantiated anywhere. Just like all the bankers who'd leave the UK when we upped taxes on bonuses. We lost a tiny number and the rest stayed and put up with it.

What about the trickle down effect?

ahhh, he didnt bite 🙁

😉

We lost a tiny number

got some figures somewhere?

It doesn't exist?

Poss flippant.

It is negligible compared with paying lower paid workers a smaller sum where 100% gets spent. Pay a billionaire an extra billion and he might spent as few million extra, he won't blow the whole billion....

[img] [/img]

made my day ff, ta. xxxx

Dividends in the case of "washing" because Heath's article assumes the ability to tax them, which I am not convinced is as simple as made out.

got some figures somewhere?

I did read an article somewhere on the subject, poss Guardian, the conclusion was bugger all left and of the ones they interviewed (who went to Switzerland), they hated it and came back (ok selective choice of interviewee).

However, more importantly, had there been a mass exodus, you'd see the City of London shouting it from the roof tops as an argument for 0% rate tax for [s]w[/s]bankers and so as they're very quiet on the issue, it suggests the evidence is lacking.....

aha. I hadnt read heath, I was still stuck on corporate capital.
In which case, then yes, I see what you're getting at.

made my day ff, ta. xxxx

You've lost me.....

I was teasing with the whole "trickle down" canard...

I was teasing with the whole "trickle down" canard...

I just thought you were being [s]dumb[/s] daft..... 😉

Here's a question...

Could an individual contractor set up as a Ltd Company create a Luxembourg entity which bills his UK company for 'license of logo' of something, so the company pays all its tax in Luxembourg? And then somehow re-repatriate the taxed income?

An article on the [b]non[/b] mass exodus of City workers:

http://www.guardian.co.uk/business/2010/oct/17/banking-executive-pay-bonuses

That article is over two years old.

According to the Centre for Economic and Business Research, the number employed in City financial services is 255,000 this year, down from a peak of 354,000 in 2007.

We're only loosing out because we're in the EU and some countries like Luxenburg take the piss with low rates.

The problem with arguing based on your own facts is that they are often wrong.

Luxembourg has a higher rate of corporate tax than the UK, has done for at least the last 8 years.

Could an individual contractor set up as a Ltd Company create a Luxembourg entity which bills his UK company for 'license of logo' of something, so the company pays all its tax in Luxembourg? And then somehow re-repatriate the taxed income?

This is effectively the scheme used by Jimmy Carr and Wiggo. Gurnsey or some other tax haven such as the Caymen Islands is the location of choice for these type of scheme.

In reality the real answer, as with mosth things, is somewhere in the middle we need to ensure coproations pay tax on the money they make here and cannot be moved, selling things mainly, Starbucks springs to mind, but balance that with just causing inflation. At the same time we want to be an attractive place to add value, be in paper value or actually making things, like a car factory, here we need to offer tax breaks to attact companies as the value of creating jobs and growth far outweighs the small amount of tax that could be collected (but wouldn't as these companies would just go elsewhere)

Obviously being in the EU hurts us a we don't have freedom to set these policies but it has lots of other advantages. Again the answer is somewhere in the middle.

Perhaps they had a crisis of conscience and they left to actually do some good for others rather than rip us all of for personal gain

THM how will starbucks drive down wages seeing as they basically pay the Minimum wage for the majority of their staff ?

Perhaps george should explain he is cutitng tax for the rich to help the poor - god forbid we should treat tax evasion like benefit scroungers or speak of them in similar terms eh - lets call them wealth creators, risk takers , something sexy and alluring like that

[ joins Stoner in fishing trip 😉 ]

[img] [/img]

Pick a brighter lure, why dont you?

Obviously being in the EU hurts us a we don't have freedom to set these policies but it has lots of other advantages. Again the answer is somewhere in the middle.

Are you saying that all things involve (a can't bare to say the word) compromise?

Are you trying to tell me things are not black and white, (or perhaps looking at it another way not just blue or red)?

This is the biggest loads of horse manure I have ever read! You sir / madam are a witch.

According to the Centre for Economic and Business Research, the number employed in City financial services is 255,000 this year, down from a peak of 354,000 in 2007.

You're confusing two things there.

When the government was discussing a one off tax on city bonuses, 3 years go, the City of London said it would cause a mass exodus of city workers in the UK, to warmer (tax) climates.

It didn't.

However, the financial meltdown subsequent to the boom years has meant that the number employed in financial services has fallen from the peak (all over the world).

JY - they wouldn't, they would merely employ less. But this is a slight red-herring. Corporation tax is probably the most messed up part of modern tax systems across most of the OECD. It raises less and less revenue and is open to plenty of abuse from all sides. The issue of who gets hurt is also complicated and has many factors eg, elasticity of demand for labour, labour versus capital intensity, taxes on corporate versus non-corporate sectors etc.

However, there is sufficient evidence to suggest that a simple call for higher rates of corporation tax (from left-wing politicians), while appearing attractive at face value, may have unintended consequences especially in open economies like the UK. That was my point (edit: the interesting bit for sado's like me is that according to research over time, the burden has shifted between the three parties with workers losing out more over time....hence labour versus capital intensity, capital mobility, open versus closed economy debates etc)

Re the driving down wages that is simple labour economic theory that you know well enough. Draw basic S&D curves with Wages on Y and Quantity of Labour on X. Raise the wage and follow the diagram - higher wages at lower quantity demanded. The key is to shift the demand for labour [u]at the same time [/u]ie, higher productivity (training, capital, better management etc), hope that the demand for the product rises and/or the price of substitute products increases. All three would have the same effect (directionally at least) and could result in both higher wages and higher employment.

Put another way - assume wages are fixed - in Starbucks case at the minimum wage - that corporation tax increases are passed on to the consumer through prices. What does that do to demand for coffee and/or relative price of its substitutes? What does that then do to the demand for labour and therefore wages?

Of course, this is a gross simplification of what is happening at Starbucks. The issue here IMO is the inter-company loans and other financial skullduggery!!

What about the trickle down effect?

Cured by a good shake at the urinal!

No I just provided some data rather than some anecdotal evidence. I think you will find that there has been growth in Singapore, Hong Kong and Shanghai in city like jobs over the same period. Divining precise numbers to different causes is pretty difficult but to claim increased regulation will not impact London's competitiveness ignores history.

the burden has shifted between the three parties with workers losing out more over time.

This is an effect of politics not just econmomics

assume wages are fixed - in Starbucks case at the minimum wage - that corporation tax increases are passed on to the [s]consumer through prices[/s]shareholders by reduced profits and dividends

I like this assume game 😉 though your is a much more realistic assumption.
I think your points are broadly correct greedy folk are greedy and wont give up their money - its why we need to make them. Part of this is increased regulation, part is withdrawing our custom and part is vilifying a company that avoids taxation just as much as we do "benefit scroungers" as they do GAS about image [ if it affects profits.

JY - are you mixing corporate and income tax? The burden I am referring to is the impact that corporation tax may/may not have on wages. Very different thing to higher rates of income tax and consumption taxes, isn't it?

I agree with the option of withdrawing custom but not the rest. Read the article I cited and others - the greedy folk hypothesis, while convenient, does not give a full enough picture IMO!

JY - you are missing the point, the 1,2 and 3 analysis is restricted to the burden of corporation tax, other taxes would be in addition and are not included, therefore the politics are irrelevant.

edit: too slow.

are you mixing corporate and income tax?

I agree with the option of withdrawing custom but not the rest

I think they do work but yes I am OT /wrong and did not read your post properly.
Sorry.