European Union plans to tax tech giants on local revenue | Hacker News Reader

European Union plans to tax tech giants on local revenue

techcrunch.com

198 pointsjustaguyhere278 comments

I don't see an actual EU angle in this? It seems like a proposal that the French want to present to the EU council of ministers. At which point it will be dropped as it is simply a tarif in everything but name and has almost zero chance of attracting unanimous support it would require in the council.

I'm European but it amuses me that it is always the revenues of American tech companies that seem to provoke such irrational outrage in Europe. I never hear the same outrage caused by the fact that German companies don't pay corporation tax on their sales to China or French aeronautical companies can sell their stuff all over the world without having to pay local corporation tax.

If I was cynical, I would suggest that it's motivated ugly jingoism but I don't think it's the case. I've argued with friends and acquaintances about this and they simply refuse to accept that there is anything comparable between American tech companies selling stuff in Europe to European companies selling stuff all over the world.

The inconsistency is that my friends will claim to be broadly in favor of "free trade". It's as if the rules of free trade are fine for "old" stuff like cars and aeroplanes, pharmaceuticals, banking, legal services, wine, etc. but not for modern tech/IT.

I mean I can understand your position if you're against free trade in general. In that case, putting up tarifs on "foreign" imports is a consistent stance.

If you are dealing with physical goods then establishing where a taxable profit was made is relatively straightforward. For tech companies which only distribute their services over the internet it's much more difficult to determine (from an accounting perspective) which parts of your costs belong to which revenue streams and where exactly a profit was made (geographically).

This is exactly what it is. This will allow EU to tax virtual goods.

Is it really relatively more straightforward with physical goods? With modern supply chains, components and raw materials are flying around the globe in a complex dance before they end up on your local store shelf or in an amazon warehouse. I believe there is decades of international tax case law which attempts to cover this with transfer pricing rules.

Often it seems tech/IT is simpler. A software engineering team in California write the code, then it's clear that nearly all of the value was created in California. It's fairly easy to price the cost of foreign datacenters for cloud hosting.

> Often it seems tech/IT is simpler. A software engineering team in California write the code, then it's clear that nearly all of the value was created in California. It's fairly easy to price the cost of foreign datacenters for cloud hosting.

I don't follow. Just because the software was written in California doesn't mean they don't have customers and derive profit from other regions. Likewise, sales tax on physical goods is applied at the point of sale, not manufacturing.

I should have made clear that I was discussing corporation tax where the principle is that where the value is created determines how the generated profit should be subjected to tax. This is the principle behind the current international tax system for corporations, I believe.

But actually my point was really to try to refute the intuitively attractive idea that intangibles are more difficult to tax than physical goods within this framework. Taxing consumer goods is extremely complex these days because of global supply chains and vertical integration. On the other hand in many cases, services like legal work, consulting, etc. are simple to tax under this system despite the fact that intangibles are being traded.

Not intangibles in general but websites in particular make it very difficult. I think there's just not detailed enough reporting available to associate revenue and costs. And if you would create much more extensive reporting frameworks you would likely put a huge burden on small companies.

Let's take the facebook news feed as an example. Loading just the page might cause requests from CDNs in three different countries. Then the frontend might have been written in the UK and the backend in the US. The ads manager for the ad you just clicked worked in Germany. I doubt any modern IT company can track expenses on that level of detail. And associating costs with revenues is non-trivial either: Did the front end contribute to the revenue generated with the ad click? Did the backend or just the work of the ads manager in Germany? There's so much leeway for companies right now.

IT companies like Google and Facebook have one single product (ads) that generates most of their revenues. The country where the revenue occurred can be easily established (eg. an ad sold to a German company). But the costs to create this product (the whole platform) have been accrued all over the world. Without intimate knowledge of the corporate structure and the technical setup companies can basically tell you any story about where these costs were incurred.

It’s not. The IKEA example is having the business in individual countries pay “royalties” to a company that in turn sets up whatever Dutch/Irish loophole is needed to not pay much taxes.

BUT - and this isn’t irrelevant - even though IKEA might not pay much taxes on corporate profits in (say) Sweden, Selling physical goods in physical stores still produces value. They manufacture in Sweden about as much as they sell in Sweden. So overall, it’s much easier to accept the near zero tax.

The corporations whose large profits and zero taxes annoy people are the online giants.

> The corporations whose large profits and zero taxes annoy people are the online giants.

well SAP is probably one of them, but I never heard that somebody is annoyed by their tax policy. I never heard anything said against them and I'm pretty sure that they follow the same scheme than Apple, Google, Facebook, etc.

(P.S. I'm german)

Where do you get that? SAP's 2017 financial statement says the company paid 970 million euros in income tax on a profit of about 5 billion €:

https://www.sap.com/integrated-reports/2017/en/primary-conso...

Yes, but (mostly, except for VAT) in Germany, not in the countries where they sold the software.

AFAIK, most of SAP's business goes through local resellers and consultants. They pay taxes in their countries.

The iPhone App Store is a completely different animal from SAP's consulting-heavy sales model, and it seems understandable that the EU commission is interested only in the former.

Then it was a wrong metaphor in the first place. You're right.

Funny fact, IKEA is a non-profit, and don't pay taxes on profit.

What about the salesman in Europe ? Or you consider that code is the only value in a company?

I’m on my phone now so excuse sloppiness in my reply.

Also I’m the very opposite of a tax lawyer but my understanding is that the salesman’s added value is determined by transfer pricing rules. It works as if he bought the good or service from the Californian developers at a certain price. The profit is then calculated in each country deducting local costs and taxed accordingly in each country.

The tricky bit is in agreeing the transfer price but there are decades of complex internationally agreed rules to determine a price if the transfer isn’t at “arms length” - for example between related subsidiaries.

The picture is muddied by the weird US tax rule that allows companies to defer paying their US split of the corporation tax by keeping the cash out of the US. But the tax is due - this is why the US authorities were aghast at the EU’s Apple ruling. It was viewed as a European raid on money that was theirs (the US government’s) to tax.

A software engineering team in California write the code, then it's clear that nearly all of the value was created in Californi

Code by itself is valueless. If the code is to show an ad then the value is created when and where is ad is viewed.

I think there's a second angle to this, which is that the assumption in your example is that the tech company is the one distributing the good within a particular country. There's an argument to be made that, unless the company has hardware housed in the nation, the transaction equally resembles someone crossing the border to purchase a good and then coming back across.

You are not very data driven :).

Facebook in UK paid £5.1M in tax for £842.4M in revenues. Criteo in USA paid $83M sold for $332M. The effective tax rate of the GAFA is 8% versus 25% for traditional export companies such as Airbus.

Maybe :) but if you're going to provide numbers like that, then I'd be interested in hearing, for example, how much foreign corporation tax was paid by French aeronautical companies on their 50B worth of exports? Or German car companies on their 100B worth of exports? Or any UK companies on their exports?

Wasn't the 8% due to the deferment of foreign income tax? And with the US tax reform they will pay it for all those years of accumulated profit (and they are no longer able to defer it).

Eg. Alphabet had a 3B loss last quarter due to taxes.

Just like Amazon's search for a new HQ, taxation based on borders is broken in a globalized world. Megacorporations can shop around to find a tax regime they like, playing countries off against each other to get a good deal. [0]

Reaching for solutions that either provide for extraterritoriality is only logical, given how impossible it is to unify the whole world behind a common tax scheme. It's a typical tragedy of the commons.

[0] https://www.reuters.com/article/us-google-tax/google-account...

It would be interesting to ponder where would companies choose to go if every nation harmonised their tax system globally. Removing all tax incentive.

We are heading to a harmonised tax system, zero corporation tax everywhere.

"Harmonised tax system" makes it sounds so nice and useful, let's rather call it what it actually is: A race to the bottom, without an actual bottom.

It's not just zero tax, in some cases they are literally handing out incentives, at the expense of the remaining taxpayers.

Or, slightly more achievably, imagine that the EU and a few other economically large countries agreed that any corporation with more than, say, a billion dollars in annual revenue has to pay at least X% effective tax rate somewhere (and report their accounts to each of the countries concerned), or be forbidden from operating within any of their borders.

Extra rules would need to be in place to stop large corporations splitting themselves into smaller smurf companies, but the X% number could initially be set to a value which doesn't cause any low-tax countries to lose any corporations which base themselves there.

> always the revenues of American tech companies

Clearly not.

Vodafone: https://www.theguardian.com/uk-news/2014/jun/14/uk-uncut-vod...

Topshop: https://www.theguardian.com/business/gallery/2010/dec/04/uk-...

Barclays: https://www.theguardian.com/uk/2011/feb/19/barclays-ban-prot...

> anything comparable between American tech companies selling stuff in Europe to European companies selling stuff all over the world

Many european companies are located in their countries of origin where they cannot dodge certain taxes on revenue, profit, employees salaries/pensions, environment, local taxes and so on.

OTOH the famous tech companies use extremely aggressive tax avoidance schemes (e.g. the Double Irish and so on).

Taxing on revenue rather than profit feels wrong. If you run a loss you're still on the hook for taxes? That doesn't make sense to me.

How far can the EU push before these companies decide it is not worth having actual businesses there?

