Tech Giants Set to Face 3% Tax on Revenue Under New EU Plan
bloomberg.com
bloomberg.com
* It's done on revenues and not profits. This avoids the impossible question of where profits are realized: if you make money in one country but displace that earning by costs somewhere else, it's practically impossible to determine where the tax should go.
* It's uniform across the EU and so it doesn't incentivize companies to base themselves in any member over another. This avoids the distortion we have now with Ireland's permissive tax system siphoning up all the company headquarters and with it the (scanty) tax revenue.
* Each member receives money based on the number of users they have in their own country, meaning they have a strong incentive to increase usage of digital services and a disincentive to put in place regulatory measures that would decrease adoption and harm growth.
One of the problems of the current situation is that it sets tech companies up as these parasitic monsters that creep into a country, make huge profits, alter the society as they see fit, and give nothing in return. The best thing about this proposal is that it sets up a harmonious relationship: governments get to make money while companies get to have their access to citizens legitimized. With that legitimacy comes better PR and a seat at the table as legal systems everywhere catch up to the world tech companies have created.
Plus it might finally put that ridiculous "tech companies are tax evaders" meme to rest.
It does the exact opposite. It spurs a further acrimonious relationship between the major economies of the EU and the US. Particularly France and Germany, which are a combined outsized share of the EU economy and represent ~80% of the trade deficit that the US has with the EU.
This new tariff exists solely because the EU can't compete on technology and needs to raise barriers. It's the same reason any country chooses to implement lopsided tariffs, as a shield from competition.
It encourages the US to figure out how to retaliate for a new tariff that was designed to almost exclusively target US tech companies. The US will have no choice but to respond with something equally punitive on EU imports. That'll just make relations between the EU and US worse.
I believe what the EU has realised, is, that trying to tax the profits of corporations that will simply move them around and declare them wherever they don't have to pay taxes on them, is a game of cat and mouse the EU can't win. So, they decided to go a different route.
When Google decided they could negotiate the tax they had to pay in the UK with George Osborne, the public outcry was massive (think: "Why can't I get an appointment with HMRC to negotiate what I owe in taxes?").
The EU needs to show that the social contract is non-negotiable, lest it face further disenfranchisement of the populace.
This is a good first step in the right direction, in my opinion. Whether it's tech companies, or any other big industrial conglomerate, tax avoidance is not acceptable.
By raising new consumption tax ? Its not going to work. Thats not how you fund socialism lol.
Socialism is a completely different topic. I wouldn't even know how to define it, considering how many wildly different definitions of it there are. I think the regulated markets, like Germany and Scandinavian countries have a nice model, but even the crazy American model would be fine, if the rules were the same for everyone.
Again, I was not talking about socialism or how to fund it.
By the way, you mentioned that this consumption tax is not how you fund socialism. How do you fund socialism? I'd be very interested to hear your perspective :)
That's exactly what I'm describing. The US can't compete with low cost producers on steel, so it is seeking to raise barriers to competition.
Although I will point out there's at least one target for steel tariffs that would be very beneficial: Russia. The US imports four times as much steel from Russia as it does from China, and nearly as much as it does from Mexico. I'd much rather see those imports go to Canada and Mexico. The US can freely shut down all trade with Russia to zero negative economic effect for the US. Russia imports a mere $7 billion worth of US goods, ie it's a meaningless export market for the US (while the US buys $17 billion worth of Russian goods, ~1.4% of their economy).
Europe largely can't compete on technology with the US, failing for the last 10, 30, 50 years to build competitive companies and products of the scale that the US has. While the US has 40 or 50 large technology companies, the EU has a comparable four or five. So up the barriers go. I don't see how a 3% revenue tax is going to change the balance much though, they'll have to get a lot more draconian.
This policy by the EU is an admission of dysfunction and failure of the EU system. They can't get their countries to implement what some consider proper tax policies individually, so they're going to attempt (and likely fail) to get a unanimous vote on this revenue tax.
There are 20 countries in Europe with statutory corporate tax rates either just a bit above Google, near it, or below it. The effective rates are that much lower. Most of Europe is turning into a very low corporate tax haven. Except for a few nations, such as France, which has an infamously high corporate income tax rate. I can't imagine what the complaint is exactly given all of those low tax rates, other than that the spoils are overwhelmingly going to eg Ireland and other EU members with larger populations are jealous. I see this primarily as an attempt at wealth redistribution by Germany and France in their favor vs small lower tax EU nations.
Ireland has a GDP per capita nearly twice that of France now, in part due to their low tax policies. It's obviously in France's interest to try to pry some of that away from them.
Face it: some form of taxation was going to appear no matter what. It's inevitable. You don't just roll into a country, make billions of dollars, and expect to pay no tax in perpetuity. As tax proposals go, this one is pretty reasonable.
This isn't a punitive measure because it sets no one apart for any past behavior. It also isn't a "shield from competition" because all companies have to adhere to it, not just American ones.
This is basically how exports work, why should tech be different?
Similarly to what OP said, since this tax disproportionately affects US companies doing business in EU, the US is likely to add a torrid to EU exports to the US. And the argument “You don’t just roll into a country, export billions of dollars of cars (or whatever), and expect...”
That's free trade. It's also shady and selective to avoid paying taxes for infrastructure the company uses. That's kind of screwed up.
The EU isn't collecting American taxes. They're fixing EU issues.
This largely looks like an EU tariff on whatever they end up defining digital companies as, which will likely be defined in such a way to tax Google and Facebook, while avoiding taxing Spotify.
The reason this policy is being pushed, is because some nations have benefitted a lot from US tech companies, eg Ireland, while others eg France and Germany, are jealous that they're not getting their spoils (while simultaneously seeing no large domestic tech company creation). France and Germany have vast influence over the EU, they regard it as their little fiefdom of power. To watch Ireland become richer and richer and richer by the year, as their GDP per capita just keeps soaring ever higher, drives those sleepy giants crazy.
GDP per capita
Ireland: $68,000
Germany: $44,000
France: $39,000
It's pretty obvious what's going on.
Ireland's economy has tripled in size in 17 years.
France's economy hasn't net expanded since 2006.
Germany's economy hasn't net expanded since 2007.
I seriously doubt France and Germany - both high corporate income tax nations - want to see a bunch of Irelands further sprout up in the EU, pulling even more economic benefit away from the power duo in the EU.
2) It works for Ireland to have low taxes, because they are a small country collecting the tax for the entire profits in the EU. Even if their tax rate is low, they still get a sizable benefit. This can't work for the big countries.
2) It works for Ireland because other countries prefer not to engage. If Germany had the same tax rate it wouldn't work for Ireland anymore right? As what is now Ireland only revenue would be split between the two or more countries.
When this happen wouldn't Ireland have to raise taxes if it wanted to keep the same money?
It appears to me that this would achieve an stable and healthier equilibrium after some time.
If lower taxes were always better why have any taxes at all?
Ireland can't win a race to the bottom, and it will have to have higher taxes if others will lower theirs.
So all other countries have to do is lower taxes to force Ireland to raise its own, and reach a new higher taxes equilibrium, that is beneficial to all countries.
Isn't that what others are arguing for?
I'm not sure how this is comparable.
Ireland's low tax works for Ireland because it has no competition, so it gets the "market" all to itself. If competition arrived, Ireland would have no option but to raise taxes to make it up for it - as it needs this funds. It would essentially force Ireland's hand on this issue.
On the OPEC side they have external and internal competition. Sometimes they can make it work because demand is higher than what external competition has to offer and what internal competition need, but if external competition has enough supply or internal competition need more than they are getting, it does not work anymore (and the price drops because of extra supply).
It seems like your proposal would establish a cartel-like structure related to corporate tax rates. I was trying to point out the inherent fragility of this type of arraignment, especially in the EU where there are many stressors between member countries.
I think the system will work only as far as you have power players that are able to punish everyone who gets out of line - by racing to the bottom and driving profits out as a punishment [1].
That's exactly what I think complaining countries should do. They're not getting any revenue now, so they are able to power play Ireland into fair taxation, and the system will be as stable as their possibility to do so. If you take into account that any country cheating will take revenue away from others (thus their reason for a high tax), they should always be able to counter, as they are now.
[1] https://www.nytimes.com/1988/11/03/business/saudis-use-pain-...
