I think that this companies vs government/taxation idea is extremely unhealthy. Companies should do what is right within the spirit of the law and community, not just what is best for them.
The only solution that won't be fought against is for government to be funded without asking for money. People have an inherent dislike towards paying for things they don't see an immediate personal benefit from. It doesn't matter if they got an education out of it, waste treatment, transport/communications infrastructure, people take all that for granted now.
The problem is how to remove the supply that goes to pay the government from the private sector in order to avoid too much inflation. Say for example they worked out the US GDP at $17 trillion for 2013 and decided to fund the government at a fixed rate of that e.g 20% = $3.4 trillion. They just create that extra money supply like they did for quantitative easing. Then they just have to take that amount out of the private sector. If they fail to take it out, inflation happens and so it's in the best interests of tax payers for this not to fail. But, the tax can be taken through the banks via transaction fees. Every time a payment is made in a business deal (not individual to individual), the bank adds a small fee like Paypal or credit cards. This fee doesn't have to be anywhere near 20% because it's for every transaction and these fees repay the government's debt taken from the central banks.
What this means is that the government can eliminate all forms of explicit taxation - no income tax, no sales tax, no tax return forms either and no tax authority, just compliance officers for the banks (or money handler) - there's more freedom to do business without tracking every sale. Some people still use cash but it's going to all-digital:
What would be really helpful is if the government could eliminate physical cash entirely. To do this, they can make physical cards/wallets that have hardware identifiers along with digital cash that is just a set of sequential identifiers. The cards would have a balance display on them and can be pin protected. This can be integrated into phones. If you get on public transport, you can just bluetooth the transaction from the digital card so no need to have the correct change ever again. These cards can have a maximum capacity (e.g $250) to lower the risk of theft but still pin protected anyway. The tricky part is tracking the cash without a network but there will be a way to do it with some encryption scheme. If someone hacks it, their card identifiers will be flagged during a regular online scan of coin ids and they'll be tracked down quickly. We are on the verge of having ubiquitous networks anyway and basic GPRS is all that's required.
With no income tax or sales tax, it would increase disposable income so there would be more transactions made. We brush off 2.5% card fees so as long as there was a high enough volume of transactions (it would also apply to things like rent/mortgage payments, which helps), it would make up the 20% and like I say, the downside to not making enough is inflation. This inflationary value would also act as a regulator on how large the percentage of GDP should be allocated to the government.
a collective government clampdown with regard tax is going to become necessary, and will probably need to be excessively harsh to curb this kind of behaviour.
And the brunt of that is felt by the people at the bottom, which is the case now. That's why I think that small business owners would side with the large companies but it's because of the effectiveness of the avoidance at the top that it forces tax authorities to be harsh with everyone. $1b avoided at the top means having to chase the thousands owed by the hundreds of thousands of people at the bottom to make up the deficit.
Then my question to you would be where do you believe Apple should pay the taxes due on it's profits for products sold to Australian and European customers? " No where" wouldn't seem to be an acceptable answer as that would imply you and other individual taxpayers are OK with covering for their shortfall yourself. Simply because something is not illegal doesn't make it right does it?
That's a soft-pitch question. The easy answer is that Australian profits should be taxed in Australia and that profits earned in the various countries should be taxed in those countries.
The hard question is to determine what is the "profit" earned in the various countries. Unfortunately I have no good answer for that. I know that "retail price less cost of product ex-China" is NOT the right answer, although it is a part of the answer. On top of that base cost must be added costs of developing the hardware and software, software maintenance, ongoing services (iCloud is not "free"), warranty/guarantee and many others. That will give you a cost-of-product into Australia, Germany, France etc. Some of these may be in-country costs - for example the warranty costs may be split between the specific country and Apple Ireland and/or U.S. Once you have a cost-of-product and then additional cost-of-sales you can start to work out a number for "profit". That is - what is the value added by the Australian/German/French operation over the total price of the incoming product, less expenses to make the sale. Australia does not get to claim as profit the difference between total sales ($26.7 billion) and cost (manufacturing cost $15.5 b + operating cost $2.1 b).
