Amazon Decides To Start Paying Tax In the UK 243
Mark Wilson sends word that Amazon will begin paying corporate taxes on profits made in the UK. The company had previously been recording most of its UK sales as being in Luxembourg, which let them avoid the higher taxes in the UK. But at the end of last year, UK regulators decided they were losing too much tax revenue because of this practice, so they began implementing legislation that would impose a 25% tax on corporations routing their profits elsewhere. Amazon is the first large corporation to make the change, and it's expected to put pressure on Google, Microsoft, Apple, and others to do the same.
Misleading headline (Score:5, Insightful)
The UK decided that Amazon will start paying tax in the UK.
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Actually, I think this move has got nothing do with the UK specifically. It's to do with the EU VAT changes that make Luxembourg no longer advantageous to sell from. Those changes came at grievous cost to small businesses but the EU doesn't seem to care.
Anyway. This whole thing is bad news. The UK is currently trying to throw the idea of tax law in the bin by passing stuff like the "General Anti Avoidance Rule", which literally says anything the government doesn't like is illegal (retroactively), i.e. it's
Amazons profits trivial compared to their revenue (Score:5, Insightful)
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Amazon in the US tends to do the investment in R&D. How much does it do in the UK? From the sounds of it not much. It doesn't matter how much R&D it does in the US Amazon UK can't write it off. Maybe there's some way they could "offshore" those expenses and send the money to the US. So if Amazon wants to do project X then they would get Amazon UK to fund it and they could expense it even though the work could be done in the US.
Amazon exerting pressure? Bullshit. (Score:3)
Each company will do exactly the same calculation Amazon has done, and figure out which method of accounting allows them to keep the most money while remaining able to operate in the jurisdictions they care about. If the others come to the same conclusion, it's not because Amazon said so, it's because the numbers and the lawyers said so.
Will this happen elsewhere? (Score:3)
I live in Australia and I would like to see us go down a similar path.
If the UK proves it works I really hope it spreads elsewhere and also leads to the end of the massive profits these companies are amassing. I'm sure there profits will still be quite sizable but this should make it a bit more reasonable. I'm not an economist so correct me if I'm wrong here but it seems many countries are not in the best of financial states at the moment and each of these corporations taking $billions each quarter out of economies without realistically contributing back is a contributing factor in this? If this type of taxing spreads globally it could be a big factor (amongst several others) in getting economies back on track?
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All taxes are ultimately paid by people....maybe shareholders, or employees, or customers, but always people even if via a corporate proxy. For corporate taxes it seems to be employees that pay the most
A much better answer would be to abolish corporate taxes and instead tax dividends through existing income tax systems. It'd get rid of a whole layer of distortion and bureaucracy, increase investment, reduce the destabilizing debt-over-equity preference (if the same tax was applied to debt interest) and it'd
If only Australia would follow suit (Score:2)
If only Australia would do what the UK has done and target tax dodging corporations.
That said, I do wonder if the UK is going to target some of the biggest tax dodgers (Mr Murdoch's media empire is VERY high on the list of global tax cheats yet no government seems to have the guts to go after them)
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VERY high on the list of global tax cheats yet no government seems to have the guts to go after them
What you mean is that you don't like the laws in place, not that the they're breaking a law that's in place. Try to get it straight.
Mixed Result (Score:2, Redundant)
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Its pretty common for people in those countries to complain about price differences. "With the exchange rate, this thing should be 20 pounds! but they charge 25! We're getting ripped off!", not considering the price of doing business in the area.
After you hired people to deal with local laws, local marketing practices and culture, additional taxes and all the red tape...often you don't have a choice but to charge more. Even for digital goods!
Re:just what we all love (Score:5, Insightful)
And personally, I am tired of tax cheats.
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Giving the government more money is like giving booze to an alcoholic.
Re: just what we all love (Score:2)
So who should run the army, police, courts, fix the roads, ensure everyone meets a minimum driving standard, set rules for immigration, charter corporations and all the other things that are required for a functioning developed nation that the private sector wouldn't do?
Re:just what we all love (Score:5, Insightful)
That's not how pricing works, no matter how much people seem to think so. If they could get away with raising prices they already would have. They don't need the incentive of taxes.