So how would you fix the national treasury impact of profitless megacorps moving in to a country and taking out layers of smaller businesses (some of whom make profit and pay tax on it)?

Are you really going to threaten those countries with taking your non-tax paying elsewhere?

Edit: Amazon paid just £15m in tax on European revenues of £19.5bn https://www.theguardian.com/technology/2017/aug/10/amazon-uk...

Well Amazon actually has low profits so they barly pay taxes, because they use all their money in expanding their business. This is actually something which you can do as a german in germany anyways.

And since ~2016 or earlier? amazon pays taxes in every country they operate. In germany they even changed the invoice address to be german ~2016-2017. a long time they used luxemburg as their invoice address which was really clever, until it broke out a scandal. http://europa.eu/rapid/press-release_IP-17-3701_en.htm It contains a good picture, which explained it. And now all sales are recorded in the operating countries. and amazon now needs to provide certain tax related information on a per country basis.

Taxing on revenue rather than profit feels wrong. If you run a loss you're still on the hook for taxes? That doesn't make sense to me.

True, in that it would better to fix the underlying problems that allow companies to pretend they have no profit. In practice though, it’s not likely to be a problem.

How far can the EU push before these companies decide it is not worth having actual businesses there?

Very, very far. They’re not being pushed much at the moment.

> True, in that it would better to fix the underlying problems that allow companies to pretend they have no profit

Profit is a complex calculation when talking about cross-borders. If you company spends $20B in country A, $0 in country B, has revenue of $10B in country A and $10B in country B, how much profit did it generate in country B?

Just because information services have a near-zero marginal cost, it doesn't mean they have zero cost.

Just because information services have a near-zero marginal cost, it doesn't mean they have zero cost.

I totally agree, but equally we know that the company makes profit in both countries, regardless of how the figure is juggled. That leaves regulators with the puzzle of figuring out how to fairly tax them; a levy on revenue isn't an awful idea if it's correctly applied, but there might be better solutions.

> a levy on revenue isn't an awful idea if it's correctly applied, but there might be better solutions.

It is a terrible idea, because it tends to favor companies that have their cost base in the country. In other words, local companies.

This is a trade war move.

> because it tends to favor companies that have their cost base in the country.

Which is just the opposite of the current situation where the non-EU/offshore company has an advantage. My UK based company pays taxes in the UK on its profits, but a US company could come in and undercut us with the mechanisms already discussed.

Why shouldn’t the EU have the unfairness stacked against the non-EU organisations? It seems that’s what they should be doing.

If there’s a way to make the situation into a level playing field then that’s even better.

But you can’t play the ‘trade war’ argument when it’s already being abused to the detriment of EU companies and tax payers.

> My UK based company pays taxes in the UK on its profits, but a US company could come in and undercut us with the mechanisms already discussed.

That's why this is a trade war between countries with different tax rates. And they don't even need to have different tax rates. This also isn't any different from sending production to cheaper countries.

Not only that, but this is a basic condition for global trade and globalization.

Countries will compete, and that's good for the world.

> But you can’t play the ‘trade war’ argument when it’s already being abused to the detriment of EU companies and tax payers.

I'll translate that as "less efficient countries refuse to reform and increase efficiency to compete in global markets, so decides to close borders to global markets".

That has had a positive outcome in exactly zero percent of the times it was tried.

> Countries will compete, and that's good for the world.

Sounds like opinion rather than fact. It’ll just be a race to the bottom of countries cutting corporation tax, etc. Which means less revenue for the governments and therefore less societal services for the residents of those countries.

Society is predicated on the notion that if we all chip in a percentage of our gains from work performed then the really difficult stuff (that corporations won’t and individuals can’t achieve) can be done by a central authority - it minimises risk and provides stability. If external corporations syphon off 100% of that value then society suffers.

Why should countries compete? What’s the point? What benefits does it bring to their residents? Countries are not corporations trying to vie for a place in some Global Index, they’re places with people in who want a certain level of service for the work that they do.

Local tax rates are what they are because the people living in those regions think it’s an acceptable level. What rights does an external corporation have to just ignore their wishes?

You don’t have to be a socialist to understand this concept. We all need governments for the tough stuff.

The current system can’t continue because it’s anti-competitive and anti-society. Those corporations need to pay their fair share toward the societies that they’re profitting from.

I don’t blame them for gaming the rules: the rules must change to stop this from happening.

> Why should countries compete? What’s the point? What benefits does it bring to their residents?

> You don’t have to be a socialist to understand this concept. We all need governments for the tough stuff.

I'll answer. The benefit is that it allows for freedom of choice for residents. If some people like certain qualities of a given country, they can move there. If they like other qualities of a different country, they can move there instead.

Different people want different things in their society, and thats OK. We do not need a one size first all world government that forces the minority to accept the opinions of the majority.

We do indeed need government for many things, but different people disagree about those things, and how much the government should be involved and thats ok! Everyone can better get what they want if they are given the choice to move around between countries.

There are, of course, barriers to entry as not everyone can move to a new country at the drop of a hat, but it is still not as difficult as it might seem. I've lived in a dozen different states in the US, for example (yes, states are not equal to counties, but they really are quite different, and have many different laws).

With freedom of movement in the EU, at least, it is particularly easy for residents to move around.

It is a terrible idea, because it tends to favor companies that have their cost base in the country.

I'm not completely sure why that would be the case – wouldn't it result in a relatively level playing field?

Right, but you don't think this will just lead to new methods for hiding revenue instead of hiding profit?

Certainly a risk, though that doesn't seem like a valid reason for collectively throwing our hands up – unless the argument is to do away with corporate taxation entirely, which isn't invalid!

> True, in that it would better to fix the underlying problems that allow companies to pretend they have no profit.

This is the core problem, but it's also very difficult to solve.

Google makes money in Europe by selling advertising to European customers. It moves money out tax-free by claiming that much of its income is used to pay for the worldwide tech infrastructure and brand usage to its parent company.

But this is not entirely fictional. To run its business in EU, the local branches do need the infrastructure and Google brand, and paying for it is a valid business expense. The problem is calculating a realistic price for it. How much does Google UK benefit from the "dinosaur game" in Chrome, or how much should the Google Germany share of its development cost be?

Coming up with a fair and loophole-free formula seems impossible. It might be easier to just put a lower tax on revenue than a higher tax on profit.

Remove Their business license if they are continuing to run whilst not "making a profit". If they continue to do this indefinitely, they should be removed from the market, for the good of the ecosystem. They would be pushing out potentially profitable competitors (who would pay tax).

Ok. So then what? They simply close offices and fire workers in a specific country — but that doesn’t stop people from visiting Google or clicking on ads. If you suggest governments should block websites, then that’s a dangerous path.

It does seems scary because of the implications of it. I'm not sure how to get the balance right, though. We wouldn't be that worried about preventing a company who refused to comply with e.g. product safety regulations from trading.

It's not so simple, what if I reinvest for 3 years all my profits ? I have no profits for those 3 years because I am investing in my company long term.

Yeah, I suppose that's the case. It certainly seems like a simple solution, which has its attraction, but it's possible there are other downsides (like unfairly punishing reinvestment or smaller companies) depending on how it is implemented.

>How far can the EU push before these companies decide it is not worth having actual businesses there?

Given that it's one of the single biggest and lucrative markets on the planet, much farther I would guess.

People are way too screamish about the threat of companies running away. Service providers aren't going to abandon hundreds of millions of high income users.

And it doesn't matter if they leave. There will be plenty of companies willing to take their spot.

Don't forget, most Europeans also speak English.

But tech companies don't have profits here because of their tax optimizations. So, I guess it's not difficult where they got their sauce from.

Edit: (downvotes not agreeing with the term "most")

> robinson7d mentioned 38% as second language, 13 % as first language. So => 51% (or, "most")

Source: https://en.wikipedia.org/wiki/English_language_in_Europe#Oth...

> Don't forget, most Europeans also speak English.

Just pointing out that's not true. The number is around 38% who have a working knowledge, second place is tied with German and French at 14% [1].

1. https://en.wikipedia.org/wiki/English_language_in_Europe#Oth...

All those who you get in contact with then ;)

Those numbers also don't have a correct representation of English speaking business owners and English speakers ( first language). Since your numbers mention "English as foreign language".

Same wiki :

The language is also a required subject in most European countries.[3] Thus, the percentage of English speakers is expected to rise.

> Thus, the percentage of English speakers is expected to rise.

The number of English speakers has been steadily increasing for quite a while already, at least in Germany. Mere 10 years ago speaking English was a skill which wasn't that common and thus quite a bit valued, nowadays most modern (and especially IT-centric) companies expect you to know English, it's nothing really special anymore, at this point it's rather expected.

That citation is for "English as a foreign language", and if you read the end of the paragraph you see they are excluding UK and Ireland.

English as a first language accounts for 13%, which when added to the 38% leaves you with 51% (or, "most")

http://ec.europa.eu/commfrontoffice/publicopinion/archives/e... (Cited at https://en.wikipedia.org/wiki/Languages_of_the_European_Unio...)

The vast majority of Europeans do not speak English at all.

Those numbers also don't have a correct representation of English speaking business owners.

