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Comment by throwaway13337 | Hacker News Reader

This sounds like it will be hell for small software companies with customers all over the world.

Paying taxes differently for each country of the customer you sell to is a ridiculous hardship.

It only benefits the large multinationals to reduce their competition. These sorts of rules centralize markets to fewer and fewer companies able to spend the resources to fulfill more and more complex rules.

The end result is higher prices and lower innovation for consumers. While employment gets centralized to slow-moving, inefficient, but compliant companies.

It's a real shame that legislation is actively trying to make it harder to do business as a small entity. Functioning governments should have it very high on their list of priorities to do the opposite.

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Small software companies with customers all over the world are not multinational companies. These small software companies are located in one country i.e. one physical presence, unlike tech companies where their presence is in multiple countries. So this tax change won't affect small software companies located in one country with international customers.

Edited to add...

The article states: "the rules will aim to make companies pay more tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits."

The following scenario is unclear to me: A software company based in a European country sell their SaaS product to primarily US customers. The majority of their profits are made with US customers, but the company has no office presence in the US. Does that mean the profit from US sales is subject to the rules of this new tax law? (I assume not, but I could be mistaken.) I assume this law only applies if the company has a physical presence in the US. (But now wondering if my interpretation is correct!)

>Small software companies with customers all over the world are not multinational companies

It's extremely common even for small software companies to have offices across the world

Then they already pay taxes there.

They might (probably not since the sales likely go through parent company) but that doesn't equate to paying taxes separately in each country you have customers in.

Thank you for your reply. In hindsight it makes a ton of sense that this would only apply to companies with a physical presence in multiple countries.

Tracking country of origin for every online purchase and grouping them in order to pay international taxes would be an absolutely ludicrous requirement. No matter how low your opinion of the G7 is, they're not that dumb.

The European Union did introduce a system similar to this for VAT, where the rate paid depends on the country of the buyer, not the seller: https://europa.eu/youreurope/business/taxation/vat/cross-bor...

It might be a bad idea but it's not beyond the realms of possibility.

TBH the bad idea in the EU scheme is allowing different countries to have different taxes on digital sales. There should be one rate across the whole Union, to be paid to the Union itself. This can then be redistributed to national governments in various ways, or reinvested in digital infrastructure that benefits the whole continent.

Enforcing fair taxation is not a bad idea, making it awkward is.

However, within the EU they also have a nice (or at least automatable) online system where small businesses can process inter-country VAT sales declarations through their own country's tax system. It's not particularly onerous for small businesses to sell across borders to other countries within the EU.

Doesn't this already apply though? I don't know the details here, but Steam seems to apply both state- and country-specific taxes at checkout. Steam is not a multinational corporation as far as I know.

A lot of countries have laws requiring companies that sell more than $X annually to their citizens to register as a foreign company and apply local VAT.

If it's going to be anything like the digital services tax, then the answer is a resounding yes as the US is where your customers are.

I see two things come out of this:

1. Companies selling their B2C services digitally will be paying both their sales (or VAT) AND their corporate income tax in countries where their customers are. This will be a benefit for countries with large markets and leave smaller countries where the companies are headquartered wondering what the value of these companies to their economies is.

2. A major problem for digital businesses will be the fixed costs of compliance. I suspect that a lot of side-projects and lifestyle businesses won't see the light of day on account of how expensive it will be to keep them running for years while they build up revenue.

They still would hire domestically and pay salaries that would be taxed.

They'd need to grow to a certain size first and even then, they could just hire remotely.

My hope is that these rules will only apply to large multinationals but somehow I doubt it - governments are unlikely to leave money on the table and will likely use this opportunity to expand the scope to include smaller businesses as well.

European VAT, for instance, applies even for non-European companies. I can totally see some EU politician thinking that they deserve some portion of the profits of each sale (income tax) as well as a sales tax.

Potential for having to pay income tax in countries you have customers in, sometime in the future, is > 0%.

> This sounds like it will be hell for small software companies with customers all over the world.

Uh, no, this will bring required tax profits for rich governments from these predatory countries that will finally fix their budget deficits and insure equality between its citizens.

/just kidding, this will break small companies and make it almost impossible to sell/export to richer countries for small new comers. The big companies will find new loopholes while facing less competition. The EU governments will then just increase the VAT to 35% to fix their deficits. Everything is fine.

Interesting narrative here. Ireland is “predatory” because they create an extremely low tax environment for competitiveness.

Is Texas also predatory for having no income tax versus CA, NY etc 10%+ income tax?

Predatory from the perspective of other nations/states.

I think Ireland are. They are actively trying to shoot down a case where Apple would need to pay them billions in taxes: https://www.irishtimes.com/business/economy/ireland-wins-app...