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If they could get away with raising prices they already would have
You gloss over the "if they could get away with raising prices" part. The reason they can't get away with it is competition; if Amazon and all of it's competitors have to pay an additional X% of their revenue in taxes there is no competitive pressure to stay at the lower price - prices will go up X%
Of course it depends on when and how the tax is added to what the consumer pays. In most retail you pay a certain price plus the tax. In that case then yes, the price won't change when the tax goes up. On the oth
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Re: just what we all love (Score:2, Informative)
Instead of contriving hypotheticals, why not answer the question? Why doesn't Amazon charge more now?
Re:just what we all love (Score:5, Insightful)
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actually there ARE taxes on sales... it's called VAT and is charged at 20% of the price... Amazon can't avoid the VAT bill
They actually tried to avoid VAT on ebooks in most EU countries by setting up their servers in Luxemburg that had a 3% VAT on ebook sales, compared to e.g. 20% in UK. Other ebook sellers naturally followed Amazons lead, until it became public knowledge, e.g. as described in http://www.theguardian.com/technology/2012/oct/24/amazon-tax-loophole-ebooks [theguardian.com] . The latest development is that VAT on ebooks and similar is paid depending on the location of the consumer, as described in http://www.thebookseller.com/news/ [thebookseller.com]
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Yes that's what this is all about. It's not to do with profits per se (Amazon makes none), it's to do with sales taxes. So absolutely prices will go up.
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Can't you both be right? price changes tend to happen in chunks throughout the supply chain. Your aluminum is $2/kg from the supplier and then one day they tell you it is now $2.25. You suck it up for a while but then when they raise it again to $2.35 you finally say now we need to charge the customer more. That is why everything in Walmart can be *.97, you don't see a whole bunch of 1.36 products etc. prices move (stupid new keyboard is defective p apparently doesn't work with the shift key, nice) because
Re:just what we all love (Score:5, Insightful)
There's nothing immoral about tax avoidance. Tax evasion, maybe.
The law has simply changed such that past avoidance schemes are no longer legal.
I used to feel that way, but I think it's all part and partial of the way that the US is destroying itself, by ending campaign donation limits, making corporations almost people, legalizing hiding who donates to candidates, and the legal way that corporations and rich people give money through lobbyists and get tax breaks that benefit only them. It's wrong. I'm not against big companies, I was fortunate to work at two of the largest software companies in the world, both mentioned up above in this thread. But I do want basic checks on their power. What do you call the use of unchecked power, that hurts the system but might help your own causes, but destroys things otherwise? I call that immoral. It's certainly legal. It's wrong too.
Re:just what we all love (Score:4, Insightful)
Re:just what we all love (Score:5, Insightful)
Uhhhh - yes, there is something immoral about tax avoidance. Virtually all of the schemes used to avoid taxes were lobbied for by corporations, and often enough, bribes changed hands before the immoral laws were passed, making avoidance possible.
Simple loopholes that were never intended to start with might be addressed by representatives, but again, corporations are all over that, handing out bribes to prevent the closure of loopholes.
We didn't get where we are today by accident. The state of international taxes has been intentionally created and nourished by international corporations.
And, this state of affairs is indeed morally reprehensible.
Re:just what we all love (Score:5, Funny)
You know in sports when someone finds some way to gain an advantage that is technically within the rules but clearly against the spirit of the game? People get annoyed because they expect fair play.
What Amazon and many others are doing is legal, but clearly subverts the intention of the law. We need to run tax more like a D&D session, where any rule lawyering can simply be overruled by the DM and if you piss them off too much a dragon steps on you.
Re:just what we all love (Score:5, Insightful)
You are mixing morals with laws. The two do not always match.
It may be legal to funnel taxes out of a country where you make your profits, but I have not yet seen anyone make a convincing argument that it is (morally) right.
A lot of things are legal, but not moral. Lying to your best friend, cheating on your wife, pissing in the pool.
On the other hand, there are things that are moral, but illegal, usually because laws change slowly or don't cover all edge cases. Fortunately, many countries have a permissive judicial system where a judge and/or jury can decide that yes it broke the law, but in this particular case it's (morally) right to let it go unpunished.
They are not the same. Tax evasion is illegal, tax avoidance is at the very least a gray area, and in the extreme way most corporations implement it, certainly not moral.
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Paying more tax than they are legally required to would be negligent, and open them up to lawsuits from their shareholders.
Re: just what we all love (Score:2)
People keep saying this will happen. Have you any examples of this actually happening?
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bribes changed hands before the immoral laws were passed
Please provide specific examples of this illegal activity. Don't you think that prosecutors would like to have your evidence?
