Senate report: Microsoft used loopholes to avoid billions in taxes(komonews.com)
komonews.com
Senate report: Microsoft used loopholes to avoid billions in taxes
http://www.komonews.com/news/local/Senate-report-concludes-Microsoft--170564536.html
11 comments
If only there were a governing body that had some authority to do something about these loopholes.
How complicated can it really be? If you're making the profit in the country, then you should pay the taxes on that profit there, not send it to another branch to avoid paying the taxes. If there isn't a law against doing that, then there ought to be one.
The problem is there is no internal free market. So, as soon as you move sub components around it's impossible to track what the actual profits where in each company. Let's say the US Fab cost 1 billion and you sold a chip in China for 50$ and 60$ in the US. What's there share of R&D costs?
Part of the issue, I think, is people finding new and creative ways of "send[ing] it to another branch" and we're playing whack-a-mole because we want to ban the behavior rather than the intent.
"ban the behavior rather than the intent"
I think this sums it up quite nicely. The intent, which is encouraged by all branches and is culturally engrained (I will retrieve citations if requested), is "reduce your taxes as low as possible".
With the right advisors, corporations can do this very effectively. This should not be a surprise to anyone. They will pay less, much less. After all, that's what you encouraged them to do.
If your aim is to collect more taxes, then why encourage those being taxed to seek to reduce their tax liability as low as possible?
Forgive me if I am missing the obvious. But this to me has never made sense.
I think this sums it up quite nicely. The intent, which is encouraged by all branches and is culturally engrained (I will retrieve citations if requested), is "reduce your taxes as low as possible".
With the right advisors, corporations can do this very effectively. This should not be a surprise to anyone. They will pay less, much less. After all, that's what you encouraged them to do.
If your aim is to collect more taxes, then why encourage those being taxed to seek to reduce their tax liability as low as possible?
Forgive me if I am missing the obvious. But this to me has never made sense.
> reduce your taxes as low as possible
It's not something that's "encouraged" or "culturally ingrained." It's simply a matter of lowering your costs.
It's not something that's "encouraged" or "culturally ingrained." It's simply a matter of lowering your costs.
If I track down a quote from a famous US Justice from the early 1900's where he says every American is expected to try to lower their taxes, would that cause you to reconsider your view?
The "expectation" is merely because that's what any rational, self-interested person would do. I can't see how it's logically possible to escape that.
That is exactly it. And though I do not have the quote in front of me, I can tell you this is how the justice who said it approached every issue.
Maybe "encouraged" and "engrained" were not the right words. How about "endorsed"? I think rational self-interest is a concept that might vary in the degree to which it is adopted into people's behavior as you move from country to country. That's only a theory. Certainly, in the US, reducing tax liability, and doing so vigorously, is believed to be the rational thing to do.
But if I'm the taxing entity, is it rational for me to endorse the idea of paying less? That would seem to lead to a reduction in the amount I will collect as those being taxed adopt and refine their tax reduction strategies.
Maybe "encouraged" and "engrained" were not the right words. How about "endorsed"? I think rational self-interest is a concept that might vary in the degree to which it is adopted into people's behavior as you move from country to country. That's only a theory. Certainly, in the US, reducing tax liability, and doing so vigorously, is believed to be the rational thing to do.
But if I'm the taxing entity, is it rational for me to endorse the idea of paying less? That would seem to lead to a reduction in the amount I will collect as those being taxed adopt and refine their tax reduction strategies.
> But if I'm the taxing entity, is it rational for me to endorse the idea of paying less?
It's rational for you to accept the fact that people will work to minimize their tax liability and construct policy under that assumption.
It's rational for you to accept the fact that people will work to minimize their tax liability and construct policy under that assumption.