The language is also a required subject in most European countries.[3] Thus, the percentage of English speakers is expected to rise.

Added a quote from robinson7d:

> That citation is for "English as a foreign language", and if you read the end of the paragraph you see they are excluding UK and Ireland. English as a first language accounts for 13%, which when added to the 38% leaves you with 51% (or, "most")

https://en.wikipedia.org/wiki/Languages_of_the_European_Unio...

You have Baidu in China and Yandex in Russia. If google left EU, there will be another player to fill its needs.

Perhaps not as good, but good enough.

Is Baidu paying the “correct” taxes to the EU?

Not as good? The only reasons I'm not using those two is because of the fact that English/western users are an afterthought/secondary concern and some privacy concerns. They are pretty good in what they offer. I find myself using Bing more than Google nowadays.

Capital doesn't have borders. You may have people willing to build products, but can you get the capital you need to execute if those same investors can send their money to another country and get a better return?

It doesn't matter where the money is sent if the EU starts getting court orders to block your services in the EU if you don't pay taxes for targeting EU consumers.

they are lucrative until their people run out of money for services and while there are many companies willing to step the real question is how much taxes are locals willing to pay to have the service?

any laws on the book that prevent listing all taxes embedded in a sale?

This, like many other arguments that attempt to downplay the role of taxes in economic incentives, attempts to turn a continuous variable of interest into a binary one.

The weaker the profit potential in the EU, the less companies will invest there. The effect of higher taxes can't be reduced to "leave or stay." Moreover, the diminished incentive to invest would also to apply to potential replacements for these companies. So, very hypothetically, if Google spends $100 in Europe and they leave when they decide investing less $50 isn't worth it, the next company taking their place will likely only want to invest $50 rather than the $100 you were already getting from Google. It's still a loss unless you want to assume both that Google's replacement would be European and protectionism is a wise economic strategy.

There are some states e.g. Washington that also tax businesses on revenue instead of profit. And different categories of business have different tax rates. Services business are the highest iirc at 1.5%

They tried that here in Oregon. I'm not an anti-tax guy, but it was a very poorly designed tax.

Some more info about Washington's B&O tax (which I believe you are referring to): http://www.seattlebusinessmag.com/article/infamous-bo-tax

It is a pretty straight forward way to fix the current practice of setting up companies that hand over their profits to the parent company for $service (licenses, administrative fees, whatever).

Is it? That sounds like the subject of a Steve Yegge rant.

http://steve-yegge.blogspot.com/2009/04/have-you-ever-legali... (search for legalization)

How straight forward is it to fix licensing and fiscal laws in 30 “independent” countries which have their own agendas without introducing new loopholes?

I agree that it’s rediculous that the double dutch (irish) sandwhich is still legal, so they should work on closing that hole.

As a datapoint: "Apple's 2017 accounts showed they made $44.7bn outside the US and paid just $1.65bn in taxes to foreign governments, a rate of around 3.7%. That is less than a sixth of the average rate of corporation tax in the world." [0]

[0] http://www.bbc.com/news/world-us-canada-41889787

That practice is not only the standard in accounting, but somewhat impossible to move out of. As I mentioned in another post:

Profit is a complex calculation when talking about cross-borders. If your company spends $20B in country A, $0 in country B, has revenue of $10B in country A and $10B in country B, how much profit did it generate in country B?

In a sane world: $0B

But we don't live in a sane world. All these multi-country tax schemes effectively mean that corporate profits can't be trusted to be reported accurately. It's easier to just stick the tax on revenue and then corporations may finally have an incentive to lobby to live in a sane world again.

Another option I can think of is for countries in the EU to set guidelines and impose harsh provision (a doubling of the tax rate, say) if a court finds that the guidelines have been breached.

It isn't right if Wall St is overjoyed at EU earnings, but the EU hasn't collected a dime of profit.

As I asked in my reply above, why should investment in country A come at the expense of tax revenue in country B? That isn't right.

> As I asked in my reply above, why should investment in country A come at the expense of tax revenue in country B? That isn't right.

That's perfectly right, unless you're suggesting that every country should have only local companies and should block every foreign company from operating there.

Not only it is right, it is very, very good for society. In the past 60 years, poverty went from 60% to 9% dues to that.

I'm not against foreign companies operating where ever they want but tax comes as a cost of business. If a company won't contribute to a nation it whether through taxes or investment it has no right to be there. It's effectively a parasite.

That doesn't make any sense. If your product costs 100 to make in country a and you sell it for 100 in country b, you're not having any profits.

But if you want to ignore that and charge non-existing profits in your imaginary country, go ahead, you're dooming your imaginary country to failure for not understanding basic economics.

Yes you are. Look I know you want to seen the big picture but that's not how it should work. If you spend money in country A that shouldn't give you the right to write of revenue in country B. From the perspective of country B you were profitable. If you want to write off revenue in country B then invest, pay taxes or don't do business there.

Countries don't need parasitic businesses like that. All they will do is undermine the economy and local competition.

Sorry, it doesn't make any sense at all from a global economics perspective. You seem to want completely isolated countries with no international trade.

There's no such things as parasitic businesses, "right of revenue" or anything like that.

You're not even wrong.

See this is what I don't like about these kind of tech companies. They act like they're special and deserve special treatment. They aren't and they don't.

A company is fully within their right to choose how it spends money but the taxation should work on an individual nation basis. Why should investment in country A come at the expense of tax revenue generated in country B?

Not sure I get your point. This is how accounting works, you need to allocate the actual costs of creating and operating a business.

And this isn't any special for tech. Tech companies are not asking for special treatment, they are currently treated like any other company in accounting terms. Governments are trying to treat them in a special way.

If you have a company that makes a chair in France for $20, ships it to Spain (let's day for free) and sells it in Spain for $0, how much profit did this company generate in each country?

This is exactly the same accounting as the tech companies, but their services have a very high fixed cost and a null variable cost, while the chair maker is the opposite.

But it wasn't sold for $0 in Spain. Its not right to be able to write off revenue from expenses of another country. Taxes are a cost of business. Again I don't get why it seems reasonable that country A gains at the expense of country B's loss. Why would country B want your business when you contribute nothing to their country/ economy?

Why would people in country B care about what the State itself or the vocal majority wants? Business is primarily done through companies, not countries. If avoiding the "cost of business" that is taxes is possible without getting a gun to the face it's how all rational businesses would act.

The business is effectively a parasite. No demand for local employment and no tax revenue from the businesses profits means everyone else has to pay for the same infrastructure the parasite gets for nothing. If anything the people of country B should care more.

There is an alternative where the "parasite" and the others both pay for infrastructure voluntarily instead of at the point of a gun. The dregs of society can just deal with it while valuable people live without being shaken down by State thugs.

I'm not sure how serious you are. It reminds me of this https://m.youtube.com/watch?v=vLfghLQE3F4 .

Go ahead and close your country for foreign companies then, that has worked out well in exactly 0 times in history.

Your "parasite" analogy doesn't make any sense. Trade relationships add value to both sides, but if you wish your people to have a worst product for a higher price, go ahead and ban competition.

How does having a company that contributes effectively zero to your country make that nation better off?

As an example look at the similarities of clothes and shoes donations from the west to Africa with opening up to parasitic businesses. All these charity efforts have done is undermine the local clothes and shoes production and market making it impossible for people to build businesses and create jobs.

If I open up a new fictitious nation to all trade and allow them all tax write off on investment in other countries then I don't get a prosperous nation. I get a basket case that cant compete with foreign existing industry, can't develop competitive local industry or employment, and likely stuck in debt because tax revenue would be so low.

> How does having a company that contributes effectively zero to your country make that nation better off?

It isn't "zero" at all. That's not how economics work.

Isn't taxing on revenue just sales tax, or at least, it will have the same effect? If companies have to pay 5% of revenue as tax they'll just raise prices to cover it?

Everyone in the game pays the same sales tax.

The issue is that some of the bigger players avoid making a profit on the operation in the EU. The national budgets expect a certain level of corporate profit and tax on sales to make the numbers.

When you have many massive players avoiding that tax - plus smaller players unable to get the same tax structures/advice to even compete - it starts to become an issue.

For a long time the megacorps have argued they create a lot of jobs - but they've likely crested on that now as they push to eliminate jobs - and there is a lot of evidence that government is supporting many of the low paid jobs these companies do 'create' (£11BN in UK in 2014 according to this report - https://www.theguardian.com/sustainable-business/2015/apr/20...)

> For a long time the megacorps have argued they create a lot of jobs

Plus I don't get this reasoning to start with. Isn't it inherently more efficient to provide services as a large corporation? Thus, lots of smaller companies would probably employ quite a bunch more people to achieve the same.

This is likely to become a more heavily debated subject as AI starts to strip-out professions that need people today (truck drivers).

Small inefficient local businesses that provide some local families an income and pay a bit of corp tax - start to become more important to a country than global megacorps providing a few government subsidised minimum wage jobs whilst offshoring all the gains from capturing massive market share.

My thoughts as well. It could make a lot of sense to block mergers more aggressively, and perhaps even implement progressive company taxation to lessen the competitive advantage of massive corporations. I suppose this would reduce overall economical efficiency though is thus hard to imagine actually happening.

