EU lost up to €5.4B in tax revenues from Google, Facebook: report | Hacker News Reader

EU lost up to €5.4B in tax revenues from Google, Facebook: report

reuters.com

148 pointsprostoalex214 comments

Taxing multinational corps is pretty difficult.

Let's say a parent company UsTech, which makes money from ads on a ubiquitous digital platform, has an Irish subsidiary UsTechDublin,LLC and a German subsidiary UsTechBerlin,GMBH. UsTechBerlin hosts a bunch of very well paid engineers who work on app performance and backend infrastructure efficiency; UsTechDublin hosts a bunch of low paid customer service reps that provide support to end users. Both offices clearly provide something of value that helps the parent company UsTech make money, but nobody has paid a (euro)cent to purchase ads from either the Irish or German offices while those offices have paid a bunch of money in salary and benefits. So, how much should they owe the tax man in each country?

That's up to UsTech. The "revenue" "earned" by UsTechDublin is an accounting-only transfer from UsTech for providing customer service. The "revenue" "earned" by UsTechBerlin is an accounting-only transfer from UsTech for performance improvements and infrastructure designs. If corporate tax rates in Germany and Ireland are higher than those in the US and UsTech accountants aren't total morons, the transfer payment to each subsidiary will be exactly enough to ensure that revenue matches expenses and there's no profit to be taxed on the books of either UsTechDublin or UsTechBerlin. If, on the other hand, the corporate tax rate in Ireland is lower than in the US and the corporate tax rate in Germany is higher then magically services of the customer service reps of UsTechDublin may be "sold" to UsTech at usurious rates while those of the software engineers of UsTechBerlin are "sold" for a pittance.

The "lost" tax revenue being claimed here is essentially saying that multinationals chose their transfer payments in such a way as to not have their profits appear in high-tax EU nations. Well … duh.

The problem is that it's hard to envision a governmental bureaucracy capable of challenging and very accurately assessing the true rates on intra-subsidiary transfers without it being breathtakingly large in scope and stifling to the functioning of the economy in question. Current rules for it [1] leave plenty of wiggle room.

[1] https://en.wikipedia.org/wiki/Transfer_pricing

Require UsTech to run their sales to their Ireland and German customers through their Ireland and German subsidiaries. Then tax them based upon the result of their (sales to Irish customers - Irish costs) and in Germany, the equavelent (sales to German customers - German costs).

It's quite possible in those two places, they would pay no tax because their costs are higher, but this is also an incentive to keep employing people in said countries.

To help enforce this, other companies in Ireland and Germany would only be able to reduce their taxes by purchasing from Irish and German registered companies (tax based on Irish costs - Irish sales) which would mean that they would be incentivised to buy from these rather than UsTech global corp.

A problem with this solution -- as a US company without a German subsidiary (but as with most online businesses, with German customers), do I now have to pay taxes in Germany?

If the former, the logical conclusion of that approach is that every startup has to pay taxes in all 195 countries of the world, as soon as they open for business. This could be on $0.01 of ad revenue.

If the latter, I'm strongly incentivized to move my labor from the high-tax countries to the low-tax ones, which will push business out of the former. (I.e. at the margin, if I have a small office in Germany, it's probably not worth my while to keep it open since it incurs a massive tax liability).

No, you wouldn't have to pay taxes in Germany. But, if you sell to German businesses, such as providing hosting services then they wouldn't be able to deduct that as costs when calculating their taxes.

They would only be able to deduct German costs, defined as the employment of someone with a NI number (or German equivalent) or another business with a tax number.

So you disincentivize using any services in countries other than the one your subsidiary is in? They would have to be significantly better than other options to be worth not being able to deduct those costs.

I should add that it would only be possible to require a company to have a local subsidiary if it has a physical presence in the country. Someone like Amazon will because they have warehouses.

Someone like Google could probably get away with doing business remotely, but then any business that buys from them would not be able to deduct that as a cost when calculating tax which would effectively mean that they pay the tax, making a local rival more competitive.

So unfair competitive advantage to the local companies? If it were so easy I wonder why they don't do this already.

Additionally what about services or products that don't exist or haven't had time to be replicated in one's country. Then that country cannot be on the cutting edge of new technology simply because they penalize buying from international companies.

It would be an advantage to local companies - yes! At the moment, local companies are often at a disadvantage because they're paying more tax than those companies who are legally based overseas.

If the product or service doesn't exist locally, then the purchasing company will indeed need to pay tax, if and only if it's local sales are greater than local costs. If buying this overseas service such as AWS hosting gives it an advantage such as cheaper and simpler scaling then it may well be worth them buying it to pay the tax.

At the moment, an outside company can come in and pay little to no tax by licensing IP from another subsidiary in a third country. A local company is then at a disadvantage and is effectively paying for the infrastructure through their own taxes to support a competitor.

This is one of those things that sounds great on paper but in practice basically kills any chance of a startup environment in the country. Why would a startup wish to grow in such a nation if there are other places where the ability to buy useful services from other international companies are so much cheaper?

Because a startup is likely to have greater local costs than local sales and so wouldn't pay any taxes.

When you start a company, you have many local costs (wages, rent, utilities) and yet you haven't made any sales. In the tech sector, when you do make sales they are likely to be at least in part overseas.

Therefore, it will be a while before you then have to pay any tax. When you get big enough that your local sales become larger than your local costs, then you will probably be able to afford the extra tax as you are now benefiting from the infrastructure provided by the state.

> (sales to Irish customers - Irish costs) and in Germany, the equavelent (sales to German customers - German costs).

The way companies deal with this is to create artificial costs. For instance have the German part pay big patent license fees (loan interest is another option) to the Irish part. Then German sales - German costs = 0.

If the German part pays big licence fees to the Irish part then that wouldn't be deductible. They would only be able to deduct German costs.

I thought that a necessary part of the "Double Irish with a Dutch Sandwich" was that a company in a tax haven can license IP to its subsidiary at an arbitrary price. Therefore, that company can offset any profit its own subsidiary might make.

To do this requires two things:

1. That the license arrangement with the subsidiary is unique to that subsidiary.

2. That the license fee can be set to any value at any time.

For more concrete assets, for example a bag of coffee beans, it's easier to see when a parent company charges a subsidiary a different amount than the market rate. However, there is no comparable market for IP, so it's harder to see what a "fair" price for a copyright, trademark or patent might be.

One option might be to tax all IP licenses at the corporate tax rate. Another would be to adopt a "most favoured licensee" rule, requiring all licensees to pay whatever the cheapest rate was (or taxing the difference).

The Double Irish + Dutch is merely the most extreme example of the transfer pricing morass (and will go away in a few years). There are a bunch of other funky methods described in the wikipedia article I posted on the topic; defining and proving in court that a particular method of determining "market rate" was unreasonably chosen and incorrect enough to be worth the trouble is quite involved and, in normative terms, a big waste of economic potential (brain power on both sides is devoted to … that, rather than something useful).

As for "taxing IP licenses at the corporate tax rate", that seems nonsensical given that it's profit (aka value added) that is subject to tax, not revenue.

I wasn't suggesting that anyone define or prove a "market rate" for intangibles. I agree that would be a waste of time. The reason I mentioned it was as a contrast to IP licenses, for which no market exists.

Profits are subject to tax, as are people's incomes, consumer sales, assets such as cars, TVs and homes, and goods which cross customs borders. I was suggesting that another tax (or duty) be created to discourage the offsetting of profits using IP licenses.

What you are describing is exactly the issue with the current system, correct? That is, taxation based on physical presence only, and the arbitrary ways corporationsn can do intra-subsidiary transfers.

A tax for megacorps based on revenue seems a lot simpler.

Taxing on revenue is simpler but utterly non-sensical.

If selling a phone that cost $800 to make for $805 incurs an 80x tax liability compared to selling hammer that cost $5 to make for $10, then the modern economy of long supply chains and specialization grinds to a halt.

Another way to think about it: a single year in which the tax on revenue is higher than profit would require the business to be go into debt or be sold to pay the tax man; except then what's the value of that business to a creditor / acquirer if it has that threat hanging over its head?

Perhaps I was unclear: The suggestion is not to tax the revenue, but to tax based on revenue - that is: the tax would still be on $5 profit but where that tax is extracted is decided by where the company was doing business, rather than where it is incorporated.