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Firstly there are some simple issues that most international companies are very tax "efficient" - paying their alloyed fair share would drive most of the Fortune 500 into the red this year
I am not saying that's a bad thing but it is a hard thing
Secondly allocation of resources is soluble. - one example would be an international agreement to pool all taxes and share out to countries in proportion to employees per country, but in the end companies pay how much we are willing to let them get away with.
I am not saying that's a bad thing but it is a hard thing
Secondly allocation of resources is soluble. - one example would be an international agreement to pool all taxes and share out to countries in proportion to employees per country, but in the end companies pay how much we are willing to let them get away with.
What are you basing your assertion that most fortune 500 would be in the red on ? Corporate profit (post tax) are at a record high (e.g. http://elidourado.com/blog/the-short-run-is-short/).
Partly poetic license - my apologies.
The nearest I can find is http://www.uspirg.org/reports/usp/representation-without-tax... citing 18% paid on expected taxes of 35%. Which makes an extra 220 bn - almost double.
Given that the avg net margin is 6.3% (see below) doubling the effective tax rate would cause significant issues - but I need more data
Plus 1 for calling me out http://seekingalpha.com/article/428181-debunking-s-p-500-p
The nearest I can find is http://www.uspirg.org/reports/usp/representation-without-tax... citing 18% paid on expected taxes of 35%. Which makes an extra 220 bn - almost double.
Given that the avg net margin is 6.3% (see below) doubling the effective tax rate would cause significant issues - but I need more data
Plus 1 for calling me out http://seekingalpha.com/article/428181-debunking-s-p-500-p
The use of the word "loopholes" indicates that Microsoft is complying with the law. The word "loopholes" also implies that Microsoft's actions aren't within the intent of the law, but the article provides no explanation on the intent of the law. So this article is an unfounded and unbalanced attack on Microsoft, no more interesting than saying "Microsoft is evil!".
I am curious about the senate committee choosing to single our Microsoft and HP in their attach, when there is ample evidence to suggest that so many other well known companies are engaging in similar practices. In 5 minutes, I came up with articles from major papers documenting 3 of the biggest companies in the US using similar practices...
http://www.nytimes.com/2012/04/29/business/apples-tax-strate... http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho... http://www.guardian.co.uk/technology/2012/apr/04/amazon-tax-...
http://www.nytimes.com/2012/04/29/business/apples-tax-strate... http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho... http://www.guardian.co.uk/technology/2012/apr/04/amazon-tax-...
A new congressional investigation claims Microsoft has been able to avoid paying $6.5-billion in taxes since 2009 thanks to the complicated tax structure in the U.S.
The role of a CFO (and his office) is to do exactly what resulted above. Build a team of accountants, lawyers, and financial analysts that makes sure that the financial health of the company is strong. "Is this a tax credit we can take advantage of, do it." "Can we legally execute this transaction and conserve millions of dollars? do it."
If these items are legal based on federal law and pass Microsoft's board's scrutiny, then why is this even an issue?
The role of a CFO (and his office) is to do exactly what resulted above. Build a team of accountants, lawyers, and financial analysts that makes sure that the financial health of the company is strong. "Is this a tax credit we can take advantage of, do it." "Can we legally execute this transaction and conserve millions of dollars? do it."
If these items are legal based on federal law and pass Microsoft's board's scrutiny, then why is this even an issue?
The role of a CFO (and his office) is to do exactly what resulted above.
And the role of Congress and its tax committees is to take note when they've left open obviously abused loopholes and close or limit them.
This Puerto Rico scheme has been going on since well before 2009 and more companies than just Microsoft have been abusing it. The Senate Finance Committee and the Ways And Means Committee have been well aware for many years before that.
Someone here is cheating. It's not the corporations that take advantage of a loophole that is legal even though it is unfair and harmful to the nation. The cheaters are the lazy and corrupt congressmen and senators that watch it happen and read their reports every year, year after year, and can't rouse themselves to do anything about it.
Lucky for you, you get to fire some of them six weeks from now.