What government in their right mind fights taxes they would receive? They want to keep Apple (and others) happy so they don’t take their income elsewhere.

So I‘d say this smells of predatory pricing.

It's neither here nor there, for that.

If you are a simple, single entity, your income tax is calculated there. It's hard to say what if anything will actually come of this. Tax legislation has a tendency to hide the main point. But currently, small businesses disadvantaged by the things this legislation ostensibly wants to curb. Multinationals have the resources and complexity to avoid tax entirely. It's usually just sole traders that pay full income tax.

So if someone has a small company in Bermuda with 10 employees and they serve US customers primarily, will they be impacted by this?

There isn't a public "this" yet, so IDK. Also, Bermuda is unlikely to agree to this.

It sounds like the primary purpose here is residency definitions, which could mean that the US would be obligated or entitled to consider the Bermuda company american for tax purposes.

IRL, that Bermuda company is likely to be a shell company, receiving payment from a single client (EG msft) so that the parent company can book it as an expense.

That said, it's pretty much impossible to say anything at all before details go live, and accountants have had time to chew on it. Tax rules are all detail. Headlines really do mean nothing. "Where they do business" could mean a lot of things. Sales. employees, manufacturing, financing/listing.

Corporate income tax is applied to the net of revenues and expenses.

Some of the language in other statements seems to suggest there will be some sort of a quota system. MSFT will be defined as x% american, y% Bermudan, etc. This is pure speculation though.

That's good information.

  "Also, Bermuda is unlikely to agree to this."

Will it matter whether or not Bermuda agrees to it? It seems like their buy-in will be irrelevant, since if the company wants to keep serving US customers then they'll have to go along with the rules the US is setting up?

It will matter, because (again, totally guessing) the agreement will probably make distinctions between in-treaty countries and out-treaty. Beyond theat, idk.

Don't payment processors like Stripe already handle different regional taxes?

No, Stripe take their cut and the tax implications are down to the seller. However! They did recently acquire TaxJar (https://stripe.com/newsroom/news/taxjar) so I imagine things will become easier in this regard, reporting and filing, soon.

That's an interesting bit of news, in that at least it confirms Stripe have recognised the danger. I will be happy to be proven wrong about this, but I fear their reaction is too little and too late for merchants here in the UK. The likes of Paddle are already offering much simpler tax arrangements and other significant advantages as well, and as you would expect, this is already disrupting some markets that might have been considered Stripe's natural territory just a few years ago.

Absolutely NOT.

Stripe is ONLY a payment gateway, 'Stripe handling taxes' is a complete myth that is always brought up by uninformed US Stripe customers only to hype Stripe up.

Stripe customers in the EU have to deal with this VAT tax pain already which is why they either don't use Stripe and use Paddle instead.

Not really. That sort of payment processor might allow you to specify a tax rate to include on a bill and maybe to configure different rates that are automatically selected depending on where your customer is. However, typically they do not actively monitor and update the current tax rates for different areas, nor do they handle the reporting and remittance to all required authorities, so they only take care of a small part of the overall compliance requirements.

There is another type of service becoming increasingly prominent, which is a "merchant of record". In effect, the service becomes a reseller for your product or service, and since they are then the vendor for legal purposes, they also become responsible for all the end customer taxation issues. You in turn typically deal with them as a much simpler B2B relationship between just two entities.

Not just software either. I mean what great business idea at this point is only going to have local consumers.

It is just a terrible idea on so many levels. It is like something Jay Gould would come up with once already at the top.

I suspect a whole bunch of companies specializing and being middle men handling this will pop asap.

Is that meant to be a good thing?

I don't make a value judgement I'm just noting that there will be an arbitrage business opportunity and it will be filled by someone.

Naive people think that politicians still possess any form of altruism.

I suspect this is just some kind of scam in good cosmetics (as with other globalism policies)

It's always about protecting the bread of the powerful.

The side effects, such as what you raise are just collateral damage.

> This sounds like it will be hell for small software companies with customers all over the world.

No. Because, they have a single physical nexus and can't pick and pick and choose where to declare their profits, after of course reaching a sweat-heart deal.

If a small business doesn't pay a tax the IRS thinks it owes, the IRS sends armed agents to serve process. They have no leeway compared to the large multinationals that pay nothing.

Don't worry.

The proposed tax does nothing you think it does, as the article explains. Pillar one does not apply small companies.

Small companies pay just corporate tax as they did before, as the article explains. Nothing changes in that front. Pillar two.

This time. Once the mechanism is in place and the large companies have complied, they will come for the small companies too.

Pillar two already takes care of the small companies.

There are two good mechanisms that apply for both cases.

Yeeeeahhhh, just like the GDPR had exemptions for small companies and side projects for someone's sunrise calculator app. Oh wait, it didn't.

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