Why does the UK deserve more than 20%, given that the vast majority of Google and Facebook's engineers and managers are in the US?
If I spend £100 on AdWords as a company, the £20 VAT comes off my VAT bill. I pay £20 less.
So Google's VAT bill is utterly inconsequential and meaningless.
VAT is only paid once by consumers for products, advertising is a company expense that simply shifts the VAT one level down the chain. It doesn't get applied at every level on the supply chain, it gets passed down.
So if Amy's Amazing Tours sells a £100000 tour round London, without any advertising, it generates £20000 VAT paid by Amy.
If the same tour is sold by Mike, for the same price of a 100k, but with £50000 worth of Google adverts, Mike pays only £10000 VAT with Google paying £10000 too. Still adds up to £20000.
Fact is, Google are using the UK's infrastructure, our commons, our laws, our police force, our army, our NHS, our roads, our telecommunications, etc. to do business. And need to contribute to it. Plus we tax economic activity to support our welfare systems for our society and Google/Facebook/etc. are circumventing that.
That's one way to look at it. Another way is to see it as a tax paid by each supplier based on how much value that supplier has added to the supply chain - a sort of 'value added' tax, if you will.
> So if Amy's Amazing Tours sells a £100000 tour round London, without any advertising, it generates £20000 VAT paid by Amy.
> If the same tour is sold by Mike, for the same price of a 100k, but with £50000 worth of Google adverts, Mike pays only £10000 VAT with Google paying £10000 too. Still adds up to £20000.
In this example Amy contributes £100k in value, Mike contributes £50k in value and Google contributes £50k in value. Essentially Google has allowed the UK government to collect the same amount of tax even though Mike has produced only half as much value as Amy. Isn't that nice?
Regardless, you still don't understand VAT. The consumer pays VAT, not the business. It just happens to be collected by the business.
VAT is not charged on exports.
It's a consumption tax levied on individuals, not a tax levied on business profits.
Google generates nothing as the money would simply be spent on something else.
So I pay VAT, you pay VAT, companies do not pay VAT, they merely collect it.
And a retaliation from the US, via a similar trade tariff that exclusively targets EU companies, is also likely inevitable.
Lets the trade wars being. I wonder who will come out ahead.
> It also isn't a "shield from competition"
Imagine if the US added a 20 dollar champagne tax. By definition, "real" champagne can literally only come from the Provence of champagne, France. But technically the law applies to US companies, perhaps ones that own a vineyard in France.
Would you be OK with this theoretical tax? It is totally fair, and not targeted against anyone specific country!
Hopefully we will get more "fair" taxes like these in the upcoming trade wars.
I'd argue it's a shield against unfair competition. US tech companies have a huge first mover advantage. They use that advantage to attract foreign talent and employ that talent to extract value globally. It seems reasonable to expect a financial contribution for access to foreign markets given the quasi monopolistic quality of US tech firms.
Why are they so far behind that they aren't ever the first?
It is meant to be a popular proposal that will win lots of likes for the EU, but it's stupid on the face of it and it will end up comically abused. E.g. companies could create 2 resellers across europe, split the revenue and avoid the tax. It's not less brazen than their current dodging schemes and it just shows the impossibility of taxation under global free trade. It's also very passive aggressive, if they wanted a tariff they should impose a tarriff.
It seems to be targeted at big tech giants specifically. Good luck splitting Alphabet, Facebook and Apple.
> the impossibility of taxation under global free trade
They wish.
That's exactly the point of taxing revenue: under a profit-based taxation scheme you'd end up with a net profit of zero. Revenue taxation schemes would double-tax this setup.
Like the current 'tax optimization' schemes have given rise to this proposal.
I agree that our largest tech companies are already too powerful and need to have a higher tax burden to compensate for the warping effect they have on the world, but that's more easily done via international tax harmonization / internationally agreed upon minimums to effective corporate income / wealth tax rates. A straight up revenue tax is bananas.
And saying a VAT is paid by the consumer is silly. All taxes are paid by the consumer ultimately. What matters is capturing the taxation in a locality where the infrastructure used is roughly paid for by entities utilizing it. If CocaCola sells $10B of Coke in the EU, a VAT captures that and it should. If a financial services firm sends someone out to consult the Saudi Government the transaction is (and should be) outside the EU. When the income is repatriated is when corporate taxes kick in to cover the infrastructure that is engaged with production.
Too high of a VAT and firms shift manufacturing jurisdiction since VATs naturally discourage exports. Too high of a corporate tax and firms keep corporate income offshore and lobby for reduced taxation rates.
If I understand correctly, you propose to eliminate corporate taxes and go from the current system (taxes on consumption and taxes on corporate profits) to a pure consumption-tax system.
In that case, when CocaCola sells $10B or LossMakingSoda sells $10B (or ExtremelyProfitableCo sells $10B) the taxman gets the same amount (directly from the consumer, and not just conceptually). It’s natural that governments want to extract more money from those companies that have more money.
I drew the opposite conclusion, as the proposed tax applies only to big players.
So similarly, if I'm a computer manufacturer (MSFT) and want to buy VAT-able advertising (from Facebook) then I don't actually pay VAT.
So in what way would this lead to tech giants that primarily sell B2B being taxed?
They have an incentive to increase revenue; you can do this by increasing the rate much more easily than promoting growth. The only thing working against this outcome is EU institutional inertia.
However,when it comes to foreign markets many people here seems to want the best of both worlds. It's a paraphrase but it seems like saying "let me work however I want in your home, but don't limit me at all", seems to be the rallying cry.
How is this not hypocritical?
Free trade isn't some right, it's just better for everyone involved
How are zero-rate imports better for everyone?
The consumer saves money. The government loses sales tax revenue, loses income tax revenue from the people that could have made it locally, has lower employment rates.
Buying locally doesn't always make sense, but often you can make an economic argument that paying slightly more for something made and sold locally is better for the consumer too.
9/10 times this isn't correct. If you live in an urban capital, sure. If you live in somewhere more rural, oftentimes the only local makers in the area will be rather terrible, and a large company will have a better warranty almost all of the time.
> The consumer saves money. The government loses sales tax revenue, loses income tax revenue from the people that could have made it locally, has lower employment rates.
The consumer has a higher chance of the product they bought having support in three years.
> How are zero-rate imports better for everyone?
More opportunities for the consumer to buy things, more incentive for the company to entice customers with benefits, government isn't "everyone," and they still benefit by more net units sold because they can tax on-sale still.
But I think we're looking at this from different aspects. I was considering self-imports (eg Alibaba, some Ebay/Amazon sellers). You're considering big-box-Chinesium-imports vs something made by a local mom-and-pop. You might get better support from the big box longevity but that might be more reason for protectionist policy, not less.
If you compare buying imported crap from a big-box to importing it yourself, you're paying the big-box for your "free" warranty. They build it into the price. But 30-50% of your cash is ending up offshore with no benefit to your own economy.
That's the brilliant part of free trade—in total, the amount gained by exporting will generally equal or be greater than if you were to tax on imports.
Lessening consumer options is almost never a good thing.
There's a bit more to "support" than a warranty. For example: if a person buys a piece of software, they should reasonably expect it to last until they move onto an operating system incompatible with it, no? What if an API the program uses is deprecated/removed for security reasons, ala Microsoft Gadgets.
There's also the problem of long-term customer support. Your average user uses CS at least a few times over the course of the product's lifespan.
A person who lives in Estonia or Poland doesn't even have a company creating say, a smartphone. They aren't competing with anything, so why punish both the company and consumer for getting a necessity in the modern age, a smartphone?
Why would you want to restrict (economic) interaction between two parties just because they’re far away from each other?
I’m sure some of the local companies in my area would love to prevent me from buying goods elsewhere, but why would I want to buy goods elsewhere unless they are either cheaper and/or of better quality?
In my opinion, your quote misrepresents the situation. It’s not about “giving someone access to a market”, it’s about not restricting trade between two parties because it’s assumed those two parties are intelligent human beings who choose to trade with each other for a reason, and restricting this activity only helps inferior companies who are unable to market their own goods.
It is the government that is threatening force (fines, jailtime) if the company/people do not hand over a portion of their hard earned cash.
These same thieves/politicians are the ones that wrote the laws and made these exceptions.
The companies are under an obligation to their families, employees, suppliers, shareholders, and the community at large to maximize value.