... a bribe? No? I see.
Or are you referring to documented campaign donations, just like millions of people and organizations make to support those with whom they align themselves? If you like a candidate or cause that says they're going to do [X] to Teh Eeeeevil Businesses, do you consider providing that candidate with your support as they try to get elected to office
Re:just what we all love (Score:5, Insightful)
Bullshit.
The "loophole" that Amazon has been using is nothing more than the EU single market, in all its glory, exactly as it was intended to be used. The single market was created specifically so companies could set up a headquarters in the EU once, and then sell to the entire trade region without having to register or pay taxes in every single country. This wasn't some clever loophole or corporate scheme, it was constructed, very deliberately and specifically, by politicians that wanted to bring Europe together to avoid another re-run of the World Wars.
When the EU and its predecessors were being set up, governments were all super keen to establish this sort of single market because they saw it as a way to allow their own home-grown champion companies to expand, by selling to people elsewhere on the continent. Paying tax in a single country is fundamental to having a single market, otherwise the paperwork involved with understanding and filling out dozens of tax returns in langauges you don't speak would just be overwhelming. At the time, presumably those politicians didn't care that this meant one day there would be non home-grown companies selling to their people - creating big new companies takes decades and sure enough this "scandal" has only appeared long after the EU was set up and a new generation of companies started moving in.
Regardless, the idea that these companies are grubby scheming tax evaders is pure, unadulterated propaganda. They're doing exactly what they were intended to do - set up a single HQ and sell to everyone from it. The idea that what was once desirable is now immoral is being pushed by the UK media and government to try and distract people from the core fact that there are going to be way, way more cuts and they will be way deeper than anything that's happened up until now. That's not Amazon's fault - the amounts involved are trivial. The fault rests solely on the British people and their leaders.
Re:just what we all love (Score:5, Insightful)
Usually I call that "government"....
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Re: just what we all love (Score:2)
But somehow marketing in all these different languages isn't overwhelming enough to stop them from selling their goods in these countries. And if you're worried about efficiency, let's remember that it would be FAR more efficient to only tax corporations, than to tax EVERY SINGLE CITIZEN.
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Usually I call that "government"....
... I also call it corporation, and come to think of it banks also qualify.
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You're contradicting yourself. Was the single market set up so that national companies could start sellin
Re:just what we all love (Score:5, Insightful)
I am pretty sure that Amazon did not originate in Luxembourg, that they do not have any significant infrastructure in Luxembourg, and certainly most of the products they ship are not made in Luxembourg.
I would not have any problem if their actual warehouses were all in Luxembourg and all shipments departed from there; however, they most certainly do not. It's a good thing to pay taxes from a single country when selling to several, but one must pay taxes where the value is generated, not going around shopping for the lowest rates.
The single market was intended to be used for simplification, not for tax avoidance.
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"I expect a certain return on that investment."
And, what do you deem to be an adequate ROI?
You do realize that millions of investors in this nation do not realize an ROI at all? A Mom and Pop convenience store may not turn a "profit" at all, instead merely supplying Mom and Pop with a stable occupation and a living salary. They "invested" as little as a few thousand dollars, or as much as a half million dollars, and the only real ROI is that they are their own bosses, with a stable job that they enjoy.
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Massive price increases assuming sales didn't decrease would result in much higher profits and thus more tax...
In reality, increased prices will decrease sales unless everyone pushes up their prices.
If taxes on profits are high, then companies will simply find ways to make less profit, which means that instead of keeping revenue as profit they will find additional expenses to spend the money on such as expanding the business or spending more on staff wages etc...
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So why don't they increase prices as it is? Do you think corporations just figure out they are making enough profit and keep rices low out of the goodness of their hearts?
Or do they raise their prices as high as possible without actually loosing profit due to diminished sales?
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They would try to raise the price (not likely possible because, as stated above, if they could get away with a higher asking price, they would have done so on their own, why not rake in more if you can?) but they might go out of business. With a 90% tax, it's actually likely.
The price depends on the sweet spot of making the highest profit. Not any cost outside the cost per unit. A higher fixed cost might lead to discontinued business because cost gets higher than what the possible asking price could pay for
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What are "total sales"? First you'll have to define that.
It's been a long time since I studied business administration, but I remember terms like "net income" and "gross income". Maybe "cumulative net sales". But, "total sales"? Not a meaningful term, among accountants. And, your use of the term makes me question your qualifications to argue your position.
