WHAT IS A CORPORATION?

[reefermadness]

Originally Posted by Reef Pilot

Co-ops (incl credit unions) are just another type of corporation. Here is how our CRA looks at it.
http://www.cra-arc.gc.ca/tx/bsnss/tp...s/thr-eng.html

They are given certain benefits, like tax breaks, for being non-profit. I actually belong to one, and buy almost all my fuel from them.

But the downside is that usually they lack the expertise, sophistication and motivation to compete with their for profit cousins. And they don't contribute much (in taxes) to pay for our education, health care, social services etc, like individuals and for profit corporations do.

The old Soviet Union essentially operated like a bunch of giant cooperatives, except their "members" didn't always have a lot of say in how they were operated.

I never said a society filled with co-ops is the answer....although it may be part of one. Stiffer regulation, corporate money out of politics, that would help.

Look Im not down playing the important role corporation have had in the past and present but they are larger than ever and more powerful than ever. They only have one purpose and that is to make money at all costs. If the idea of breaking the law and getting caught is less costly (in dollar terms) they do it.

And as far as paying taxes.....many of the largest US business such as GE paid no corporate income taxes last year.

[Reef Pilot]

Originally Posted by reefermadness

And as far as paying taxes.....many of the largest US business such as GE paid no corporate income taxes last year.

Yeah, problem in the US is that they get too many tax breaks there, corps and individuals, and they have got even smarter with avoiding them.

It's quite different in Canada where corps pay through the nose (despite our lower marginal rates), at the municipal, provincial and federal levels. The only way (almost) to escape tax here is to lose money.

In the US, there is a major industry (big accounting firms) that advises corps on how to avoid taxes. They really, really need to rewrite their tax code. Even ours here in Canada could use some work.

[Slick Fork]

Originally Posted by Reef Pilot

Yeah, problem in the US is that they get too many tax breaks there, corps and individuals, and they have got even smarter with avoiding them.

It's quite different in Canada where corps pay through the nose (despite our lower marginal rates), at the municipal, provincial and federal levels. The only way (almost) to escape tax here is to lose money.

In the US, there is a major industry (big accounting firms) that advises corps on how to avoid taxes. They really, really need to rewrite their tax code. Even ours here in Canada could use some work.

Not quite true, American corps do seem to have more loopholes, but there is just as big an industry here in Canada working hard to make sure Canadian corp's can utilise as many tax advantages as possible. CRA is pretty quick to close ones that provide an unfair advantage, but many of these "loopholes" are designed as an instrument of policy rather than an unintentional "we forgot to cover that base" kind of loophole. For example, many profitable business get extensive tax credits because the government wants to promote certain industries or provide a break to small business owners, etc.

If you want to shine a light on an industry, look at agriculture. Most corporations I know would kill to get the kind of tax breaks that farms do.

As has been mentioned up-thread, a corporations behaviour is dictated by the ethics of its shareholders. Management answers to shareholders and if the shareholders are tolerating/encouraging unethical behaviour than there is the problem. If you took away the corporate structure, those same unethical people would simply find a different mechanism to make their money.

[Slick Fork]

Originally Posted by reefermadness

And as far as paying taxes.....many of the largest US business such as GE paid no corporate income taxes last year.

That's not what their audited financial statements say.

http://www.ge.com/sites/default/file...g-Segments.pdf

[reefermadness]

Originally Posted by Slick Fork

That's not what their audited financial statements say.

http://www.ge.com/sites/default/file...g-Segments.pdf

Im gonna assume that is for GE as a whole and not just the US operations and US corporate income tax. What large multinational corps often do is off load expenses to the countries with high tax rates for deductions and keep the revenues overseas where taxes are often lower.

As far as it not being true....IDK, some pretty reputable sources say otherwise.

http://money.msn.com/top-stocks/post...3-2949588e90f6

http://www.huffingtonpost.com/2013/0...n_2852094.html

http://www.nytimes.com/2011/03/25/bu...pagewanted=all

After researching it seems it hasn't been proven but GE did not release anything proving otherwise which tells me it's either true or they paid very little anyway.

An interesting fact in the first article... "Now, the Times reports, only 6.6% of Uncle Sam's tax revenue comes from corporations (down from 30% in the 1950s)."

[Slick Fork]

Originally Posted by reefermadness

Im gonna assume that is for GE as a whole and not just the US operations and US corporate income tax. What large multinational corps often do is off load expenses to the countries with high tax rates for deductions and keep the revenues overseas where taxes are often lower.