Or so you think that a government committee could build a cheaper, better, nicer iPhone?
Do you think a group of bureaucrats would make a cheaper, better, more efficient Tesla Vehicle?
We laugh at this, because we know the government is a bunch of people that on the whole have never employed people and created value from launching their own businesses. They do not know how to maximize wealth creation.
Why do we think that the government raking in Billions more is going to be put to create better, faster, cheaper and more efficient goods ands and services than a company like Tesla, Apple or Amazon?
Here's what's going to happen:
Billions will be raked in. And billions will be spent on duds. Look at Canada spending 1B on a scheduling app that got scrapped because government workers didn't give a shit.
Look at US gov spending on the billion dollar website.
The money will go to the pockets of more lobbyists, politicians, and will flow back to the companies.... and less quality service will be delivered , and at a higher price.
These companies employ so many people (who pay income tax from said revenues) and all kinds if intermediate taxes are paid in acquisition, and distribution of raw materials to final product to the door of the customer.
Quite literally a $700 iPhone would cost less than $200 had the government not levied/taken profits at each step from:
Land development, ore mining, glass and silicon manufacturing, assembly, distribution, packaging, shipping.
And then they want to stifle growth further and take a 3% cut of gross revenues?
I'm all for their cut during trade and VAT (20%!) But taking your hard earned profits to spend in wasteful ways while lining the surveillance communist state's pockets via broken and inefficient products is disgusting.
This will not end well. The EU is well on it's path to full blown centrally planned totalitarianism and communist level controls. You will see.
In order to have an optimal amount of taxes for tech companies that can move at a whim, you need some sorts of capital controls that prevent that.
I find a sales tax to be a very lean approach.
1) The foreign company is using loopholes to dodge taxes à la Amazon having dodged sales tax for decades at the expense of local retailers who have to charge sales tax.
2) Protectionism. A specific tax to give local competitors an edge in order to promote the development of local businesses. The rationale behind is this is to trade off the advantages of a "better" foreign offering in order to develop a local company that has more incentive to reinvest its earnings into the local economy. An example would be India heavily taxing Apple products to produce iPhones inside India so that a bulk of the money spent would go back into the Indian economy in the form of wages for factory workers, instead of going to the US and China.
Another example is US and Europe protecting the interests of Boeing and Airbus respectively due to the national security importance of the aerospace companies.
In some cases if another (single) country invents the wheel and thus controls the world's supply, your country would benefit from importing the wheel and selling the other country the axel. But as it turns out wheels are very useful and if the other country has a near monopoly on it due to scarcity, your country would opt to reinvent the wheel so they have the ability to produce the whole wheel and axel combo within the borders without being gouged for price.
I think the fundamental difference in view is on the one hand seeing two parties as individuals that should be free to have this interaction.
On the other hand as two individuals in a society, whose ability to even consider having the interaction comes from society providing the means (infrastructure, education, legal frameworks, ...) and that the idea of individuals doing interactions on their own isn’t even a reasonable concept.
Reality lies somewhere in between but I subscribe more to the latter.
So in the specific case where having a local industry brings positive externalities, I think there may be a case for some limited forms of protectionism, but even these can be misapplied. In the specific case where countries want to promote "white-collar" industries, such tariffs should only apply to end-consumer products, never to products which are sold to businesses, because usually the farther along you are in the supply chain, the more "educated" your profession is, with a few exceptions. The most compelling positive example comes from China's development of its own Internet services like WeChat, Baidu etc, which stemmed directly from China's exclusion of Western competitors like Google, Facebook, and historically Visa/MasterCard, and which may have promoted the growth of an IT industry in China. For a negative example, Brazil's tariffs on video game consoles are devastating for Brazilian video game developers, because their potential market is eliminated. Even in this latter case targeting a consumer product hurts domestic businesses. Another case is when positive domestic externalities are replaced with negative foreign externalities, such as when considering carbon taxes on imports.
This is all just speculation, of course, except the part about border carbon adjustments, which has been the subject of serious analysis:
https://www.theguardian.com/technology/2015/jun/24/amazons-u...
If I'm in the UK and choose to buy something from Amazon, it will be shipped from a warehouse in the UK owned by Amazon.co.uk Limited.
However, I pay my money to Amazon EU Sarl which is based in Luxemburg. This company is a tax shell, it contracts back to amazon.co.uk for the fulfilment. The Sarl keeps all the profit.
According to this https://beta.companieshouse.gov.uk/company/FC032354/filing-h... (see full accounts, which ironically are served from AWS), the SARL made profits of €481m in 2016. Futher down the PDF we see they are involved in a number of tax disputes about this.
Fundamentally if I buy goods from a .co.uk website that are shipped from a UK warehouse, it is very hard to argue that the profit should be counted in Luxemburg.
I've taken economics courses, I understand how free trade is better overall. However, those calculations only work when both sides follow the same rules. Once you have different groups of people with different values, whether it's the EU valuing privacy, China valuing domestic production, or the US valuing intellectual property, absloute free trade seems to break down.
You can't freely trade if you're using different units
The main benefits of free trade are in specialisation. People specialise in what they’re good in and trade for other goods and services. Specialisation leads to greater efficiency, meaning you can do the same with less, or more with the same amount. Notice the complete lack of the words domestic production or intellectual property.
The case for free trade is that in the long run specialisation makes us richer. Units have nothing to do with it. Metric or imperial, services and goods are what they are.
The border between San Francisco is as relevant as that between California and Nevada, or the US and Mexico.
There are certainly things where it’s good to have domestic production, vaccines for one. But the argument is grossly overused. The wool of angora goats is protected in the US as of military value.
Trading for what you need has worked out well for plenty of countries. Switzerland, Luxembourg, Costa Rica, Bahrain, Singapore, Hong Kong, my native Ireland.
Domestic production is overrated.
This is part of the problem. Production doesn't occur in a vacuum, and the most efficient methods of production are often either terrible for the workers, terrible for the environment, or terrible for society.
Pure, unfettered globalization would be ideal if the goal was production and wealth generation maximization because it maximizes the labor pool and capital allocation efficiency, but those shouldn't be the only things that governments and economists worry about.
If there are problems caused by economic growth the products of said growth can buy solutions to them.
https://en.m.wikipedia.org/wiki/Kuznets_curve#Environmental_...
I don't think he's talking literally about units.
Anti-dumping tariffs are stupid because it not notnto your benefit to punish people for giving you cheap stuff that should be expensive. Being able to have different tax rates is part of the power to tax, which is part of being sovereign. Equalising the market is a fool’s game. The market is what it is. If you want to help some people or groups by all means do it, but tariffs are a very inefficient way to do it. Transfer payments ftw!
That is only true in a very simplistic model. If a country sells for example cheap subsidized steel you may lose your steel production capability because you are not able to compete with that price. But once you lost that capability it may become prohibitively expensive to regain it because the initial costs to rebuild the knowledge and infrastructure is going to be much higher than the marginal costs for an established industry and you would have to accept, at least to some extend, which ever price they ask for. The other country may also be able to offer a lower price due to externalities, for example exploitation of their workers or environmental destruction, and you may want to compensate for that.
As far as externalities go you certainly have a point but if you feel you have a right to tell other people and countries what to do, go ahead. I don’t think there’s any reason to stop anywhere between sovereignty and colonialism. Those positions are coherent, the ones in between aren’t.
And I would almost never suggest to tell any other country what to do - even though I would consider that legitimate within the right framework because sovereignty is not an absolute right - but I certainly have no objections against and am actually for putting taxes on foreign goods if those were produced according to standards I do not agree with.
Revenues and expenditures are both fungible. In the end one goes into the state’s coffers and the other goes out. In no sense worth mentioning would taxes from anti-dumping tariffs fund subsidising domestic production or mothballing a plant. The costs, benefits and consequences of tariffs, subsidies on domestic production and mothballing should be considered not as a unit but as three separate policies with no necessary relations. If one, two or three of them make sense by all means do them but the idea that one can fund the others is just a desire for retribution looking for a justification.
Sure, in the general case, but I don't think we are debating the general case, at least I wasn't. If this other country just had a ton of useless money laying around and felt particular altruistic wanting to provide cheap steel to the entire world, nice of them. Also people would probably not be too worried about imposing tariffs.
