France, Germany, Italy, Spain seek to base taxes on digital giants' revenues
reuters.com
reuters.com
This is about taxing EU-wide profits in EU countries proportional to the revenues generated in that country.
At the moment, many big tech companies use bookkeeping tricks to make it look like all their profit is generated in, for example, Ireland, while the revenue is generated in other EU counties.
Unfortunately, Ireland has special tax rates for these companies (the legality of which is contested), so their EU-wide effective tax rate is often ~1%.
The reason to register in Delaware is because of business friendly courts there. I don't believe there is a tax advantage
Delaware has a corporate tax rate of 8.7%, California has 8.84.
So yes no one is incorporating in Delaware becuase of taxes, WA, TX, NV and a few others have zero corporate tax.
Not sure how state tax rates interact with the federal one though
But most importantly to the (joke) argument that we're the last communist country there's a massive popular adhesion to the points listed above and for some reason a deep seated mistrust of the wealthy.
As for the communist thing, ah I didn't realize it was a joke argument, thought it was a serious one
http://www.bendlawoffice.com/2011/08/01/reasons-to-incorpora...
Corporations, such as Microsoft, which are headquartered in states with nicer bodies of corporate law frequently choose to incorporate in their home state, such as Washington.
- Apple France is actually just a distributor for Apple Ireland
- Apple Ireland sells Apple France an iPhone at MSRP
- Apple France makes basically no profit because it sells "at cost"
- Apple Ireland books a profit for an iPhone sold in France
For example if Apple France is really just a distributor, and they buy their products at low margins, then it is what it is
I think a lot of tax agencies simply don't have the muscle to push forward on this
A quote from [1]:
"The president of the European commission, Jean-Claude Juncker, spent years in his previous role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax avoidance by multinational corporations, leaked documents reveal."
So:
> I think a lot of tax agencies simply don't have the muscle to push forward on this
No. They do. They're just prevented from doing so by the "socialists" (hah !) Europe "elected" (just pointing out that the leadership of the EU commission, the only organisation with real law-giving power in the EU aren't directly elected at all).
[1] https://www.theguardian.com/business/2017/jan/01/jean-claude...
2.Give intellectual property rights to one company in one country with low taxation like Ireland or a state like Maryland.
3. Make all the subsidiaries pay arbitrary patent-copyright-trademark rights to the company in Ireland-Maryland-Singapur so all the profits become zero in the different countries while transferring all those profits away.
Therefore countries with low taxes (Ireland but also Luxembourg) attract a disproportionate amount of big companies HQ. Ikea, for instance, is officially declared in Luxembourg.
Why so many people in EU rejoice about the Brexit is because UK has been one of the main force opposing fiscal harmonization (apparently London is a bit of a tax haven for financial service companies) so hopefully this kind of efforts can go forward.
Here is for example an opinion piece by Michel Rocard, a former French PM (left-wing guy, really not a nationalist), before the Brexit: https://www.reddit.com/r/europe/comments/27e68h/what_rocard_...
But at least the will be no more exceptions for participating members of the EU.
The EU was a good concept, but exceptions to members states ( not only UK, but also for Belgium eg. To much debt), made it a lot less usefull
Damned politicians...
Ps. This is not a rant against UK, but against the 'broken' execution of the foundations throughout the years.
Also it's time to send a clear message, you can't get the benefits of you aren't a member
Exceptions on joining, but not participating 100% shouldn't be allowed in the first place
(Not that I have any solutions to these problems, I'm just pointing them out. :) )
If the EU is more concerned about the specific case of internet giants rather than multinational firms in general, they could tax this in a much more practical way by having state run internet service providers charge these content companies for access to their markets.
I wish countries would give up on corporate taxes. They are either easily circumvented, or you need a massive regulatory body to analyze all corporate transactions and determine if they are "fair."
All the same tax revenue can be gained through much better systems that are not trivially circumvented and do not create a perverse incentive for your country's companies to up and move to the nearest tax haven.
> I wish countries would give up on corporate taxes.
I really wish they won't. Right now the small companies pay corporate taxes just fine, it is the big ones that play all kinds of shell games to get out from under their obligations.
