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Comment by jsty | Hacker News Reader

There is already a difference in tax (VAT) rates based on the consumer's location. This move would be distinct from import duties or product standards in that it's not really creating a clear barrier to sales across the single market.

On the other hand, the really quite high threshold might well be subject to complaints on the basis of distorting the single market. All the large multinationals that would hit the threshold reside in Ireland / Luxembourg, whilst lots of French firms don't hit the threshold and thus gain a competitive advantage.

I'm neither a lawyer nor a tax advisor.

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Wouldn’t it be more accurate to say that it’s correcting an imbalance?

Google operates in France but is able to undercut France businesses for digital content sold to French people ( merchandise is traceable ) because it happens to have an Ireland operation?

IIRC, under EU VAT regs Google Ireland will charge and remit French VAT rates to the French treasury for digital content sold to consumers in France, so there's no imbalance there.

The big issue is that digital services, particularly advertising, are so insanely profitable that most governments would also like to get their hands on a proportion of the profits accruing from sales of digital services in their country. They see the fact that Ireland / Luxembourg are able to book all the profit in one jurisdiction as unfair. There's probably not a huge likelihood of that happening any time soon at an EU level, so France has gone with the next best option from their POV.

(Tax avoidance strategies that allow a large multinational to not pay much tax to their host country is a different kettle of fish, since most of the benefit of tackling those would probably accrue to the country of incorporation not France - e.g. the Apple settlement)

IOW, they see some loot to grab.

If the imbalance is that an Irish company is more competitive than a French one, then no, not really.

In this case, this will be the race to the bottom and smallest countries will be able to charge 0% tax just for the sake of office space rented since their domestic market is small enough to not bring much of income tax (Luxembourg for example).

The issue here is with omitting responsibilities. If a company makes hundreds of millions of income in a country, it should pay some taxes there.

There is a huge push in Poland now, to introduce non-refundable revenue tax (of 1.5%) on larger companies in place of income tax. This would solve the issue entirely.

There would be no race to the bottom if there was a real, tangible benefit to being established in a high tax country - ie, better public services, a more educated workforce, more business friendly environment, etc. As it is right now, very few countries justify their tax rates and that prompts people and businesses to do the rational thing and go where they pay less for the same thing.

I think it's very concerning that European countries are so focused on taxing access to their market rather than asking themselves the question of what they can offer to businesses and individual to make them more interesting as places to settle down or establish a company.

I think you are completely missing what's going on...

Google generates revenue in Poland. They have operations in Poland and all (so they use all the public goods like employees, infrastructure, safety etc.). They should pay taxes in tens of millions of Euros for this. But instead, they generate fake expense in Ireland, send an invoice to the Polish office, call it "branding" or something else, the invoice is big enough to generate a loss. They do not need to pay taxes in Poland since they are at "loss".

That's the issue. Not that Ireland has a different tax system. The issue is that companies are allowed to avoid taxes by generating fake expenses and the EU prohibits other countries from doing anything with it really.

IMO 1,5% fixed tax is very attractive rate.

I'm genuinely curious - what operations does Google have in Poland? I was under the impression that all the "valuable" stuff was being made in the US and that their subsidiaries just handle localization, support and local sales. Is that incorrect?

If that is correct, then it makes perfect sense to shift profits - after all, it's not like Google Poland just came up with their new foobuz algorithm that is providing value. They're just selling it there.

> local sales

> They're just selling it there.

This is literally the money generating part, the rest are cost centers.

A country does not have to justify its tax rates before Facebook. A country should focus on serving its citizens, not multinationals.

It most certainly does - both to its citizens and the companies that do business there. Otherwise, the implicit idea that your taxes pay for public services is chucked out of the window and we're left with taxation as just another expense to be avoided if possible.

Only to its citizens. Not to companies. The idea behind taxes is not to pay for public services, but for whatever the citizens want to use them for (which happens to include public services of course).

Companies aren't allowed to vote for a reason.

Keep in mind that companies are not just large multinationals but also small mom and pop stores, freelancers and everything in between. I hope you understand how deeply hypocritical it is to tout paying taxes as a moral obligation while at the same time refusing to be held accountable for how that money is being spent or denying companies a voice.

And many companies are owned by citizens whose opinions actually matter just as much as those who don't own a company.

> I hope you understand how deeply hypocritical it is to tout paying taxes as a moral obligation while at the same time refusing to be held accountable for how that money is being spent or denying companies a voice.

There's nothing hypocritical about not wanting corporations to have even more power than they already have.

You seem to be labouring under the delusion that voting actually changes anything.

Not enough. In part, that's because companies have to much of a voice.

A company does not have to justify its business practices to anyone but its shareholders. A company should focus on serving its shareholders, not politicians.

You are pretty wrong. Taxes aren't about limiting market access, tariffs are.