But that is not really the case that people worry about, they worry about countries subsidizing goods to hurt or even destroy your industry and making you dependent on them even if prices rise above what you own industry was able to provide before. Unless you are willing to accept this or at least take the risk of this happening, you now have a link.
If the price difference is small enough, tariffs will equalize the difference and you might not actually collect that much money from them because buying from the local industry does not cost more. If the difference is large enough, you might decide to capture part of it with tariffs and use that to mothball your plants as protective measures and still profit from the additional difference.
Also note that I am assuming that production costs are comparable before any subsidies and that there are no other strategic interests for maintaining an industry locally which of course will change the equation again. Even if that other country can legitimately produce steel at a better price than you, say because it has a lot of easy to mine iron ore, you might still put a price sticker on becoming dependent on that country. If you consider the relation potentially unstable, then you might not want to put all your eggs in that basket.
This has literally never happened. People keep bringing up this objection, but nobody can point to a single instance of it ever happening. It's irrelevant.
And amazon is pretty big in China, taobao and jingdong are just bigger and better.
Infant industry protection may make sense in some cases but it’s more commonly used as a smokescreen for corruption. It was used as a justification for high tariffs and low quality domestically produced goods all over the world throughout the 50s to at least the 80s.
If the EU doesn’t have much in the way of domestic IT companies so what? They’re still rich. The fact that others are getting rich in other, different ways does not make them poorer.
Unfortunately with econ, our tools are maths, stats, logic and reasoning. We can almost never do actual experiments, which is fundamentally necessary for science. In my opinion, an unpopular but correct description of the state of economics is that the best economists are the ones who are able to make the arguments which others value the most.
Import taxes or valuing domestic production/owners are not, but i don't see a problem with requiring food not to contain toxic stuff, no matter what country it comes from.
Where it fails is when there are market failures. Like when you have a naturally the winner takes all dynamic, asymmetric information, and some shady government intervention.
And, of course, the communications market is full of all of those.
His response? "Well that benefits the American consumer tremendously... we are sending them pieces of paper(dollar) and we are getting hard goods in return at a significant discount". If you think in in the absolute terms, wouldn't you want to trade a silly paper for steeel/cars/whatever?
Also, where does the Chinese go with these dollars? Definitely not the Chinese store, they take Yuan. How about Japan? Nope, they take Yen. So...who takes dollars? At some point they have to come back and spend it either directly(investing/purchasing american goods) or indirectly(trading dollars -> random currency) which then leads the other party holding dollars to go out and buy American goods.
Whether that is acceptable depends on your opinion on global interdependence and national security. If the USA is dependent on Chinese and Russian steel to survive, it’s that much harder to defend against provocation. See EU and Russian gas for a great example.
Well sure we should have our own if its able to compete freely. But its never been the case that if we go to war with China, the Japanese/India/whomever couldn't start producing more steel and selling it to us. Sure it might be slightly more expensive but it wouldn't paint the picture that you are proposing. If anything MORE producers of steel would pop up willing to sell at a higher price. Crazy theres this thing called supply/demand.
As for the EU/Russian gas example, Russia isn't the biggest producer of gas in the world. According to wiki[0] its the U.S, there are other non-Russian actors in the top 10 list who I'm sure would be willing to provide gas at a higher price.
As to why you mentioned EU/Russia is that Russia so happens to have a nice giant pipeline ready to provide gas into the EU. Well...last I checked there were millions of barrels of oil being shipped globally by ship. Would you have to pay a bit more for energy ? Sure. Is national security critically dependent on Russia ?
No, because I guarantee you if Germany started paying $200/barrel of oil(or natural gas/whatever) all the oil ships around the world would reorient themselves to deliver to Germany. Crazy world called supply/demand. You now have near infinite suppliers.
[0]https://en.wikipedia.org/wiki/List_of_countries_by_natural_g...
The BBC reports that this dependence is still growing, further tying the hands of the EU against Russian aggression.
Now if Russia itself was just another western style free market democracy, dependence wouldn’t be such a national security risk.
Or was that just meant to benefit the larger industrial nations(cough, Germany, cough)?
It would seem to be sour grapes on the parts of France & Germany that they weren't chosen to the main entrypoint to the EU for some US companies.
I do not know what the point of the European Single Market was. In fact, I'd be interested to hear someone with the know-how tell me. Was it to create a trading zone where the same rules applied to everyone? Or was it just supposed to ease trade across borders by creating some kind of customs framework and abolishing tariffs, etc.?
Now the point I was making wasn't specifically about Ireland. I could have said Italy as well. I just wanted to point out that paying taxes is a huge deal. Not just for filling the coffers of the European Union, but as a symbol of everyone paying into the social contract.
If people see nothing but giant corporations exploiting the legal systems of countries to dodge taxes, people think they could do so, too. It disenfranchises the populace and just ends up giving more rise to populism, which is possibly the biggest scourge on society at this moment in time. Populism leads to fascism. The whole tax malarkey plays into this. It's not the root cause of populism (not sure there is one) and it's certainly not Ireland's fault that they managed to attract business through favourable business tax rates, but something needs to be done about the blatant tax avoidance by these international players and I think this is a good first step, which will surely see some refinement down the line.
So, again, I think you make a valid point, but I also believe that my original point stands also.
By the way, there's one country that was afraid enough of tax regulation that they fooled a sufficiently large proportion of their populace into voting for one of the most insane political decisions of the last decades. In a non-binding referendum, which is somehow, miraculously, being implemented with a kind of fervour and passion not seen since the Apollo program. (While actually important societal issues would never be put up to a referendum and even then, if people voted the wrong way (aka, against short term financial gain, or archaic doctrine), would simply go ignored. Hmmmm....)
Not that I have "the know-how" :), but my understanding is that the point was to ease trading. This is both done by abolishing tariffs as well as unifying regulations. If you can sell a product in your own country, there's a high chance that you can sell it anywhere in the EU – this promotes trade.
I'm kind of glad someone asked that because the answer is pretty interesting, and not surprising given history.
It started as the European Steel and Coal Community as a way for nations that had been at war with one another to pool together power and steel resources (those engines of war) to make it harder or impossible for war to recur. It was France and Germany who essentially created it, and it included the Benelux countries. I believe creating a common economic powerhouse against the, at that time, giant newly invincible United States was a factor too. This was all in the backdrop of WWII.
(https://en.m.wikipedia.org/wiki/European_Coal_and_Steel_Comm...)
So this is money made from EU based users and revenue they make from them.
That's a gross oversimplification. Especially with the internet, it's not clear anymore.
Let's say that I live in Thailand, have US citizenship, sell products on Amazon in England, ship to France, and then advertise on Google. Who do I pay taxes to and at what rate?
Provenance of profit is not easy. You're paying Amazon a cut for shipping/fulfillment, and Google for the ad revenue, but your customer is a French national and you're a US citizen but currently residing in Thailand.
The Google ad revenue will be paid by Google based on the market. So the ad run in France generates EU revenue. Doesn't matter if the payor was an American or anyone else.
If you are US citizen then you pay world wide income tax. You can deduct foreign taxes paid up to a limit. Better to actually incorporate though so you can pay less tax.
It's not clear at all. Your warehouse is in the states (or where ever) and the goods are never in the UK.
For all cross-border shipments you have to pay customs tax. Just because somebody saw your product on a co.uk website you have to pay the UK for what exactly?
And as you brought up, there are customs taxes as well as income taxes. Why are these artificial delineations good for business?
Bouncycastle (a crypto library) is hosted in Australia because I think the US crypt laws want to ban the export (download) of military grade munitions.
Great Gatsby (the novel) is free to download if hosted in Australia. In the US, the copyright laws forbid the download of Great Gatsby mainly because of Disney. Ever wonder why Mickey Mouse isn't in public domain?
Also, if your product that you can source cheaper over in the US is only popular in England, you would of course go to England's Amazon and eBay sites to sell it. For instance, umbrellas won't sell as well in Arizona as they would in England.
You can reverse it and have pot in the Netherlands or great Gatsby in Australia to send to the US, but weve had the term smuggling to cover that situation as well
It's not clear what is and what is not being hosted. Let's take Google for an example.
Google has datacenters all over the world. You could make a case that Gmail makes no money on its own, that all the money comes from ads.
Fine, host all the servers that serve Gmail on its own in a local country to reduce latency, and serve all ads from a server in a tax haven.