Ireland works simply because it is a member of the EU and any EU HQ business can operate anywhere else in EU.
The USA and EU don't because the benefits to their political class have so far outweighed the problems caused by a lack of revenue, and these structures have developed and proliferated rather rapidly. Additionally the political structures required to create collaborative responses have been developed in response to different issues (the necessity of supporting development in Eastern Europe after the collapse of the wall), and the alignments necessary to operate a larger system in Europe are not yet in place.
I do believe that Brexit will facilitate this, but I think that the process will have to go further to include Macron's ideas on a single budget - a greatly expanded take and disperse for the EU. This will require a huge reform of the Commission. I invite everyone to try and engage with the commission in some process or other and then judge what kind of capability you are engaging with.
I hope that the EU will devolve the distribution of central budget items to locally accountable forums, possibly at the sub national level - perhaps six for a country like France, one for somewhere like Greece. Currently I fear that the favour networks that operate in the EU institutions would greatly distort and corrupt any large fiscal rebalancing.
The big issue is that it seems that several of the national level structures in the EU would creak in the face of this kind of new set-up. Spain and Belgium in particular, but even Italy could be pulled apart by the creation of subnational entities with revenue lines independent of the national entity. Also, what would the mechanism of accountability be ? I think that this should vary according to the tradition of the region, but what are the acceptable limits or bounds on this?
Without Brexit this is simply a non-starter, I think that the UK would have been much more compromised than any other EU state by the emergence of this kind of structure, and I think that the English part of the UK would have been a real problem in terms of subnational accountability - the sovereignty of the commons would have gone and I don't see that as politically possible in England (note the other nations are less touchy about that for some reason!)
I see profit as the 'value added' by a particular activity. At least 90% of the value created by Google, Facebook and Apple was created in California. Therefore the vast majority of worldwide income generated by these companies should be subject to the tax rates that apply in California - not Ireland, not Germany, not Spain. So Google, etc should be paying more tax - but they should be paying it to the US government, not the EU. If there is ever an EU Silicon Valley then the EU can tax the worldwide profit of those EU companies.
Personally I would like to see a rule that intellectual property is fixed to the place where it is produced and forever taxed in that jurisdiction - just like land. If you write a book or develop a new drug or software then that IP stays where it was developed.
I'm trying not to be snarky but I need to say wtf.
FB & google don't make money from IP, they make money as service providers, connecting merchants on the advertisement hype train to our eyeballs.
They take money from local and transnational businesses, and present ads, aggregation and search services to individual, local, users.
How is this California related profits when I see ads for $smallbusiness in my french town? Because they host the servers there? Please. To be fair I'd concede Amazon may be different with regards to where the value they create resides but I'm sure you'll feel the same way I do when the tech giants step away from Silicon valley and it looses the sweet sweet techmonies.
This not about IP rights, corporate liberties or socialism, it's about realising when you're defending the fire that's roasting you. 'Cause google and fb don't give a F about US vs EU further than how they can leverage them to lower operating costs.
Her toys are nicer than the family who live at the manor have ever seen, let alone owned.
She's kind of a loud mouth, keeps telling the peasants and the Baronial family that they need to change, that their ideas about life, culture and fairness are all wrong.
How does this story end.?We note that the Barons have swords, pikes, bows and arrows, a long track record of setting fire to houses and decorating them by hanging up the occupants. Perhaps though, this time, they'll simply chillax and go to the seminars that the new woman is running.
If they use option a. I expect that the next peasant in charge of the farm will be much less ostentatious, opinionated and will adopt all of the shiny new practices introduced by the last farmer. They probably won't invent many new ones... but then again are there lots of new ones to be invented now?
This will get a lot worse before it gets better.
How strange. I didn't know Google were an Irish company. I see them when I connect to the internet from all over the world.
It looks like Airbnb also have their EMEA HQ there, as do Apple, eBay, Facebook, IBM, HP, ..., ...
I guess there must be a really big internet market in Ireland for all those guys to be focused on that location, right?
On another note, I tried to pay my taxes through an off-shore location, but I quickly realised I would get jail time for tax evasion.
1) Reading newspapers and watching the news gives me the impression that there are large numbers of people who are not happy with the current social contract.
