> Google does not make very much purchases in EU, so there is not so much VAT to deduct

I was arguing about the scheme that AnthonyMouse discussed. Also they can't recover all the other taxes "owed" to Spain by means of VAT.

AnthonyMouse > So now there is an independent contractor in Spain that pays Google Ireland for ad space and resells it for just enough money to pay its own bills and makes no profits.

If the VAT rate in Spain were higher than in Ireland the difference would stay in Spain. In that case marginal increse in the VAT rate would increase tax revenues, whereas and increase in income tax would not.

But right now VAT is higher in Ireland(23%) than in Spain(21%) and increasing the VAT rate can have sideffects on the economy as a whole.