>progressive company taxation

Currently companies manage to pay close to 0% (see Apple) tax rate. Progressive tax won't be enforceable with any creative accounting. Progressive tax works only as income tax (pretty much) as it is virtually impossible to hide and the 'creative accounting' at lower amounts is not cost effective.

Nah, it gets cut like sales tax but the deductibility is different. You deduct VAT from sales tax. You deduct taxes you have to pay on profit from that 5% tax you paid (or was paid for you).

VAT applies only to end users in the EU (VAT is not sale/use tax, exactly). Business pays no VAT for transactions that have no end user.

Currently min VAT is 17% which is higher than corporate tax in quite a few member states.

> How far can the EU push before these companies decide it is not worth having actual businesses there?

Why would they leave? Just raise prices in the EU to compensate.

Raising the price also means being less competitive.

tax wouldn't apply to competitors?

Conceivably the local competitors would be paying more in taxes and this should be calculated to be as close to neutral as possible for them.

Taxing on profit rather than revenue feels wrong. If I use the very same resources the competing company is using but I buy expensive cars instead of energy efficient ones I am taxed less. If I use country's resources like roads and pollute I am still not taxed, my more efficient competitor is sponsoring my existence by their tax revenue. Hell, if I have any profit left I will just buy Ferraris as company cars so I pay even less taxes and hey, now I am driving a Ferrari while my sucker competitor is driving Nissans Leaf and paying more taxes to top it.

Taxing companies on profits is just punishing efficiency. The tax has other disadvantages like being very easy to dodge by big corporations and difficult to dodge by small/honest guys. It's the worst possible tax and I hope it dies soon. Taxing on revenue is at least something new that seems more fair.

Certain industries have a much slimmer margin than others. Automotive manufacturing (and many other types of manufacturing) hovers below a 10% profit margin. Agriculture is similarly low-margin. The tech giants have much larger margins.

If you tax revenue instead of profit, you push low-margin industries (the ones that are operating the most efficiently/ competitively) out of your country. It is a very silly thing to do.

It is unusual that the tax plan in the article targets the specific high-margin tech companies. I wonder how the implementation will accomplish this.

>Certain industries have a much slimmer margin than others.

I don't see how this has any impact. Either the companies that exist will find a way to make the market work, or they will leave and a new company will.

>>If you tax revenue instead of profit, you push low-margin industries (the ones that are operating the most efficiently/ competitively) out of your country. It is a very silly thing to do.

They will raise prices, what's the problem? Importer will still pay the tax on revenue so there won't be at any advantage for being located elsewhere. Taxing on profit on the other hand... licensing fees, expensive company cars, "consulting" fees. There is now way to police what is and what isn't a justified expense. We need a way to tax in more fair way to encourage efficiency. Taxing on revenue is one such idea.

> Importer will still pay the tax on revenue so there won't be at any advantage for being located elsewhere.

Labor costs are not equal everywhere, and other regulations also might make it an advantage to be located elsewhere, for example environmental regulations might make your process more expensive.

Yes, but that's the case with any other tax. If labor costs are lower somewhere else maybe it's just more efficient to manufacture it there. If you tax on profit or revenue doesn't matter here.

If you want to prevent manufacturing in countries with less environmental regulation and cheap labor then you need tariffs. Trump is a fan of it but it's not exactly a popular idea among the tech crowd.

Suppose you have a company with 2% profit margin that makes $20M a year in profit, paying 20% corporate profit tax, ending up with $16M after taxes. To make $20M in profit, you must generate $1B in revenue. Now suppose we introduce 2% revenue tax. This instantly wipes out your profit, so you increase their prices by 1.64% to make $1016.4M in revenue, which after 2% revenue tax results in $996M after tax income, and with your $980M costs they end up in exactly the same place profit wise as before.

Additionally, your competitors either were more efficient than you, and enjoyed higher profit margins, so they deserve to beat you in the market, or they just have to increase prices just like you do. Hardly an example of driving business out of the country, unless you are into protectionism, but then tariffs are a tool of choice.

If you run a loss you're still on the hook for taxes? That doesn't make sense to me

But what if by SHEER COINCIDENCE the profit you would have made by normal accounting standards just so happens to be EXACTLY the licensing fee an overseas subsidiary charges to use your own brand?

Google spent a billion quid on their new HQ building in London. That's an awful lot to invest in a country where you make no profits...

> profit you would have made by normal accounting standards

These are normal accounting standards.

Just because it was legal and normal before doesn't mean it should stay that way.

If we decide that the double duct/Irish sandwich/etc are loopholes that are being explored and we'd like them closed, then it's entirely valid to do so.

Money made in the past does not mean that your are entitled or guaranteed to make money in the future.

Is it even legal?

It's surely also most impossible prosecute, but speculation wrt. taxes is generally not legal.

Sure, but it is up to the countries to get together and change them. If companies are paying fewer taxes by following the law, don't blame it on companies, they are doing exactly what they are supposed to do.

I am completely in favor of designing new tax laws that close such loopholes. But taxing revenue in this way is a very, very dumb idea.

I wonder if companies have a fiscal accounting and an economic accounting. The latter would be used to base economic decision on.

That accounting should show a nice profit in EU countries.

Yes, this is called “managerial accounting” in business school.

If you learn accounting in Germany, there's external accounting and internal accounting.

External accounting is what you show your investors and tax authorities. It has to conform to all relevant laws, and you play your usual tax avoidance games. Both of those make it fairly unusable for decision making.

Internal accounting is what you base your decisions on, and you can do whatever you like (since you aren't showing it around). It just has to provide insight. For example you can have departments do virtual payments to each other for production steps and services to help you quantify how well departments are doing.

In English/US accounting traditionally you would only do fiscal accounting, but doing internal accounting as well is getting popular.

They do, and they frequently release the numbers (often calling it non-GAAP).

The issue is that accounting is very complicated. Like really, really complicated. And that's because you're trying to make a lot of very different companies follow the same rules on how to recognize revenue, costs, investments, etc.

For example, here's a real world problem I came across once: how do you recognize the revenue of selling virtual tractors on FarmVille?

- When the sale takes place?

- Over a pre-set period of time, determined by the average lifetime of an user?

- Over a pre-set schedule that follows depreciation schedules of real tractors?

Economic is even more complicated. Economic profit takes in account the cost of opportunity, so a company might have accounting profit but no economic profit. It gets even worse when you're talking about cross-border accounting.

In other words, companies usually have managerial accounting using their own internal rules, and standards-based accounting (GAAP, IFRS, etc.), to report operations to the government and to the owners.

> Google spent a billion quid on their new HQ building in London. That's an awful lot to invest in a country where you make no profits...

Not really, if it's a regional talent center; Google needs physical locations where it wants to spend money by hiring people more than it needs them where it makes money, since it's moneymaking operations are not high-tech in-person interactions.

Not really, if it's a regional talent center

It wants workers educated by the State, who travel on infrastructure maintained by the State, who have healthcare provided by the State, security provided by the State, yadda yadda yadda. All the advantages, but none of the costs.

And in that case, both the company and the employee pay substantial income taxes.

Did you read the article? The whole point is that the companies do not pay the income tax by routing revenue through other countries offering tax cuts

I read the article; it says nothing about income tax. It talks about corporate tax, which gets into the reasonably debatable issue of "if you serve from country X and users are in country Y..." If you have no legal nexus in a country, it's a lot more reasonable to pay no tax in that country.

If you have employees in a country, then you necessarily will pay income tax in that country.

(Also, https://news.ycombinator.com/newsguidelines.html .)

I thought the point of the new tax was that Google pays next to no tax in Europe. Can you explain the current income taxes Google pays now?

Payroll taxes, income taxes on the employees, property taxes, and VAT on the employee's spending. Just saying generally that it's fine to have a business with employees in a jurisdiction even if the company is doing business elsewhere. Outside of this context, it's also a net win for the state if the business operates, employs people, and pays above said taxes, but doesn't manage to turn a profit provided it is a continuing operation.

Now, all that said, I don't think subsidiaries should be able to use licensing agreements and other loopholes to move revenue to eliminate profit and reduce corporate tax. To me the solution is just to disallow any movement money related to intangibles (payments or license fees) unless the exchange is a bona fide transaction between unrelated parties. These subsidiaries in different jurisdictions are all entities owned by the same holding co's. It's like selling your brother a house for $1 (or more like the use of your last name for $1 Billion).

Sure, and those are all benefits to the company that enable it to make profits elsewhere, but that doesn't mean it's making any profits in the UK. (Though you could make the reverse of the upthread argument about charges between sister companies, that this suggests the British subsidiary is undercharging the subsidiaries that are making money.)

That's probably why they built it in the UK and not in Belgium or any other EU country with insane taxes for that matter.

Could you please not use uppercase for emphasis in HN comments? It's basically yelling, and the site guidelines ask you not to: https://news.ycombinator.com/newsguidelines.html.

Sure, it's just I'd already used italics for quoting and didn't want to mix the two. Could we get bold as a feature as well please?

Ah, gotcha. Bold? Doubtful—that too would make things louder. HN writers have enough textual inventiveness to do without that (and allcaps), if they want to.