2) Speaking to people in and outside of my community informs me that there are many people who are not happy with the current social contract.
The line of reasoning I have is that there are simple ways that could readjust the flow of revenue and capital to enable the removal of many of the perceived injustices that other people cite when I speak with them or read of their experiences.
Assuming general principals of US tax law, if you're already working as an independent contractor, you could legally set up a local company and an overseas company, have the local company bill the client, pay you a reasonable amount, and pay the overseas company the remainder for the use of its name (or whatever justification you like).
Your local company would have no net income, but may pay employer side taxes on your wages, and any minimum taxes on corporations in the local jurisdiction.
Your overseas company would have a net income, but you picked an overseas jurisdiction with low taxes, right?
You would have recognized income of the wages, and unrecognized capital gains in the overseas company. At such time as you take the money from the overseas company, that would be recognized as a capital gain.
At the end of the day, you have to run two companies, one in an unfamiliar jurisdiction, and you get to defer recognition of income and change the character of the income from normal income to capital gains. You may also have paid taxes to the overseas jurisdiction that I'm not sure qualifies for a foreign tax credit. It's a real gain, but it may not outweigh the costs.
If you're a direct employee of a company, it's also not an option, since you can't redirect your wages out of your recognized income.
A smaller scale example would be living life as a perpetual traveller°: an internet based entrepreneur who makes $200k a year and bases him/herself in a jurisdiction that does not tax income. Or who travels around between countries to avoid tax.
Instead of paying 40% tax on $200k (= $80k gone, poof) you put that in your pocket and use that to pay for travel expenses. "Going into tax exile" essentially ends up paying for itself, and then some. That is why companies (and individuals) participate in tax avoidance.
°: exception; this doesn't apply to Americans. You get to pay US taxes wherever you reside, above a certain income threshold.
That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.
> That being said, there are countries with loose taxation like Thailand where you can establish residence and avoid taxes as long as you are not operating in the country itself.
I believe you can run foreign companies from Thailand without having to pay tax there, as they have no CFC laws. So the example the poster above gave basically applies, but you would book all your income in ForeignCo and take a small salary in the Thai company from fees you charge ForeignCo. That's essentially a zero tax country then.
USA and Eritrea are unique in that they will tax your worldwide income even if you no longer live in those countries (are non-resident.) No other countries in the world have the brass balls to do that.
Alternatively you can give up your citizenship... I think very few people with US citizenship ever do that.
They essentially punish wealthy people (financially) for renouncing.
(Pretty sure Eritrea isn't collecting much from abroad..)
How many people are collecting income from a full time job while living in Canada anyways? Doesn't foreign income (vs. say capital gains) generally imply non residency?
Also, people who, say, commute from CA to the US on a daily basis will generally be exempt from Canadian taxes because the work is performed in the US (just an example, I have no idea whether you can commute from CA -> US on a daily basis)
It's not quite as magical as it seems though. If you retire in your 40s because of doing that, you'll need a lot more savings than you would at 65.
But to be fair there is a rather large exemption, around US$ 100,000 per year, the nuisance is that you have to file some tax forms anyway:
https://www.irs.gov/individuals/international-taxpayers/us-c...
https://www.americansabroad.org/us-taxes-abroad-for-dummies-...
>The Foreign Earned Income Exclusion (FEIE, using IRS Form 2555) allows you to exclude a certain amount of your EARNED income from US tax. For tax year 2016 (filing in 2017) this exclusion was $101,300.
For example, a Starbucks LLC in "NewTown","Small-EU-Country" is fine billing an "off-shore" company for the use of Starbucks name.
The same is not fine if you are opening a local coffee shop.
Different countries have different laws to combat the use of foreign companies, though. It might end up not being worth it because there are other costs associated with setting up an entity (e.g. some substance requirements)
Also, I'm not an expert on the subject, but I seem to recall reading that in some countries, corporate tax tricks like that don't work for one-person companies. It depends on how many full-time employees the company has.
I think it's ridiculous that big megacorps can eliminate huge parts of their tax burden while the regular Joe cannot. The system is overly complex and tilted in the favor of the rich and large companies. That's not what the people agreed to when they accepted a taxation system during and following the first world war.