Hmm thats effectively consumption tax of very significant rate (eg 33%).

How is that? The same corporation could be paying exactly the same corporate tax rate on exactly the same base, under such a scheme.

In my understanding what you are saying is, a country will tax profit on revenue generating from its own territory by its own tax rate.

For the sake of simplicity, assume 100% profit margin. Let R and R' be revenue generating without and with such tax law. Let T be tax rate.

So a company was hoping R into its bank account. But with the new taxes it would be (R - RT). Naturally the company would just increase the revenue to R' (by increasing prices) where it would give R'T to Govt and keep (R' - R'T).

R'(1 - T) = R

R' = R/(1-T)

Actually I underestimated new tax, for T=33% it would be 49.25%.

I think the key thing here is "based on" does not have to be "equal to".

One option, which I've not thought through, would be something like the following:

You make £500 profit.

You pay 20% corporation tax, so that's £100. The question is who does that get paid to?

If 15% of your revenue comes from the UK and 50% comes from France, then £15 of the corp. tax goes to the UK and £50 goes to France.

More complicated with different company structures and corp. tax differences between countries, etc, but I think this may be what they're getting at.

Thats easy to avoid. US Co will sell to Ireland Co which in turn will sell in UK/France. Since Ireland legally allows to go profit as low as 0.05%. UK/France is not getting much.

Also when US says 20%. It means US gets £100. US aint the sharing type :p.

How would this even work with territorial taxation countries such as Singapore/Hong Kong ?

The US->Ireland->EU thing is exactly what's going on now, and exactly what proposals like this are trying to address.

This kind of system will only work within a group of nations that agree that this is a good idea, such as the EU. Ireland and the Netherlands probably don't agree - but can hopefully be forced.

Obviously no countries in the EU have territorial taxation.

The US->Ireland->EU thing is exactly what's going on now, and exactly what proposals like this are trying to address.

Thats why gave this example to show that it does not work as profit remains the same.

Lets assume there is no US Co. Ireland Co is parent company and its only doing business in EU. Then either Ireland [1] allows low tax rates to attract business in which case profit is low and thus UK/France share is low. Or Ireland is high-tax, then business move to another low-tax in EU.

This only work if there is single tax rate in EU. But if there is single tax rate, then why even go this complicated tax calculation route.

[1] Estonia (and in near future Latvia) does not tax untill profit distribution, reducing effective tax rate to 0%.

In your example if Ireland Co makes 30% of its sales in France, then it would have to pay taxes on 30% of its profit to France (at French rate). That limits the reason to go to Ireland in the first place, which is why Ireland is largely against it. In fact it would encourage corporations to move their costs to countries with large customer base and high taxation rates to reduce the profits there, so it would favor the like of France, Germany or Italy.

The "trick", if I understand, is to only care where the final service/product is actually delivered. So in your example the idea would be to ignore France SAS, or rather I imagine to assume Ireland Co and France SAS are one and the same, and tax them "together".

At first glance it sounds very hard to setup (and it certainly is), but that's what is being attempted here. On the other hand it's not particularly complicated to know whom Google is selling ads to, and where iPhones are sold, so there must exist a solution to this problem...

> In my understanding what you are saying is, a country will tax profit on revenue generating from its own territory by its own tax rate.

Say we have a hypothetical company that operates only in Sweden and Ireland, and has offices only in Ireland. It has a revenue of €10M and a profit of €1M.

This company had €4M (40%) of it's revenue in Sweden (tax rate 22%) and 60% of the revenue in Ireland (tax rate 12.5%). How should this corporation be taxed?

By proportion of revenue according to the normal tax rate in the country. So

In Sweden: Tax 40% (the proportion of revenue) of the profit

(€4M/10M) * €1M * 0.22 = €88k

In Ireland : Tax 60% of the profit

(€6M/10M) * €1M * 0.125 = €75k

So the total tax went from €125k to €163k, because the corporation was forced to pay taxes where it made business, rather than on Ireland alone.

Basically you just pretend that the corporation was in fact two corporations, where one €4M revenue corporation was in Sweden and the other was a €6M revenue corporation in Ireland. That's all.

But you are not increasing prices. Taxes gets passed on to consumers because companies do not take hit on profit margin just because of different tax rates.

So lets assume €10M is the already inflated ammount to accommodate for Ireland/Sweden share. Then only (€3.12m, €5.25) was needed from (Sweden, Ireland) if taxes were zero. €3.12m + €5.25m = €8.37m. €163k (€10m - €8.37) went to Govts. Then consumption taxes would be (28.2%, 14.2%) for (Sweden, Ireland). Swedese are paying (.282-.142)/(1+.142) = 16.3% more than Irish for same product.

You can calculate all these from equation in my comment before. I write here again,

R'(1-T) = R

whereas T is tax rates. R' is inflated revenue. R is zerotax revenue.

Yes, all kinds of secondary effects may come of this. Such as price increases, (and from that then tertiary effects such as reduced consumption). A reasonable effect is also companies moving around somewhat to get closer to business rather than close to low taxes.

In this example Swedish consumers would potentially see price increases - but on the other hand they could see tax reductions if the increased tax revenue from corporations gives some reform space for income or consumption tax cuts. Potential for jobs moving in from Ireland has the same positive effect on the bottom line.

The losers in the above scenario is the Irish because they'd see increased prices, lost jobs, and potentially raised taxes to offset lost corporate tax revenue.

A reasonable effect is also companies moving around somewhat to get closer to business rather than close to low taxes.

Why ? The payroll will increase even if profit remains the same.

The losers in the above scenario is the Irish because they'd see increased prices, lost jobs, and potentially raised taxes to offset lost corporate tax revenue.

I doubt it. Consumption tax are never popular. Instead of businesses, the people at large might migrate to Ireland for significantly low cost of living.

Ok now I'm not sure what you are arguing: are you saying this is a bad idea because it is too hard to implement?

Or a bad idea because of how it would increase corporate taxes, which would land on consumers?

I can't see how it would be a net negative for those countries that would get a nonzero corporate tax from megacorps that today contribute around zero. Even with price increases, the net effect seems like it would be positive

Its very high consumption tax. Effective, implementable but harder to get public support for. Cost of living (CoL) would rise. High corporate tax means high CoL. Every percentage increase will make it worse than last percentage. Wages would have to rise significantly. This will discourage business from moving to high-tax countries. People will likely move to low-tax countries.

Because countries are not getting new money. Old money is just cycling between govt and people.

> Its very high consumption tax

You keep saying that, and I keep not understanding it. I realize higher prices (Companies shifting the tax to consumers) is a burden for consumers. But at the same time, if government tax revenue increases, then taxes could be cut (of all kinds: income, VAT, and corporate).

E.g. IKEA in Sweden ships 3% of their revenue as "royalties" to a dutch company, thereby reducing their swedish tax amount by over €100M/yr. If that money and money from similar companies was actually paid in Sweden, then Sweden could have a lower tax rate (e.g. 20%) and still have the same revenue. Or the VAT could be slightly lowered from 25%, to offset the fact that for a few products from multinational corporations, the products would be slightly more expensive.

Also: the argument that higher corporate tax rate = Higher CoL = bad, could be extended too. But how far? If the rest of the EU adopted Irelands low corporate tax rate, what would happen then?

So almost like an EU VATMOSS for profit?

Could be a few issues with it still, e.g. declaring that your in-house logistics operation requires €100 to transport your €200 widget to Sweden, rather than €10 to Ireland, no?

Majority of revenue is coming from ads.

If Google were taxed for each ad income based on the country of where the ad buyer is located, they couldn't manipulate it as easily. Also clients wouldn't be inclined to set up shop in tax havens, because why would they? It's not their problem.

I'm not sure this is a good solution, it might also be possible to game it, but at least that would make sense from the perspective of assigning benefit to a territory: if a myriad small businesses in, say, France, need Google ads, why not tax Google in France for that amount? It is in a sense Google's access to French market that we are taxing.

Could that work?

Strictly speaking of ads - what happens when someone is using VPNs, let's say because the are contracted by an american company?

I like your idea, I'm just curious how this would work? Google might find themselves in violation of the law.

What do you think?