IMO your comment would read better and be more persuasive if you'd simply downcase the allcaps.

Don't add bold.

https://www.youtube.com/watch?v=Jp-ihklHGIo

This is why you pay tax on your income and not on how much is left at the end of the month, right?

Right, but unfortunately for me I'm not taxed at 2-6%. More like an extra zero.

Not exactly. It's more like you're taxed even if you are unemployed and not making any money at all. Taxing based on revenue rather than profit would mean that a company making no profit would still have to pay tax.

> Taxing on revenue rather than profit feels wrong

This is for companies that make money in the EU but don't pay taxes here. If Apple decides to pay taxes here like we all do then they will get taxed on profits. Revenues is just far simpler to calculate if you know/assume 'tax optimization'.

You can lose money this year, but still owe property taxes. This is not an unheard of concept.

Not a tax expert but I believe lots of taxes work that way. Wealth tax for instance (an individual may end up paying more taxes than it has revenues). All taxes based on employee salaries. Corporate taxes on unrealised capital gains. Not defending these taxes but they are not uncommon.

It is wrong, but Tech companies failed to learn restraint. Had they been less aggressive at tax optimization this wouldn't be happening. Since its not possible for the EU to agree on harmonizing income tax this is the only viable solution.

Seems fine to me. When I make a loss for a year, I still have to pay income tax. And by making it apply to all local business regardless of where the company is located, they can't hide from it if they want to do business with the market in the area. And if they don't, someone else will.

I'm skeptical of the side-effects...

Because of how VAT works we have a lot of companies in the EU that lives by essentially reselling stuff. These chains can be long.

If you apply revenue taxing to low profit margin businesses with high turn-over and long supply chains we'll see some negative results.

It's a decent way to hit tech giants, because a substantial part of the revenue is profit. But the unintended victims might be numerous on this one.

> When I make a loss for a year, I still have to pay income tax.

Where are you? When I write off business losses that are paid through my personal income taxes I can end up owing no income tax in the U.S.

GP didn't mention that the losses were business/deductible losses.

They won't leave. But they will raise price to battle off the revenue loss. After all, they don't want to lose money. Would expect Amazon to raise price universally in EU. I mean that is inevitable anyway.

Taxing on revenue rather than profit feels wrong.

Owing absolutely nothing in taxes despite billions in revenue also feels wrong.

This seems to be pretty clear retribution for what many believe is rampant abuse of tax law.

What does the amount of revenue matter if the profit is 0 or less? Just to discourage investment in the future? To punish people that attempt large projects that don't have a guaranteed profit?

The article seemed a bit light on details, so it is not clear to me that they mean that tax will be calculated as a percentage of revenue--just that it will be "based on" revenue.

Perhaps they will just use revenue for allocating profits, and then tax based on profits like they currently do? For example, if a company has $1 billion profits based on $2 billion revenue in France and $3 billion revenue in Germany, they could tax based on a similar profits split. The company would owe tax in Germany on $600 million profits and in France on $400 million profits.

This is the only comment in this thread that makes any sense.

Couldn’t the tax just be on profits as calculated by the fraction of the revenue in the specific country? So if a company has a global revenue of 10B of which 5% was in France and a global profit of 1B then the crude estimate of “profits from France” could be 5% of 1B.

Ever heard of Hollywood accounting?

> Taxing on revenue rather than profit feels wrong. If you run a loss you're still on the hook for taxes? That doesn't make sense to me.

It does not make sense.

For example I too would like to pay taxes only for what's left from my salary after paying my rent, my food, my clothes, all the books I read, entertainment I consume, etc..

Basically only for my 'profits' after I reinvest everything back so I would only pay taxes for my savings account [1] (which will probably be 0 as that money would be invested somehow).

It does not make sense!

[1] https://itep.org/amazon-inc-paid-zero-in-federal-taxes-in-20...

> Maybe some day European countries will all get together and agree on a single, unified corporate tax level across the European Union.

I completely agree. European countries should start thinking more about their shared, common good than how to outrun their partners.

As an Irish person, I consider this perspective to be hilariously naive. Without tax incentives, our ability to attract foreign direct investment is massively reduced and the jobs that need to attract will instead go to mainland Europe.

It might work if we started by establishing a framework of financial transfers between states, but without something like that in place Ireland and a bunch of smaller countries will keep vetoing attempts to normalise tax rates.

If there only thing your country has to offer is tax shelter instead of infrastructure, talent, resources, etc. Maybe work on that

Sure thing boss, and maybe I'll drag the country over and connect it to the mainland and then see if I can seed the place with valuable ores, oil, etc. That'll solve the problem

There is no right to equal economic wealth for all regions.

Providing the Taoiseach holds the Brexit line throughout, it wouldn't be that surprising if the EU backs off a bit.

No thanks, I'll take tax shelter over all of the above :)

If your economy is "jobs" in the exchange for favorable taxing & EU access that just makes you a Rentier state. All the value is in the tax avoidance scheme, not whatever the employees are doing. It's not far removed from Saudi-Arabia, the biggest game of the Sims ever played.

I get the sentiment regarding Saudi-Arabia, but the not what you actually mean by it being a game of Sims. Care to elaborate?

It’s not at all like Saudi Arabia. Having those technical and finance jobs in Ireland builds up a reservoirs of skilled labour in those areas that attracts companies. I saw this first hand at at a previous employer. We would preferentially move technology roles to Ireland - speak excellent English, in the EU, cheap office space and plenty of technically capable workers. Without the latter, nurtured by businesses chasing tax advantages, it would have been significantly less attractive. To be honest I think that would be happening to an extent anyway, but certainly many of the tax break business is contributing to establishing economic depth in Ireland in a way extractive industries don’t.

Without tax incentives, our ability to attract foreign direct investment is massively reduced

The Irish government hit upon a very clever strategy of collecting subsidies from the EU, spending that money in lieu of tax in its own territory, therefore being able to charge lower corporation tax, luring jobs away from the very economies that were paying those aformentioned subsidies in the first place! Unfortunately the other EU countries have figured out what was happening now.

Ireland is soon to be the only English-as-first-language European country. I would think that is a large factor.

The Irish are free to Exit the EU like their British neighbors. Then you can keep your taxes as low as you want.

Ireland, The Netherlands, Sweden, Finland and Denmark. Those are the countries where you can easily find fluent English speakers within the European Union.

With the tax equal anywhere in the EU, Ireland would be clearly the #1 place to locate the jobs for large international companies - particularly American ones.

You have just described a race to the bottom fueled by a tragedy of the commons. The textbook solution is exactly what has been suggested: coordination among players so that the overall welfare is maximized.

Sure, if Ireland chooses to pass on this revenue it should be able to do so, but this should not stop France from taxing a Google that is doing business in France from an Ireland PO Box. The philosophy of the common market predates the global digital market and is no longer adequate.

If the only way we can succeed is at the expense of others, maybe you should consider failure.

But you are attracting foreign investment at the expense of everybody else.

This is like peeing your pants when it's cold outside, it's nice an warm at first :)

If you look at America you'll see what this race to the bottom does. Amazons new headquarter selection process is entirely about luring tax incentives out of various states.

These schemes are largely outlawed in the EU, for good reason. The play Ireland makes only works because most of the European governments have too much integrity to play this game, and refuse to be beholden by corporate interest.

Speaking as another Irish person, I find it disheartening to see a compatriot playing to the prejudices of our critics. The country has vastly more to offer than just tax incentives, and it is not and has never been a tax haven in the sense that Bermuda or the Cayman Islands are. We were attracting significant high-tech FDI as far back as the '70s, from companies like Apple, IBM, DEC, Amdahl and Atari. They set up manufacturing and sales operations here, in an era when the corporate tax rate climbed as high as 50%!

As simonh noted in his reply to your comment, "Having those technical and finance jobs in Ireland builds up a reservoir of skilled labour in those areas that attracts companies. I saw this first hand at at a previous employer. We would preferentially move technology roles to Ireland - speak excellent English, in the EU, cheap office space and plenty of technically capable workers."

Apple's sweetheart deal with the tax authorities here is an embarrassment, but the lesson has been learnt and we won't see that kind of arrangement occurring again.

The European Union can't coordinate a common policy on its external borders, defense or foreign relations. Aren't those the things best handled by a supranational union/confederation, while things like tax are best handled by individual member states?

The EU is bizzare to me in how much it legislates wrt to the internal affairs of its members, and how little influence it has on the things I mentioned above. Seems inside out.

The EU is originally an economic union with aspirations for political unity. Taxes is actually really appropriate for it to be involved in if you consider why it was formed in the first place.

That will never fly though. The citizens have massive mistrust of ending up paying for the spending of other countries.

They already do that. The EU has a decently sized budget for developing underdeveloped regions and infrastructure in general.

Citizens don't know about corporate taxes, so that might fly :)

Especially, since it would probably be handled by local tax authorities. So this would only be agreeing on what the corporate tax rate should be.

Most citizens (me included) don't know what corporate taxes are... or what the rate is :)

I'm pro EU. But there are only two options: either you merge the EU into a proper union (shared taxes, no tax competition within the bloc, shared money streams and bonds) or you disband it (or at least reduce some of its responsibilities).