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In a market economy you only can rise prices, if people are willing to pay. Prices in a market economy are determined by the benefit a good may provide to the buyer and the price the seller wants to have. Also it is determined by the production and delivery cost. If one side must pay higher taxes (on its profit or on the price volume, which would have different effects) this only allows for higher prices if the seller is willing to pay more. However, with stagnating income and competitors which are highly i
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The tax raise can be dealt with in several ways or a combination of all:
1) decrease outgoings (cost of raw materials, cost of staff)
2) decrease outgoings (dividends to shareholders)
3) increase incomings (raise prices).
Where there is a monopoly (or similar types of market failure such as oligopoly) most of the tax raise will be dealt with by 3).
If there is a competitive market then the tax raise will fall somewhat on 1) and 2) as well.
This is one reason that breaking up monopolies is so important.
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Yes, prices may go up somewhat.
But if you think about it, at the moment transnational businesses have an unfair tax advantage over national ones.
So companies like Amazon are creating and extending monopolistic positions; not because they're necessarily better companies, but simply because they're able to rig their tax positions; if you don't pay taxes, you can lower prices and take markets that you don't necessarily have any right to.
In other words, tax avoidance of the type they're legislating against is a
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Yes, they do. It's called free trade and is generally seen as very desirable, as it reduces paperwork and leads to countries competing to be better places to do business than their neighbours. That's why countries are always trying to sign free trade deals with each other - freer trade means more trade, and in the long run that leads to people being better off.
The problem the UK has is entirely
Re:just what we all love (Score:4, Insightful)
Free trade is desirable now? My, my... how much koolaid did you drink?
Free trade is only desirable to the stronger economy/ies in the bloc. For example: The Eurozone benefits the already established industrial powers (Germany) while giving no incentive for the smaller countries to set up their own factories. In a free trade agreement, Germany can now dump all of their products in a smaller country and take all of their money. Germany doesn't need to buy anything from them: they already make everything their need - so basically the smaller country is just a raw material supplier, or purely agricultural exporter. The smaller country is now doomed.
This is the real truth about free trade agreements.
So you say: then don't sign the FTA! Sure: now Germany flat out refuses to do business with you (so much for the "free market" spirit). Or they pressure you with debt you already have with them.
No. Free trade agreements are not a solution to anything. They just perpetuate the "xxxx country is an industrial power while yyyy is just a carrots producer" stereotype.
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All costs are always passed on to the end customer. You're not saying anything new here.
SAVINGS, on the other hand, are seldom passed on to the consumer.
In the case of most international companies, they have been saving millions, even billions, in taxes, simply by incorporating some legal fictions into the book keeping. Routing your profits through Luxembourg? Huh, WTF? If you sell products in the UK, you need to pay the appropriate taxes on the products, on the services, on the profits realized in the
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SAVINGS, on the other hand, are seldom passed on to the consumer.
What are you talking about? We've never been in a more competitive environment. You have at your fingertips more information about price and availability and the quality of various retailers' services than ever before in human history. Retailers who don't react to that bright light of consumer comparison shopping lose sales to those that do. It's exactly because Amazon (and Costco, and everyone else) use their well-oiled operations and buying power to keep prices down that brings in long-term, repeat custo
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Taxing a company does not make prices go up. Why would it? If they could raise the price, they already would have done so a long time ago. Higher price means more revenue.
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If they can't raise prices, they'll either see lower profits--which will result in your pension fund making less money--or cut costs. The latter means they'll offer lower wages and less benefits to employees, automate them away, or demand price cuts from suppliers.
Then all the 'EVIL CORPORATIONS SHOULD PAY MORE TAX!' whiners will be complaining that 'EVIL CORPORATIONS ARE CUTTING WAGES AND AUTOMATING JOBS AWAY! WAH! WAH!' because they're completely clueless about the real world.
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Are you on crack? Amazon as a company is famous for not making any profit = sane people dont invest in it, they are also famous for running SWEATSHOP distribution centers.
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That is a completely different issue
This is about the company paying tac on its profits, not about them collecting sales tax (called VAT in the UK) for the governments.
Anyway sales taxes are bad, they discourage people from spending especially in the official economy.
Since Amazon started collecting sales tax on customers in my state I have directed most of my (non=digital) purchases to other retailers, mostly Tigerdirect and Newegg.