Taxes are ways to keep the money in the country, reinvest it so it ripples back to the civilians.

Tech companies are avoiding this.

What is the difference between a tax, a tariff and a fine?

A fine = following the rules & earning money.

Ps. I hope your being sarcastic

I was not being sarcastic - the question was purely rhetorical. From the company's perspective - there is no difference because they all result in the same thing - transfer of money from the company to the government.

They are not the same thing.

You break the rules = fine

A political protection against something from other countries ( eg. Dumping and killing the internal market) = tariff

Taxes = helping the country/nation, based in money you earned from civilians/local businesses there

These are very different things.

That’s not really true. Tariffs are clearly a form of tax. Both taxes and fines are used to discourage undesirable behavior. One difference is businesses typically assess on their own how much they owe in taxes, whereas the government tells them how much they owe in fines.

> There is a huge push in Poland now, to introduce non-refundable revenue tax (of 1.5%) on larger companies in place of income tax. This would solve the issue entirely.

Well, only if you're content with a 1.5% tax rate and a tax that punishes smaller non-vertically integrated companies.

They would probably be better off with something like DBCFT using a normal tax rate instead.

The idea is to support small companies. I don't see how this would punish small companies at all. Those companies, due to the inability to avoid/reclaim taxes pay more than 10% now (even with an accountant). I know a lot of companies (a few people large) to pay that much.

> Those companies, due to the inability to avoid/reclaim taxes pay more than 10% now (even with an accountant). I know a lot of companies (a few people large) to pay that much.

And a 1.5% rate isn't enough to replace those taxes, so it would be paid on top of them.

Moreover, revenue taxes disproportionately impact non-vertically integrated smaller companies. Megacorp is vertically integrated, they pay 1.5%. A supply chain containing twelve smaller companies pay 1.5% each, which compounds into nearly 20%.

Actually, it is. The 1.5% tax rates will bring more than the current system. This is not something made up. This was well researched and whole armies of economists are behind it. More and more countries are considering it.

Now megacorps don't pay taxes at all, so what's better?

> The 1.5% tax rates will bring more than the current system.

Under your current economic structure, surely. But once you make it so that companies can reduce their supply chain's tax burden from ~20% to 1.5% by becoming vertically integrated, what do you expect to happen next?

> Now megacorps don't pay taxes at all, so what's better?

Option one is income tax at e.g. 20%, local companies pay 20% while megacorps pay ~0%.

Option two is revenue tax at e.g. 1.5%, non-vertically integrated companies cumulatively pay ~20% while megacorps pay 1.5%.

Option three is something like 20% DBCFT, so that everyone who sells domestically pays 20%. This is the better option.

Arguing that two is better than one is a false dichotomy that preserves most of the bad consequences of existing system (multinational megacorps pay less than others) while introducing some new ones (highly advantageous to become a vertically integrated conglomerate).

I am surprised about you saying it would be 20% for small business. What (optimized) market requires for a raw source to change hands 13 times before it is a final product (mind that we are talking small business here). The revenue tax would force the market to optimize and become more competitive.

And even if megacorps would grow vertically - that's OK, since this would force them to grow locally, take parts of the market and optimize it. It's a win-win.

I also don't think DBCFT would work in an OPEN market like EU. Your opinion seems very US-oriented, while this thread is about EU. The EU rules and tax system is completely different to US and it cannot be compared.

DBCFT could work if the issue would be EU vs World, not EU within.

> What (optimized) market requires for a raw source to change hands 13 times before it is a final product (mind that we are talking small business here).

That is how many things work. One company sells saplings, another operates a tree farm, another logs the trees and transports them to the sawmill, another operates the sawmill, another distributes the bulk lumber to wholesalers in different cities, another operates warehouses and wholesales the lumber to local businesses, another shapes the lumber into custom forms, another assembles the custom lumber into unfinished furniture, another finishes and paints the furniture, another wholesales the finished furniture, another packages the furniture into prepackaged furniture sets, another retails the furniture sets, and then finally the end customer buys it.

This is not inefficiency, it's specialization. Operating a sawmill is not the same skill set as retailing prepackaged furniture sets.

> The revenue tax would force the market to optimize and become more competitive.

It would force the market to vertically integrate and become less competitive.

> And even if megacorps would grow vertically - that's OK, since this would force them to grow locally, take parts of the market and optimize it.

Megacorps don't have to grow vertically, they already are. It's why the tax gives them an advantage over local businesses that aren't.

And they wouldn't to do so locally. They could just show up with an imported finished product and retail it directly themselves.

> I also don't think DBCFT would work in an OPEN market like EU.

DBCFT is basically VAT. The primary difference is that local wages are deductible. It does not seem like a real problem to allow for "local wages" to mean anywhere within the EU rather than only in the sale destination country. Or to just use VAT instead if you like, though the wage deduction from VAT does seem like a good idea in general (since wages are already taxed to the employee and double taxing employment is undesirable).