And the role of Congress and its tax committees is to take note when they've left open obviously abused loopholes and close or limit them.
This Puerto Rico scheme has been going on since well before 2009 and more companies than just Microsoft have been abusing it. The Senate Finance Committee and the Ways And Means Committee have been well aware for many years before that.
Someone here is cheating. It's not the corporations that take advantage of a loophole that is legal even though it is unfair and harmful to the nation. The cheaters are the lazy and corrupt congressmen and senators that watch it happen and read their reports every year, year after year, and can't rouse themselves to do anything about it.
Lucky for you, you get to fire some of them six weeks from now.
> why is this even an issue?
Because the Democrats want to press home the message that corporations and wealth are inherently evil in this election cycle, and the chairman of the committee quoted in the article is a Democrat, as the article mentions, twice.
An unfortunately large percentage of the US population apparently isn't capable of formulating the good and simple question in the last sentence of your post -- a large enough percentage that the story can attract enough eyeballs to justify its publication.
Because the Democrats want to press home the message that corporations and wealth are inherently evil in this election cycle, and the chairman of the committee quoted in the article is a Democrat, as the article mentions, twice.
An unfortunately large percentage of the US population apparently isn't capable of formulating the good and simple question in the last sentence of your post -- a large enough percentage that the story can attract enough eyeballs to justify its publication.
>Because the Democrats want to press home the message that corporations and wealth are inherently evil
Excuse me while I go pick up my eyes that just rolled across the floor. This isn't even remotely true - there's nothing wrong with wealth or corporations in general - but when corporations begin doing evil things in the pursuit of wealth, big surprise, people are going to complain.
Excuse me while I go pick up my eyes that just rolled across the floor. This isn't even remotely true - there's nothing wrong with wealth or corporations in general - but when corporations begin doing evil things in the pursuit of wealth, big surprise, people are going to complain.
> Because the Democrats want to press home the message that corporations and wealth are inherently evil in this election cycle...
Can we see quote from a Democrat saying this?
Can we see quote from a Democrat saying this?
The problem is that loopholes are largely monotonic.
Every loophole that exists was originally a political favor to some important constituency. There are always important constituencies seeking political favors, or embattled politicians or parties seeking new allies; so there will always be pressure to create new loopholes.
If a loophole's in danger of going away, its constituency will scream bloody murder. Republicans who vote to eliminate it will be painted as "raising taxes;" ever since Bush I promised not to raise taxes, raised taxes anyway, and then lost the White House, a lot of Republicans have been very afraid of this political attack. So there will always be pressure to avoid closing existing loopholes.
So loopholes are monotonic -- they can only increase over time.
The only way we could conceivably get out of this situation is if our tax code becomes so complex, everyone -- even the beneficiaries of the loopholes -- is angry and upset at the complexity and costs of paying, and decides to support throwing the whole thing out and starting fresh. This scenario probably requires a united government (same party controlling Presidency and both houses) which is willing to make the issue a priority. It's probably not going to happen in this year's election, unless a major event occurs between now and Election Day.
Every loophole that exists was originally a political favor to some important constituency. There are always important constituencies seeking political favors, or embattled politicians or parties seeking new allies; so there will always be pressure to create new loopholes.
If a loophole's in danger of going away, its constituency will scream bloody murder. Republicans who vote to eliminate it will be painted as "raising taxes;" ever since Bush I promised not to raise taxes, raised taxes anyway, and then lost the White House, a lot of Republicans have been very afraid of this political attack. So there will always be pressure to avoid closing existing loopholes.
So loopholes are monotonic -- they can only increase over time.
The only way we could conceivably get out of this situation is if our tax code becomes so complex, everyone -- even the beneficiaries of the loopholes -- is angry and upset at the complexity and costs of paying, and decides to support throwing the whole thing out and starting fresh. This scenario probably requires a united government (same party controlling Presidency and both houses) which is willing to make the issue a priority. It's probably not going to happen in this year's election, unless a major event occurs between now and Election Day.