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And it is LONG past time for America to tax delivered items.
You mean, increase the taxes on delivered items, right? Because most states already have sales and use taxes, some of them quite high. We'll ignore for the moment those states that have decided they'd rather cover their overhead through things like property taxes or other income taxes, forgoing sales taxes.
If you order a new computer display from an out-of-state vendor, your state's taxes are still owed. Think that just because a business located in some other tax jurisdiction isn't working on behalf of
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It is better to tax profit, as sales taxes induce inflation and reduce the ability of the poor to pay their bills. However, taxing profit has a limiting factor on profit (in size) which is necessary to avoid an increase in the divide between the poor and the rich (the bigger the divide, the bigger the tension in society, which results in violence and disorder).
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Re:To be more precise, Amazon will collect on taxe (Score:4, Informative)
Taxes on profits are different than taxes on products
No, they aren't. You've been told they are, you've been lied to that they are, but they aren't.
I've owned a business for more than 20 years, I assure you that taxes are just another expense, just like the utility bill is. It even goes on the books as an expense.
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Yes, yes, you think that if I made $1 million in profit last year and the government wants 30% of that, that it shouldn't raise prices. You'd be wrong.
The "before tax" profit number doesn't mean anything, it doesn't exist. The "after tax" number is the only one that counts.
So in the above case, I made $700k, period. The $300k of tax is just another expense.
If you raise the tax to 50%, then my income goes to $500k.
Now you may say, "well tough, you'll just have to make due with earning less". Nice, but it doesn't work that way. At $500k, the income may no longer be worth the cost of capital investment and it is time to go do something else.
The problem is, the return on capital applies to everyone. If it doesn't make sense for Walmart to do it, then it won't make sense for Target either.
The basic economic principles don't change based on the company.
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You maximize profit. the amount of tax you pay on profit is irrelevant to the process of maximizing it. Taxes on inputs or sales can affect prices because they also affect your competitions pricing power. Taxes on profits might encourage more re-investment of profits but they don't affect prices unless, for some inexplicable reason, you have decided to make less money that you could.
No, you don't get it.
If I expected to make $1 million return on my $10 million capital investment, then that is the after tax profit I need to make. The before-tax number doesn't matter. It could be $1 million with no tax or $2 million with 50% tax.
If that means I need to make a $5 million before tax profit to make it, then I will. (assuming you put an 80% tax in place)
The only way to do that is raise prices. If I am unable to raise prices that far, then I'll invest the $10 million of capital somewhere
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Re: To be more precise, Amazon will collect on tax (Score:4, Insightful)
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If you can make more profit by rising prices, why haven't you done so already?
"Somewhere else" is taxed too, so it'll do you no good. You'll simply have to settle for a level of profit the market can offer, the same as everyone else. Of course, you could sit on your $10 million and let inflation eat it away.
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You maximize profit. the amount of tax you pay on profit is irrelevant to the process of maximizing it.
Not true. First, it affects debt vs equity decisions (and location decisions). Second, think about decisions on how much to invest. The tax reduces the return on investments in equities, pushing investment in to other locations and types of investment (government debt, say, or property) or reducing it in total. Corporate taxes are thought to reduce growth this way - by reducing the amount of capital and research.
I maximize risk-adjusted net returns (take home) (Score:2)
> You maximize profit. the amount of tax you pay on profit is irrelevant to the process of maximizing it.
No, I maximize my take-home, also called risk-adjusted net returns. Along with any other values you have such as environmental concerns. Gross profit (what is taxed) doesn't matter. What matters is how much ends up in your pocket. Here are some rough numbers from the choice I actually had to make three years ago. I could either:
A) Continue to run a business with the following numbers:
Revenue
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US corporate tax is 35% ...
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If a business could deal with a 10% increase in tax by raising prices to make higher profits than why are those prices not already being charged and those higher profits already being made?
It is a nice bumper sticker that "companies don't pay taxes they collect them" and like so much of bumper sticker
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If a business could deal with a 10% increase in tax by raising prices to make higher profits than why are those prices not already being charged and those higher profits already being made?
Because they have competition, which puts pressure on them to keep prices low enough to attract, rather than repel customers. How is this not obvious to you? Everyone should run a retail business for a year or two so they can learn some basic facts, thus making them a far more constructive person for the rest of their lives.