As far as it not being true....IDK, some pretty reputable sources say otherwise.

http://money.msn.com/top-stocks/post...3-2949588e90f6

http://www.huffingtonpost.com/2013/0...n_2852094.html

http://www.nytimes.com/2011/03/25/bu...pagewanted=all

After researching it seems it hasn't been proven but GE did not release anything proving otherwise which tells me it's either true or they paid very little anyway.

An interesting fact in the first article... "Now, the Times reports, only 6.6% of Uncle Sam's tax revenue comes from corporations (down from 30% in the 1950s)."

Not saying there's not a problem with the way the US taxes its businesses and citizens but a lot of what you read is a lot of speculation, usually by people not very sophisticated in how these things are accounted for.

Without going into a lot of boring detail, relevant accounting regulations (IFRS and US GAAP) disallow the kind of reporting you're talking about; earning revenue/expense in one nation and reporting it another with better tax rates, it's just not allowed. Public companies are also required to have their financial statements audited as a condition of being listed on their respective exchanges (NYSE, TSX, etc.). This means an independent accounting firm tests the financial statements to ensure that they are following the rules and not misrepresenting themselves to shareholders and other stakeholders. If a firms statements are audited and the audit opinion is unqualified, it's a pretty safe bet the statements are fairly presented; that includes taxes paid and where the revenues came from.

Again, not saying they don't spend a lot of money finding programs and credits that minimize their tax expense, but there's a big difference between illegally misrepresenting financial information and finding legal ways to reduce your tax burden.

As far as ethics, if I called you up and offered you my services as an accountant so I could reduce the amount of tax you'd pay, would you say not a chance, I'd LOVE to pay more? Didn't think so, so if it's ok for an individual to actively engage in tax planning, why is it unethical for a corporation to do so (again assuming all tax planning done is above board and maximising legal programs).

[Slick Fork]

Just a further note, those articles seem a little misleading to me. They refer to it as "holding profits overseas", which implies that GE earned the revenue in the US and then transferred the money to an offshore bank account.

What they are likely referring to in actuality is that GE's subsidiaries earned the money overseas from operations in other countries and rather than flowing the money up to the US parent corporation the subsidiary reinvests profits earned in Brazil, for example, back into their Brazilian operations.

[reefermadness]

I'm not implying they are doing anything illegal. That is the problem.

They have lots of ways to avoid taxation....

http://www.forbes.com/sites/robertwo...re-tax-scheme/

http://www.telegraph.co.uk/finance/n...tax-haven.html

Smaller corporations, businesses and the average man could only wish to have the knowledge and resources to reduce taxation at the level of these large multinational organizations.

[Slick Fork]

Originally Posted by reefermadness

I'm not implying they are doing anything illegal. That is the problem.

They have lots of ways to avoid taxation....

http://www.forbes.com/sites/robertwo...re-tax-scheme/

http://www.telegraph.co.uk/finance/n...tax-haven.html

Smaller corporations, businesses and the average man could only wish to have the knowledge and resources to reduce taxation at the level of these large multinational organizations.

Ha, even these big guns would drool at the deductions Agri-business of all sizes gets. I'd be really interested to see some of the financial statements and tax returns of the really big farming corporations.

As far as the knowledge the big guys have goes, it's all there for everybody and it's all scalable. The same principals and breaks that work for the big guys mostly work for the small guys. Their size doesn't get them any special perks, just the opposite actually, however a lot of these structures and mechanisms simply aren't cost effective for small businesses and individuals. It might be cost effective for GE to spend $150,000 to have a team of accountants spend 3 months on optimising corporate share structure, but it just wouldn't be worth it for the little guys. We could do it, but the tax advantage would be so small there would be no benefit. Not because the rules favour the big guy necessarily, simply because that's the economy of scale.

Just read the forbes article and yeah, some of it is due to their nature as it involves intellectual property and licencing. Stuff that wouldn't be available to the corporate structure we setup for say an energy company.

Large corps though are taxed at a high(er) interest rate, federally it's at 38% Small business benefit from a number of rate reductions they get:
38% - Basic federal corporate tax rate
-17% - Small business deduction for firms with revenues under 500K
-10% - General rate reduction
-----
11% effective federal tax rate for small business - less than the 12.5% achieved with the double Irish method discussed in the article

I can do that for a little guy for much less than big corporations spend on their corporate accounting departments