The only way we could conceivably get out of this situation is if our tax code becomes so complex, everyone -- even the beneficiaries of the loopholes -- is angry and upset at the complexity and costs of paying, and decides to support throwing the whole thing out and starting fresh. This scenario probably requires a united government
The last time it happened in 1986, the House was Democratic and the Ways And Means Committee was run by famously corrupt but effective old-time Chicago pol Dan Rostenkowski. The Senate was Republican and liberal West Coast Oregon Republican Bob Packwood was running the Senate Finance Committee. President Ronald Reagan and his tax policy chief Donald Regan were more right wing than the Koch brothers and Michelle Bachmann combined.
Together they pushed through the biggest tax reform in the nation's history.[0]
There was nothing united about US government in 1986. It's hard to imagine a political spectrum as disunited and full of genuine differences today. Nevertheless, Reagan bet his second term policy agenda on tax reform and Rostenkowski arranged an unprecedented public media campaign and put himself on television selling the Reagan idea to the people and his own party. The reform was pushed through with bipartisan support and only oil companies and employee benefits escaped unscathed. All the other pressure groups had to give for the national good.
The difference is not a united government. We had united government in 2003-04 and 2009-10 and it didn't do any good. The difference is leadership. This year we don't have much leadership available in Washington from either party and the challengers in the coming election seem even less likely to offer any.
So don't get your hopes up.
[0] Showdown At Gucci Gulch by Murray and Birnbaum is the classic book about the 1986 reform
The last time it happened in 1986, the House was Democratic and the Ways And Means Committee was run by famously corrupt but effective old-time Chicago pol Dan Rostenkowski. The Senate was Republican and liberal West Coast Oregon Republican Bob Packwood was running the Senate Finance Committee. President Ronald Reagan and his tax policy chief Donald Regan were more right wing than the Koch brothers and Michelle Bachmann combined.
Together they pushed through the biggest tax reform in the nation's history.[0]
There was nothing united about US government in 1986. It's hard to imagine a political spectrum as disunited and full of genuine differences today. Nevertheless, Reagan bet his second term policy agenda on tax reform and Rostenkowski arranged an unprecedented public media campaign and put himself on television selling the Reagan idea to the people and his own party. The reform was pushed through with bipartisan support and only oil companies and employee benefits escaped unscathed. All the other pressure groups had to give for the national good.
The difference is not a united government. We had united government in 2003-04 and 2009-10 and it didn't do any good. The difference is leadership. This year we don't have much leadership available in Washington from either party and the challengers in the coming election seem even less likely to offer any.
So don't get your hopes up.
[0] Showdown At Gucci Gulch by Murray and Birnbaum is the classic book about the 1986 reform
> President Ronald Reagan and his tax policy chief Donald Regan were more right wing than the Koch brothers and Michelle Bachmann combined
I think this is where your memory skews.
By the standards of the time, that is true.
But today? Reagan supported AMNESTY. He supported a tax reform bill that RAISED some taxes. EITC??? That's a means-tested welfare program to try to lift working poor above the poverty line.
I grew up a liberal. I still am, but I'll be honest, my idealism is tested by our tax rate and fiscal ignorance. If you have no kids or mortgage, live in California and make over 100k -- in other words if you're like most software engineers in bay area startups -- you pay an obscene tax rate. And I'd even be OK with that if Sacramento and D.C. were good stewards of our tax dollars. But, of course, they're not.
Still, I have no choice but vote Democratic. I could vote 3rd party and waste my vote. But today's breed of hyper-partisan, non-fact-base Republicans just are not a serious alternative.
I think this is where your memory skews.
By the standards of the time, that is true.
But today? Reagan supported AMNESTY. He supported a tax reform bill that RAISED some taxes. EITC??? That's a means-tested welfare program to try to lift working poor above the poverty line.