How about a yearly national tax proportional with the amount ad buyers pay for targeting a country - the argument here is that Google, Facebook, etc. are using a national infrastructure to do their business.

I don't understand the issue with VPN. The idea would be to tax the profit of an ad company based on the country of origin of the institution buying the service from them (not country of origin of the seller, which seems to easy to game). VPN can shadow users' location, but not corporate location of tens of millions of companies, at least that's my intuition.

I don't know anything about policy in general, but I'd rather reconsider existing taxes and their mechanisms before introducing even more taxes. Still, I'm guessing just shifting the taxation based on buyer's location would be groundbreaking, possibly not functional for many companies, and introduce a lot of extra work just to get some money from multinationals....

Yearly national tax probably reflects the instinct many people have, that other companies within these markets are taxed for similar activity, but multinationals aren't, and maybe they are getting too good a deal.

There is something similar going on in Poland and I'm guessing many other developing countries: foreign corporations open their shared services centers, recruit really well educated people but get significant tax benefits on this. Also supermarket chains are somehow exempt from some taxation. Supposedly this is to promote jobs locally, but in reality it seems more like a brutal scam: you get great, cheap workforce and do not have to pay as much for access to it in taxes.

Multinationals selling globally, but paying taxes where they like is similar. The sentiment among my friends is that the local corporations sucking in workforce, pulling it away from building our own products and services with international potential, AND getting tax deals is quite bad in the long term.

What? In EU, Google is taxed for each ad income, as well as app sales, based on the country of where the sale takes place. It's called Value Added Tax. Countries can set the rate. Mostly the rates are in the order of 20 %.

VAT is a tax paid by the "last" link in the chain, the user, not by the supplier.

Quick example, you are into the business of making - say - lemonade.

Set aside the machinery involved, you buy lemons, water and sugar.

The BOM for 100 glass or lemonade is:

- 100 lemons 15 € + 0.6 € (VAT is 4 % on lemons)

- 25 liters bottled mineral water 10 € + 2.2 € (VAT is 22% on mineral water)

- 0.5 Kg sugar 0.70 € + 0.07 (VAT is 10% on sugar)

So you have spent ( given to the supplier) 15+10+0.70=25.70 € + 0.6+2.2+0.07=2.87 VAT

Then you sell the 100 glasses of lemonade and get at 1 € each 100 € (included VAT).

The rate is 22% so you are actually getting 81.97 € + 18.03 VAT.

Since you already spent 2.87 € VAT when you bought the ingredients, you owe the government 18.03-2.87=15.16 € for VAT.

The whole idea of the VAT (or Value Added Tax) is that it applies to the differential in value.

So you have 81.97 € remaining from which you subtract the 25.70 € you spent for the ingredients, and - say - 10.30 € for other (documented) expenses, electricity, depreciation of machinery, etc., local taxes for the stand, etc.

You remain with a net income of 81.97-25.70-10.30=45.97 for which you own the government income taxes at a marginal rate of (still say) 35% 16.09 €.

Now imagine that your lemon squeezing process is covered by a patent for which you have to pay a firm in Ireland (which is also yours) 0.35 € per produced glass. (to simplify, let's say that this is exempt from VAT).

Now your income is 81.97-25.70-10.30-35.00=10.97, thus you owe the government 35% of that 3.84 €.

Meanwhile in Ireland those 35 € (without expenses) are income taxed at a rate of (say) 10% so you give the Irish government 3.50 €.

Instead of the 16.09 € in taxes, you paid 3.84+3.50=7.84 €.

> VAT is a tax paid by the "last" link in the chain, the user, not by the supplier.

Not quite. As Wikipedia puts it, VAT is collected incrementally, based on the surplus value, added to the price on the work at each stage of production.

That is the actual tax incidence. That the tax payment is channeled via the last link in chain is just a technicality relevant for the most efficient implementation of this incremental scheme.

>Not quite.

The one that pays the actual tax is the one getting the last (most valued) item, i.e. the final user (consumer).

The way it is collected (incrementally) is not connected to WHO pays WHAT.

If an user pays 122 € (100+22 €) that is the total tax (and is payed integrally by the user).

The government gets in total 22 € (integrally paid by the customer at the end) but it receives that amount in (say) 3 steps by differnt actors:

1 - 10% of 30= 3 The manufacturer buys the raw material, pays the VAT to the supplier that (hypothetically) has no preceding VAT costs and thus must give to the government the whole 3 €

2 - 22% of 80= 17,60-3= 14,60 then he does something with it and resells the product for 80 (i.e. it adds value, reselling it for 80 + VAT to a shop) and has to give to the government the differnece

3- 22% of 100=22-17,60=4,40 the shop sells the item to a consumer and has to give to the government the difference

The government gets 3+14.60+4.40=22 € The final user has paid 22 €

The incremental collection method allows to have the tax largely paid in advance, but the amount at the end comes out of the final user pocket.

The Wikipedia has it very clear:

https://en.wikipedia.org/wiki/Value-added_tax

https://en.wikipedia.org/wiki/Value-added_tax#With_a_value-a...

https://upload.wikimedia.org/wikipedia/commons/2/28/VAT3b22....

Google's customers are almost all VAT collecting companies. That means that not Google but their customer is responsible for paying the tax. It can be deducted from their tax burden they have because they sell to end-consumers.

The point of this discussion is not the tax on the sale itself (which is indeed already there) but on the profit at Google that results of this sale.

Google has plenty of non-VAT-collecting consumers as customers. For instance, anyone who purchases apps or makes in-app purchases.

Looking at their income statement (although not as detailed as one would like) reveals that this amount is minuscule compared to their ad revenue.

VAT is not a tax on companies, it is a tax on consumer spending. VAT is merely collected by the companies on behalf of the tax authorities. What's the difference? Well, for one, the company cannot deduct VAT since it is zero-sum; they are only transferring it. Secondly VAT is exactly the same no matter which country the company operates in.

I am not sure if it's still ongoing but any immaterial good you buy on a major website used to be taxed at the Luxembourg rate, which is the smallest in Europe. It's a pretty clear sign that sales are not attached to the country of the customer.

That has changed. Companies are now required to charge the VAT rate of the customer's country for digital goods (and have to store some data to prove that they picked the correct country).

This changed long (10-15 years) ago.

When I (resident in Finland) buy stuff from web shops in Germany, I pay tax at the higher Finnish rates, and it is withheld by the seller.

(When I buy from e.g. China, I pay VAT at the customs, including VAT on freight.)

So I want to implement Common Consolidated Corporate Tax Base CCCTB across Europe, which means I want to have the power to determine the rules for the whole EU. I then create a report projecting that we could increase our tax revenue if we pass the law to give me more power.

I have some thoughts. 1) The projected windfall from this CCCTB will not materialize... if we take history as a indicator. When ever does companies or people not react to increased taxes? 2) Losing the ability to attract international companies will hurt countries / cities that are lower on the marketability scale. Would the 'Celtic Tiger' miracle have happened if they did not have the sovereignty to attract international companies with lower taxes. That is doubtful at best. 3) Competition, including taxes, is great for Europeans. If we study history we see that competition is one of the components that resulted in the dominance of the west. (see Civilization: Is the West History?) 4) The biggest reason Brussels is doing this is not to have to ask each country for money anymore. These negotiations have become more tough for Brussels, since the countries are pushing back on exorbitant spending by Brussels.

> Competition, including taxes, is great for Europeans. If we study history we see that competition is one of the components that resulted in the dominance of the west. (see Civilization: Is the West History?

I don't know. Competition for making the best science, technology, music, literature, food, ... seems different to me than just giving big corporations clever ways to avoid paying taxes for funding education, social security, infrastructure, ...

Or, if that kind of competition is so positive, is the US tech sector doomed because it does not give enough leverage for google and facebook to avoid paying taxes there?

I agree, that having companies compete on bringing out the best products or services is different from having countries compete on taxes. Just to clarify, countries do not give big corporates clever ways to avoid paying taxes totally, but do give them ways to pay less taxes in order to make themselves more attractive. There are various reason they do this, but they only do it if they as a location is not attractive compared to other locations.

The issue is more complex if you dig deeper and start comparing the US and EU. As a general rule western Europe has lower corporate tax and higher income tax than the USA. If you dig deeper you can also see that certain business cluster do not need to give any tax breaks to attract and keep companies, because they have a thriving business cluster. Think of the wine-growing industry in California and the flower-growing business in the Netherlands.

