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wonderpup

Would The Tax Avoidance Technique Work In This Case?

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Say I own a factory that pumps out some degree of river pollution in it's waste products but am allowed to do this if I operate within certain strict limitations as to the amounts involved- any amount over this level must be expensively treated and adds a lot to my operating costs.

This limit is imposed on a per business level.

So suppose I were to set up a small shell company that does nothing except charge the polluting company I already own for disposing of it's excess waste products by dumping them in the same river.

I have now doubled the amount of waste I can dump in the river since the second company is legally a separate entity with it's own allocation to dump waste in the river.

Over time I expand this operation to the point where I have a series of such shell companies all along the river all of whom are dumping a portion of my waste products- each operating within the legal limits allowed.

Assuming that the cost of the dumping operation are lower than the cost of cleaning up the waste this would work.

Obviously by doing this I may be adding more pollution to the river than might otherwise be the case- but I am operating within the rules, rules I did not create. And one must assume that the overall levels of river pollution are being monitored by someone to keep them within safe limits.

In addition by expanding my own allocation of pollution 'rights' in this way I prevent other business's from using those rights-since there must be an upper limit on the degree of total pollution allowed- and so I have in effect passed my costs on to them, since they will be forced to pay more in clean up costs.

So from a business point of view I have a win/ win- I both lower my own costs and impose higher costs on my competition.

However it's true to say that as a result of my strategy the river may become more polluted than it might have been (all within legal limits of course) and it's also true to say that I have gained what some might regard as an unfair advantage over my competitors.

My question is this; am I doing anything wrong? Or is this a legitimate business model? Clearly the rules were not intended to be gamed in this way- but since I am not breaking any laws is this something I should be concerned with?

Edited by wonderpup

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My question is this; am I doing anything wrong? Or is this a legitimate business model? Clearly the rules were not intended to be gamed in this way- but since I am not breaking any laws is this something I should be concerned with?

No. But only dumb government setup such rules (which they do from time to time).

The way to do it is to sell your business pollution permits, of say 1000 tons per month that cost 2x the cost of cleanup. If you break the license terms, the directors will be liable, and criminally if necessary.

That is why it is better to tax things that can be measured accurately, such as land, tonnage, per litre petrol, per air passenger rather than on income.

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Say I own a factory that pumps out some degree of river pollution in it's waste products but am allowed to do this if I operate within certain strict limitations as to the amounts involved- any amount over this level must be expensively treated and adds a lot to my operating costs.

This limit is imposed on a per business level.

So suppose I were to set up a small shell company that does nothing except charge the polluting company I already own for disposing of it's excess waste products by dumping them in the same river.

I have now doubled the amount of waste I can dump in the river since the second company is legally a separate entity with it's own allocation to dump waste in the river.

Over time I expand this operation to the point where I have a series of such shell companies all along the river all of whom are dumping a portion of my waste products- each operating within the legal limits allowed.

Assuming that the cost of the dumping operation are lower than the cost of cleaning up the waste this would work.

Obviously by doing this I may be adding more pollution to the river than might otherwise be the case- but I am operating within the rules, rules I did not create. And one must assume that the overall levels of river pollution are being monitored by someone to keep them within safe limits.

In addition by expanding my own allocation of pollution 'rights' in this way I prevent other business's from using those rights-since there must be an upper limit on the degree of total pollution allowed- and so I have in effect passed my costs on to them, since they will be forced to pay more in clean up costs.

So from a business point of view I have a win/ win- I both lower my own costs and impose higher costs on my competition.

However it's true to say that as a result of my strategy the river may become more polluted than it might have been (all within legal limits of course) and it's also true to say that I have gained what some might regard as an unfair advantage over my competitors.

My question is this; am I doing anything wrong? Or is this a legitimate business model? Clearly the rules were not intended to be gamed in this way- but since I am not breaking any laws is this something I should be concerned with?

I've just discovered there's no law against ******ing my best friends wife. Shall I have a go?