Who do you tax? The tax haven has no taxes, and Gmail itself is a net expense, as you have to pay for labor, servers, power, and bandwidth.
> You can reverse it and have pot in the Netherlands or great Gatsby in Australia to send to the US, but weve had the term smuggling to cover that situation as well.
That is incorrect. You can download Great Gatsby instantly in the US right now[0]. Project Gutenberg prevents German users from downloading books[1].
All these extra laws are doing is making it so new companies have more hoops to jump through and large existing companies have the lawyers and money to figure out how to skirt the rules.
[0] http://gutenberg.net.au/ebooks02/0200041.txt Don't download if you're in the states.
[1] https://goodereader.com/blog/e-book-news/project-gutenberg-b...
It's relatively easy to keep track of just where money comes from for a purchase, and where stuff is delivered. If you actually reside there and use the services that's one thing - and you can tax the purchase for the purchaser. Taxing sources is far harder, and virtually impossible for virtual goods.
Should we tax CNDs for a percentage of Netflix and Amazon traffic they serve? Or should companies figure out exactly what is or is not cached in a particular country to find their tax rates?
That wasn't your example - your example was selling using the amazon.co.uk market.
You can't even keep your own examples straight, no wonder you're confused.
Not at all. The market your product reaches is important.
Hosting and domains, not as much. Selling on the amazon.co.uk market is just like selling on amazon.com. Except you have to deal with less hassle when actually shipping to UK buyers. What part of that is confused? Please respond. You're resorting to ad hominem attacks.
Please explain that to me. How you can be forced into being a tax liability for a company.
Out of interest: Would they? This is an EU law, so that would assume UK kept it after brexit , either specifically or through some wholesale “fork all the trade laws”. But it would also imply a lack of inter-European treaties, i.e. fork the laws but don’t keep the treaties.
I haven’t kept fully up to date with the latest brexit developments , are we far enough along in the negotiations to know this stuff yet? Last I heard it was still a complete s*show :/
I assume at time of brexit UK will have such a treaty, but it isn't guaranteed.
You know there's a technical answer to this question. But the answer is pretty predictable : everyone.
Taxes on income in Thailand.
Taxes on income in US.
Taxes on shipping, though pretty much only in the arriving port and several places your shipment might pass (e.g. the Suez Canal)
Taxes on selling in England and France.
VAT France and England.
There are plenty of companies that can help you with this. For an extra fee, of course. And don't think for a second states will help you figure out taxes for free, or even mention/warn you that you need to do it.
Is it financially and logistically realistic for any normal sized company to do anything other than ignore the situation and fraudulently forget about taxes ? No.
What will European states do about that ? Nothing. Well, unless you count utterly destroying a few unlucky token merchants.
Not really a satisfying one, as you pointed out.
> Taxes on income in Thailand.
> Taxes on income in US.
Well, you don't have any income. You send all your profits to a shell company in some tax shelter somewhere (Isle of Man is an example) and only withdraw what you need for day-to day expenses. You can pay taxes on the income sitting in the tax shelter, but I can remind you of the multiplicative properties of zero.
> Taxes on selling in England and France.
> VAT France and England.
I agree with the VAT. What if you only had warehouses in a country with a better tax code, store all your inventory there and just ship to France and England. Host your servers there and use a static IP to redirect queries from a .co.uk domain to the same site with a .tv domain. What percentage of the sale should go to France, and what percentage should go to England?
They mention Twitter as an example in the article, but Twitter's revenues for 2017 was $3.83 billion, and their net-earnings is mostly negative, or barely positive. So they'd be asking Twitter for money they don't even have.
This seems too crazy to pass, like the Trump tariffs, it just seems to be a footgun.
Every right. Their government, their citizens, their laws.
> but global revenues?
These companies exist globally. They would be vastly smaller and have far less impact if they did not have EU citizens. Network effects matter and ignoring them is choosing to not understand the big picture.
> So they'd be asking Twitter for money they don't even have.
It doesn't strike me they would try to collect this retroactively!
Also, I would argue that clearly Twitter should not exist at all if it cannot pay a reasonable tax in the areas where it operates.
Edit: What right does Twitter have coming into the EU, collecting data on its citizens, earning revenues from that, and not paying tax? Seems insane to me.
Edit 2: I guess all the downvotes trigger a switch, I'm not allowed to post any more on HN I guess. Bye all.
Edit 3: To the replies below, I'm not "boxed in" by some silly argument. I'm just banned from replying.
If a company doesn't have offices in your country, it's not yours.
>These companies exist globally
Well, maybe the net result is to get out of the EU then, if the costs of 3% of global revenues exceed profits.
If you don't think a company that is mostly non-profit (Twitter) shouldn't exist, I feel that's a pretty pathetic position. So you're either a very greedy, high margin profit company,or the EU says you shouldn't exist?
If a company sells a product (ad space in this instance) in a geography they are doing business there and should pay taxes there.
You've boxed the parent into three positions. They're kind of orthogonal so it's hard to approach directly, but consider a hypothetical 4th position.
What if the parent hypothetically thinks that twitter is acceptable collateral damage if it means fixing some other abuse, does that make him greedy? What if he gains nothing from it?
I think I've just provided a way out of your boxes, if you disagree please let me know!
Let me provide an alternative hypothetical scenario: Major tech companies withdraw their businesses out of EU jurisdictions. They run sales and support remotely. They close down local offices. They host in clouds that sit on the border of EU territories, enough to provide low latency, but outside taxing authority.
Now what? US Internet services still makes money, EU citizens still have access, but there's no corporate footprint. Do you really think with such huge traffic, if Google and Facebook and Twitter shutdown local offices and entities that businesses still won't advertise with them? Advertisers go where the audience is.
The EU would then face a moment of truth about whether to bifurcate the internet like China did, erecting a Great Firewall of Europe, blocking access to properties that are not in compliance.
Lest people think this is about my employer, read https://people.eecs.berkeley.edu/~daw/papers/privacy-compcon... and search from "Cromwell", and you'll see reference to work I published in 1996. I heavy subscribe to John Perry Barlow's "Declaration of Independence" of Cyberspace. To me, the internet was the first new zone of human freedom in millenia that was completely free of state interference, and the "permissionless innovation" it enabled, where anyone could publish anything that was accessible to the whole world, shook me to my core as a young teen in the late 80s when I first go on the net.
I think many people who came to the internet decades later perhaps don't have that sense of awe I do, that sense of its specialness. And this continual chipping away at that original Utopian dream with nationalistic, provincial concerns, is to me the unacceptable collateral damage.
The collateral damage I'm willing to except is some people getting away with tax evasion, if it means more freedom is preserved and we don't end up with a splintered-net-of-a-thousand rules, where I need to be concerned about what the CCCP and Brussels and Congress thinks before I publish something.
The 3% tax isn't being implemented because it's the best system. It's being done because tech giants have consistently weaseled their way around the normal way of taxing businesses by fiddling with transfer prices and corrupting governments.
>Now what? US Internet services still makes money, EU citizens still have access, but there's no corporate footprint. Do you really think with such huge traffic, if Google and Facebook and Twitter shutdown local offices and entities that businesses still won't advertise with them? Advertisers go where the audience is.
In this hypothetical scenario Google/Facebook/Twitter lose all their actual European clients, the advertisers. It's easy for the European states to just block the few relevant financial flows, there's no need for a Great Firewall for the users.
>I think many people who came to the internet decades later perhaps don't have that sense of awe I do, that sense of its specialness. And this continual chipping away at that original Utopian dream with nationalistic, provincial concerns, is to me the unacceptable collateral damage.
Are you also arguing for either an internet government to do internet wide taxation, or a ban on commercial use of the internet? Because otherwise what you're arguing is that tech giants should be able to use the independence of cyberspace that we both cherish to do a run around of the absolutely normal practice of taxing businesses that operate in specific geographies. If we let them keep doing that then states will end up having to put up more and more draconion barriers to the internet well beyond your worst case scenario of a Great Firewall of Europe.
No, they admit it's not the best system, that's why they claim it is short-term only. The best system would be an international treaty to harmonize corporate taxes.
>Are you also arguing for either an internet government to do internet wide taxation, or a ban on commercial use of the internet?