My main issue with centralizing the tax rules is that it will hurt the less attractive regions of Europe.

There are better ways than a broken tax system to help less attractive regions, for example less deflationary pressure from countries like Germany. A deal better than the status quo is possible

Why not for the whole world and get rid of tax havens for corps and for wealthy indivs as well? This would put pressure and incentives on govt's to be fairer about taxes in multiple ways.

We've got corps who won't repatriate money cuz profits overseas...[apple and indivs with overseas shell cos, etc.]

The article was about giving tax creation power to Brussels and removing that power from the EU countries. This would not result in a fairer tax, but a tax that you have voice in changing. Brussel bureaucrats are not voted into office by the people and can therefore also not be removed from office by the people.

I agree that governments should strife for a fairer tax and a good start would be a simpler tax. There I agree that unnecessary complexity have created loopholes. I however do think that the European Union should set the example and start paying taxes like normal citizens in their respective countries. The European Patent Offices in Europe do not pay any taxes in the countries they are situated. They have their own internal low tax system. Talk about writing your own rules for avoiding taxes.

Just to touch on the issue of USA companies not repatriating money back to the USA. This is a problem with the USA tax code. The Netherlands for example do not have this issue, since they have double tax treaties with various countries and when they do not have a treaty the participation exemptions kicks in. The participation exemption says that you will not be taxed again in the Netherlands if you own >= 5% of a foreign company when a dividend is payed from the daughter company to parent companies. The logic of the dutch is that foreign dividends have been taxes and is therefore exempt.

Well you can see that as an act of competition between Brussels and the tax havens if you want to frame every human progress in terms of competition between actors.

It is a competition on who has the sovereign power to levy tax. Brussels or the individual country.

Sure. In my book a competition is between two peers. When the two competitors are grossly asymmetrical I call that a conflict, and consider we are outside of the free market doctrine, but whatever floats your boat.

Good point. I do not dispute your wording.

I really hope a new tax bill comes through, I am tired of US companies (and others) that can simply avoid paying tax while small shops pay a lot of taxes in the EU. They use our well developed infrastructure for their own benefit and does not pay anything back.

I hope they get a fat bill.

The underlying problem is that companies take advantage of "globalization". Companies can legally move not only their production abroad but also the profit. So companies naturally — with the blessing of American business inteligensia — avoid taxes. I think national control of the economy is eminent and is the only way forward if you want to realize and spread some of the tremendous opportunities and benefits that automatization and digitalization brings us.

Fundamentally the "problem" lies in the fact that the nominal tax rate they can expect to pay in the United States is the highest among all the developed nations. Ireland is prudent and wise enough to be the better home for their revenues.

Globalization means that nations, provinces, and municipalities compete for the patronage of businesses. If you want a global economy, but you also want to be the legal home of Google and Microsoft, you will need to compete globally to offer better ROI: both in the cost of doing business, and in the proportion of the return which they get to keep. This is also why we keep piling on exceptions and deductions in order to stop the bleeding and keep at least some major firms from migrating all of their capital out of the country.

Fundamently the problem lies in the fact that civilised countries forget how much more social security a corporation gets from operating a business in there: no hostile takeovers, police coming in time, medical insurance for their employees, functional legal systems.

Take all of this away and a corporation is going to be killed instantly (you're a victim of fraud on a massive scale? you haven't payed your taxes this year, so no retribution for you).

So no, I don't think the fundamental issue is just the ROI.

> Fundamently the problem lies in the fact that civilised countries forget how much more social security a corporation gets from operating a business in there: no hostile takeovers, police coming in time, medical insurance for their employees, functional legal systems.

Wouldn't this all impact ROI?

It would, but it does not since it is provided essentially for free.

That's not "competition" between countries. You talking about shitty tax law that doesn't take into account bad acting countries (even within the EU). I don't care about a companies legal home. If they want to make business with consumers in my country those deals should yield taxes to my country. That seems to be the intend of the article's proposal. But the EU also wants to make it easy for companies to offer their products in all member states without making tax dealings to complicated. Having a different set of rules once the company exceeds some revenue doesn't feel like a perfect solution, but way better than them not contributing.

> bad acting countries

In what way is Ireland a bad actor? Locally operated businesses get a good deal too. What about Poland? Those shipyards aren't moving to your tax hell any time soon, but that doesn't make Poland a "bad actor".

It may surprise you, but no country has the obligation to exploit and screw over businesses as much as yours would like to.

You can't complete with a country like Singapore, which literally asked foreign hedge fund managers to help write their tax laws. You can setup a company in Singapore for 1000$ per year and you pay no tax on all income outside Singapore.

Why can't you compete with a country like Singapore? Aside from very strict regulations on social taboos (being visibly naked through a window, chewing gum, drugs [a superset of each major religious group's preferences]), Singapore functions quite well. They have less than 2% unemployment, they are highly developed, GDP per capita is only slightly lower than the United States, income inequality is fairly high, but absolute poverty is exceedingly rare and mobility is good.

Of course, there are cultural differences which would probably get in the way of the U.S. reaching goals like this with such efficiency, but surely Singapore proves that it's possible.

I don't really see why foreign companies should be paying any (non-sales) tax in the EU at all. If you ship a physical product to the EU from China, no-one expects the Chinese factory to pay taxes on their EU revenues.

Of course tech companies are not blameless here, they have decided that paying taxes in Ireland is preferable to paying taxes in the US, but if they had their tax location in the US, I don't see how the EU would have a leg to stand on.

So you mean that companies like Facebook and Google that uses my countrys roads, medical system (for their employees, you don't need to pay for that in my country) and similar stuff, they should pay no tax? Facebook have a big datacenter in my country, partly funded by the government. But yeah, they should pay no taxes. They only consume a lot more of everything than any other company and should give nothing back.

I hope you are not serious.

Your employees pay taxes for healthcare, I'm sure you have some sort of tax on petrol to maintain your roads, I'm sure the local trucking company that actually drove on the roads paid some taxes. I'm sure they pay property taxes on the land they use if you have them. I'm sure they pay for water permits and all that for cooling too.

The question is, why is your country entitled to tax their revenue/profits? That is far bigger than the marginal stress they put on your resources.

If they were a company selling physical products that they paid someone like DHL to deliver, this would be a completely silly discussion.

> The question is, why is your country entitled to tax their revenue/profits? That is far bigger than the marginal stress they put on your resources.

Because my country offers highly educated personell and their education is enabled to exist due to taxes not only towards people being employed but for companies taking out profits as well.

The idea of a company taking out profits from another country even if the value of the product is created in my country by our trained personell is fucked up and will in the long run result be an economic disaster for my country since we can't fund our establishments.

Also, it will render the market less competative since smaller shops have a harder time to compete against these giants who pay nearly 0% tax.

They use our well developed infrastructure for their own benefit

Can you explain your reasoning more?

So, for example an internet user in the EU is paying some local ISP to request services from google.com. The ISP presumably pays taxes on the revenues or profits from using local fiber & infrastructure in order to connect the user with google.com.

In this case, they are no different than any other website/domain/internet service aside from scale and all of the taxes to fund infrastructure would come from the ISP and some portion of government financing.

What I am missing is how Google is "us[ing] our well developed infrastructure for their own benefit" in a different manner than say skysports.com?

Well, Google operates more than in the web browser. They have a spawn in most countries and mine is no different.

If they employ people in Sweden, sick days are covered by the government, health, roads, parental leave, governmental services, public transportation etc..

If they avoid taxes by simply saying they have no profit here, because they give all the revenue to the parent company, it means that everybody else in Sweden needs to cover their costs since they will probably pay close to zero in taxes. While any other shop needs to pay taxes.

I don't know if skysports operate in Sweden, but my guess is that they do not.

The thing is, I don't want Sweden to become like the US. Because our way of doing things are so much superior in my mind. I don't want to get a bill after I go to the hospital, I want free education, I want good roads and internet connectivity. All the stuff we have companies like these help to destroy to increase their profits.

meanwhile, common people pay even more than small shops - about 60% total income compared to around 20%

They pay for your infrastructure already (aside from last-mile stuff, which you pay for [partially] whether or not it's a local company).