EDIT: If I do, and he gets all furious, shall I blame the government for not making it illegal?

Edited by (Blizzard)

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I've just discovered there's no law against ******ing my best friends wife. Shall I have a go?

EDIT: If I do, and he gets all furious, shall I blame the government for not making it illegal?

You could point out that it was not illegal I suppose- but your former best friend might think that being legally right and being morally right are not the same thing.

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You could point out that it was not illegal I suppose- but your former best friend might think that being legally right and being morally right are not the same thing.

False similies abound on this thread already! Lets agree that not everything legal is right, and not everything illegal is wrong. The specific fact about tax avoidance that differs it from the above similes is that taxation is taking stuff away from somebody through use of force. 99.9% of people do NOT have the chance to change societies, so they are stuck with the tax that the rulers decide. If the tax rate was 95%, would you still be happy to pay?

To use your wife example above, she is in an arranged marriage that she was born into, can never leave on fear of punishment or prison, but still loves you and you love her. Not so wrong then, is it?

And the thing to remember is that the governments COULD close tax avoidance loopholes if they wanted to. They don't, often because the individual politicians or their backers benefit financially. Never forget that.

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Is this a real scenario?

I don't specialise in duties, but generally there are rules against artificial separation of businesses.

There also rules against arrangements that are purely for tax avoidance.

On a side note. One large firm that I use to work for found a loophole that would reduce their clients tax liability to nil. But never promoted it even though it was legal because it was against the spirit of the regulations.

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Is this a real scenario?

I don't specialise in duties, but generally there are rules against artificial separation of businesses.

There also rules against arrangements that are purely for tax avoidance.

On a side note. One large firm that I use to work for found a loophole that would reduce their clients tax liability to nil. But never promoted it even though it was legal because it was against the spirit of the regulations.

not promoted at all or reserved for the best client?

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False similies abound on this thread already! Lets agree that not everything legal is right, and not everything illegal is wrong.

Unfortunately, lots of people don't agree with this. Landlords, for example.

The specific fact about tax avoidance that differs it from the above similes is that taxation is taking stuff away from somebody through use of force. 99.9% of people do NOT have the chance to change societies, so they are stuck with the tax that the rulers decide. If the tax rate was 95%, would you still be happy to pay?

Was the OP about tax? I thought it was about dumping waste?

Anyway, taxes are just the rent for living in a country. If you can't afford it, live elsewhere.

Nothing wrong with that. Right?

To use your wife example above, she is in an arranged marriage that she was born into, can never leave on fear of punishment or prison, but still loves you and you love her. Not so wrong then, is it?

What kind of friends do you think I have?!

And the thing to remember is that the governments COULD close tax avoidance loopholes if they wanted to. They don't, often because the individual politicians or their backers benefit financially. Never forget that.

They could. The whole debate is just a smokescreen.

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Is this a real scenario?

I don't specialise in duties, but generally there are rules against artificial separation of businesses.

There also rules against arrangements that are purely for tax avoidance.

On a side note. One large firm that I use to work for found a loophole that would reduce their clients tax liability to nil. But never promoted it even though it was legal because it was against the spirit of the regulations.

No the scenario is not real- just a thought experiment.

I was trying to recreate the moral ambiguity of the tax evasion debate in a different context to see if it shed any light on it.

Consider this example also- another purely imaginary scenario;

Suppose I am a freelance photographer who makes his living selling photos to the media. As I arrive at the venue of an event called "Tax Optimisation Strategies in a Global Economy' -at which the CEO's of some large Corporations are scheduled to attend- I observe that a delivery truck has collided with a vital structure of the building and that several large cracks have appeared which no one else seems to have noticed.

These cracks may or may not be a threat to the buildings integrity-I don't know- but what I do know is that should the building collapse with the CEO's inside the pictures I will take of the event will be worth a lot more money.