A change in the tax law impacts every business that operates under that law. The way a business structures its pricing has to take into account cost pressures that impact the entire
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What a load of crap. Not once did you mention the return on investment, so total bullshit or the profitability being generated. Just the nett income. So moron invest $50 and generate $1 million profit and if you had to pay 50% tax on that you would not invest the $50 what a fucking liar.
Oversimplification ... (Score:5, Insightful)
I agree to the extent that lots of taxes are simply passed through to customers. If you didn't, you wouldn't be in business for long. And yes, many of those taxes apply irrespective of company size.
But certainly not all of them. As is: different locations have different cost structures. They apply to different aspects of your business. Given the amount of goods that are transported throughout the country, it should be clear that capital costs (cost of setting up production facilities), labour costs, material costs, energy costs, insurance costs, labour productivity, production efficiency, spillage, waste and theft etc. ensure that you get different cost structures in different places.
As soon as you have that, you get a mix of suppliers in one market with different cost structures. As a result you get different profit margins and different tax burdens for different suppliers, and with it different returns on capital. Transaction costs, various constraints, and uncertainty about future costs limit how easily businesses can set up shop elsewhere.
Having a mix of suppliers with different cost structures and different tax burdens wouldn't be possible if taxes were just another cost.
No. The situation you describe is where you total all costs your business incurs, decide how much profit you'd like to make and add that too, factor in any profit taxes, and then charge whatever results to your customers.
That only works if your customers want whatever it is you're selling at that price and there's no-one around to compete with you.
In other words: a niche business.
What you're saying is that all taxes are, in the end, paid by society as a whole (including businesses), which is correct. And yes, if society wouldn't be paying taxes, it would quite simply pay for everything taxes are spent on in other ways, so ultimately all taxes are an expense.
But the fact remains that taxes on products weigh more heavily on individual consumers and taxes on profits weigh more heavily on "capital".
This is simply because an increase in profits will certainly not result in an increase in wealth for individuals that make up the "labour" part of society. They are very unevenly distributed and tend to go towards those individuals who contributed the "capital" part of the equation. Contrarywise, a decrease in profits will not *immediately and automatically* lead to a decrease in wages (and wealth for the "labour" part of society). In both cases "entrepreneurship" is in the way.
To the extent you're saying there's no difference between taxes on products and taxes on profits, that's an oversimplification.
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This is simply because an increase in profits will certainly not result in an increase in wealth for individuals that make up the "labour" part of society
Which is exactly why your average worker with a retirement plan investing in mutual funds and other investments might want to wake up and realize that they, too, own parts of large profit-making companies - and they, too, will have the return on those investments impacted by the taxes the invested-in companies bear.
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Of course, you can take the whole "taxes are another expense" too far. I know somebody who tried putting his previous VAT return into his purchase ledger - effectively trying to claim the VAT back on the VAT he paid out to HMRC. It wasn't done on purpose - he was just an idiot.
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You might have a small personal business in that case both taxes reduce your profit and that is what you see and that determines your thought. However, you are wrong. Sales tax applies to the volume of sales and your profit margin on every product has no effect on what you have to pay. You have to pay for the volume. Tax on profits apply to the profit. Therefore, it does not concern if you sell one coffee (with production cost $0.30) for $100.30 or 100 for $1.30, your profit would be in both case $100 dolla
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Taxes on profits affect quite a few bad things, but mostly not related to prices.
First, they reduce wage payments (75% of the amount of tax changes paid for that way according to http://www.sbs.ox.ac.uk/ideas-... [ox.ac.uk] but estimates vary).
Second, they reduce investment (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263560/4069_CT_Dynamic_effects_paper_20130312_IW_v2.pdf guesses at a 2.5-4.5% change from the 28% to 20% reduction in the UK - and about £500 more per household per ye
Re:To be more precise, Amazon will collect on taxe (Score:4, Insightful)
That assumes that the business can raise prices without consequence, which is an invalid assumption. Amazon has to account for what consumers will do if faced with higher prices through Amazon, and what the effect of that will be on revenues. There's also the behavior of competitors to consider, as Amazon's prices go up it encourages other companies run by people willing to accept lower profits to step in and take Amazon's business away.