If you tax it, the prices just go up, nothing really changes.

> They pay for your infrastructure already

Lol, what? The whole point is that WE pay for the infrastructure with our taxes, and those companies use the infrastructure without paying for it.

> those companies

you mean the people who work to build the structure, the teams, the lines of reporting, the buildings, the equipment, the products, the provision of sales and customer service, the management of all of these... they don't pay tax?

what is a company? who is a company?

if you remove all the things that already pay tax (i.e. people) from a company, does the company still exist? and can it pay tax?

When the owner/stockholder lives in the US and peddle their stuff in France, and don't pay France taxes while using their infrastructure.

Except that Facebook, for instance, got 36 million crowns from the Swedish Government. They don't even pay for their own infrastructure.

https://translate.google.se/translate?sl=sv&tl=en&js=y&prev=...

Also not to forget is that sometimes companies make "deals" with countries, to pay less taxes than what was owed in the first place: http://www.reuters.com/article/us-italy-apple-tax/apple-to-p...

"This resulted in estimated revenue losses for EU states, other than Ireland, of between 51 and 54 billion euros between 2013 and 2015, the report concluded."

So if i understand this right, this is basically: the EU didn't really lose anything, since ireland is in the EU, but the other states would have gotten more in total if they weren't allowed to do this?

My other understanding is that the tax laws of all the EU countries are not controlled by the EU, but by the individual countries?

If so, this sounds like it would be like saying "US states lose billions in tax revenue from Google because they locate in delaware"

Is that a reasonable conversion for a US'ian?

Not a reasonable conversion for mainly two reasons:

* Ireland is a stepstone to not taxing most of their profits at all. Read about the double Irish with a Dutch sandwich (expiring in 2020). Google for example was (is?) an aggressive user of this technique.

* Ireland has made (according to the EU) illegal custom agreements with multinationals. These erode the taxable base in a way that has no link with reality whatsoever. That goes against OECD and EU principles.

[0] https://en.wikipedia.org/wiki/Double_Irish_arrangement [1] https://www.nytimes.com/2016/08/31/technology/apple-tax-eu-i...

Not really. Ireland has some deals going with several digital multinationals.

The guardian writes:

"Google pays €47m in tax in Ireland on €22bn sales revenue"

https://www.theguardian.com/business/2016/nov/04/google-pays...

Ireland is only able to charge such low corporation tax due to the generous subsidies it receives from the EU too.

Can we see some evidence for that claim? According to my research, Ireland is a net contributor to the EU budget. In 2014, the last year for which complete data is available, the country paid €168m more to the EU than it received in grants and payments.

Your comment is either unlucky or massively disingenuous in choosing 2014, as:

"Ireland has [in 2014] become a small net contributor to the EU Budget for the first time since it joined the bloc in 1973"

http://www.independent.ie/business/irish/ireland-contributes...

I think it is not massively disingenuous to use the newest data available. I did not find much better figures for 2015 or 2016. Another source suggests that Ireland has been net contributor since 2013 and continued so in 2015. http://www.thejournal.ie/ireland-financial-gain-from-eu-fran...

It is true that Ireland has been a huge net receiver from EU for a long time. Now that it becomes a net contributor, I suppose we could call that "development". And perhaps this shows that Irish tax policies do increase its economic activities.

I'm not sure what the point you're making is. The country's corporate tax rate was only reduced to 12.5% in the late '90s. Before that, it was comparable to other that of other EU nations. The reduction in the rate, along with other factors, helped the economy to grow over the next 15 years, to the point where the country became a net contributor. It would have happened well before 2014 had the Irish economy not been reeling from the effects of the 2008 crash.

Eh? Think you need to get your facts straight: https://amp.independent.ie/business/irish/ireland-contribute...

Hm? "For the first time since it joined the bloc in 1973" "Since 1973, Ireland has received over €50bn."

So what, your point was that the only reason Ireland can maintain a low corporation tax rate is they benefit from EU funding. And here we are today with Ireland a net contributor to the EU and yet they still manage to maintain a low corporation tax rate.

Well if we're going down that road, that figure is dwarfed by the amount of debt the Irish State took on to bail out European banks...

Wasn't it more like the Irish State was "forced" to bail out some truly awful Irish Banks who were lending money they had borrowed from European banks?

Nice selective headlining from the Guardian. Usually txes are paid on profits. Wouldn't drive the clicks though.

> [..] selective headlining [..] Wouldn't drive the clicks though.

I disagree. The profits are not essential here, because the issue is that the profits are quite small because a tax accounting trick called "double irish" was used (which is explained in the article).

There is a movement calling for tax harmonization in EU. I think this is a "what-if" scenario. "What if there were no internal competition between EU state to make a race to the bottom in terms of tax on profits?"

Well the issue is not the competition on tax, it's tax avoidance/evasion. You can't compete on tax with fiscal paradises that provide no infrastructure to operate a business. Most of the corporations within EU simply create shell companies in Luxembourg and artificially siphon off their profits so that they can pay 1% tax there instead of aprox 20% within EU. Luxembourg doesn't contribute with anything(i.e. infrastructure) to their profit thus I believe this is not "fair". If this[1] is not tax evasion I don't know what tax evasion is

[1] https://www.theguardian.com/business/2014/nov/05/-sp-luxembo...

    > You can't compete on tax with
    > fiscal paradises that provide
    > no infrastructure to operate a
    > business

eg the Isle of Man, where you can get an EU VAT number and pay 0% corporate tax.

well if you dug deep enough you would find it driven by the countries within the EU that have the stronger and more stable economies. In effect they will keep the poorer countries poor because they will be unable to provide tax incentives to gain new businesses.

a classic move branded under some guilt assuming title to prey on people's ignorance to support it.

while there may need to be limits on how sweet of deals that can be made the idea that you can "harmonize" taxes across such a diverse number of countries is unrealistic. Those large countries using this idea to protect their tax base aren't going to also turn around and bring up the poorer countries

> My other understanding is that the tax laws of all the EU countries are not controlled by the EU, but by the individual countries?

This is partially but not 100% correct. Tax laws are controlled or "administered" by individual countries but overseen by EU directives. This means that while individual countries apply the law, their application must comply with EU guidelines. The Irish government has been found guilty in EU court of violating EU law in a tax deal they made with Apple, and this is following on examining tax deals Ireland (or other states, I'm not quite clear on that point myself?) has(/have) made with other large multinationals, and what they would/could be found similarly guilty of were it brought before an EU court.

Can you cite the parts of the treaties that say that?

The reality is that in the treaties the EU very explicitly does not have control over tax. In fact, this was a key issue in the last Irish referendum on the EU treaty changes. The Irish rejected the treaty until they received explicit assurances from the EU that they'd never lose any control over local tax and the EU wouldn't attempt to undermine their local corporate tax rates.

But as it turns out, the EU's assurances on such things were useless and the Irish people were misled.

http://news.bbc.co.uk/1/hi/8288181.stm

Irish opinion is thought to have swung behind the "Yes" vote this time because of the severity of the economic downturn, as well as the legal "guarantees" on Irish sovereignty that the EU pledged after the first referendum. The legally binding "guarantees" state that Lisbon will not affect key areas of Irish sovereignty, such as taxation, military neutrality and family matters such as abortion - significant issues in last year's campaign in Ireland. But they have not yet been attached to the treaty.

The EU doesn't have any direct control over tax, but the treaties govern how law is applied by member states, including tax law. They do this in a multitude of ways, but in the specific case mentioned above you're looking for Article 107 of this treaty[0] which prohibits member states giving corporations individual tax deals that are not afforded to others operating in the same market. The follow-on report on Google, Facebook seems to indicate that they'ree looking at similar individual deals made there.

> But as it turns out, the EU's assurances on such things were useless and the Irish people were misled.

Leaving aside the absolute spurious nature of that BBC article (there is nothing to support the supposition that the No vote (nor the swing to Yes) had anything to do with taxation or - most ridiculous of all - abortion), even in an imaginary world where those issues were of import, I can't see where anyone was misled. Can you cite cases where the guarantees have been broken?