The issue in part is that the euro, while great to use for consumers, wasn't thought out properly. The Euro Germany needs isn't the Euro Greece needs. And that has significant effects throughout local economies.

Tax competition can only be solved by throwing everything in one pot, and then dividing it again so everyone wins. But I can't see that happening with all the populism rising across the world.

It’s not realistic to expect the countries in the EU to be “more united” than the states in the US.

Correct. People try to make just about politics or the "naive masses" who follow the populists. It's not.

South and East europe are damned to an eternally declining economy if they don't leave the EU. There is no interest from Germany or Frace to redistribute the wealth to the periphery so they can develop too. They took away their ability to devalue their currency, so all they're left with is adjusting tax rates. Bulgaria, Ireland and the Netherlands are prime examples of somewhat succeeding in that. Greece and Spain aren't allowed to do it because of austerity. If the EU decides for a flat tax rate, everyone but the big 2 are doomed.

Unity is already hard for a country like the US, where everyone speaks the same language and could move to a different state overnight with no issues. For a union like the EU, pretending there are no borders is outright lying. What do they expect to happen? Have the entire EU move to Berlin when the last jobs in the South die out? Turn everyone in the South to a bartender for the Germans and everyone East to a cheap subcontractor for car parts? It won't work.

I believe in a unified europe. I love freedom of movement. But that won't happen through the current EU and Brussels administration. We need a new, better union, or no union at all. What we have now clearly doesn't work.

It boy has the control and influence it’s member states grant to it. The EU can’t unilaterally impose rules on its members, hence Britain’s ability to negotiate exceptions to any EU policies or initiatives we didn’t want to be part of - Working Time Directive, Schengen Agreement, Euro Zone, etc. Tax policy is something EU member governments want to keep to themselves and don’t all agree on, and as long as that it so the EU will have a very limited say in it.

If Ireland was offering access to their own market of 5m they should be able to set whatever corporate tax they like. When they are offering access to a market of 550m they shouldn't be able to undercut everyone else.

So what's a fair rate of tax? Who decides?

The French Finance Minister? A EU Commissioner?

Taxation without representation in a purportedly democratic polity tends to not go down well.

Ideally an EU finance minister appointed by the European Parliament.

Writing tax laws effectively is hard, just like writing effective and secure code that will be publicly accessible is.

You have to think about edge cases, not introduce race conditions, handle buffer overflows. And the people trying to find bugs are extremely motivated!

An EU commissioner or some junior bureaucrat in Brussels has no incentives for quality drafting. They won't get a bonus if tax revenues go up by 10%, and they don't get much help to review drafts. They want to do a good job, sure, but they also want to go skiing, or have a cold, or want to catch up on Black Mirror.

Apple, Google, and Facebook each have very strong incentives to examine the law and identify ways to optimize their position. They can and do pay their employees, law firms, accounting firms, and other consultancies VERY large fees. Tax work to identify overspend (a shipment had the wrong tax category applied and was charged a higher rate, for example) typically earns 33% commission, as just one example.

You can just rule by decree, but then you drop all pretence of being a government of laws. You have to explain, in detail, what an internet company is, how you will categorize revenue, how you will attribute it to a certain country, etc etc.

For the EU, sure they don't have many big Internet firms. But they sell lots of cars, shoes, clothes, wine, robots, trains, etc to the US. They are putting all of that at risk to satisfy the pique of Bertelsmann and Holtzbrinck.

Trump's off the cuff tariffs are stupid and counter productive. So are the EU's attempts to hobble Google and Ireland.

Then we are running into this taxation without central government problem. Not all countries in EU are for further integration, this might a lot of eyebrows.

Agreeing on a range of acceptable tax rates might be doable at least. This is nationsl politics that is decided by national budgets after all.

It would be easier to drop corporation tax and instead tax dividends and capital gains as if they were income.

> It's as if the rules of free trade are fine for "old" stuff like cars and aeroplanes, pharmaceuticals, banking, legal services, wine, etc. but not for modern tech/IT.

European Union angle is: stop opening up branches in Luxemburg and Ireland (or other tax havens) to sell products to customers in other EU nations. Aka pay where you generate income.

I hope i understood you correctly, but it really has nothing to do with modern tech/IT. Such regulations have been already applied to Ebay, Amazon and other companies which sell the 'old' stuff you are talking about.

Just like you, I fail to see where the jingoism would be in forcing non-EU members to pay a fair amount of taxes and punish those who try to exploit the system.

EU has _never_ been a free market and if you want to play you have to follow rules (and IMO that's partly why EU refused to sign the TTIP). Same thing for foreign companies trying to export goods to the USA, especially these days - no?

[0](https://en.wikipedia.org/wiki/Transatlantic_Trade_and_Invest...)

> pay where you generate income.

This doesn't make sense & defeats the point of European Single Market. Sales tax is paid on & goes to the country the item was purchased in.

What does make sense is revenue being realized in the country of the company that sold* the product/service. *this being a whole other can of worms.

The issues some countries(France/Germany) have are:

a) that their country wasn't chosen to be the entrypoint to the EU market

b) firms are realizing the revenue in a country which technically owns the product/service IP but is not(in all likelihood) the company's main base.

So, let's pretend b) is a legit issue & we change that. The revenue from the sale is not going to go to some other EU country(why would it?). It's going back to the "main" country of the host company.

So, let's say $US-multinational didn't pay tax in Ireland or Luxembourg. That money would just flow direct to $caribbean-country(which now would hold all the relevant IP etc.) and held there - similar to what happens now. Because, even if Europe changes it's laws, $US-multinational still gets to game the US tax system cos it's 'better' than paying more in taxes than you legally have to.

The next logical choice is for the EU to just bang an import tariff on all US goods/services and let the consuming country collect it. Let's see how that plays out...

This sort of thing is only a matter of time and entirely reasonable and I'm not surprised at all that it's the EU rather than the US pushing this.

The idea that a US company can sell its IP to a foreign subsidiary and then pay "royalties" for use of the IP to reduce US taxable income (all blessed by the IRS) and then pay basically no taxes on this through Double Irish Dutch Sandwich is apparently all fine legally but conceptually, we have a government, a military, infrastructure (roads, bridges, etc) and so on... who exactly is going to pay for all that?

More broadly, we have an increasing class of stateless ultrawealthy who really don't pay taxes anywhere. There is any sort of justification for this. Governments waste money. Individuals can direct money to charities more effectively (while this might be true, it's still a net less "tax" paid in donations that would otherwise have gone to tax and tends to have a social climbing element that directs funds to "sexy" causes; no one is contributing money to repair Interstates in Wyoming).

It's all just a smokescreen for paying less money to the stable society and political system that makes your wealth even possible. Pay your goddamn taxes.

I expect to see a rule for multinationals come about that'll go something like this: if you earned X% of your total global revenue in our country then X% of your total global profit is taxable in our country. And if the EU is the one that brings this about then good for them.

This is stupid and taxation for taxation purposes. It is all annoying. Why not have all taxes generated from sales Tax (VAT). For example, set the VAT for 30% and be done with it. No revenue tax. No profit tax. No capital gain tax. Just determine how much money you'r going to need, estimate the country consumption and then set the VAT.

Bonus point? No complicated tax reporting. No tax avoidance or evasion. Everything is simple.

But no, we gotta keep the system complicated to freakout new comers, terrorize the current small businesses and enable the big guys to get away with it however sophisticated it is.

I'm American so I don't fully understand how VAT tax works but aren't these sorts of sales taxes generally regressive (i.e. poorer people pay a larger share of their income). I think the tax code can be simplified but I don't think a pure VAT system is such an obvious winner

I am European and I don’t understand it either, so no worries. It is a big mess with tons of rules and exceptions and don’t let me started on reverse charges and various kinds of reporting.

It's basically a sales tax, but with a reclaim of the sales taxes paid on 'input' goods. So If you make cars you charge a VAT of, say, 20% on the sales price, but get back the 20% tax you paid on the steel, and the tyres, and everything else. The net effect is that it's a sales tax on the value that each business adds to the product, rather than being compounded as goods are resold.

It's still regressive, though.

The difference between a VAT and sales tax is easy to understand in simplest terms:

Sales tax is a percentage of the final sale price of a good or service.

VAT tax is a fraction of the profits / revenue of every business involved in the production of a good or service.

VAT is only complicated for businesses that sell things, but it also is not because the business basically writes off their purchases when they then sell them again to an end consumer. Between their purchase and sale they added value, and that difference is the tax passed on to the final consumer. All the government cares about is strict bookkeeping on how much stuff a company pays for and how much it makes from selling that stuff again in order to check that the VAT is accurate, and those figures are already required in most economies due to corporate taxes and / or payroll taxes.

> VAT is only complicated for businesses that sell things,

As oppossed to businesses with no revenue?

VAT also encourages the formation of conglomerates since you'll need to pay VAT to source some component of your product, but not if you make it in-house.

This is mitigated in some cases by lower VAT rates for businesses or recouping schemes, but how much of a difference that makes depends on the jurisdiction

Say a company sells a product to a end customer for 100+VAT.