So I decide that since I have no legal obligation to inform anyone- after all I have no actual evidence that the building is unsound- I will not raise the issue with the venues operators.

Subsequently however the building does indeed collapse leading to the demise of the CEO's in question- I am on hand to photograph the event and the pictures I take I then sell for a lot of money.

So from a purely financial viewpoint I made the correct decision- the collapse of the building was in my self interest in this case. Also I have not broken any laws.

That being so- have I done anything wrong? After all the fault here lay mainly with the venue operators, who should have had a better system for handling the traffic flow of deliveries and a more rigorous checking system for the building itself prior to the event.

What I did was follow my own self interest while breaking no laws- exactly the same claim made by Google, Starbucks and Amazon in relation to their taxation policy-so by their standards of behaviour what I did was perfectly acceptable.

Is this true? Or is there some other standard of behaviour against which my failure to inform the venue operators of my concerns could be considered wrong and even morally degenerate- given my admittedly base motivations for not doing so?

Or is the fact that I broke no laws and had a legitimate self interest enough?

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No the scenario is not real- just a thought experiment.

I was trying to recreate the moral ambiguity of the tax evasion debate in a different context to see if it shed any light on it.

Not-much-thought experiments; there is no moral ambiguity in paying taxes, so you have invented fake situations where this exists.

Both your examples result in real damage to the environment or people. Tax avoidance just results the state receiving a bit less revenue than might be predicted by someone stupid (such as an MP).

Take your first example: if the company were taxed on tonnage of pollution, then introduced new technology that reduced this pollution, are they being immoral in avoiding tax?

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Not-much-thought experiments; there is no moral ambiguity in paying taxes, so you have invented fake situations where this exists.

Both your examples result in real damage to the environment or people. Tax avoidance just results the state receiving a bit less revenue than might be predicted by someone stupid (such as an MP).

Take your first example: if the company were taxed on tonnage of pollution, then introduced new technology that reduced this pollution, are they being immoral in avoiding tax?

You say that both my examples result in real damage to the environment or people as if this were something to be concerned about- but in both the examples I gave no laws were broken- so by the moral standards applied by the corporations there is no problem- that is where the ambiguity arises.

They argue that as long as they break no laws their obligations to society have been met- yet you clearly seem to disagree- you seem to feel that even if no laws have been broken harm has still been done- which means that you posit a second order metric of behaviour that is not captured by the legality argument.

And indeed I am quite certain that if any Government were to pass a law that allowed it to simply take control of the personal assets of the CEO's of Google, Amazon and Starbucks those gentlemen would suddenly start howling about 'fairness' and 'justice' and all sorts of interesting things that they currently deny exist.- After all such assert seizure by a sovereign state would be entirely legal- if that state passed the laws required to do it.

So would the fact that no laws had been broken mean that taking every penny these people had would be ok? I don't think it would and I don't think they would think so either.

So even the people who hide behind the defence that their actions are entirely legal in reality understand that what is fair and what is legal are not always the same thing- they just choose to pretend otherwise when it suits their purpose to do so.

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And indeed I am quite certain that if any Government were to pass a law that allowed it to simply take control of the personal assets of the CEO's of Google, Amazon and Starbucks those gentlemen would suddenly start howling about 'fairness' and 'justice' and all sorts of interesting things that they currently deny exist.- After all such assert seizure by a sovereign state would be entirely legal- if that state passed the laws required to do it.

So would the fact that no laws had been broken mean that taking every penny these people had would be ok? I don't think it would and I don't think they would think so either.

So even the people who hide behind the defence that their actions are entirely legal in reality understand that what is fair and what is legal are not always the same thing- they just choose to pretend otherwise when it suits their purpose to do so.

Heem... I think the state already did that...such as having effective tax rates of 60+% - totally legal and totally unfair (for those who suffer it), but it is also 'totally' fair for those who wants to use the state to get their hands on those money in the name of 'creating job', 'help our community', save our playground blah blah blah.