[0] https://www.ecb.europa.eu/ecb/legal/pdf/c_32620121026en.pdf

You prove my point. Article 107 says nothing about tax at all. The EU's case depends on a bizarre redefinition of taxation as "aid", as if taking something away is the same thing as giving it. Article 107 is meant to handle subsidies, hence the discussion of granting things through state resources.

Obviously, nobody told the Irish people that their nation's tax decisions might be retroactively re-classified as "aid" ... and nobody told them that because they were explicitly told that tax was not an EU competency.

There's really no way around that outcome. Regardless of how the EU likes to reinterpret the treaties to grant it newfound powers nobody thought it had, the people of Ireland know what they were promised and know that it's been violated.

For what it's worth, that ruling is strongly disputed by the Irish Government and is under appeal.

True, though Ireland currently has a minority government operating under a combination of coalition and confidence and supply[0], and the ruling is broadly supported not only by opposition, but also by independent coalition members. Opposition to the EU ruling is far from a popular position within Ireland, even within government. "Strongly" is an overstatement.

[0] https://en.wikipedia.org/wiki/Confidence_and_supply

It is strongly disputed by the government, I wasn't talking about the opposition. And Fianna Fail, the main opposition party, would also broadly support the government's position. There is zero chance of there being a government in the foreseeable future that would take a contrary position.

If you were talking about state taxes only, yes. There's no equivalent of federal taxes in EU.

Yes your analysis is correct - this would be a what if scenario

Is the EU tax based on revenue instead of profit?

Or is basing it on revenue in this instance just supposed to make the "percentage paid" smaller to make FB and Google look worse?

Directly mentioned in the article: “Facebook’s taxes as a share of their revenues recorded outside the EU is between 28 percent and 34 percent, whereas in the EU this is a remarkably low ratio of 0.03 percent to 0.10 percent,” the report adds.

Profit numbers are very susceptible to accounting gymnastics. EBITDA and revenue, on the other hand, are more difficult to manipulate. If you make assumption that companies in the same domain have similar operations, then profit margin, and by extension taxes paid on reported profits, should be similar. Based on this assumption, one can say that it is worth looking into when companies in the same domain have significantly different reported profit margins or reported profit margins differ significantly based on location. Tax to revenue ratios in this case differing by two orders of magnitude raise some eyebrows.

I believe the article is just poorly worded in that regard.

> "It says that Google pays taxes worth up to 9 percent of its revenues outside the EU"

They're simply asserting that Google currently pays 9% of its revenue in taxes outside of the EU. I don't believe they are calculating their lost tax revenue that way.

To answer your question in the EU corporate tax is yes based on profit. Your revenue minus your expenses.

Not really. The idea is that they are hiding their profits, and so their profits are not being taxed. But the actual profit (as a percentage of the revenue) that they are hiding is expected to be similar inside and outside of the EU.

It's based on profit.

Seems fair to me you should pay in any country proportionally as much as you generate revenues from that country.

Strategically, I wonder Google/FB/etc. would do better to pay more taxes. The recent GDPR is a total disaster for them. Maybe it could have been avoided if they paid more taxes, and were on friendlier terms with the EU.

It's the same problem with any industry where the laws haven't caught up yet: acting in good faith helps when the laws start to catch up, and being too aggressive/exploitative only ensures the new laws will close the existing loopholes and yet-to-be-envisioned ones

They can't be on friendly terms with the EU because this issue is being driven by internal EU politics and not really anything specific to tech.

The poster above has it right. The EU's goal is to become a new country that eliminates the existing countries. To do that it must have either have its own tax base, or control the member states tax. It is working on both of those simultaneously, trying to control Ireland's tax policies, and also trying to treat fines on tech firms for vague anti-trust "violations" as a kind of taxation. Note that the EU Commission does not have to win in court to claim billion dollar fines, they can simply declare a fine by fiat, thus giving them a massive incentive to abuse their powers.

I'm afraid they would rather minimize their tax bill and maximize their lobbying bill.

"This resulted in estimated revenue losses for EU states, other than Ireland"

What does this mean? Ireland is in the EU. It's like complaining France or Germany don't share their tax revenue proportionally with the rest of the EU states.

Ireland and other EU states have sovereignty over their own tax laws. If you change that you will basically change what the EU is.

Ireland made some kind of special arrangements. For example Apple paid the full tax for products sold in Ireland but only aprox 1% or even less for the products sold in the rest of EU. It's like saying "come to Ireland" and pay no tax to the rest of EU. Ireland is happy because they cash in the tax for the products sold in Ireland plus an extra for the products sold in the rest of EU. If you ask me tax should be paid where the profit is generated.

Ireland has sovereignty over its tax law to a certain extent. For VAT for example there is an EU minimum standard rate of 15% (with an option for a reduced rate).

One of the biggest loopholes is _finally_ expiring in 2020: https://en.wikipedia.org/wiki/Double_Irish_arrangement .

Something else Ireland is limited in is custom tax deals/rulings with individual companies. As an EU member state, one can not just decide to apply an individual tax base or tax rate reduction without basing this in reality, hence https://www.nytimes.com/2016/08/31/technology/apple-tax-eu-i... .

Ireland is basically selling multinational corporations the right to avoid paying their taxes to other European countries in which they have significant activity.

What I want to understand is what happens in the opposite direction, i.e. what does the tax situation look like for e.g Volkswagen cars sold in the US? Do they pay a minimal amount of tax in the US with most of the profits repatriated to Germany? If so it's just a whiney tax grab by the French and Germans who are used to getting their own way in the EU.

> If so it's just a whiney tax grab by the French and Germans who are used to getting their own way in the EU.

What? EU countries are not saying that repatriating profits is bad, what they say is that companies use strategies to avoid to pay taxes.

If USA government think Volkswagen pay so little taxes for revenue done in USA they are the ones that have the saying

Well I don't see any issue repatriating taxed profits. After all they go to a different market to make a profit, right? The issue is when they don't pay their fair share of tax by using various tax evasion schemes more or less "legal".

The reason why they don't pay their fare share of tax is down to US repatriation laws, nothing to do with Ireland: http://www.rollingstone.com/politics/news/the-biggest-tax-sc...

The reason they pay so little tax in the EU is that in line with international law they pay it in the country where most of the innovation that drives those profits occurs, i.e. the US. Or at least they would if the US wasn't basically using its weak repatriation laws as a way of giving its companies a competitive edge against the EU. The moves by France et al can be viewed as a way to address this, but I imagine it would require major changes to international accounting rules and I would be surprised if there wasn't retaliation from the US. I guess my point is you can't really blame Ireland for not doing this unilaterally. Furthermore why should Ireland increase its corporation tax rate when it is explicitly outside the competence of the EU?

>> they pay it in the country where most of the innovation that drives those profits occurs, i.e. the US.

I believe that's quite unfair and wrong and pretty much BS. You ignore the fact that by allowing a "monster" company like Apple to sell in your country you undermine any potential local manufacturer. See the internet industry in China. Would there be Baidu, Alibaba, Weibo etc leaders in the industry without protectionist policies?I highly doubt it! You would see Google, Amazon, Facebook and Twitter. You ignore the fact the the profit made in EU helps Apple to innovate in the US. Without investment/money there is little innovation.

Paying taxes in US for products sold in EU is like Ikea planting trees in Germany to make up for the ones chopped off in Canada. The point is to give back where you make profit, at the point of sale otherwise you end-up with wastelands. You can do that by paying taxes(so that the local gov. can invest on your behalf) or by investing in the local community(i.e. jobs/R&D).

Which is what the point of the article is about. What if the EU was more harmonized, especially at a fiscal level?

The report "says that Google pays taxes worth up to 9 percent of its revenues outside the EU, but this ratio goes down to no more than 0.82 percent inside the EU".

Does anyone know what percent of US revenue Google pays in US taxes? I'm pretty sure it's not 9%

This resulted in estimated revenue losses for EU states, other than Ireland, of between 51 and 54 billion euros between 2013 and 2015

Typo in the headline? Seems to be off by a factor of 10.

The rate approximates 10% so maybe thats the taxable amount vs the payed taxed amount in headline.

No, both the headline and the text refer to tax revenue.

The title says EUR 5.4B, the text of the article states "between 51 and 54 billion euros". How is this accurate reporting on Reuters' part?

Maybe something got lost in translation. In Germany (and maybe it's similar in other EU countries), "Billion" = 10^12 and "Milliarde" = 10^9.