AFR goes on at length about "profits that escaped from Australian tax" but this is just click-bait. Apple Ireland (the "ASI" in AFR's charts) has a very healthy margin on the products it sells to Apple Australia. The fact that Irish law does a poor job of tax collection is Ireland's problem, not Australia's.
One might well wonder, as I do, if ASI's price to Australia is unduly inflated. Maybe, but then the AFR original article includes this ...
"There is no suggestion by the Financial Review that this arrangement is anything but proper within Australian tax laws." and
"Apple’s transfer pricing method since 2001 had been formally confirmed and agreed by the Australian Tax Office under an Advanced Pricing Agreement." So I guess AFR and ATO just agree to disagree.
The essence of the "Irish problem" is here, again from the original AFR piece ...
" Apple Sales International and its parent, Apple Operations International, pay no tax in Ireland, according to Irish law, because they are managed and controlled in California. They pay no US tax either because US law disregards where a company is managed and only looks at where a company is legally registered."
So it seems to me that Apple is paying the taxes due on its Australian operations. And at the same time is being creative about minimizing tax paid by the Irish holding companies. And AFR gets lots of clicks, and politicians get to grandstand in Canberra ...
You seem to have missed the point that altho Apple Sales International is headquartered in Ireland and thus should be paying their tax obligations to Ireland according to you, they are not. In fact they're paying them to no one at the moment.
Apple are paying the correct amount of tax in Ireland under Irish law.
Ireland has the sovereign right to set tax laws as they see fit.
So Mr expert in all things Google, how will clamping down on Apple affect Google's bottom line, given that they use exactly the same method to avoid tax?
Then my question to you would be where do you believe Apple should pay the taxes due on it's profits for products sold to Australian and European customers? " No where" wouldn't seem to be an acceptable answer as that would imply you and other individual taxpayers are OK with covering for their shortfall yourself. Simply because something is not illegal doesn't make it right does it?
I think the ethical and probably acceptable option would for Apple Ireland to "sell" products to Apple Australia at prices to result in a reasonable (re-sale) profit for Apple Australia...that way, Apple Australia would pay more in corporate taxes to Australian gov't.
As it is now, I believe Apple Ireland sells products to Apple Australia at an inflated price?
There is no part of free market trading that prevents a monopoly on the supply of goods. Just look at Comcast/Time Warner Cable. You can't say it's not the free market just because it fails. Food and consumer electronics have enough diversity that there's enough competition. This isn't the case with everything. If someone takes control or ownership of a supply of a limited resource like drugs or oil then there is no possibility for competition and that's when people run to the government to break up the monopoly. If there's a lot of competition, profits are driven down to unsustainable levels and it prevents new competitors. This is what happened with ebooks. Competitors in the free market never try to encourage competition, they try everything they can to prevent it with patents/trademarks/copyrights, buying up smaller rivals, undercutting prices and so on. If this was completely unregulated, we'd end up with a handful of companies controlling everything.
I don't think all monopolies are necessarily bad. You pointed out that, even with no competitors left in ebooks, Amazon was still forced to keep the price down, to prevent new entrants. Eliminating all your competitors is not the same as eliminating the threat of competition.
There's also market size to consider. I'm sure once upon a time there were many companies making horse buggies but they were slowly displaced by cars. Nowadays they are a specialty item for giving tourists a ride through the park, and with such a low level of demand, one company might be the right number.
And then there's technological change. This is my personal favourite monopoly buster. For example oil itself was a monopoly buster (of Whale Oil). And in my lifetime I have seen the Microsoft monopoly caught flat footed by the tablet computer.
