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?
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)
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.
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.
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.
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.
No, the EU and other trade agreements prohibit this.
Both of these statements are based on very big presumptions indeed.
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.
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%.
Now megacorps don't pay taxes at all, so what's better?
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).
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.
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.
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".
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.
Companies aren't allowed to vote for a reason.
> 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.
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.
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.
> They're just selling it there.
This is literally the money generating part, the rest are cost centers.
Taxes are ways to keep the money in the country, reinvest it so it ripples back to the civilians.
Tech companies are avoiding this.
Ps. I hope your being sarcastic
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.
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.