I grew up a liberal. I still am, but I'll be honest, my idealism is tested by our tax rate and fiscal ignorance. If you have no kids or mortgage, live in California and make over 100k -- in other words if you're like most software engineers in bay area startups -- you pay an obscene tax rate. And I'd even be OK with that if Sacramento and D.C. were good stewards of our tax dollars. But, of course, they're not.
Still, I have no choice but vote Democratic. I could vote 3rd party and waste my vote. But today's breed of hyper-partisan, non-fact-base Republicans just are not a serious alternative.
"Yesteryear's Republicans were reasonable. It's just this crop that's a bunch of know-nothing radical fascist reactionaries" was said in the 1980's as much as it's said today. It was said in 1994 about Newt Gingrich and Co. just a few years before they worked with President Clinton to reform welfare and balance the budget. "This is not your father's Republican party" was a favorite line of House Minority Leader Dick Gephardt, if I recall correctly.
California taxes pay for California, and SV engineers owe their industry to Californka being California.
I think Bush said "no new taxes" and then raised existing taxes.
This actually supports my point.
I've read in several places that the public perceived it as a broken promise and it's a major reason why he lost to Bill Clinton.
The message Republican politicians took away is: The public doesn't interpret anti-tax promises narrowly; if you make one, you'd better stay the heck away from anything that looks remotely like raising taxes.
I've read in several places that the public perceived it as a broken promise and it's a major reason why he lost to Bill Clinton.
The message Republican politicians took away is: The public doesn't interpret anti-tax promises narrowly; if you make one, you'd better stay the heck away from anything that looks remotely like raising taxes.
Moving around intellectual property rather than than profits is very very old practice for tech companies. Why repatriate profits when you can use them for R&D spending outside the USA, where there may even also be an R&D tax credit!
Moving the intellectual property out of the USA, and then using that to make US sales from anther country is pretty ballsy though.
Moving the intellectual property out of the USA, and then using that to make US sales from anther country is pretty ballsy though.
Every once in a while, a publication will run something like this about major companies [1][2]. It seems to be standard practice among large corporations. As a company, if you are allowed to save large amounts of money by using existing loopholes (read: things that are within the scope of the law), wouldn't you be silly not to?
[1]http://www.businessweek.com/magazine/content/10_44/b42010431...
[2]http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
[Disclaimer: I work for Microsoft]
[1]http://www.businessweek.com/magazine/content/10_44/b42010431...
[2]http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
[Disclaimer: I work for Microsoft]
If you work for a public firm and know that the 'loophole' exists, I wonder if share holders could take action against you if you did NOT utilize it.
On the flip-side, how is it that publicly elected officials are not indicted or held responsible for creating these loopholes after being lobbied and end up costing their shareholders - the public, some real coin. I think of the whole thing as a closed loop ecosystem and somebody has to be losing, if a group of shareholders is gaining.
This is actually a valid question. Surprisingly, in business you can argue your incompetence shields you. The "business judgement rule"[1] says basically you are allowed to make "mistakes". But you're not allowed to be "negligent", act bad faith or whatever.
[1] In the USA, viz: http://en.wikipedia.org/wiki/Business_judgment_rule
[1] In the USA, viz: http://en.wikipedia.org/wiki/Business_judgment_rule
If Microsoft paid taxes unnecessarily, they would be doing a disservice to their stockholders.
Can we get back to discussing topics of a more technical nature? There are a million websites for this sort of useless unresolvable back and forth debate, ranging from Daily Kos to RCP to Human Events, any of which are better suited to this than HN.
I love a good political debate as much as the next person, and enjoy HN for the specific reason that I can avoid this sort of bullshit. And yes, I've read the guidelines and have flagged this.
I love a good political debate as much as the next person, and enjoy HN for the specific reason that I can avoid this sort of bullshit. And yes, I've read the guidelines and have flagged this.
Microsoft should run for president. Isn't this one of the qualifications?