And there is also people power. Even if you have a government that is against monopoly busting, that doesn't stop the people themselves simply boycotting any company that behaves immorally in some way. A good example of people power effecting the fate of a company happened here in Australia last week (though of the opposite kind). A 100 year old well-liked fruit cannery was going to go out of business, and asked the government for $25m assistance. The current administration does not believe in corporate welfare and said "No." So people got together on social media and got behind the company and, seeing how well liked the brand was, a national supermarket chain gave the fruit company a 5-year $70m contract to sell their fruit in their stores.
So yeah, my answer to a Ministry of Monopoly Smashing is that not all monopolies are necessarily bad, and sometimes they even make sense, and when they don't there's always people power, or failing that new tech usually gets them eventually.
I don't think all monopolies are necessarily bad. You pointed out that, even with no competitors left in ebooks, Amazon was still forced to keep the price down, to prevent new entrants. Eliminating all your competitors is not the same as eliminating the threat of competition.
There's also market size to consider. I'm sure once upon a time there were many companies making horse buggies but they were slowly displaced by cars. Nowadays they are a specialty item for giving tourists a ride through the park, and with such a low level of demand, one company might be the right number.
And then there's technological change. This is my personal favourite monopoly buster. For example oil itself was a monopoly buster (of Whale Oil). And in my lifetime I have seen the Microsoft monopoly caught flat footed by the tablet computer.
And there is also people power. Even if you have a government that is against monopoly busting, that doesn't stop the people themselves simply boycotting any company that behaves immorally in some way. A good example of people power effecting the fate of a company happened here in Australia last week (though of the opposite kind). A 100 year old well-liked fruit cannery was going to go out of business, and asked the government for $25m assistance. The current administration does not believe in corporate welfare and said "No." So people got together on social media and got behind the company and, seeing how well liked the brand was, a national supermarket chain gave the fruit company a 5-year $70m contract to sell their fruit in their stores.
So yeah, my answer to a Ministry of Monopoly Smashing is that not all monopolies are necessarily bad, and sometimes they even make sense, and when they don't there's always people power, or failing that new tech usually gets them eventually.
It is sad that Ford, Holden and Toyota are leaving (I wouldn't say Qantas yet). But it's been on the cards for ages, and I don't really want my taxes going to companies.
Comments
The only solution that won't be fought against is for government to be funded without asking for money. People have an inherent dislike towards paying for things they don't see an immediate personal benefit from. It doesn't matter if they got an education out of it, waste treatment, transport/communications infrastructure, people take all that for granted now.
The problem is how to remove the supply that goes to pay the government from the private sector in order to avoid too much inflation. Say for example they worked out the US GDP at $17 trillion for 2013 and decided to fund the government at a fixed rate of that e.g 20% = $3.4 trillion. They just create that extra money supply like they did for quantitative easing. Then they just have to take that amount out of the private sector. If they fail to take it out, inflation happens and so it's in the best interests of tax payers for this not to fail. But, the tax can be taken through the banks via transaction fees. Every time a payment is made in a business deal (not individual to individual), the bank adds a small fee like Paypal or credit cards. This fee doesn't have to be anywhere near 20% because it's for every transaction and these fees repay the government's debt taken from the central banks.
What this means is that the government can eliminate all forms of explicit taxation - no income tax, no sales tax, no tax return forms either and no tax authority, just compliance officers for the banks (or money handler) - there's more freedom to do business without tracking every sale. Some people still use cash but it's going to all-digital:
http://www.mastercardadvisors.com/cashlessjourney/
What would be really helpful is if the government could eliminate physical cash entirely. To do this, they can make physical cards/wallets that have hardware identifiers along with digital cash that is just a set of sequential identifiers. The cards would have a balance display on them and can be pin protected. This can be integrated into phones. If you get on public transport, you can just bluetooth the transaction from the digital card so no need to have the correct change ever again. These cards can have a maximum capacity (e.g $250) to lower the risk of theft but still pin protected anyway. The tricky part is tracking the cash without a network but there will be a way to do it with some encryption scheme. If someone hacks it, their card identifiers will be flagged during a regular online scan of coin ids and they'll be tracked down quickly. We are on the verge of having ubiquitous networks anyway and basic GPRS is all that's required.