> The EU rules and tax system is completely different to US and it cannot be compared.

If you're designing new tax rules, you can compare the new rules to whatever you want. The EU could implement the US system verbatim or vice versa if they wanted to and had the votes.

That's interesting. Are there large companies who would pay this 1.5%, who do not at present pay much Polish VAT? Or employ many people?

Otherwise, why not tweak existing large taxes? You could do it on the employer's social security contribution (i.e. the part paid before not after the nominal salary) to make it sound better.

Companies like Google, Facebook etc. don't pay taxes in Poland by claiming expenses in Ireland/Holland. Thus they are "at loss" in Poland. The revenue tax would allow no tax avoidance due to that.

I understand but disagree about the tax on profits, see https://news.ycombinator.com/item?id=19295683

But my question about what Google et. al. actually do in Poland. Is it a sales office for a product made elsewhere? (Few employees, large cash flow.) An engineering office for a product sold elsewhere? (Little VAT, lots of income tax.) Etc.

Sales for a product made elsewhere.

I know where you are going with this - the issue is that they don't pay pretty much any taxes due to avoidance, yet they drain the market from the revenue thus limiting the ability for local companies who cannot avoid taxes trying to develop in this space.

If a small country can afford a 0% tax, why shouldn’t they avail themselves to that competitive advantage? Unified tax rates amount to a tariff on more fiscally competitive countries.

They would have the right to do so. And other country might have the right to place a 150% tariff on this country goods. Or place those on the tax haven list. Other countries cannot stop them from applying a zero tax. But those same countries that provide all the markets, infrastructure, schools, manufacturing and support all the population to make it work can also choose not to trade with those.

It would be fair, but the EU prohibits it. So the company creates fake expenses in tax-flexible countries to avoid paying taxes in the country, where they generate revenue. That's the issue.

> can also choose not to trade with those.

No, the EU and other trade agreements prohibit this.

The very post you replied to answers your question: You get a race to the bottom. Competition pushes taxes lower than they would be if the democratic government of each country could set them freely as they believe is fair.

I don't think there's a single government that sets taxes based on fairness. Rather, I'd wager that most governments set taxes as high as they can without suffering consequences such as economic slowdowns or capital flight.

A democratic government does what its citizens want it to do. Presumably they want taxes to be fair. If setting taxes to a fair level would cause capital flight, then something's wrong about our economic system.

> A democratic government does what its citizens want it to do. Presumably they want taxes to be fair.

Both of these statements are based on very big presumptions indeed.

That sounds like a version of VAT that favours large integrated companies. What are the proposed benefits?

No tax avoidance. Companies pay millions in taxes just to get them back in refunds. While this is not bad, it starts to look bad when they don't generate fake expenses locally, but they do that in a different country. It means that the money gets neither to the government, nor the local market. So the revenue tax guarantees, that at least government can get that money.

Other benefits are virtually no accounting (the money would be taken on a bank level), lower taxes for the majority of society (SMB's paying fraction of what they pay now), no tax-gray areas and limiting to long chains of "middle man".

The problem is not that Ireland is a country using its taxes more efficiently than another. The problem is that one country can offer a much lower rate that is only viable for them if companies make their entire EU business as if it was happening in this country.

Let say you are Luxembourg, and the average tax is 30% of your profit in the EU. Luxembourg is roughly .1% of the EU population. Assuming an ideal world, a company would them make .1% of its profit in Luxembourg. Now, let say Luxembourg offers a deal with a company so that they can artificially put all the profit from its EU operations in Luxembourg: in order for the country to keep the same taxes, it would only need to have a tax rate of 0.03%. From the Luxembourg point of view, they have the same tax amount as before. And from the company perspective, they are now paying taxes as if they were only paying taxes in Luxembourg, which is peanuts for them.

Now, the current situation is not as caricatural as this scenario, but that is what is happening. The end result is just lower taxes created artificially (but legally). And the big problem is that it is not easy to fix while being in a EU context: the easiest solution would be to have common tax rates, though that would create some other issues. At the very least, closer tax rates would help the matter as moving your profit from one country to another is not free for the companies.

"so that they can artificially put all the profit from its EU operations in Luxembourg" That is illegal because your accounting and document are not supported by reality. But it is difficult to prove it.

There are plenty of imbalances within the EU, Greece grows olives, Germany grows Volkswagens.

> On the other hand, the really quite high threshold might well be subject to complaints on the basis of distorting the single market.

It probably should, but this is certainly not the first time a EU member country has tried (and gotten away with!) protectionism. Some other examples are stricter safety/quality standards that only (surprise!) local businesses' meet and government guarantee of private company debt (I have no idea how this is legal).

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