The role of a CFO (and his office) is to do exactly what resulted above. Build a team of accountants, lawyers, and financial analysts that makes sure that the financial health of the company is strong. "Is this a tax credit we can take advantage of, do it." "Can we legally execute this transaction and conserve millions of dollars? do it."
If these items are legal based on federal law and pass Microsoft's board's scrutiny, then why is this even an issue?
And the role of Congress and its tax committees is to take note when they've left open obviously abused loopholes and close or limit them.
This Puerto Rico scheme has been going on since well before 2009 and more companies than just Microsoft have been abusing it. The Senate Finance Committee and the Ways And Means Committee have been well aware for many years before that.
Someone here is cheating. It's not the corporations that take advantage of a loophole that is legal even though it is unfair and harmful to the nation. The cheaters are the lazy and corrupt congressmen and senators that watch it happen and read their reports every year, year after year, and can't rouse themselves to do anything about it.
Lucky for you, you get to fire some of them six weeks from now.
Because the Democrats want to press home the message that corporations and wealth are inherently evil in this election cycle, and the chairman of the committee quoted in the article is a Democrat, as the article mentions, twice.
An unfortunately large percentage of the US population apparently isn't capable of formulating the good and simple question in the last sentence of your post -- a large enough percentage that the story can attract enough eyeballs to justify its publication.
Excuse me while I go pick up my eyes that just rolled across the floor. This isn't even remotely true - there's nothing wrong with wealth or corporations in general - but when corporations begin doing evil things in the pursuit of wealth, big surprise, people are going to complain.
Can we see quote from a Democrat saying this?
[1]http://www.businessweek.com/magazine/content/10_44/b42010431...
[2]http://www.nytimes.com/2012/04/29/business/apples-tax-strate...
[Disclaimer: I work for Microsoft]
Every loophole that exists was originally a political favor to some important constituency. There are always important constituencies seeking political favors, or embattled politicians or parties seeking new allies; so there will always be pressure to create new loopholes.
If a loophole's in danger of going away, its constituency will scream bloody murder. Republicans who vote to eliminate it will be painted as "raising taxes;" ever since Bush I promised not to raise taxes, raised taxes anyway, and then lost the White House, a lot of Republicans have been very afraid of this political attack. So there will always be pressure to avoid closing existing loopholes.
So loopholes are monotonic -- they can only increase over time.
The only way we could conceivably get out of this situation is if our tax code becomes so complex, everyone -- even the beneficiaries of the loopholes -- is angry and upset at the complexity and costs of paying, and decides to support throwing the whole thing out and starting fresh. This scenario probably requires a united government (same party controlling Presidency and both houses) which is willing to make the issue a priority. It's probably not going to happen in this year's election, unless a major event occurs between now and Election Day.
http://www.nytimes.com/2012/04/29/business/apples-tax-strate... http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-sho... http://www.guardian.co.uk/technology/2012/apr/04/amazon-tax-...
I love a good political debate as much as the next person, and enjoy HN for the specific reason that I can avoid this sort of bullshit. And yes, I've read the guidelines and have flagged this.
Moving the intellectual property out of the USA, and then using that to make US sales from anther country is pretty ballsy though.
I am not saying that's a bad thing but it is a hard thing
Secondly allocation of resources is soluble. - one example would be an international agreement to pool all taxes and share out to countries in proportion to employees per country, but in the end companies pay how much we are willing to let them get away with.
The nearest I can find is http://www.uspirg.org/reports/usp/representation-without-tax... citing 18% paid on expected taxes of 35%. Which makes an extra 220 bn - almost double.
Given that the avg net margin is 6.3% (see below) doubling the effective tax rate would cause significant issues - but I need more data
Plus 1 for calling me out http://seekingalpha.com/article/428181-debunking-s-p-500-p
I think this sums it up quite nicely. The intent, which is encouraged by all branches and is culturally engrained (I will retrieve citations if requested), is "reduce your taxes as low as possible".
With the right advisors, corporations can do this very effectively. This should not be a surprise to anyone. They will pay less, much less. After all, that's what you encouraged them to do.
If your aim is to collect more taxes, then why encourage those being taxed to seek to reduce their tax liability as low as possible?
Forgive me if I am missing the obvious. But this to me has never made sense.
The last time it happened in 1986, the House was Democratic and the Ways And Means Committee was run by famously corrupt but effective old-time Chicago pol Dan Rostenkowski. The Senate was Republican and liberal West Coast Oregon Republican Bob Packwood was running the Senate Finance Committee. President Ronald Reagan and his tax policy chief Donald Regan were more right wing than the Koch brothers and Michelle Bachmann combined.
Together they pushed through the biggest tax reform in the nation's history.[0]
There was nothing united about US government in 1986. It's hard to imagine a political spectrum as disunited and full of genuine differences today. Nevertheless, Reagan bet his second term policy agenda on tax reform and Rostenkowski arranged an unprecedented public media campaign and put himself on television selling the Reagan idea to the people and his own party. The reform was pushed through with bipartisan support and only oil companies and employee benefits escaped unscathed. All the other pressure groups had to give for the national good.
The difference is not a united government. We had united government in 2003-04 and 2009-10 and it didn't do any good. The difference is leadership. This year we don't have much leadership available in Washington from either party and the challengers in the coming election seem even less likely to offer any.
So don't get your hopes up.
[0] Showdown At Gucci Gulch by Murray and Birnbaum is the classic book about the 1986 reform
I think this is where your memory skews.
By the standards of the time, that is true.
But today? Reagan supported AMNESTY. He supported a tax reform bill that RAISED some taxes. EITC??? That's a means-tested welfare program to try to lift working poor above the poverty line.
I grew up a liberal. I still am, but I'll be honest, my idealism is tested by our tax rate and fiscal ignorance. If you have no kids or mortgage, live in California and make over 100k -- in other words if you're like most software engineers in bay area startups -- you pay an obscene tax rate. And I'd even be OK with that if Sacramento and D.C. were good stewards of our tax dollars. But, of course, they're not.
Still, I have no choice but vote Democratic. I could vote 3rd party and waste my vote. But today's breed of hyper-partisan, non-fact-base Republicans just are not a serious alternative.
I've read in several places that the public perceived it as a broken promise and it's a major reason why he lost to Bill Clinton.
The message Republican politicians took away is: The public doesn't interpret anti-tax promises narrowly; if you make one, you'd better stay the heck away from anything that looks remotely like raising taxes.
[1] In the USA, viz: http://en.wikipedia.org/wiki/Business_judgment_rule
It's not something that's "encouraged" or "culturally ingrained." It's simply a matter of lowering your costs.
Maybe "encouraged" and "engrained" were not the right words. How about "endorsed"? I think rational self-interest is a concept that might vary in the degree to which it is adopted into people's behavior as you move from country to country. That's only a theory. Certainly, in the US, reducing tax liability, and doing so vigorously, is believed to be the rational thing to do.
But if I'm the taxing entity, is it rational for me to endorse the idea of paying less? That would seem to lead to a reduction in the amount I will collect as those being taxed adopt and refine their tax reduction strategies.
It's rational for you to accept the fact that people will work to minimize their tax liability and construct policy under that assumption.