Jeffery Kadet (U. Washington), Full-Inclusion Is Better Than Territorial System, 139 Tax Notes 295 (2013) http://t.co/EPmi4xk4lH
— Paul Caron (@SoCalTaxProf) June 13, 2013
Kadet: Full-Inclusion Is Better Than Territorial System
Jeffery M. Kadet (U. Washington), U.S. Tax Reform: Full-Inclusion Over Territorial System Compelling, 139 Tax Notes 295 (Apr. 15, 2013):
The territorial system strongly lobbied for by U.S. multinational corporations that stand to benefit from that system is not what’s best for our country or our society. It is bad tax policy for many reasons, including the strong motivation it provides our multinational corporations to continue moving operations, jobs, risks, and assets outside the United States to achieve double non-taxation. A worldwide full-inclusion system would severely curtail or completely eliminate that strong motivation because double nontaxation would no longer be possible because of a current federal tax on all earnings that cannot be eliminated through any tax schemes or creative avoidance. A worldwide system also would increase the tax base and help make possible the lower overall corporate tax rate that both political parties desire.
He seems to think/assume that companies do not pay local taxes on their earnings outside the United States. Unless I am misreading this paragraph, Mr. Kadet is arguing for corporations to be subjected to the equivalent of “citizenship-based taxation”. Should this happen it will be the end of:
1. Any company being incorporated in the United States;
2. Any U.S. person owning a company outside the United States.
A ‘citizenship based taxation-like’ scheme for corporations? Are these guys communists or something? Are they really that stupid to not realize that they’re literally pushing away money that could be used to fix their crumbling infrastructure, among other things?
I just don’t get it any more.
With his suggested model, would a company non incorporated in the US pay US taxes on foreign income, like it is the case for individuals? That’s not clear.
Also, is it possible for a US company to change the location where it is incorprated, say from the US to another country?
Are there loop holes to this?
In Europe, what they really should fix are the loopholes – accouting tricks allowing to pay little taxes. I’ve read that in France, for example, Microsoft branches operate as sale proxies from products drop shipped from another European country with low taxes. Bottomline, they don’t pay taxes on the sales of the product itself, but on the low fee the French branch charges to the low tax country subsidiary where they actually ‘buy’ the product.
That is totally wrong. Pure tax avoidande. And they get away with it. That’s the kind of things that should not be allowed by law and that they should fix.
ALL these high tax regimes are doomed to eventual failure. People are rational and competitive. Despite extraordinary exertion of pressures (political and FATCA like) just as Commodore Business Machines (remember the old Commodore calculators, PET, VIC-20 and C-64 computers etc) relocated to the Bahamas and Stanley Tools wants to relocate to Bermuda and the Insurance industry want to relocate to Cayman, Bermuda and the Channel Islands and the hedge fund industry is concentrated in Cayman to minimize overhead costs and taxes (aka transactional friction) liquids and human activity will relocate as necessary to level the surface. Dead Geese dont lay Golden Eggs.
International companies will soon start to ban US Persons from owning stock in them since under FATCA it seems that any company worldwide that has US Person(s) owning 10% or more of the stock will end up being treated as the personal vehicle of the US Persons by the IRS for reporting purposes.
The only real strength of the US economy is an artificial one in that the US$ is the official designee presently (since 1945) as the reserve currency of the world. It is always nice to be able to print more money as you need it; yet such behaviour cannot continue indefinitely. The other strength that the US formerly had was as a refuge and haven for the oppressed fleeing tyranny with their savings and skills; sadly the US is itself now becoming tyrannical in its behavior. As alternatives arise to the use of the US$ as a reserve currency the US economy will flake. There is no fundamental reason why skills and capital cannot migrate to other more hospitable locations (presently though FATCA might cramp this freedom to vote with one’s feet) – even if it does mean abandoning one’s citizenship and green cards and doing less shopping in the US.
I have to ask ….. just what has Kadet been smoking?
Fabian thoughts consider Citizens to be slaves or serfs of the State who exist merely to enrich the all powerful State which has been forged to suit the desires of the inner circle or Politburo. Of course the Politburo or the Inner Circle of THE Party are considered the only ones with intellect enough to determine what is good or bad for the welfare of the serfs / slaves and thus will ration the resources of society to said slaves in measure determined by THE Party. Nothing new to this however this concept seems to have been well disguised by THE Party though their organ THE Media and THE Universities over the last 100 years and seems now to be news to too many people given the sorrow and hardship inflicted on so many millions of people throughout the world by Fabianism.
David Cameron is no Conservative. He seems to be Fabian to the core.
@Chris. If you were a stockholder (major or minor) in a Tech Company or a Drug company and you had development and research programs going …. with work contracted or sub contracted to scientists and tech folk around the world (including India in a major way, Israel, Canada, US, Ireland, UK and elsewhere) where would you want “your” invested company to headquarter your ownership of the Patents and Copyrights? Would you choose to headquarter those Intellectual Property Rights in a high tax jurisdiction or a low tax jurisdiction? Rational behavior would suggest a Low Tax Jurisdiction all else being equal …. True? Of course, when the company pays dividends to you as a stockholder then you should properly pay your income tax on said dividends … true ? … in the country of your residence ? Not the country of your citizenship or Green Card or any country that arbitrarily determines you to be a “XX Person” (you fill in the variables “XX”). When someone in Jamaica buys some of your product should Jamaica now tax your invested company on some notional profit deemed to arise from the portion of sales coming from Jamaica? or should they be satisfied with the GCT / GST/ VAT on the sale of product consumed within their jurisdiction? Greedy tax grabbers can only exist until business like liquid finds a level surface.
@ Chris. This is not mere accounting jiggery pokery …. these are real economic decisions that have to be faced and, if disturbed, have severe economic consequences … in a long chain …… much of which is not immediately obvious to the observer (read voter), media or policy maker. Consider presently the appalling lack of serious analysis of the FATCA thing in the US media.