In English, otoh, billion = 10^9.

see, for instance: https://www.dict.cc/?s=billion&=DEEN&=

Is it just me or trans-national corporations will eventually erode our concept of states and borders?

Thats what china tought us all about mega-corps, they may try to outrun and subvert all laws, but at the end, as long as you controll acess to the citizens, you can make them dance.

EU lost ? or the governments lost ? It is a big difference actually.

I wonder how much tax revenue the EU would have lost if Google and Facebook didn't exist.

This isn't the point here though? These companies are doing business in the EU and not playing fair by not paying their share of taxes. This isn't about preventing them from existing, it's about making them contribute what they owe to the EU countries.

I don't want to put words in the parent's mouth but I believe his point is that what is "fair" and what they "owe" are up for debate. Additionally, his question hints at a potentially equally significant and subtle issue: is the effort to capture this increased tax revenue from 4 companies really worth the potential costs on a society to get them?

$5bn isnt going to balance Greece's budget. Setting aside the potential arguments defending Google (I have genuinely have no opinion on them or any of the other companies), a comprehensive law that requires every internet company to track every dollar by country and pay proportional taxes on their revenue could, in my opinion, severely cripple innovation in a continent that is finding itself falling behind at a global scale due to a variety of macro-issues. I like to give governments the benefit of the doubt that they won't do something silly like that, but then I look at this net neutrality issue and start to wonder.

Bottom line, there does not appear to be a consensus on this issue "morally" (for lack of a better word) which is why we're seeing such diversity of views on HN and globally. Just throwing it out there...

Large tech companies employ hollywood accounting techniques to continually reinvest surplus revenue. In doing so they rarely post any significant profit, depriving the taxmax of corporation tax.

This 'reinvestment' is used to compete and drive profitable competitors out of business. This is an unfair practice. The result - no profitable companies, smaller taxable base and nothing for the taxman to collect.

The bigger the juggernaut, the more influence they have on the taxman ("but we're contributing to pay/income/property taxes - surely you don't want us to relocate abroad"). Large multinationals use their corrupting influence to strike sweetheart deals and use these deal-made tax savings to abuse the market even more.

It doesn't just have to be tech companies, but the interesting thing is the abuse of 'intellectual property' (a thing which governments literally imagined in to existence) being used to transfer around wealth through agreements that, without it, wouldn't hold any water.

No company just adds 100% of its value.

Facebook isn’t anything new – maybe it adds 10% more value than MySpace would have had if Facebook didn’t exist in the EU. Maybe it adds 20% more value than the VZ Networks would have added.

You can’t just look at the entire value these companies provide, because local providers existed before Facebook and Google replaced them. Yes, Google and Facebook are overally more efficient, but only by a small amount.

Facebook most likely reduces the productivity of citizens.

I wonder how much revenue and profit would have lost Google and Facebook if they didn't exist in the EU

This is pretty dangerous thinking. The EU only has half a billion people. Thus, the truth is: Over time, these companies will make infinitely more from developing nations outside of the EU than they would from the EU. especially if the EU is taxing them heavily.

Additionally, even if you say "don't care, if they leave we'll just build our own companies", now you are hamstringing the global growth of those companies.

(I'm just going to assume the companies that leave are not going to put your homegrown companies and people at a very serious technological disadvantage, which they might)

This is of course, why the EU wants everyone on the bus.

>> This is pretty dangerous thinking. The EU only has half a billion people. Thus, the truth is: Over time, these companies will make infinitely more from developing nations outside of the EU than they would from the EU. especially if the EU is taxing them heavily.

Disagree. Think about advertisers. A lot of products popular in the US are popular in the EU. When it comes to marketing the latest Hollywood blockbuster if they can't reach half a billion people through Facebook they'll go elsewhere. If half a billion people suddenly disappear from Facebook those people who have friends and family there will turn to other communication systems and Facebook may get used less and less.

> This is pretty dangerous thinking.

Dangerous thinking? It was just an answer to a claim about the wealth they create as if they are exempt to be taxed because they create wealth.

> Over time, these companies will make infinitely more from developing nations outside of the EU than they would from the EU.

Over time, but I bet that any of those companies wouldn't trade the profit of one of the greatest markets in the world now for an hypothetical

> especially if the EU is taxing them heavily.

EU is not taxing heavily

How do they "exist" in the EU? One way to see it is that people from the EU are simply buying services from a US company. It's as if they caught a plane, and paid at a cash register in California. But instead of making the trip, they just sent a check.

If you're selling something in the EU, you gotta stick to EU laws. It's not about where is the company from, it's about where it's making business. Simple as that.

> How do they "exist" in the EU?

They both have headquarters in Dublin.

Which i'm sure they would happily burn to the ground if it meant they weren't taxed there. I don't think you want to go with the argument of physical presence. It rarely works well with any multinational.

Well in the meantime these offices do exist, and they also employ people in quite a few EU countries[1].

So that's the reality they have to live with.

[1] https://www.facebook.com/careers/locations/

> It rarely works well with any multinational.

how many multinationals have left any big market just for taxation?

Are you saying Singapore Co cannot receive payments from French consumers unless they pay corporate income tax to French Govt ?

In other words, you are saying EU can deny its citizens right to buy foreign products ?

No, I'm asking how many multinational have left a big market (one of the biggest in the world) just for taxation.

But what do you mean by "leaving a market" ? MNCs have been doing restructring for decades for reasons ranging from regulations to taxes.

If Google do leave EU, all it will do is legal maneuvering. Nothing will change for EU consumers. They can still do Google searches and buy ads. Profit will stay the same.

> But what do you mean by "leaving a market"

Pulling off any presence in that market, offices, stores, etc.

> If Google do leave EU, all it will do is legal maneuvering. Nothing will change for EU consumers. They can still do Google searches and buy ads. Profit will stay the same.

No, because there is all of the burden of a company from outside the EU doing business with EU companies. And not talking about the restriction on data protection.

And don't talk about companies like Amazon or Apple with physical goods

Benefit of Sales/Stores are insignificant compared to proposed tax liability. All these can/will be outsourced the moment it becomes reality.

How would EU calculate profit share between US R&D and Ireland R&D ? Even if EU do tax R&D, exodus of talent will be just 2x salary increase away.

> Benefit of Sales/Stores are insignificant compared to proposed tax liability.

You're joking, isn't?

biggest ones that immediately springs to mind is C&A and pfiser in the UK. the UK and US auto industries in general, manufacturing in general.

Google left the US.

So did Apple.

In fact, are there any multinationals left in high tax countries?

What are you talking about?

When the heck did Apple and Google left USA?

> In fact, are there any multinationals left in high tax countries?

I think you're confusing where the headquarters are located with presence in a market

google is just finishing its restructuring to xxvi holdings, apple has had all its cash outside of the us for quite some time.

I repeat, you're confusing headquarters with presence.

If yu're seriously saying that Apple or Goole have left USA and the EU you're really don't know what we're talking about

i think you are confusing appearence with physical existance. much like the eu that thinks they can apply their laws and taxes to a world where reincarnation is a "real" thing available at a few clicks of a keyboard.

and servers are now homed deep under the sea.

Countries restrict their citizens from buying foreign products all the time? The US did it to Cuba as an entire economy

National Security is different matter. Even that can only be done to few countries. Can US or any other country do it whole world ? I highly doubt it.

I mean, it would hurt them a lot, but it's entirely possible

And physical presence in almost every EU country

So if they didn't have a physical presence in the EU, then it would have been fine not to tax them?

EU companies pay for advertising there. You know, their customers. They sell to customers in the EU. The social network/search thingy doesn't have any relevance to tax - it's their advertisement business governments want a slice of.

If there's any problem with taxation any country can order its banks to not process payments to Google/Facebook. Tax authorities don't give a shit who hosts the citizenry's family photos. That's not what "operating in" a country means.

Banning 2 corporations is one thing and banning all offshore corporations another. Would citizens go along with this ? Never.

> One way to see it is that people from the EU are simply buying services from a US company

I would like how they do businesses, including Amazon and Apple if they leave the EU because the way you see it is totally wrong.

Starting with data protection directives and following with dealing with VAT, and EU customers

Well, I guess Myspace and Yahoo would still be a thing...or new players would take their palce...so don't worry about that.

