The Rich Looking After The Rich

[manshimajin]

The money grabbing by some of the governments is immoral, take the US for example which attempts to foreign profits. What have they got to do with the US? Or the recent Vodafone case, the UK taxman after capital gains tax on the sale of an Indian subsidiary.

 

Is this the Vodafone case you refer to?

 

Vodafone bought a 67 per cent stake in Hutchison Essar, now known as Vodafone Essar, from Hutchison of Hong Kong in 2007. The transaction was made via a Dutch company controlled by Vodafone that paid $11bn to a Cayman Islands entity run by Hutchison Whampoa, the seller, for another Cayman Islands group that indirectly held a controlling stake in the India-based mobile operator.

 

Vodafone is expected to appeal against the verdict to India’s highest judicial body, the Supreme Court in New Delhi, as it argues the transaction should not be taxable in India because it took place overseas.

 

The court ruled that the deal should have been subject to Indian capital gains tax because the operating assets of Hutchison Essar were in India.

 

I gather that is an ongoing case. A law firm's dream.

[pongo]

The money grabbing by some of the governments is immoral, take the US for example which attempts to foreign profits.

 

Yes but US companies get tax credits against taxes paid already paid in the countries where they are doing business.

 

As for this being immoral - well is it really any different from the way in which the USA taxes individuals on their total world income ? Doesn't the IOM do the same for individuals ?

[manshimajin]

Doesn't the IOM do the same for individuals ?

Yes.

[Chinahand]

The issue with US and taxes is that it taxes Americans on their world wide income no matter where they are resident - a Yank goes to live in London or Bermuda, they still have to file and pay their US taxes - unless there is a tax sharing agreement, where they just pay any balance if the taxes in the country they are resident are less than US taxes.

 

This is nothing like the situation with Manx taxes. If a manx person becomes resident somewhere else they don't pay manx taxes but only the taxes due in the country they are resident in.

[pongo]

The issue with US and taxes is that it taxes Americans on their world wide income no matter where they are resident - a Yank goes to live in London or Bermuda, they still have to file and pay their US taxes - unless there is a tax sharing agreement, where they just pay any balance if the taxes in the country they are resident are less than US taxes.

 

This is nothing like the situation with Manx taxes. If a manx person becomes resident somewhere else they don't pay manx taxes but only the taxes due in the country they are resident in.

 

But this is not about non resident companies or individuals. So in this context it seems to be roughly the same.

 

Non residents is a different issue again - but is there such a thing as Manx citizenship on which to base that comparison ?

[Chinahand]

In some ways it is about residency - residency of patents. Intellectual property is moved to a low tax environments and other locations have to pay for the use of that technology - so costs increase in high tax areas and income accrues in low tax areas.

 

People, companies and ideas are footloose and tend to move to where they can maximise their potential. Governments will always be one step behind human innovation and always trying to hold it back so it can get it's pennies worth!

[manshimajin]

This is nothing like the situation with Manx taxes. If a manx person becomes resident somewhere else they don't pay manx taxes but only the taxes due in the country they are resident in.

But if someone from another country comes to live here the Manx Government tax them on worldwide income - certainly with any tax paid elsewhere offset against Manx tax (as a claim back).

 

I still think Gladys has a good point about a simpler system. When you have a business in India being operated indirectly through a Cayman Island company owned by another Cayman Island company being purchased through a Cayman Island company that is owned by a business in the Netherlands which is owned by a company in the UK you have to wonder whether this is really an ethical way to do business or whether it it is structured that way to avoid tax liabilities in the country where the operation generates its money.

[Gladys]

Right behind you on this too Manshimajin. Very often you see tax saving schemes that, because of their complexity, are very costly and risky. Risky, not from a tax point of view but simply from the angle of monitoring, managing and enforcing rights against third parties in a labyrinthine scheme. Simplistically, most offshore structures are about distancing the originator from the asset, let's say in this example an IPR. So it is assigned into an offshore structure that somehow, eventually allows it be be used by the originator, probably through a licensing arrangement. But to protect the IPR the originator is vulnerable to all links through that chain understanding the IPR, not being in conflict to enforce it and, indeed, willing and having the grounds or standing to enforce it.