The companies may be acting legally, but the question is whether they are acting morally.
We generally expect that of people. Corporations are people, right?
There are plenty of rich assholes out there who would screw people over on a deal (for example, one well known New York real estate developer..)
The notion that these companies should only be beholden to the strictest letter of the law is nonsensical.
Right, they should be beholden to the letter when it benefits them and the spirit when it benefits them. Seriously -- you wouldn't want to live in a world where this isn't the case.
* Nobody should have a technicality in the letter result in fines and punishment when they were following the spirit in earnest.
* Similarly, nobody who takes care to follow the letter exactly should be punished even if it violates the spirit. Because otherwise people and companies have no clear way to know what is and isn't allowed.
It's only when someone is violating both the letter and the spirit that there are grounds for punishment.
I'd argue corporations specifically could do with some more fear of the stick, in the cases where they fall in a grey area.
I think that the letter of the law must be applied generously and sparingly - but the rapid expansion of egregious evasion should be addressed because it is having corrosive social effects that will compromise this attitude and the norms that underpin it.
Also having other things in play doesn't mean that this thing shouldn't be fixed...
A full tax case can easily run for 5 to 10 years, and the upside will be relatively limited. A lot has already been done in recent years and for a lot of EU companies the actual tax rate they pay has gone up with a few percentage points. But now most of the low hanging fruit is gone.
There is nothing wrong with establishing an off-shore company and paying taxes there (or not paying).
Don't confuse company/yourself. Even if you do the off-shore scheme, you'll need to pay taxes for the income you repatriate. It is a good idea, however, if you want to save/invest money without it getting sodomized by yearly taxes.
Here's what you can do. Be self-employed in a certain EU country. Have a company (or any other structure, hell, make it a non-profit if you want). The company finds clients, pays you for the work, bills the clients etc. Since you are self-employed you choose the flat exemption (wouldn't want self-employed people to worry about paperwork :D), so you are only taxed on 40% of your revenue. This works out to about 12% including healthcare, etc. The company pays you exactly the maximum limit for the tax exemption, invests the rest into whatever you want, nice office, job training, business trips (i.e. vacation), ends up with 0 profit.
Depending on the country where your clients are, you might be forced to pay a some taxes there, but eh, you can live with that.
This is not legal advice. I am not your lawyer. Consult a qualified attorney in the appropriate jurisdiction.
Europeans kinda shot themselves in the foot by not having a similar rule, and looks like they're wising up to that.
Even in US there is only one Google, Facebook, Microsoft, Apple, etc. It seems like these global monopolies are a new phenomenon that requires to rethink past economic ideas.
Taxing network externalizes and economic barriers for entry for example. Taxation could be used as natural pressure to correct market failures. Taxing revenue is not what EU countries propose, but it could be viable solution.
Thinking aloud: If company has market share of X% of the population it pays tax from the revenue related to X. If retail company that has 30% market share pays 0.3% extra from its revenue compared to tiny company with just 10,000 customers, it would probably be enough to even out the field and limit barriers to entry.
Taxation isn't natural.
By the way, I'd like to remind everyone: when the state taxes something, the state now depends on that thing for its budget.
> If retail company that has 30% market share pays 0.3% extra from its revenue compared to tiny company with just 10,000 customers, it would probably be enough to even out the field and limit barriers to entry.
If you are really interested in barriers to entry, you can do a thought-experiment (or a real experiment): try to start a business. See where the friction is. And then ask yourself what the barriers were.
Another thought-experiment: imagine if starting and running a business (which includes collecting revenue, paying employees, paying taxes, abiding by the law) were nearly zero-friction. If starting a business had very low artificial friction, then there would _actually_ be natural pressure against market incumbents.
There are different ways for countries compete as "business platforms". I'm not saying that some way is better than another, what I'm saying is that there are different strategies that can work.
High taxes in Nordic countries work as form of evolutionary pressure. They harm low-tech low education requirement jobs and businesses. They drive them to China and to the third world. They help high-tech companies and skilled workers, because taxes pay for great education, safety nets general well-being.