With no income tax or sales tax, it would increase disposable income so there would be more transactions made. We brush off 2.5% card fees so as long as there was a high enough volume of transactions (it would also apply to things like rent/mortgage payments, which helps), it would make up the 20% and like I say, the downside to not making enough is inflation. This inflationary value would also act as a regulator on how large the percentage of GDP should be allocated to the government.
And the brunt of that is felt by the people at the bottom, which is the case now. That's why I think that small business owners would side with the large companies but it's because of the effectiveness of the avoidance at the top that it forces tax authorities to be harsh with everyone. $1b avoided at the top means having to chase the thousands owed by the hundreds of thousands of people at the bottom to make up the deficit.
Then my question to you would be where do you believe Apple should pay the taxes due on it's profits for products sold to Australian and European customers? " No where" wouldn't seem to be an acceptable answer as that would imply you and other individual taxpayers are OK with covering for their shortfall yourself. Simply because something is not illegal doesn't make it right does it?
That's a soft-pitch question. The easy answer is that Australian profits should be taxed in Australia and that profits earned in the various countries should be taxed in those countries.
The hard question is to determine what is the "profit" earned in the various countries. Unfortunately I have no good answer for that. I know that "retail price less cost of product ex-China" is NOT the right answer, although it is a part of the answer. On top of that base cost must be added costs of developing the hardware and software, software maintenance, ongoing services (iCloud is not "free"), warranty/guarantee and many others. That will give you a cost-of-product into Australia, Germany, France etc. Some of these may be in-country costs - for example the warranty costs may be split between the specific country and Apple Ireland and/or U.S. Once you have a cost-of-product and then additional cost-of-sales you can start to work out a number for "profit". That is - what is the value added by the Australian/German/French operation over the total price of the incoming product, less expenses to make the sale. Australia does not get to claim as profit the difference between total sales ($26.7 billion) and cost (manufacturing cost $15.5 b + operating cost $2.1 b).
AFR goes on at length about "profits that escaped from Australian tax" but this is just click-bait. Apple Ireland (the "ASI" in AFR's charts) has a very healthy margin on the products it sells to Apple Australia. The fact that Irish law does a poor job of tax collection is Ireland's problem, not Australia's.
One might well wonder, as I do, if ASI's price to Australia is unduly inflated. Maybe, but then the AFR original article includes this ...
"There is no suggestion by the Financial Review that this arrangement is anything but proper within Australian tax laws." and
"Apple’s transfer pricing method since 2001 had been formally confirmed and agreed by the Australian Tax Office under an Advanced Pricing Agreement." So I guess AFR and ATO just agree to disagree.
The essence of the "Irish problem" is here, again from the original AFR piece ...
" Apple Sales International and its parent, Apple Operations International, pay no tax in Ireland, according to Irish law, because they are managed and controlled in California. They pay no US tax either because US law disregards where a company is managed and only looks at where a company is legally registered."
So it seems to me that Apple is paying the taxes due on its Australian operations. And at the same time is being creative about minimizing tax paid by the Irish holding companies. And AFR gets lots of clicks, and politicians get to grandstand in Canberra ...
Apple are paying the correct amount of tax in Ireland under Irish law.
Ireland has the sovereign right to set tax laws as they see fit.
So Mr expert in all things Google, how will clamping down on Apple affect Google's bottom line, given that they use exactly the same method to avoid tax?
Then my question to you would be where do you believe Apple should pay the taxes due on it's profits for products sold to Australian and European customers? " No where" wouldn't seem to be an acceptable answer as that would imply you and other individual taxpayers are OK with covering for their shortfall yourself. Simply because something is not illegal doesn't make it right does it?
I think the ethical and probably acceptable option would for Apple Ireland to "sell" products to Apple Australia at prices to result in a reasonable (re-sale) profit for Apple Australia...that way, Apple Australia would pay more in corporate taxes to Australian gov't.