You also have to account for the fact that raising prices to cover taxes is a no-win proposition. Taxes are a percentage of profits, and are not deductible from revenue when calculating profits. So if Amazon raises their prices (and, assuming no change in consumer behavior, their revenue) by 10%, they also increase the amount of taxes they owe by 10%. So now they have to raise their prices again to cover the additional tax, lather rinse repeat. Consumers tend to get fed up with this cycle and vote in politicians willing to increase the tax rates as profits go up, which leaves companies facing a choice between accepting the taxes and somewhat lower profits or closing down and accepting zero profit.
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Consumers tend to get fed up with this cycle and vote in politicians willing to increase the tax rates as profits go up, which leaves companies facing a choice between accepting the taxes and somewhat lower profits or closing down and accepting zero profit.
Try this mental exercise...
Raise the tax rate to 75% of the corporate profit and see what happens...
Amazon is a publicly traded company, there are expectations of return on capital that it needs to take into consideration.
Now granted, as a dot-com company, it has skirted those for awhile, but that won't last forever. Extend that to more traditional businesses and you'll find that there is a floor to the level of return on investment that investors are willing to accept.
You assume there will always be someo
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Companies will reinvest revenue rather than pay it out as dividends. Also, stock prices fall as future expected dividends are cut by 75%, and then rise again as said reinvestment makes economy grow faster.
Actually, this could be just the stimulus economy needs...
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That assumes that the business can raise prices without consequence, which is an invalid assumption.
Potentially, but not inherently so. You assume - invalidly - that the consequences do not and cannot change regardless of the conditions.
Re:To be more precise, Amazon will collect on taxe (Score:5, Insightful)
That assumes that the business can raise prices without consequence, which is an invalid assumption.
Only if the competition can avoid the taxes. If all of the players in the market get hit with the same taxes, then all of them absolutely can and will raise prices, and there will be no consequences.
Taxes are a percentage of profits, and are not deductible from revenue when calculating profits. So if Amazon raises their prices (and, assuming no change in consumer behavior, their revenue) by 10%, they also increase the amount of taxes they owe by 10%. So now they have to raise their prices again to cover the additional tax, lather rinse repeat.
This is a standard financial calculation, and a trivial one. The tax is 10%, so the increase is 10%, but there's 10% tax on that, so 1%, meaning the increase needs to be 11%, continue ad infinitum (literally). In other words, the new price needs to be 11.1111...% higher than the old one to keep profit margins unchanged. More generally, the increase needs to be the sum of the infinite series with terms r^n. This series is convergent if r < 1, and converges to 1/(1-r). So for a 25% tax, the company needs to increase prices by 1-1/(1-.25) = 33.333...% to keep profit margins unchanged after accounting for the new tax.
Of course, it doesn't quite happen like that. In practice, companies don't instantly raise prices. They do take the hit for a while, where it gets absorbed by the investors, not the customers. Then they allocate a portion of the losses to employees, in the form of reduced raises, or benefits. Then they raise prices. But eventually they get back to a steady state of roughly the same return on assets that they had before the tax hike.
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Unless, of course, one competitor says "Hey, I'm making a 20% profit margin currently. If I let that slip to 18% I can absorb the tax, keep my prices the same while my competition increases theirs, and gain 10% more sales as people go for my lower prices.". Certain investors, particularly the ones who don't want the business to succeed, will undoubtedly complain, but by the time they manage to wrangle the board into doing anything the first new sales and profit numbers will probably be in and most investors
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Market size not fixed (Score:2)
Only if the competition can avoid the taxes. If all of the players in the market get hit with the same taxes, then all of them absolutely can and will raise prices, and there will be no consequences.
You are making an assumption here that the size of the market is fixed which is not true. The problem businesses are trying to solve is to maximize their profit. If raising their prices by 10% to cover the tax on the profit from that product means that they sell 20% less of the product they would be stupid if they did that.
This can happen independent of competitors. For example if Amazon increases the cost of its ebooks people might just read less or use the library more. This could happen even if every
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No sane tax system would consume all additional profit. In fact if Amazon's profits went up by 10% they would pay about 2% more tax, if that.
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Politicians make sure stupid people don't understand. There isn't much they can do to take away understanding from people who have brains.
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The problem is not that taxes are collected but that some people who collect it seek to keep what they've collected and not pass it on.
The system only works if we all pay our taxes and they get spent on services or employing people who then spend their wages on stuff, which gets taxed... etc etc. Its this circular aspect of keeping money flowing that makes the economy work, when some people or corporations seek to subvert that for their own selfishness, we all suffer.