Within US different states have different strategies. High-tech hubs seem to tax more and provide more just like Nordic countries. Some states choose to compete with low regulation low pay jobs against Mexico, China and India. Good luck with that. https://en.wikipedia.org/wiki/State_tax_levels_in_the_United...
Another obvious confounder is that richer states tend to be more urban, and urban places tend to be more liberal. Which vote for higher tax rates and social programs. Rural states are more conservative which favor smaller governments. This is just an effect of political demographics, not a cause of superior tax policies.
Systematic investment to education and infrastructure have provided the tools to become a rich economy. Becoming rich country with low level taxation is possible only for countries with lots of natural resources, like oil.
Additionally, things like education and infrastructure are a tiny fraction of government spending (although they tend to keep growing despite not getting any better.) Almost no one disagrees that the government should fund those things. That's not where the vast majority of your high taxes are going.
To explain, you give some of your kill to the tribe. You share with your family, to provide for them. In return, you get a tribe or family.
The independent person without obligation to return to the social good is largely a myth and, if done, would mean extinction.
Additionally, I don't mind paying my taxes. I do mind how my taxes are spent. They are the cost of living in society.
Note: This doesn't mean I agree with how they spend it.
Let's not minimize those, or poetry or theatre.
Your moral equivalence is not mine, perhaps other like you are a majority or even a significant minority, but perhaps not. In any case I think that for a functional society my equivalence has a higher utility.
I also wonder what the impact will be on their stock prices, because taxes on top-line revenues have a disproportionate impact on profit margins. For example, a 5% tax on revenues would render Amazon unprofitable in the EU and would cut Google's 20%+ net profit margin by about a quarter in the region.
Finally, if this goes through, will other jurisdictions around the world follow?
[1] http://www.sueddeutsche.de/wirtschaft/steueroase-luxemburg-a...
[2] http://www.sueddeutsche.de/news/politik/eu-amazon-zahlt-jetz...
Amazon UK book prices are mostly full-price outside of the bestseller lists. It's been like this for a while (but it wasn't of course how Amazon started). So you could argue their prices are already non-competitive for many books. It doesn't seems to matter though since all their rivals (who undercut Amazon book prices) are on Amazon marketplace anyway, so Amazon still gets a cut of the sale. Win-win for Amazon.
If you are in the UK, wordery.com is often a cheaper alternative than Amazon for many books. So is bookdepository.com, which is ironic given that it is owned by Amazon.
Google benefits from approximately no government infrastructure in France, Germany, Italy, or Spain, but they want to get their grubby hands on it nonetheless.
But hey, those countries ajust want to get their grubby hand in those poor companies.
What the heck has to do your claim of Spain or France being corrupt with Apple or Google declaring losses with record revenues?
While technically they do have offices in Spain and France, they are mainly service offices. The critical operations of Google are carried out in the United States, and to a (far) lesser extent, Canada, Japan, and various other places.
> What the heck has to do your claim of Spain or France being corrupt with Apple or Google declaring losses with record revenues?
It's called expenditure, the vast majority of the wealth Apple and Google generate involves spending a lot of the wealth they made in the past. This is explicitly protected by the tax codes of basically any nation worth doing business in.
Spain, for example, has a rather meh economy, meanwhile the state is funneling public funds into things like a concentrated solar plant which will probably never generate more revenue than expenditure. If not corrupt, then that is at least decadent.
I recommend you sit down, evaluate what you are saying, and try to figure out what on earth that has to do with corporate taxing.
Erm the state isn't a for-profit entity, in fact if it were to generate a profit for some reason and didn't use that money to improve infrastructure and the living conditions of the people it represents then it would've stopped serving its purpose.
It doesn't matter that their investment doesn't generate revenue, it will improve the lives of the people it represents.
You want to do business in a country, you abide by the laws of that country. Governments serve their citizens and their interests. Whatever is convenient for corporations has (or should have) _zero_ bearing on any decisions. In true liberal style: if they don't like the rules they're welcome to go elsewhere.
That said, just because something is legal doesn't make it moral, but even though I think we agree on that, I'd have to argue loopholes are totally in the domain of legislators to fix — if I understand correctly, UK law requires tax payers to report any minimisation schemes they are party to. Does that have teeth? I don't know, but it's a thought.