That is a very good point. They should be grateful for these multi-nationalistic monopolies. /s

Just stating how much taxes are being "avoided" is an imperfect perspective. If, say, it turned out they contributed $100B to the economy, then that $5B wouldn't look that big in that context.

I get what you're saying, but I think it's fundamentally wrong for two reasons.

First, it is "big" when you consider how that money could be used. Cynicism aside about funding wars and filling walls with cash, it could be used for substantive (read: big) social good

Secondly, this is an important market. If they don't want to pay taxes, they have the legal option to not do business in Europe. So while you say "5B is small compared to 100B", I say "5B is a small price to pay for the billions they made."

"they have a legal option not todo do business in europe"

Do you see any way to do that other than to prevent eu businesses buying ads from google?

Because i think that might have a few severe unintented consequences for businesses in the eu, and have exactly zero impact on google.

Not sure I understand. You're saying EU business' not allowed to buy ads on Google would have "exactly zero impact on google" ??

google would still charge the same to display an ad exactly the same number of people will see google ads exactly the same number of people will click on an ad

The only thing that would change is companies outside of the eu will burn through their ad budgets faster.

plus a whole (not quite so new) industry would emerge outside the eu bypassing the regulations. such as happened in China.

Corporations have a lot of power over countries right now, but does the world you live in ignore everything countries can do to companies who ignore their laws? They can attempt to block everything Google while they build their own local services, ala China. Google is also a US company and while their software might be hard to prevent getting into the EU, they can start leveling sanctions against physical US goods if the US won't do anything to reign Google in. I dont think any of this is likely to happen, but political entities on the scale of the US, China, the EU, etc have options to bend companies to their will

i think you are confounding corporations as physical, "real" organisations in the real world, and cyberspace, which has no nationality by design and where the old world order is not welcome.

The old world order would very much like to believe they have dominion over cyberspace, but they do not and should not.

Cyberspace is not some metaphysical entity that exists in the ether. Every website, every connection, is being run on physical hardware. I'm not arguing that cutting off access to something on the internet would be easy or even feasible, and it would hurt any coubtry that tried to, but it is entirely possible

every website is a law unto only itself, every connection breaks the "physical" limits of national borders. the cat is out of the bag and the old powers that be have no power to keep their human slaves on the farm.

https://www.eff.org/cyberspace-independence

Physical isn't in quotes in what I'm saying. A country can actually cut off access to the internet, it just costs them all the benefits of the internet. Send out a couple of guys with axes or a boat with an achor and you can cut off access completely

You think Google no longer being able to do business in a market so large (~500 million people?) that it eclipses the US by a comfortable margin will have no impact on them?

That would damage Google a lot more than it would damage the EU nations.

google will still be able to sell those 500mil eye balls with or without putting the money back into the eu.

Those eyeballs will still be worth the same.

it will make as much difference to google use as the us copyright fine made to sci hub.

"you are the product"

It'd also open the market to a new competitor when people in the EU (and elsewhere) realised that they can't find local ads on Google.

I always struggle with this logic. Is your argument that if 100B EUR in Facebook ads were sold (presumably the way in which Facebook 'contribute'), then this 100B was 'created' by Facebook? I imagine other measures would be proxies for Facebook's profits too (e.g. some portion of engineers' salaries to go private landlords).

Isn't this reverse-progressive taxation? If Facebook were outraged at paying taxes enough to shut up shop in Europe, wouldn't that 100B (or something like it) still be kicking around, just in different hands?

I wonder what would happen if G/F just upped and "left" the EU? Ensuring to close every physical location as they did so. I wonder how much of a bind the politicians would be trying to remain in power as they would be in the position of trying to add Google and Facebook to the ban list or just continuing like normal except with less tax revenue.

Does anyone here really believe that any EU bureaucrat would ban Facebook and Google? Enforce a massive ban like China or some dictatorship? I think it's one thing to never have had. It's another to have had and then have it taken away. The latter is infinitely more painful.

Do you honestly think that without US companies, there will be no search engines and social networks? Here in the Netherlands we had Hyves[1] before we had Facebook, which was pretty big. If, for whatever reason, Facebook were to vanish tomorrow from the EU tomorrow, I have little doubt that we'd all be on a different social network by Christmas. Of course there would be a lot of complaining during the first two weeks. I would miss Google more than I would Facebook, but perhaps an influx of 500 million new users would give competing search engines the income to improve their results to equal those of Google (perhaps they're already of comparable quality and I just haven't noticed).

Google and Facebook are making a lot of money in the EU, and leaving the EU because they have to pay more taxes would be like cutting off the nose to spite the face. It just wouldn't make financial sense, and shareholders would (understandably) be furious.

[1]: https://en.wikipedia.org/wiki/Hyves

Google and Facebook have a lot more to lose than the EU in this regard, which is why they will eventually submit to whatever the EU deems reasonable.

They are never going to withdraw from the EU. The money they would lose would be immense.

The fact that people think Google and Facebook have this kind of power over a developed market of 500 million people is hilarious.

And leave one of the biggest markets in the world? Why would they?

Why would they be leaving it? I can easily connect to a Russian website with servers in Moscow just fine from anywhere in the world. The same applies to EU citizens.

I'm a strong believer in freedom, to include freedom from unnecessary taxation. If G/F "leaves" EU, I meant it by closing physical locations and the farce they have to put up with for taxes, they could still serve citizens from EU.

Id love to see the story unfold if G/F said "we are American companies only going to pay US taxes" and they quickly closed offices in EU. Do you think EU would create a firewall removing citizens from Facebook/instagram/Gmail/Google search etc ?

Seems to me that in this crazy scenario the EU crooked politicians are left making threats they can't really follow through. They all probably use gmail and how easy is it exactly to start a new on an email account ? How about all your contacts and pictures on FB?

Seems to me that in this world F/G would operate just the same and EU politicians would walk away crying saying "you can't do that it's not fair "

Is unnecessary taxation all taxation? By your argument every company should just find whatever the lowest tax area of the world is and set up their headquarters there, no one will be able to stop them!

Also, if you believe in freedom, why don't you believe that countries have the freedom to stop these massive corporations from extracting wealth from their society and returning nothing? Why does only the corporations freedom matter?

I don't subscribe to your second paragraph at all. "Extract wealth" how? I'm from the third world and I can instantly tell you the great value that people derive from applications like What's App and the like. To someone in EU or US it's easy to deride these silly applications, but to those who lack the infrastructure it gives new possibilities.

Take for instance the case of using what's app as a little store where people can offer services/goods. My mother in law dedicates her account on what's app to sell hand knitted baby clothes, and it provides her with reliable communication to clients.

Such applications are a NET BENEFIT to everyone involved and it's clear why What's App was given such a high price tag!

If I might ask what/where you are from that you think this way? I can tell you from personal experience and fundamental Adam Smith basic economics that these companies offer vastly more benefits to consumers and society as a whole than what little money can be taxed from them.

Also note, that Latin American countries and 99% of other countries don't propose to tax the tech companies and they still have vast benefits.

The EU has wealth in it from it's society and economy. The companies are extracting it by coming in, using their power to take control of the market from local companies and then not paying their share in taxes by using every loophole they can find.

Yes they provide a benefit, but you're bringing up Adam Smith like this is a situation with perfect competition. I might be on the wrong side of this and they are providing a benefit big enough thay the EU would get less net benefit from a local company, but can you admit that there could ever be a case where a company was acting in a way that was detrimental?

Corporations don't have money. It's also a giant cat and mouse game, governments want to tax and companies want to minimize that. So you end up with weird situations like Apple and Google hoarding cash because they don't know how to put it to work and they sure as shit don't want to lose it to the taxman[0].

So if you substantially lowered or entirely removed corporate taxes they would bring that money back to the US and spend it in R&D or capital investments, or return it in large forms to shareholders via dividends!

What oh what, do people usually do when they get sudden influxes of cash? They spend it or re invest it! They don't just bury it or burn the cash for warmth like Pablo Escobar. That seems like a better end goal than having the cash idly sitting abroad or being spent by crooked politicians who by virtue of being in office propose to be holier than thou and always manage to spend money not earned by themselves

And next Apple or Amazon leaving the EU?

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