I'm arguing you should be taxed for the actual business you do. If I make a dollar because I sold an ad to a local company in the EU because they wanted to reach a customer in the EU, fine. That's a rational tax law. It's not rational to tax for business done elsewhere, sold to people elsewhere, for customers elsewhere, to be counted. Spotify is an EU company, do you think the US should tax them based on global European subscriber revenue?
Is internet wide taxation a bad idea? Not necessarily, but it's impractical because whose going to vote on how to distribute the revenues? Who's going to collect, ICANN/ISOC? At best you could come with a cross-regional harmonization of tax regions and agreed upon treaty on how those rates are calculated, but it is up to localities to impose and collect them.
> In this hypothetical scenario Google/Facebook/Twitter lose all their actual European clients, the advertisers. It's easy for the European states to just block the few relevant financial flows, there's no need for a Great Firewall for the users.
Really? How would they do that. It's easy to block purchasing physical goods online and have customs block it. How do you block virtual goods? Block payment processing systems? Foreign bank transfers? Bitcoin? Does the EU prosecute a local business for buying ads on Google or Facebook using a foreign bank account?
I mean, the barrier to buying stuff online, especially purely digital goods, is very low.
If companies with hundreds of billions on the line can figure out how to restructure themselves to avoid taxes, you don't think they can figure out how to restructure themselves to avoid this tax? Google and FB might just decide to pay it, but firms with less EU profits might decide it's not worth it and look for mechanisms around it.
"No" to what? You're just agreeing with what I said. An international treaty would be a much better solution but we're dealing with companies that have already corrupted several European governments, let's not pretend getting something as grandiose as that passed wouldn't be extremely hard.
>I'm arguing you should be taxed for the actual business you do. If I make a dollar because I sold an ad to a local company in the EU because they wanted to reach a customer in the EU, fine. That's a rational tax law. It's not rational to tax for business done elsewhere, sold to people elsewhere, for customers elsewhere, to be counted. Spotify is an EU company, do you think the US should tax them based on global European subscriber revenue?
Other people have already explained that this is not what is on the table. The proposal is to tax at 3% the percentage of the revenues that pertain to EU users, not users elsewhere.
>Really? How would they do that. It's easy to block purchasing physical goods online and have customs block it. How do you block virtual goods? Block payment processing systems? Foreign bank transfers? Bitcoin? Does the EU prosecute a local business for buying ads on Google or Facebook using a foreign bank account?
Yes to all your questions. And the fact that this is escalating is exactly why you should be in favor of proposals to quickly end this exploitation of tax laws by tech giants. Otherwise the internet as we know it is in danger.
That is exactly what this plan does. It is a tax on revenue generated in the EU from digital advertising, subscription fees and selling of user data. It is not a tax on global revenue. You are arguing against a tax plan that does not exist.
Similarly, the reason they pretend sales are conducted in a different country from the client, account manager and geotargeting of the ad is nothing to do with the right to publish things accessible to the whole world and everything to do with paying less tax. Content gatekeepers selling targeted European eyeballs to advertisers is at best orthogonal to the utopian view of the internet as a means to share knowledge irrespective of where and by whom it's consumed.
I've heard some pretty tortuous rationalizations for tax avoidance in the past, but inventing an imaginary Great Firewall of Europe so you can be furious at the EU asking your employer to pay a sales tax on ads is a whole new level. :-)
Google has offices in almost every EU country.
https://careers.google.com/locations/
Aarhus, Amsterdam, Athens, Berlin, Bratislava, Brussels, Budapest, Copenhagen, Dublin (EU HQ), Eemshaven, Frankfurt, Hamburg, Hamina, Helsinki, Lisbon, London, Lubeck, Madrid, Milan, Moscow, Munich, Oslo, Paris. Prague, Rome, Saint-Ghislain, Stockholm, Vienna, Warsaw, Wroclaw, Zagreb Zurich
Twitter: https://careers.twitter.com/en/locations.html
Berlin, Brussels, Dublin, Hamburg, London, Madrid, Paris
Did you also support Brexit?
The answer is simple: They'll get court-approval to confiscate funds being transferred to these companies from European customers.
So the real option on the table is to stop taking money from anyone in Europe, and the European market is simply too big for that to be a realistic option.
It's not uncommon for monopolies to lose money on some projects as a tradeoff for destroying would-competitors. Thus the fact that a big company is not making a direct immediate profit is NOT a reliable indicator of them being benign.
I'm assuming you mean "not profitable" rather than a "non-profit", since the latter indicates an organization explicitly limited to at least ostensibly-charitable purposes.
[1] http://www.dw.com/en/eu-prepares-revenue-based-tax-on-us-tec...
[2] https://www.bloomberg.com/view/articles/2018-03-16/eu-digita...
Let's use lumber as an analogy. Let's say the trees are in nation A. And a company from nation B is cutting them them down to make lumber (and is paying appropriate taxes in A for licenses, employees, land, etc). Lumber which is sold to companies in nations C, D and E. And appropriate taxes are paid on those sales. The company also pays income tax in nation B. The EU tax is like nation A saying, "you're using our trees to make even more money in nations C, D and E -- pay us a share of those sales!" In this analogy, the users are the trees.
To use another analogy, it's like demanding farmers pay taxes on the revenues that McDonalds makes. It's just silly.
If these companies don’t want to pay tax in Europe, then don’t do business in Europe.
The really big difference is they can actually enforce revenue-based taxation, because revenue in a country is directly tied to the number of users/customers in that country. Meanwhile, profit could be much more easily switched around in Google's accounting books, to the point it hardly had to pay any tax in the EU.
One other thing, while many are accusing EU of doing this because of "envy", they're ignoring the fact that China is doing way worse against American companies. Not only are foreign companies taxed locally in China, and I don't think they get away with their accounting shenanigans over there, but China also basically demands that 50% of their assets over there are owned by a local company. Can you imagine if the EU said it needs to own 50% of Google or Amazon's assets on EU territory?
And then throw in the much larger tariffs for foreign imports that China has. Why isn't the media focusing on that more?
But stop focusing on Google for a moment, and consider poor Twitter. Can they really afford this tax? If you're already losing money, or breaking even, why should you have to pay taxes on $$$/user earned in the US or Japan?
If they can't afford a simple tax on their business in a region then they shouldn't be doing business there or at all. What do you mean, "poor Twitter"? It's not a person. It doesn't have emotions or feelings. We don't need to treat it like a poor little snowflake and make sure it never melts.
If Twitter can't handle being taxed then Twitter should die. That's capitalism. You don't get to reap the benefits of a region unsustainably and not aide in the development and growth of the region. Twitter in the EU without a tax is a parasite, not a business.
Considering most EU officials communicate with denizens on it, and that it arguably costs them a far greater amount than what they'll be taxed for, it's hard to argue that they aren't already really paying tax in a roundabout way, donating computational resources to the EU to maintain stability of the Union at a cost to themselves.
Alternatively, the US could create retaliatory trade tariffs against these countries.
Let the trade wars being. I wonder who will come out on top.
Or even better, some of these tech companies could simply ban all users from these countries and point to the new tariff as to why.
I wonder how much those voting citizens would like it if they lost access to the most popular social networks, ect for a couple days?
I’m not sure that their incompetence should protect them from taxation.
Think about consumption taxes. They work in a somewhat similar way.
Same with Uber, and I think a few other companies (like MoviePass) we've seen recently that basically live off investors' money, price competition out of the market with that money (price dumping, potentially), and then get to have a monopoly on the market.
How is any of that "desirable" to have in a market, and something we should strive to enable? And if investors can afford to lose billions of dollars a year in an effort to obtain monopoly power, maybe paying an extra 3% isn't so bad.
And before we cry about these multi-billion dollar companies having to be forced to pay 3% tax on revenue, remember that in some countries in Europe even brand-new startups have to pay 3% revenue tax, and it's actually not so bad. It's obviously not ideal from a startup perspective, but it's not a complete show-stopper either. If it's not the end of the world for startups, then I don't think it is for companies worth tens of billions of dollars either. If it is, then maybe they're doing something wrong.
Where does the company pay taxes?
How can the company determine if a user is from Country D, ip address or what the user enters in the address box?
Now, of course there will be people who are residents of a different country or have cards from multiple countries, but I'd expect that to be a negligible fraction.
Out of curiosity, what makes you think it should be D, assuming you were talking about corporate tax?