I have it you view lobbying as having a hand in the code you subsequently exploit, and therefore a major ethics breach ?
I view corporations as non-human intelligences, so while it's totally unethical for a human to manipulate the law to their own ends, it's also something I expect corporations to perceive as acceptable, in as much as that makes sense (they will not shun each other for it) and in much the way we humans generally agree it's wrong to kill but we don't shun people for amputations or appendectomies.
This is why I prefer democratic corporations, rare as they are, to pure capitalist ones — at least the metaphorical appendix has a vote.
I find it fascinating that such emotive language is used. Taxation is pretty much the least "grubby" hand a government has (military: give us all your stuff, legislature: do all our work for us, we will tell you what we think adequate compensation is); and these companies are not only not poor, they are among the richest on the planet and they got almost all of that wealth this century.
But why won't anyone think of those poor, starving, unemployed, multi billion dollar international corporations? :P
I thought that the sarcastic tone was clear :)
But there's a very particularly European problem here, that of cross-state revenue recognition. A gross receipts tax or similar is one solution, which is also present in four US states: https://taxfoundation.org/state-corporate-income-tax-rates-a...
(Yes, that's a joke in French, but I'm not really about to type a treatise on popular sovereignty in the Spanish constitution for two reasons. Firstly I'm on a phone, and secondly I know nothing about it)
I do wish one day we could have a discussion that didn't have to argue the existence of gonvernment and taxation from first principles, but today is not that day.
This is too unfair. [0]
A tax on Spanish and French revenues is a tax on Spanish and French consumption, which is already charged. If it is advertising revenue, then the tax will be charged on the advertised products and services and likely also on the charges to the advertisers.
L'état, c'est certains d'entre nous!
> I do wish one day we could have a discussion that didn't have to argue the existence of gonvernment and taxation from first principles, but today is not that day.
I'm not arguing for or against taxation as a whole in any sense, with or without first principles. I'm arguing that this particular instantiation does not fit the justifications for the existing tax regime, and serves no purpose but to increase the price of services to the people in these countries (and in order to fund something which has not even been defined).
This taxation, not part of law in any of these countries, is effectively a transaction tax. If the goal is to discourage transactions, then well, go ahead and levy it. Pat yourself on the back knowing that your citizens are doing less business and more of their money is going to the state for whatever purpose the state sees fit.
This is one of the key infrastructure that government provides and Google depends.
As far as I understand, all treaties of this sort are bilateral.
If not someone should figure out how to put a server on a satellite so they could claim no taxes are due as transaction is extraterrestrial.
Tell me how this would be anything but fair.
They directly depend on the infrastructure to reach their customers. And they indirectly depend on the people having a high standard of living which also requires infrastructure. If your country is a 3rd-world shithole without infrastructure you'll have a very hard time selling your products which sit high on maslow's hierarchy.
I use a road to get to work. My work pay my salary. My salary pays amazon for crap delivered to my house. The package comes delivered on the same road. The internet connection I used to visit amazons page is delivered via fiber to my house, funded just like other infrastructure. So the road and fiber was very important for my society being a developed high-income one, which is why I'm buying crap from the internet in the first place.
However, the topic here is the indirect benefit of being a wealthy nation where you can have customers wealthy enough to care about your products in the first place. The argument is that this is the result of something the society or the government did and it whoever benefits from that must pay their share for the access to that benefit, possibly to keep or improve the conditions that lead that wealth in the first place.
And Netflix should be getting a bill from Verizon when their traffic goes though their network.
These countries have mostly tax financed universities free or only with nominal tuitions for students. Without such education system the internet companies would have few customers wealthy enough to create a lot of profit for the company.
But if that US business goes to France and sells to French customers there, then it should pay French taxes in France on the profits made from French customers. All loopholes should be removed.
What happens is that corporate taxes ultimately come from the pockets of customers. Either those companies will raise prices or lower their profits. Either way this will help local companies that currently can't exploits loopholes to pay no taxes and are at an unfair disadvantage. Somebody could see it as protectionism, I think the existence of those loopholes is a bug that has to be fixed.
And Netflix should probably be getting billed from Verizon, Comcast, AT&T, L3, WOW, etc. too since they can only access their customers through their infrastructure.