A) the company builds the product from scratch => the whole VAT amount collected is transferred to the state

B) the company buys components from a provider for 50+VAT => half of the VAT collected is given to the provider, the other half to the state

How are A) and B) different for the company as far as the VAT is concerned?

They're not as far as the amount paid, but VAT introduces taxation overhead to supply chains.

Let's say company A makes a pencil in-house, and company B sources all the materials from 100 subcontractors. Company B will inevitably incur more overhead because it and its suppliers need to deal with the accounting of 100 taxable events, company A only needs to deal with one.

Thus those 100 companies forming B will inevitably merge into one to compete with A and fire their state-imposed army of accountants.

I always saw VAT as a sales tax that only applies to individuals.

When a company buys something it doesn't pay VAT, but it pays it when selling to end-users.

Benefit being that if companies A sells a half finished product to company B and company B sells it to a consumer then VAT is only paid once.

Where as simple sales taxes would apply to transactions between company A and company B. Thus, incentivizing the formation of a conglomerate company AB consisting of both A and B. Reducing competition and flexibility, favoring big players over small.

Am I wrong?

Yes, you are completely wrong. This is rather how sales tax works.

With VAT, you do pay it on every link of the chain, but then businesses are allowed to recoup it on their purchases, while end-users are not. For example, if you are making and selling chairs, you pay VAT on the wood you are buying, and your buyer is also paying VAT on the chairs they buy from you. However, you are allowed to deduct the VAT you paid for wood from the VAT owed to the government by selling chairs.

To make it concrete, suppose you buy wood for $1000, and sell chairs for $2000. Suppose VAT rate is 22%. Then you actually pay $1022 to wood wholesalers, and sell your chairs for $3066. Your sale of the chairs makes you owe $66 to government, but the invoice you got from wood wholesalers allows you to deduct from your tax bill the $22 you already paid when you bought wood, and in the end you only owe $44, which is exactly the 22% of the value you added ($3000-$1000 = $2000).

Deduct and not pay are the same.

Aren't they?

No, because each part of the chain has to cut a check to the government for the tax obligation created at their part of the chain, while in sales tax system, only the final retailers have to do it. As a chair manufacturer, you don’t use the invoice from wood wholesaler to deduct their whole tax obligation, just a part of it.

The problem with just VAT is that it effects the poor disproportionately due to the fact that the poor usually use a larger part of their money on things that charge VAT (living expenses)

A general “money changing hands” tax would be more fair but would wreck the economy.

VAT only applies to consumption by citizens of a country. Not enterprises, not foreigners. If anyone were to sell services to foreign companies or individuals, they wouldn't generate taxes. If they were made mandatory, then their services would be at a serious competitive disadvantage because foreign companies couldn't get a tax refund in their local country.

In short, this plan is very very bad. Taxes are somewhat complicated, but they're designed this way for a reason, and there's a reason why nearly all countries have somewhat similar systems.

VAT is an extremely regressive tax that hits the poorest hardest, as they tend to spend a larger proportion of their income on taxable goods and services.

As a result, systems with high VAT rates tends to need to compensate in various ways, such as zero rating essentials, and higher benefits payments. It quickly ends up not being so simple.

> Bonus point? No complicated tax reporting. No tax avoidance or evasion. Everything is simple.

What makes you think VAT reporting will be simple, and that nobody will conduct fraud related to it? That's not my experience at all.

> VAT is an extremely regressive tax

VAT is proportional, not regressive. Rate regression can only occur if you spend more of your income on VAT-exempt consumption, which is generally not what happens.

Furthermore, a revenue tax is basically the long way around levying a VAT, the direct result is the same: an increase in consumer prices.

> VAT is proportional, not regressive.

It is proportional to the amount of money spent, which tends to make it regressive as a proportion of income, as poorer people tends to spend a much larger proportion of their income, and while you may find - depending on which types of products are VAT exempt - some slivers of the very poorest end up paying little VAT, for a lot of lower earning people in countries with high VAT rates it makes up the majority of taxes they pay, often to the extent of countering a lot of the usually progressive nature of income taxes.

> Furthermore, a revenue tax is basically the long way around levying a VAT, the direct result is the same: an increase in consumer prices.

And that would be one of the reasons people are concerned that a revenue tax would also be regressive.

VAT is non-progressive and thus unfair with the poorest

Mainly because sales tax is a regressive tax. Rich people spend a smaller percentage of their money are are hence taxed at a lower rate than poor people. Also the sales tax would have to be way higher than 30% if we got rid of other taxes.

https://www.citylab.com/life/2015/01/how-local-sales-taxes-t...

There is a distinction to be made between VAT and sales tax, though. Not necessarily in the regressive nature, but its still important to make because the US really should adopt VAT taxes.

It is perfectly feasible to impose VATs on the sales of stocks, bonds, or the accumulation of dividends, etc. Those are still goods, they are just treated differently and artificially to give tax breaks to investors. There is no real reason why you cannot VAT a corporate share as much as you VAT a car, just most countries do not do so because TPTB want to maximize their profits off traditional investments.

It doesn’t make much sense to apply a value-added tax to the sale of a security or the distribution of dividends. And other taxes are already applied anyway.

Capital gains taxes are charged on the difference between purchase price and sales price, and as such has pretty much the same effect.

> sales tax is a regressive tax

Sales tax is a flat/proportional tax, not a regressive tax.

VAT is not regressive. Everyone is taxed at the same rate. Or doesn't matter if rich people spend lower percentage of their income. Sooner or later the money is spent and then it will be taxed. If it's nevertheless spent then someone (the rich person!) provided a service for free as they never asked anything back on it.

Seriously, it requires understanding of basic linear algebra to see that VAT isn't regressive. The article you linked makes the same mistake. You will be taxed at some point and if you multiply your money by investing before spending it then you're taxed on bigger amount. The rate ends up being the same for everyone.

> Or doesn't matter if rich people spend lower percentage of their income. Sooner or later the money is spent and then it will be taxed.

That'd be true if VAT applied equally to everything, but it doesn't. Your assumptions are invalid.

It is applied to consumption. Some, most often necessities are taxed less which lessens the burden for poorer people. Instead of dismissing my statement you could at least try to come up with one counter example. Every time I see "VAT is regressive" nonsense it's always based on misunderstanding. Yes, investments are not taxed but that's ok, if a rich person makes 20% a year from investment then they have 20% more money to be taxed once they engage in consumption (hence linear algebra remark). It really is about basic math to realize VAT isn't regressive but proportional (and even slightly progressive as necessities are taxed at lower % in many countries).

You can make consumption based taxed more progressive by taxing luxury goods at higher rate (which already many European countries are doing) as well.

> Every time I see "VAT is regressive" nonsense it's always based on misunderstanding. Yes, investments are not taxed but that's ok

There you provide one example yourself. Another is all consumption achieved by moving your consumption to somewhere else with low or no VAT.

I've done the math for my own expenditure from back when I didn't earn much to now, and the difference is stark.

>>Another is all consumption achieved by moving your consumption to somewhere else with low or no VAT.

I didn't. Investments are not consumption. At some point you are going to buy something you can use like a car, a house, food or w/e and there will be VAT there. If you never spend it on consumption then you are in effect providing a free service to everyone (accepting money but never buying anything). If you live in a country with VAT then buying abroad won't help you as you have to pay VAT on imports from non VAT countries.

>>I've done the math for my own expenditure from back when I didn't earn much to now, and the difference is stark.

Do you have any savings/investments now in comparison to there? What do you think will happen once you want to by something with those savings?

Because Bill Gates or Jeff Bezos don't buy a jet per $1B in wealth accumulated. They buy one each and don't buy another until the first one fails.

Just because you have more money, that doesn't mean you consume more stuff.

For an economy based on money changing hands, what you propose would be devastating. We need to encourage spending.

Because VAT is regressive. Also, if it were set high enough to collect an entire state's revenue then it would be evaded on a spectacular scale: it's a tax on movable goods, many of which can be bought elsewhere in the EU and imported, let alone the possibilities of simply cheating on your return.

The rates of excise taxes on cigarettes and alcohol in the UK are essentially maximised due to evasion already, for example.

If you do want One Tax To Rule Them All, the most likely options are either some kind of land tax (because land doesn't move and can be confiscated in lieu of payment) or various kinds of Pigouvian taxes on fixed industrial polluters.

Depending on your implementation a VAT may not be progressive and may just be proportional, which is usually what you don't want in a tax system (because while its not nearly as bad as regressive taxation like the US corporate tax rates now, a neutral tax rate doesn't do anything to curtail the natural accumulation of wealth among the top echelon of earners). I've not looked into the individual EU VATs but my understanding is that most are just flat fractional taxes on profits paid by the consumer.

Such a system is rife for the same complexities as current tax codes as you start adding exceptions and refunds to try to offset the fact that the VAT on a commodity car would be the same percentage wise as on a Ferrari despite the later obviously being capable of paying more in tax if making such a lavish purchase. So you start adding tax credits to cheap car purchases or make a deductible and start adding and tweaking those across the board until you are right back where you started with an overtly complicated tax policy that has just shifted the complexity from tax collection to tax refunds.

> Bonus point? No complicated tax reporting. No tax avoidance or evasion. Everything is simple.