As it is now, I believe Apple Ireland sells products to Apple Australia at an inflated price?
There is no part of free market trading that prevents a monopoly on the supply of goods. Just look at Comcast/Time Warner Cable. You can't say it's not the free market just because it fails. Food and consumer electronics have enough diversity that there's enough competition. This isn't the case with everything. If someone takes control or ownership of a supply of a limited resource like drugs or oil then there is no possibility for competition and that's when people run to the government to break up the monopoly. If there's a lot of competition, profits are driven down to unsustainable levels and it prevents new competitors. This is what happened with ebooks. Competitors in the free market never try to encourage competition, they try everything they can to prevent it with patents/trademarks/copyrights, buying up smaller rivals, undercutting prices and so on. If this was completely unregulated, we'd end up with a handful of companies controlling everything.
I don't think all monopolies are necessarily bad. You pointed out that, even with no competitors left in ebooks, Amazon was still forced to keep the price down, to prevent new entrants. Eliminating all your competitors is not the same as eliminating the threat of competition.
There's also market size to consider. I'm sure once upon a time there were many companies making horse buggies but they were slowly displaced by cars. Nowadays they are a specialty item for giving tourists a ride through the park, and with such a low level of demand, one company might be the right number.
And then there's technological change. This is my personal favourite monopoly buster. For example oil itself was a monopoly buster (of Whale Oil). And in my lifetime I have seen the Microsoft monopoly caught flat footed by the tablet computer.
And there is also people power. Even if you have a government that is against monopoly busting, that doesn't stop the people themselves simply boycotting any company that behaves immorally in some way. A good example of people power effecting the fate of a company happened here in Australia last week (though of the opposite kind). A 100 year old well-liked fruit cannery was going to go out of business, and asked the government for $25m assistance. The current administration does not believe in corporate welfare and said "No." So people got together on social media and got behind the company and, seeing how well liked the brand was, a national supermarket chain gave the fruit company a 5-year $70m contract to sell their fruit in their stores.
So yeah, my answer to a Ministry of Monopoly Smashing is that not all monopolies are necessarily bad, and sometimes they even make sense, and when they don't there's always people power, or failing that new tech usually gets them eventually.
I don't think all monopolies are necessarily bad. You pointed out that, even with no competitors left in ebooks, Amazon was still forced to keep the price down, to prevent new entrants. Eliminating all your competitors is not the same as eliminating the threat of competition.
There's also market size to consider. I'm sure once upon a time there were many companies making horse buggies but they were slowly displaced by cars. Nowadays they are a specialty item for giving tourists a ride through the park, and with such a low level of demand, one company might be the right number.
And then there's technological change. This is my personal favourite monopoly buster. For example oil itself was a monopoly buster (of Whale Oil). And in my lifetime I have seen the Microsoft monopoly caught flat footed by the tablet computer.
And there is also people power. Even if you have a government that is against monopoly busting, that doesn't stop the people themselves simply boycotting any company that behaves immorally in some way. A good example of people power effecting the fate of a company happened here in Australia last week (though of the opposite kind). A 100 year old well-liked fruit cannery was going to go out of business, and asked the government for $25m assistance. The current administration does not believe in corporate welfare and said "No." So people got together on social media and got behind the company and, seeing how well liked the brand was, a national supermarket chain gave the fruit company a 5-year $70m contract to sell their fruit in their stores.
So yeah, my answer to a Ministry of Monopoly Smashing is that not all monopolies are necessarily bad, and sometimes they even make sense, and when they don't there's always people power, or failing that new tech usually gets them eventually.
Goodbye Qantas, goodbye Ford, Holden and Toyota.
Goodbye Qantas, goodbye Ford, Holden and Toyota.
It is sad that Ford, Holden and Toyota are leaving (I wouldn't say Qantas yet). But it's been on the cards for ages, and I don't really want my taxes going to companies.