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So even the people who hide behind the defence that their actions are entirely legal in reality understand that what is fair and what is legal are not always the same thing- they just choose to pretend otherwise when it suits their purpose to do so.

True to a point, but taxation is not a moral issue, it is a legal one. What matters is the letter of the law, and politicians are responsible for that.

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Say I own a factory that pumps out some degree of river pollution in it's waste products but am allowed to do this if I operate within certain strict limitations as to the amounts involved- any amount over this level must be expensively treated and adds a lot to my operating costs.

This limit is imposed on a per business level.

So suppose I were to set up a small shell company that does nothing except charge the polluting company I already own for disposing of it's excess waste products by dumping them in the same river.

I have now doubled the amount of waste I can dump in the river since the second company is legally a separate entity with it's own allocation to dump waste in the river.

Over time I expand this operation to the point where I have a series of such shell companies all along the river all of whom are dumping a portion of my waste products- each operating within the legal limits allowed.

Assuming that the cost of the dumping operation are lower than the cost of cleaning up the waste this would work.

Obviously by doing this I may be adding more pollution to the river than might otherwise be the case- but I am operating within the rules, rules I did not create. And one must assume that the overall levels of river pollution are being monitored by someone to keep them within safe limits.

In addition by expanding my own allocation of pollution 'rights' in this way I prevent other business's from using those rights-since there must be an upper limit on the degree of total pollution allowed- and so I have in effect passed my costs on to them, since they will be forced to pay more in clean up costs.

So from a business point of view I have a win/ win- I both lower my own costs and impose higher costs on my competition.

However it's true to say that as a result of my strategy the river may become more polluted than it might have been (all within legal limits of course) and it's also true to say that I have gained what some might regard as an unfair advantage over my competitors.

My question is this; am I doing anything wrong? Or is this a legitimate business model? Clearly the rules were not intended to be gamed in this way- but since I am not breaking any laws is this something I should be concerned with?

The whole premise of your argument is that governments will give away the rights for a single facility to pump out pollutants up to a certain level twice.

Governments are sometimes this stupid but not often.

I personally don't see the connection between your argument and tax minimisation.

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True to a point, but taxation is not a moral issue, it is a legal one. What matters is the letter of the law, and politicians are responsible for that.

My point is that a personal tax rate of 99.99 % on the CEO of Google would be legal if it were introduced- but he would argue against it on the grounds that it was unfair and unjust. And he would be right.

So clearly we cannot simply frame matters of taxation entirely in terms of legality- we must also frame them in terms of fairness and justice- and on these metrics Google and the rest fail the test.

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The whole premise of your argument is that governments will give away the rights for a single facility to pump out pollutants up to a certain level twice.

Governments are sometimes this stupid but not often.

I personally don't see the connection between your argument and tax minimisation.

You miss the point that the shell companies I created are separate legal entities, each with it's own quota as laid down by law- and that I employ very clever legal people who have designed these arrangements.

There is no direct connection between my shell companies pumping out pollution and the shell companies that are used to avoid tax liabilities - except that both are artificial constructs that exist only to evade rules that have been established for the common good.

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You miss the point that the shell companies I created are separate legal entities, each with it's own quota as laid down by law- and that I employ very clever legal people who have designed these arrangements.

There is no direct connection between my shell companies pumping out pollution and the shell companies that are used to avoid tax liabilities - except that both are artificial constructs that exist only to evade rules that have been established for the common good.

The two shell companies exist to comply, at the lowest cost possible, with very poorly designed laws.

It is the responsibillity of the management of companies to generate the highest after tax income for their owners. It is the responsibility of governments to design laws that reflect the common good.

The management of companies are really easy to understand and are quite explicit. The actions of politicians are also very easy to understand once we get beyond tribalism and accept that the political class are motivated by power and not the common good.

It is the political class who are letting us down.

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My point is that a personal tax rate of 99.99 % on the CEO of Google would be legal if it were introduced- but he would argue against it on the grounds that it was unfair and unjust. And he would be right.

