Comment by jfasi | Hacker News Reader

Comment by jfasi | Hacker News Reader

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Personally, I like this proposal. I like that it's simple: any overly complex system will almost inevitably result in distortion and loopholes. A few points of my favorite points:

* 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.

I have yet to talk to someone that can explain to me why a VAT wouldn't be better. We already know how VATs work, they're already fair, they already handle low-margin companies very well. Why bother with a revenue tax? It heavily stilts the game in favour of bigger players because it encourages vertical integration.

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.

Correct me if I'm wrong, but VAT is only applied to goods sold to consumers, not to companies. If I'm a VAT registered company (like Facebook) and I buy a VAT-able item like a computer (from MSFT), I don't pay VAT.

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?

There is already a VAT! This will come on top of it.

I guess he proposes to increase the VAT for big players instead of creating an all new form of taxation.

And how would that work? Let’s say I’m a company that can choose to buy advertising from Facebook for 99 plus 25% VAT or from someone else for 100 plus 20% VAT. If I can deduct the VAT paid I get a better deal going with Facebook.

I'm arguing that all companies should have the same VAT rate. If for some reason we want to apply a higher rate to a company it should be via lower base deduction.

The whole discussion is about targetting some particular companies. That explains why a VAT, which is paid by the consumer anyway, wouldn't be better. If you’re going to distort the VAT chain to be get something equivalent to a tax on the sales of specific companies, how is it going to be better?

Because by doing a standard deduction you're keeping certain mathematical properties that VATs provide, like the ability to sell a good multiple times without paying layered taxes. Standard deductions stop this warping while still providing the warping that is desired.

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 CocaCola sells $10B of Coke in the EU, a VAT captures that and it should.

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.

> It heavily stilts the game in favour of bigger players

I drew the opposite conclusion, as the proposed tax applies only to big players.

> The best thing about this proposal is that it sets up a harmonious relationship

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.

What you are describing are Trump's steel tariffs, which indeed make no sense and do exactly what you say.

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.

> What you are describing are Trump's steel tariffs, which indeed make no sense and do exactly what you say.

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.

> The EU needs to show that the social contract is non-negotiable,

By raising new consumption tax ? Its not going to work. Thats not how you fund socialism lol.

Apologies, I may not have been clear enough in my formulation there. I meant the social contract, as in: You pay taxes and get something in return. For some people it may also be something like 'you work hard and therefore get to live a reasonably comfortable life'. The social contract, for me, is simply about making sure everyone plays by the same rules.

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 :)

You comment doesn't make sense to me.

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.

The companies and their employees pay taxes, though. On electricity, on data, on personal income, on gasoline, on property, etc. Whether an entity is paying its fair share is a legitimate question, but it's strange to me to blame companies for following the law as written.

It's not blame, it's complete lack of sympathy for tech corps' complaints about the tax.

Which tech corporations have complained about this tax?

> Face it: some form of taxation was going to appear no matter what. It's inevitable.

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.

> 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.

This is basically how exports work, why should tech be different?

Actually, this is what “free trade” is exactly. No import tariffs between most EU/US trade.

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...”

The accounting is setup to selectively avoid paying taxes in certain countries.

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.

Despite the fact that these companies are putting headquarters in Ireland, it's actually US taxes that they're seeking to minimize, so it's not really the EU's place to collect them here. With the new UA corporate tax law changes for international income I expect fewer US companies to build HQ in Ireland. Though being domiciled in Ireland also makes the Ireland Data protection Authority their primary point of contact too.

The intent of a company to minimize taxes has no bearing. The tax shields hurt both the United States and other EU members.

The EU isn't collecting American taxes. They're fixing EU issues.

If we accept the Ireland situation as a legal fiction, then the EU would see no revenue here anyway, so I don't see the EU as actually being cheated out of anything. EU firms domiciling in Ireland could reasonably be interpreted as hurting other EU members, but that's not really the case here.

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.

> You don't just roll into a country, make billions of dollars, and expect to pay no tax in perpetuity.

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.

Why don't Germany and France offer the same as Ireland?

1) It's a race to the bottom. If Germany or France lower their taxes, Ireland will go even lower.

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.

1) Why would Germany and France care? They have not been collecting taxes anyway, race to the bottom until Ireland can't anymore.

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 all tax rates are lowered to ireland’s rate then there won’t be enough tax revenue to fund the existing social infrastructure.

If lower taxes were always better why have any taxes at all?

That's my point, isn't it?

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?

How is this strategy working for OPEC?

Can you elaborate on that?

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).

Admittedly, my reply was lacking necessary detail. The parallel I was trying to draw with OPEC is that, in order for a cartel to work effectively, each member has to adhere to the rules established by the cartel, sometimes to the short-term detriment of any individual cartel member. With OPEC, this means strict controls on the output of oil. In good times, each member seems to keep production in line with the OPEC established standards, but the minute any stress is added to the system (primarily dropping oil prices), all bets are off and we see individual members increasing their production to maintain short-term cash flow - you essentially said this same thing in your comment.

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.

Thanks, I see the similarities now.

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-...

Not sure how Ireland is getting richer and richer on the back of this given there is very little tax.

Ireland is more than its tax revenues.

There is already some form of taxation - VAT in the UK is 20%.

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?

You don't understand how VAT works.

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.

> 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.

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?

Way to move the goal posts.

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.

OK fine - the consumer pays VAT. In that case I would say that Google performs a certain amount of work and as a result consumers end up paying more VAT. I'm pretty sure that if Google stopped displaying ads in the UK then the total VAT collected by the UK government would shrink.

Is this tax structured in a way to prevent collection from the consumer, so it appears as a line item next to VAT? If not, the difference will be moot for most consumers.

>This new tariff exists solely because the EU can't compete on technology and needs to raise barriers.

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.

Before Facebook there was Myspace. What first mover advantage did Facebook have?

The alternative is that maybe the EU needs to move first more often?

Why are they so far behind that they aren't ever the first?

It's not a tariff. EU companies are treated the same.

Do EU companies exist that do fall under this law? Can’t think of one right now.

SAP and Spotify come to mind.

Spotify?

> Personally, I like this proposal

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.

> The commission’s planned revenue tax, which is expected to be proposed on March 21, would only represent a targeted, short-term solution.

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.

> companies could create 2 resellers across europe, split the revenue and avoid the tax

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.

but if the revenue is below the limit, they wont be taxed, and i guess they can play that cat and mouse game forever.

They would be just begging for the limit to be removed then though.

Like the current 'tax optimization' schemes have given rise to this proposal.

so how is this an improvement then

> 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.

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.

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