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Just because it's a standard practice doesn't mean it isn't vile behavior. Passing the tax buck along is one of the worst corporate offenses.
You are proof of the poster's point...
If you actually believe that, then you've been hoodwinked by the politicians...
The OP is right, you're wrong. Corporations don't pay taxes, people do, and Citizens United aside, corporations aren't people.
A company has to make a profit to stay in business. Every dollar they pay, be it to the utility company to keep the lights on or the government in the form of taxes, is just an expense.
They must have total income after expenses that is a positive number. It really i
Re:To be more precise, Amazon will collect on taxe (Score:5, Insightful)
Specifically, all corporate taxes paid come from three categories of individuals: consumers, who pay higher prices for items to cover the taxes; employees, who make lower wages to cover the taxes; and shareholders, who earn lower returns (and note that the two former categories are often also shareholders, via their pension plans). Suppliers can also lose, but they're generally corporations as well, with their own employees and investors who actually eat the loss. In the long run, though, the investors don't lose because capital flows away from lower returns and towards higher ones. So companies must find ways to keep their returns up to somewhere near the mean rate of return.
Once you understand that no taxes are paid by corporations, ever, then you should also recognize that corporate taxes are not only ultimately paid by individuals, but the individuals almost never realize they're paying it. How many people know their prices would be lower, wages higher, or pension more secure, if it weren't for corporate taxes? And, therefore, how many voters have any interest in opposing corporate taxation? To politicians and voters, corporate taxes look almost like free money. Ratchet up the corporate taxes and no people get hurt, just those nasty corporations. (Actually, politicians sometimes get even more value out of threatening corporate taxes than enacting them, since it tends to encourage said corporations to buy off, er, donate to their re-election funds.)
I assert that while taxes are necessary, the electorate should see and understand exactly what they're paying, so they can evaluate the value they're receiving for the money they're paying. Hidden taxes are evil, and therefore corporate taxes are evil, and should be abolished, not raised.
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If corporations didn't pay tax, the burden of tax would move further onto the wage earners as opposed to the owners of capital. This also means that corporations will grow even bigger than they already do and become even more uncontrollable than they have already become - see To Big To Fail banks, etc. As to people not seeing that they are paying the company taxes (tax transparency), More assets would end up being owned by corporations (as they will be able to bid up prices) and only indirectly by people
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That's just so much meaningless gibberish with misleading conclusions.
Specifically, all corporate taxes paid come from three categories of individuals: consumers, who pay higher prices for items to cover the taxes; employees, who make lower wages to cover the taxes; and shareholders, who earn lower returns (and note that the two former categories are often also shareholders, via their pension plans). Suppliers can also lose, but they're generally corporations as well, with their own employees and investors who actually eat the loss.
Corporate taxes come from one category of individual: those involved with a corporation. This means shareholders. Employees might pay a portion of it, but only if they won't be hired by non-corporations. Consumers might pay a portion of it, but only if there is no competition from non-corporations.
In the long run, though, the investors don't lose because capital flows away from lower returns and towards higher ones. So companies must find ways to keep their returns up to somewhere near the mean rate of return.
A corporate tax lowers the mean rate of return for corporations. Investors could switch to non-corporate investments, but they already have mon
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Don't forget that the money being taxed through the corporation often comes from elsewhere. In the case of Google and other multi-nationals the money can be coming from other countries so it essentially can be like free money to the people of the host country for the corporation because the net tax rate (corporate plus income) can be lower because of the money flowing in from outside the country.
Of course that means the reverse can also be true and money can be flowing out of the country because few corpora
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Do you think businesses print money? They have to take in more than the cost of doing business is. How is this possible if it is not achieved by passing the costs along to the customers? There is nothing vile about it. It's simple economics.
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So if they can introduce a 25% penalty tax for companies deemed not to be paying enough tax, why the hell can't they fix the rules that these companies are using to avoid paying the existing tax?
Because they're based on international agreements on where taxes should be paid. If a US company sells products to customers in Britain, why should they have to pay tax in Britain? Do you really want to have to pay tax on sales in Fukbutistan because you sold a few things to someone there over the Internet?
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The problem is that Americans and by extension American companies (corporations are people in the US) have to pay taxes in America regardless of where they make their income and already paid local taxes. That's one of the many legal reasons Microsoft/Amazon etc have UK and others separately incorporated.
Now any American corporation will have to pay the 25% profit routing tax and American taxes. It is a form of protectionism.