Comment by vanilla-almond | Hacker News Reader

Comment by vanilla-almond | Hacker News Reader

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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!)

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.

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.

>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.

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%.

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