One of the ways that technology-based businesses like Big Pharma and Big IT companies dealing primarily with intangible assets (patents, copyrights, licenses, information databases) escape paying much in taxes anywhere is their ability to move those assets around almost costlessly and to claim whatever site seems most convenient as their home jurisdiction. Not having any "real" property within a jurisdiction can seem to render them invisible to taxing systems.
One example in this country is the way that online sales networks have tried to avoid state taxes by having no physical assets in the state and claiming not to 'do business' in the state. Recently, states have been wising up, in part due to an intensive lobbying effort aimed at pointing out the inherent unfairness in taxing only local businesses with physical stores while their main competitors rake in the tax-free dough.
Another example is the way that multinational enterprises (MNEs) with mostly intangible valuables claim to "sell" their essential intangible patents to offshore affiliates in low-tax jurisdictions, thus claiming to move valuable income-producing assets offshore. Since they would in fact never actually sell such essential property to a competitor, the "transfer pricing" mechanisms that the US uses to police such deals by attempting to require a "market price" are inadequate, resulting in offshoring of profits. Offshore captive insurance companies operate similarly, with premiums paid to offshore affiliates permitting an undeserved decrease in domestic taxable income.
"Google generates more than $30 billion a year in advertising revenue, including an estimated €1.5 billion, or $2 billion, in France. Yet, like other American Internet companies, it pays almost no taxes in France." Eric Pfanner, France Proposes an Internet Tax, Jan. 20, 2013. France, frustrated with its current inability to tax such MNE IT giants like Google, Facebook and Microsoft, is considering new ways to attack the problem. A report commissioned by President Hollande suggests a tax on internet data collection. See id. Data collected by these companies, the report says, is the "raw material" of the digital economy and is insufficiently captured by current economic analysis.
(ASIDE: Of course, almost nothing is sufficiently captured by current economic analysis, since economists mostly still operate with the wacky theoretical models that assume everything is at equilibrium (which it never genuninely is), and that every actor is rationally maximizes his own greedy objectives (which is never true either). There are various other problems with the current popular "free market" economic theories, but those suffice to suggest that most politicians are being rather silly when they go to most economists for advice on how to structure their tax systems or how to make their economies work better--particularly if those economists ascribe to the Friedman school's notions of "free market" dogma.)
Like the financial transaction tax, which would help to stem rampant speculation by the big banks that puts world economies at risk, a data collection tax on the big data companies would offer some help in stemming the rampant speculation by those companies in personal data. Such data collection may well also prove to put economies--and individuals--at considerable risk, as genetic information, interconnected banking and investment strategies and other data is reached, stored and used.
And like the financial transaction tax, a data collection tax is not likely to work very well without OECD cooperation among advanced countries.
These are the kinds of issues that Congress should be discussing when they talk about "tax reform"--NOT how to lower the corporate tax rate in the US, which is fine where it is; NOT about how to provide more tax expenditure subsidies to corporations that are already making huge profits (like Oil, Insurance, etc.) but rather about how to ensure that the externalities like pollution, catastrophic risk, and other ills that Big Business has been so good at shoving off on the rest of us get paid for out of business income and how to use the tax system more effectively to cause the economy to work for ordinary folk rather than to cater to the wealth accumulation of the very small percentage at the very very top.
If we want an economy that works well, we should stop the current s0-called "tax reform" train that is being run by lobbyists for Big Business and doesn't even begin to consider the appropriate paramenters. Instead, Congress should make a priority the consideration of real reform ideas like the following:
- eliminate the capital gain preference and increase the estate tax: the combination of preferences for capital income and capital wealth unfairly allows the wealthy to accrue income at very low rates with assets that also permit them to monetize their assets while retaining them to pass along to their heirs at very low rates of taxation.
- use the tax code to discourage conglomerate formation and pseudo monopoly formation (limit rather than extend tax-free reorganizations);
- discourage tax-subsidized speculation in real estate by eliminating section 1031 nonrecognition "like-kind exchanges";
- push for more prudent banking and financial systems (enact a financial transactions tax; treat most derivatives as bets rather than financial transactions);
- require more responsible citizenship from big MNEs (treat any offshoring of business assets as a fully taxable event; disallow offshoring of key patents and other intangibles to affiliates by treating such transactions as disregarded for federal income tax purposes)
- protect personal privacy while also ensuring that IT companies pay a reasonable amount of tax on their profits (tax collection of personal data)
- end tax expenditure subsidies for hugely profitable enterprises that are also highly culpable of offloading pollution impacts (and climate change impacts) onto the general public, like Big Oil and Big Gas
- protect workers by reforming the labor laws to ensure that no state can deprive public workers of their rights to bargain collectively and at the same time reform the tax laws to limit deductibility of pay for top administrators by tying the limit on deductible pay to the average pay of the company's non-administrative workers (nothing deductible in excess of 10 times the average pay for non-administrators, for example);