With a much simpler example, if a merchant in e.g. France sells a product to a consumer in e.g. USA, the VAT/import/sales tax should go to the US but the corporate tax on profit for the merchant is taxed in France.
This is the case for Facebook and Google in the EU.
If those were all different companies (one company doing the sales, one company hosting the infrastructure, one company developing the system, etc.) doing arm's length transaction it would be much simpler, each company would pay local tax in its own profit.
Good move EU. Higher taxes on megacorps will improve quality of life globally and will ensure stronger societies that are more resilient to disaster (like the 2008 crash, or even a natural disaster). Higher taxes on megacorps will increase the probabilities of stable societies with healthy middle classes. Higher taxes on megacorps will enable more people to be entrepreneurs themselves, as more people will grow up with the resources and skills to start something of their own. It's win-win-win all around.
If the megacorps want to earn more money, they should pay more tax. They'll earn more money in the long run that way.
Edit: I'd love to reply to the comments below, but all you downvoters made that impossible. I'm now banned from commenting and replying on HN presumably from some automatic downvote ban switch. Thanks for silencing the debate downvoters and HN filters. Goodbye.
For the same reason the US government has claim on all global income of both its citizens and corporations. [1] [2]
Corporations brought this on themselves by using accounting cleverness to "hide" billions in profits [3]. This is simply a regulatory response. Tech companies can choose not to operate in the EU as well. This gets to the crux of the problem: taxing where the use takes place, not where the corporation is located.
[1] https://www.irs.gov/businesses/income-from-abroad-is-taxable
[2] https://www.irs.gov/newsroom/people-with-foreign-income-or-f...
As long as those companies are pumping out gasoline cars that pollute the air and the environment around the US, that sounds like a great idea! Those companies are unfairly creating pollutants and encouraging their customers to raise the global temperature, dirty American's air, and everyone else's, etc.
I would be pleased to see the US pose taxes on businesses that are actively harming Americans.
I'm pretty sure the thinking of the legislators is taxing net income is too easily manipulated. Therefore by taxing a 'small' (up for debate) amount of revenues there's less gamesmanship that can take place when determining tax liability.
For reference, Texas charges a 1% tax on taxable margin over $1M with three options for determining taxable margin. This gives companies less wiggle room when determining tax liability
Honestly, if this is not enough money for the government to operate there are serious spending and accountability problems. A governments primary purpose is to protect rights of individuals. Its job is not to run the world. If we really want to help the middle class lets just let them keep more of the money they earn.
It's a government's primary purpose to protect the rights of individuals. What these multinationals are doing is theft on all the other players.
[1] - Different ways of determining attribution, but simplest is based on billing address of the customer making purchases, including purchasing ads
We'll see exactly how they define digital companies, but expect it to be highly political.
Government: hold my beer
Google: it’s not fair!!! (fx: bitter tears)
Let’s charge them the back taxes for all their evading years too
This EU fake tax is actually a new tariff.
The EU has a $100 billion net trade surplus with the US. Germany - by far the largest economy in the EU - in particular has an extreme trade imbalance with the US in relation to the size of the trade between the two countries.
The German trade deficit is so extreme, it's larger than the total sum of all exports from the US to Germany in fact.
The US is the least trade dependent developed nation on earth:
https://i.imgur.com/q7TrEZF.jpg
Every nation that has a large surplus with the US, that decides to pick a trade fight, will be guaranteed to lose a lot more than the US does accordingly.
The US for example imports three times from China, what China does from the US. A trade war with China is ideal for the same reason it's going to be ideal with Germany and the EU broadly. In a perfect world, the US will import dramatically fewer consumer goods from China, Germany and overall in general. Instead the US should consume less from abroad and shift those resources to domestic capital formation and investment toward greater US production. That's further ideal at a time when automation gains will make it easier to reshore ever greater manufacturing. The vast US capabilities around manufacturing and energy, make the US uniquely positioned among major economies to not need very many outside nations.
When you consider that companies like Apple, Amazon and Google - using these tax loopholes and sandwiches - get to pay a much lower tax rates that your local carpenter or grocery store, I don't see this as a new tariff, but as enforcement of an existing one.
About the 'trade fights'; I think you really do underestimate the straits the U.S. is currently in. The only reason the U.S. can import as much as it is currently doing is because of the strength of the U.S. Dollar. The median inflation adjusted income in the U.S. has been sinking for three decades. Even more automated production will not produce purchase power, especially if the value of the Dollar suffers because of a trade conflict.
Interested to hear your thoughts!
Going down the roads that the EU is toward further centralized bureaucratic control over the Internet, they have to build their own version of the Chinese firewall to control EU Internet access eventually. There can be no other possibility if they plan to see this path through to its logical conclusion.
I foresee a future, where EU users (and users "behind" the Chinese firewall) acquire crypto currency facilitated through p2p dapps and acquire tokens to be able to advertise their products/services over other dapps to other users in the EU.
I look forward to this game of increasingly expensive wack-a-mole that will enable the next generation of economic activity with technology.
The facebook's and alphabet's may not adapt to something like this (hard to change the course of these giant behemoths), but increasingly more, newer enterprises will be incentivized to go down this path (and users within these jurisdiction who don't really care for these rules and will have increasingly easier technical access to these services).
Though of course reactionaries will be totally blind to this (their heads are in the sand) because they will be happy to see their respective local diktats pander to their world view, rather than explore the realm of possibilities that all sorts of actors may pursue.
I wish all our countries were so enlightened as to stand up to protect us from multinational corporations exploiting loopholes in the law.
You can incorporate outside and ignore the EU market entirely but it’s money left on the table potentially.
Do you or someone else have a good idea on where to incorporate? I'm a EU citizen finishing my software based service, and while I can comply with all the EU rules after having cash flow, while bootstrapping I just can't take that risk alone.
Are there any good resources to read up on these things? Books, blogs? What kind of lawyer should one consult in the country where you incorporate?
Would opening a Delaware LLC be possible/preferable for a non-US-citizen? Or are we talking carribean
This will raise prices of goods the least and directly target the largest companies.
Taxes in general reduce profit, they do not increase prices.
If you put a tax on tobacco or alcohol, it definitely gets to the consumer. If you put a tax on pork, then people switch to chicken and the producer gets hit.
A 5% tax on revenue would make Walmart a money losing enterprise while being a minor annoyance for Google.
This is why we tax profit and not revenue. Different industries have radically different cost structures.
I would argue it's immoral because you're taxing both efficiency and honesty. There is no reason that out of two companies producing the same thing you tax the one being more prudent with their expenses more. Tax pollution, land, access to local work force or revenue. You can just raise personal income tax as well. They are all better and more just taxes than loop sided incentive wise tax on profit.
In other words, for the 2/3rds or so of the economy that is small and medium businesses this will be a tax on having economic activity at all. That's why it'll never fly (or should I say never be enforced).
And don't worry, as usual, for large businesses there's an easy way out : simply don't transact in money. Then negotiate what the value is of the transaction with the tax department. For instance, buy Disney Club 33 access for all executives and their family in trade for 10% cheaper plumbing for the park. Do huge transactions for suspiciously low monetary value, and they won't get counted in revenue, or only partially. Problem solved.
In case people doubt that such negotiation works, I would like to point out that the most powerful man in Europe, the president of the European commission, Jean Claude Juncker, got where he is by negotiating preferential tax deals with large international corporations. I'd say for years, but the guy is no spring chicken. For decades.
All taxes that are less than 100% enforced (all of them, but these revenue taxes are a particularly bad example. Utterly unrealistic to do this for small businesses) are a tax on honesty. Thing is, you can't have global supply chains without "taxing honesty". And without global supply chains, you won't get an iPad.
Imagine a product that requires building widget A, then turning that into widget B, then turning that into widget C. If we have the following companies:
C: revenue $6m, purchase costs $4m, other costs $1m
B: revenue $4m, purchase costs $2m, other costs $1m
A: revenue $2m, purchase costs $0, other costs $1m
then taxes are paid on $12m.
If we instead have:
Alphabet: revenue $6m, purchase costs $0, other costs $3m
then taxes are paid on $6m, even though the same amount of stuff is being made with the same efficiency, same profits, etc.
Whether this is relevant for tech giants is another matter. Software tends to be quite vertically integrated (financially speaking, at least).