Many on the political left would regard a 99.99% tax for rich businessmen as perfectly fair and just, and that is just one problem with making taxation about emotion and feelings.

[i'd also suggest that an argument based on the Laffer curve might be more effective. ]

So clearly we cannot simply frame matters of taxation entirely in terms of legality- we must also frame them in terms of fairness and justice

No, because 1) taxes should be logical, and 2) Fairness and justice are intangible ghosts.

on these metrics Google and the rest fail the test.

It is the politicians and their civil servants who are failing us, Google simply follow rules which are not of their own making.

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The two shell companies exist to comply, at the lowest cost possible, with very poorly designed laws.

It is the responsibillity of the management of companies to generate the highest after tax income for their owners. It is the responsibility of governments to design laws that reflect the common good.

The management of companies are really easy to understand and are quite explicit. The actions of politicians are also very easy to understand once we get beyond tribalism and accept that the political class are motivated by power and not the common good.

It is the political class who are letting us down.

But we could both agree that if the government imposed a 99% tax rate on you this would be legal by definition- does this mean that you would raise no objections to such a tax?

I suspect that if you are honest you would admit that you would view such a tax as unfair-even morally outrageous. So it would seem that in matters of taxation we cannot limit ourselves to the realm of the purely legal- we are also compelled to deal with the issues of what is fair.

So it's perfectly possible to hold the view that while the tax evasion devices used by the corporations are legal they are not fair- they deprive the state of much needed income that it might legitimately have expected to gain if the spirit and intent of the rules were respected.

Those who argue that high income tax rates are unjust or unfair are not making a legal argument, they are making a moral one- so why is it not just as valid to challenge the tax evasion of the corporations on exactly the same grounds- that while their actions may be legal- they are not moral?

You might wish to argue that corporations should have no obligation to be moral in their behaviour- that their only duty is to their shareholders- but if you took the time to actually examine the implications of this idea you will realise that the result would be chaos.

For example I doubt that there is a law on the books that states primary school children cannot be recruited to sell to their peers- so why not set up a marketing company that uses kids as a sales force- put them on a small commission to sell the games or sweets or whatever and turn the classrooms of the nation into a marketplace? If it's not illegal then it's ok right?

Or suppose our arms manufacturers were to design a new range of weapons scaled down to better facilitate the recruitment of child soldiers- and marketing these child sized weapons with a slick advertising campaign showing dramatically posed kids stylishly modelling the products- is this what you mean when you say that corporations have no obligation to behave in a moral way?

Of course we could deal with these things-if they were to happen- by passing specific laws against it- but that's just two examples- so the alternative to moral corporations is a vast proliferation of legal restraints required to stop them behaving in ways that are immoral.

In reality it's a totally disingenuous argument because the truth is that we both expect and demand that the corporations do in fact act in a moral way- and if they stopped doing so the fabric of our society would unravel very quickly.

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Fairness and justice are intangible ghosts.

I invite you to test that theory the next time you find yourself standing in line at the bank or the post office- just push everyone else aside and walk directly to the front of the line- and you will discover that the ideas of fairness and justice suddenly take on an immediacy and tangibility

you may not have expected.

The notion that the concepts of fairness and justice are rather flimsy and diaphanous things fails to incorporate the rage induced when their absence is detected.

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Google simply follow rules which are not of their own making.

Not of their own making? Are you sure about that?;

Google's lobbying budget is eighth largest in US, surpassing even Lockheed Martin

Google's heavy investment in lobbying has seen it become one of the 10 biggest spenders in Washington. Led by Susan Molinari, the company spent a record $18.2 million in 2012, attempting to win over lawmakers and regulators in the capital.

http://www.theverge.com/2013/6/4/4394234/google-eight-biggest-record-lobbying-washington

So Google spent 18 million dollars in order to influence the people who make the laws that are not of Google's making? :lol:

Edited by wonderpup

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