In many countries, VAT fraud is actually the biggest, and it is literally stealing money from government. In Poland, it is estimated to be in billions of dollars a year. Go read about it: https://en.wikipedia.org/wiki/Missing_trader_fraud

As many others have pointed out VAT is regressive, it also becomes ineffective at very high rates as it encourages evasion and a black market.

Le Maire told the JDD that they should expect to be taxed between 2 percent and 6 percent of their revenue. He also added that the final figure will be closer to 2 percent than to 6 percent.

So 2% must then be a significant increase over the current effective tax rate? Or is this just some politicians posturing for votes?

2% of revenue. Whatever low rate they pay in Ireland is based on profits.

Depends on the profit margin of the company. 2% revenue tax equals 8% of the profit for a company with 25% margin. For a company with 5% margin, 2% of revenue equals 40% of profit.

This is my biggest problem with a revenue tax. It disproportionately punishes “high volume, low margin” business models over “low volume, high margin”

But one can argue that his biggest problem with a profit tax is that it disproportionately punishes “low volume, high margin” business models over “high volume, low margin”.

Does it? Profit is what determines the value to shareholders (of mature steady companies). 10% profit tax is the same amount for comapnies with the same amount of profit.

I guess the country where the actual profit is booked (i.e. Ireland) will allow these payments to be deducted from the gross profit, before taxing.

But you're right. A business selling airline tickets online from Ireland, running on razor thin margins, will pay a lot of tax. A business selling software licenses at 90% margin will pay very little.

Why not put the tax on global_profit * local_revenue / global_revenue?

Yeah, a scheme like that would avoid killing low profit high volume businesses with long supply chains (which is otherwise favored by VAT).

That's sensible, but I think accountants defeat it pretty easily. For example, suppose Acme EU, Inc. has $50MM in revenue from the EU, and $25MM in on-the-ground costs to deliver that revenue. Lo and behold, they also have a bill from The Real Acme, Inc. for $25MM for "intellectual property and technology services".

So using your equation, Acme EU would get taxed on $0 × $50MM / $50MM.

Of course, we want to have a way to say, "But wait, both Acmes are actually the same company!" I think that's the hard problem to solve.

Iterate recursively, The Real Acme, Inc. obviously also operated in the EU, they made a revenue of $25MM from goods and services they sold to Acme EU, Inc., therefore they owe taxes on global_profit * $25MM / ($25MM + non_EU_revenue). I admittedly didn't really think this through for more than a minute. This also feels like I am reinventing value-added tax, this is definitely not my area of expertise.

Still a problem of being based in a "friendly" country which allows for liberal accounting standards.

Isn’t that essentially the same as VAT, which also is a local tax on revenue?

I guess if a french advertiser pays Google Ireland to show ads to french consumers it pays Irish VAT.

What leverage does the EU believe it has here? Tech companies only put branches in Ireland, Netherlands, etc because of the US tax code. Another jurisdiction will just compete on price and win the business. Jobs will leave (high paying ones at that) the EU, income tax receipts will be hit, unemployment up, wages down. It's just suicide. Corporations and the super-rich are the leading edge of tax arbitrage. Like it or not this is the future of tax for everyone, it's just a question of when technology enables you to do your job remotely.

If they want to sell in European countries they will pay tax on revenue there. They can move manufacturing to the Moon and report profits to authorities on Mars while buying licensing from a company outside the Milky Way and we will still tax them on things they sell here. That's possible because we just need to count their sells on our turf. We don't need a tax treaty with Martians to monitor their books as we do now.

If there is no nexus, there is no justification to tax. Similarly, if you a widget online from abroad the widget vendor doesn't pay tax where you're domiciled. The best the government can do are import tariffs, hard to see how that works for services IMO.

It’s not companies that pay taxes, it is who consumes their products (us).

Can't we do smarter than revenue?

Like tax world wide profit at a rate proportional to revenue in each country?

ie. if 10% of your revenue happens in country A, then 10% of your world-wide profit must be taxed in country A at whatever corporate tax rate country A offers.

This could also be structure as: If 10% of your revenue happens in country A, then 10% of your wold-wide profit must be taken out in country A.

Or something similar... perhaps just make it easier to prosecute profit exports for tax evasion purposes.

IMO, I would rather see resource based taxing, as companies will find a to optimize taxes no matter what.

We can do even smarter than that. 0% worldwide revenue or profit tax (on both corporations and individuals).

Nations, provinces/states, and municipalities and even businesses are free to charge whatever sales tax they want at time of purchase.

The massive amount of wealth preserved, saved and created as a result will allow for an exponentially more efficient economy worldwide; one that isn't handicapped by militaries and monopolymen.

sales tax is really bad, won't that encourage large corporations, as transactions between corporations would be taxed?

With VAT that doesn't happen.

VAT, GST, etc - yes that is what I meant by sales tax. Let entities charge any tax they like at time of purchase; it is there prerogative; it's a completely non-invasive tax that encourages competition (ie- little or no sales tax entities will be favored) and savings (ie- your not punished for simply earning money).

If you want the rise of mass poverty and political instability, then that is how to do it, as it'd destroy government revenues and destroy the welfare systems that were put in place to temper the threat of violent uprisings and revolutions.

> While they’ve all claimed that everything is legal

It very well may be, but here's the thing: the law can be changed. Not retroactively of course, but we can decide about the future.

What’s the minimum revenue to be considered a tech giant?

Interesting. I can't help but think that creating a new tax that almost exclusively hits US companies will simply add fuel to these trade war talks.

Why do you assume it would almost exclusively affect US companies? They are the names that are usually floated around with this topic, but this doesn't sound at all like it would only affect US companies.

Because, according to Reuters, who claims to have seen the draft, it's targeting companies with EU digital revenues in excess of some large amount. After you get above Spotify's digital revenue, the only companies left are American (and Spotify looks like it's exempted).

https://www.reuters.com/article/us-eu-tax-digital/eu-plans-n...

This is definitely a good idea - I believe similar to what happened in the movie industry to combat Hollywood Accounting https://en.wikipedia.org/wiki/Hollywood_accounting

The EU should force the other countries to lower their corporate tax instead.

So when a company is losing money, it will still pay taxes?

It sounds like a tariff on software imports.

Or on digital goods more generally. I can't see how it will survive a challenge at the WTO.

Between the broad nature of the GDPR and now this, it seems like the EU is really just pursuing legislation that disproportionately affects foreign tech companies and making up reasons as they go. Obviously that's entirely conjecture but it's hard to take the justifications for these measures at face value when EU specific scandals like the Volkswagen fiasco result in slaps on the wrist by comparison.

Why is GDPR disproportionally a problem for foreign tech? You really think there isn't tons of work to do for many local companies as well?

>Why is GDPR disproportionately a problem for foreign tech?

The legal resources being actively applied against foreign companies, and I'm including the legal resources of civil groups that receive state funding in that definition if it matters, is concentrated predominantly on foreign entities. The raw economic impact, in part due to the concentrated nature of the legal action being pursued, is much larger against foreign entities such as FaceBook, Google, etc. Put succinctly, it's disproportionately a problem because the realized effects of the GDPR have been more hostile towards those entities.

> You really think there isn't tons of work to do for many local companies as well?

I think you're either being rhetorical or you've misunderstood my point. I'm not arguing EU companies don't have any work to do. I'm arguing that from a legislative perspective it's a small trade when you compare the size of the foreign sector to the domestic sector. In my parent comment I acknowledged that this doesn't immediately imply foul play before going on to say that it's hard to not view these actions as such when the EU treats its own corporate scandals/misbehavior so lightly by comparison such as in the case of Volkswagen.

GDPR had to come at some point. US companies don't give a shit about privacy, and EU citizens do. GDPR is a good thing.

This is wrong. Taxation should happen where value is created.

Apple pays taxes in Luxembourg. It doesn't matter where the app developers live or where the people buying the apps live. The money goes to Luxembourg. Is that where the value is created?

Its also arguable to want to collect taxes at point of sale, IE, whenever the person with the phone making the purchase is, or more reasonably where they live. Which is what this proposal is, after all.

Well it's not like we have universal income, but increasing taxes on Fortune 500 companies always makes me happy.

I really hope the taxes won't go into another corrupted Berlin airport scheme.

I wonder how much prodding will they take until they take measures.. if EU successfully does this, you bet that the regressive South American countries will try to ape it.

OTOH they can probably take a 2% tax hit.

Edit: I was thinking in terms of negotiating strategy for the big companies. Also, I am a citizen in one of said South American countries.

> if EU successfully does this, you bet that the regressive South American countries will try to ape it.

Oh, I forgot I should feel sorry for the richest corporations on this planet, they're being repressed, aren't they? It isn't them defrauding workers by wage fixing, not paying their fair share of taxes etc. it's the EU and the oppressive South American governments, (damm communists! there isn't enough redbaiting in the U.S. these days), thanks for reminding me who is the real victim here.

I am a South American in a member country of Mercosur, while I'm not happy with Facebook et al doing every tax evasion trick in the book, it doesn't mean that what Mercosur countries do isn't populist... (see: Brazil randomly blocking Whatsapp whenever they want).

I was also thinking in terms of business strategy. It's like negotiating with terrorists.

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