In your second example, the VAT inclusive price would still be $6.6k, and the VAT due would still be $600k.
In practice many non-VAT sales taxes also counters this problem by trying to define what makes a "final" sale or a sale to consumers as opposed to other companies, and taxing only that.
That is completely irrelevant as long as the tax is only collected once at final sale and not every time the goods change hands within a supply chain.
If Walmart has 97 cents of cost per dollar in revenue then the sum total profit within their supply chain is 97 cents. Somebody is getting every penny in the dollar.
If the government says that for every dollar in revenue you have to pay 20 cents in taxes then Walmart will either raise prices by ~20% or require their suppliers to lower prices by ~20%. In no event do they go out of business, because their customers still need what their suppliers produce.
It's possible for a tax to destroy a market, but it has nothing to do with margins of the final retailer and everything to do with how much total surplus exists. If the government demands a certain number of dollars in taxes and either the manufacturers or customers can eat that and still be willing to engage in the transaction, that's what happens. But if there isn't that much surplus in the transaction, it no longer happens. Because before somebody was spending an hour to make a certain amount of money and after they have to spend an hour to make only 80% that much money, which can cross over the threshold where they say screw it and fold up shop. That has nothing to do with whether you call it sales tax or income tax.
It's true of any tax on any product. There are products with high margins that a small tax could nonetheless destroy because the industry is high risk, so investors won't invest without high returns. If the tax makes the risk-adjusted returns fall below what it is for other investments, the product ceases to exist despite high margins, because the high margins may be entirely necessary to compensate for the risk.
You are assuming there is no elasticity here. People would stop working for walmart and go work for google, in this example, so yes, the tax would destroy walmart.
Walmart sells essentials like food, clothes, and medicine. In what world does a consumer need an Android, or the internet, but not food.
Still not how that works.
Suppose a knickknack costs $1 at Walmart. They pay their supplier $.50, $.47 is the cost of operating the store (rent, utilities, staff, etc.) and $.03 is profit.
Amazon sells the same knickknack for the same $1 and buys it for the same $.50 but the cost of operating their store is only $.10 so they make $.40 profit.
Now the government says they must both pay $.20. Suppose both the manufacturer and the customer are completely inelastic. They won't change their prices at all. Which store is at a disadvantage? You still don't know.
It could be that Amazon needs higher returns to generate investment because online stores are higher risk. They have more competition and lower barriers to entry, their assets are heavily skewed toward goodwill and branding which are more susceptible to damage by scandal than e.g. real estate holdings, etc. It could be that if you cut their profits in half like that, they get no investors.
Meanwhile Walmart has to come up with the $.20 out of their store operating costs, but those costs are an opportunity to cut something that Amazon doesn't have. They could improve the energy efficiency of their stores. They could lay off some greeters. They could renegotiate the lease on their stores against the fact that all other retailers will have to pay the same new tax, which reduces the market value of commercial rental property.
There is no guarantee that Amazon is the one that comes out ahead.
Walmart makes up for the difference profit margins with amazon because of volume. Reducing operating costs at pure profit is already at walmarts disposable: what they could do is reduce the quality of products (worse chain of supply, worse produce, worse items) which is in practical terms also a tax in consumers.
They really are distorting.
What you're missing is that the tax itself may give them leverage. If there is suddenly a 20% tax on retail goods then the cost of commercial properties may go down, because the retailers need to cut costs to cover the tax and the property owners will have no customers if the retailers go out of business, so it could be the property owners who end up eating some of the tax. They may have to lower rents enough to make retailing out of their space profitable. And the same for any other operating costs the retailers have. They may be able to pay lower wages because all retailers would have to do that in order to be profitable, so wages for retail employees go down across the board and the employees eat part of the tax.
And the same applies to offering crappier service so that the customer eats some of the tax. It's possible for customers to prefer that to higher prices. And when the tax causes that to happen across the board, the customers may have no alternatives so the store may lose no business. Customers still need bread, now all the bread in every store either costs more or tastes worse, so the customer picks their poison and the store stays in business one way or the other.
> They really are distorting.
Oh, a tax really will affect two different businesses differently. But the distinguishing factor isn't the size of their margins. Profits are just a different type of cost -- the cost of raising investment capital. You may be able to get the investors to eat the tax, but they may also walk away, just like a customer or supplier might, and then you're just as out of business.
The true distinguishing factor how easy it is to get some combination of involved parties to eat the total amount of the tax and still be willing to do business. In other words, whether the total surplus is more than the amount of the tax.
You're assuming that Google has higher returns. Higher margins doesn't inherently mean higher risk-adjusted returns. The higher margin company could be higher risk or have higher fixed up-front capital costs.
If it was in equilibrium then they would both have the same margins. Something has to be different or everything is the same.
And by far the most common reason for a company to have higher margins is that it has higher risk. Otherwise the investors would already be investing only in the business model that makes more money without any countervailing disadvantage whatsoever, regardless of the tax.
You can have different margins and different volumes, with the same rate of profits for capital invested.
Having the same historical returns isn't the same as having the same risk-adjusted returns.
Having higher margins is a risk unto itself. A low-volume high-margin store might have the same total profits as a high-volume low-margin store, but move them next to each other selling equivalent products and you know which one is going out of business.
That sounds like a huge win to me. More competition is better for the market at a whole, and these 100 smaller companies will not be able to stop from competing with each other (or maybe we'll learn they just were better off as separate companies in the first place...)
Hold on...they will be different companies just on the paper...more like Google1, Google2 and Google3.. instead of one big Google.
If so, then they really separate companies, not just different on paper. Their ownership of the different companies will eventually diverge from each other and the companies will need to compete with each other to satisfy their owners.
If not, then the taxman will probably be smart enough to send the bill to the parent company instead of the mini-Googles.
You don't get it... the tax man proved not to be that smart to send the bill to the parent company. You may want to google: "What is a shell company?"
Just breaking a company in 10 parts owned by a parent doesn’t make any difference. Revenue would be counted at the top (or the idea is pointless)
I don’t know how successful the giants are in dodging taxes though. Perhaps they are trying to setup “independent” out of state entities that handle all of the sales.
There is also a trend afoot that pushes all businesses to pay sales tax across the entire US, nexus or not. The idea is that modern software makes compliance easy across all local tax regimes, so the old excuse of unmanageable complexity is losing its power. I don’t know the details though. So We might end up with the idea of nexus being deprecated too.
[...] Nexus, also called “sufficient physical presence,” is a legal term that refers to the requirement for companies doing business in a state to collect and pay tax on sales in that state. [....]
https://quickbooks.intuit.com/r/taxes/what-is-nexus-and-how-...
This looks more like a capitulation in the fight against various tax evading schemes employed by these companies. Isn't possible to just give a broader EU law that criminalises this kind of schemes?(i.e. draining the profit by various means). I'm sure that as soon as a bunch of executives along with their lawyers are put in jail this madness would stop.
Also, I chose Ireland as an example because it offers tax concessions to industries ( at least it did in 2006 when I was in the valley)
That is highly debatable. Companies and wealthy individuals obtain "legal opinions" from lawyers stating that these schemes are legal, but that is just cover from criminal prosecution.
Any government can declare any of these schemes invalid at will and impose any tax they want. Taxation at this level is a complicated business though. These corporations are larger than most of the world's governments and their owners are permanent not elected.
That doesn't mean it isn't a problem.
It's not going to pass though, these things never do, as unanimity is required.
What Europe doesn't have is a Uber, running a few billions of loss per quarter.
I can think of at least Spotify, King, Rovio to name 3
This sort of tax ought to be based on a relative share of megawatts of compute power, and should be progressive in a way that prevents any single entity from controlling more than N% of all computational capacity.
I’m sure everyone will love it!
A company cannot arbitrarily raise prices in isolation without risk of alienating customers. The difference here would be that both Google and its competitors would be subject to the same price hike.
It's not like GST is any different.
There are many theoretical possibilities left unconsidered including some obvious ones, such as fewer EU users of the American services, which is a reasonable goal in many ways, including the interest of the citizens.
Also, not sure where you think tax money goes but, when a government is maintained to some extent by a concerned populace, taxation serves the collective interests of a society.
The result will be that the EU receives more tax revenue, but it won’t being coming out of Google and Facebooks’ collective pockets.
it's basically the same precedure as everytime.