[La_Dolce_Vita]

People, companies and ideas are footloose and tend to move to where they can maximise their potential. Governments will always be one step behind human innovation and always trying to hold it back so it can get it's pennies worth!

Interesting that you say this. You seem to be arguing that slowing down the pace of innovation is a bad thing or not such a good thing even in recognition of the taxes that are levied on companies.

 

I would be very interested to understand your politics in respect of whether you believe companies SHOULD be charged corporation tax.

 

I don't really see the matter of companies (or person's) a simply matter of human innovation. It is simply the understandable result of entities trying their hardest to increase profits and wealth. Different nations with different taxation systems (that are often in flux) exist so such a process is natural.

[manshimajin]

In some ways it is about residency - residency of patents. Intellectual property is moved to a low tax environments and other locations have to pay for the use of that technology - so costs increase in high tax areas and income accrues in low tax areas.

 

People, companies and ideas are footloose and tend to move to where they can maximise their potential. Governments will always be one step behind human innovation and always trying to hold it back so it can get it's pennies worth!

I suspect that there are two seperate issues here Chinahand.

 

One thing is that businesses will chase after lower cost structures and environments that encourage and celebrate innovation. The other is rather different - that is companies creating what Gladys elegantly describes as labrynthine tax schemes to limit their chances of having to pay tax where they do business.

 

The former has been going on for generations. It happened for example with the movement of manufacturing into the UK in the 19th century and the movement of manufacturing out of the UK that began in earnest in the mid 20th century. But this was not driven by low tax but by access to labour, low wage and operating costs. Also the centre of gravity for innovation has rebalanced in my lifetime with it growing once again in Asia where it used to be strong (Joseph Needham is fascinating about this).

 

I am not sure that Governments actively hold back innovation to get their pennies worth. I suspect that innovation requires governments to think longer term, strategically, which they are not good at. Maybe the central government structures within the EU will become better at this than national governments as they are not pressured by so many day to day issues and can afford to think about the 'big picture'. It will be interesting to see if this does develop.

[La_Dolce_Vita]

I am not sure that Governments actively hold back innovation to get their pennies worth. I suspect that innovation requires governments to think longer term, strategically, which they are not good at.

Are they not? History seems to indicate that they are pretty good at planning long-term. Maybe I misunderstand what you mean by 'thinking', because in terms of operating, it is my understanding that companies are potentially and actually not as good at long-term planning.

[manshimajin]

I am not sure that Governments actively hold back innovation to get their pennies worth. I suspect that innovation requires governments to think longer term, strategically, which they are not good at.

Are they not? History seems to indicate that they are pretty good at planning long-term. Maybe I misunderstand what you mean by 'thinking', because in terms of operating, it is my understanding that companies are potentially and actually not as good at long-term planning.

I am not at all sure that governments are good at long term planning in the area of encouraging innovation. What are the historic examples you are thinking of? They certainly by necessity have to plan in certain areas with long lead times but do they encourage innovation in these areas? IMO they very often assume that the future will be like the present but possibly on a different scale due to demographics.

[Bombay Bad Boy]

Or a company with its corporate HQ in Mountain View, California, that trades through Ireland, the Netherlands, and Bermuda, to minimise its tax liability. Nothing evil there.

[La_Dolce_Vita]

I wasn't responding directly to the issue of innovation, only that governments through government ran industries and or state ran economies can think and plan strategies in the long-term.

The Soviet Union would not have got to where it was from the 20s to the 60s without long term planning requiring massive planning. But of course its decline and demise is partly testament to its inability to provide needs and want. And then you have operations of the government owned British government that did develop slowly since the Second World War whereas privately controlled industries invested little in research and development.

 

In respect of innovation or development, I would suppose it depends on what is being produced and how the state is structured.

But I think it is false to claim that non-government companies are necessarily better.