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Comment by toast0 | Hacker News Reader

Why should the profit be made in france if the engineering that went into delivery was made in the US, the content was made in X, the deal for the content was negotiated in Y, network source is Z (probably france, but not necessarily)

VAT in France on the subscription makes sense, but figuring out where the profit lies, is more nebulous.

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It's where the profits are, not where the cost centers are. If the customers are in France, the profits are in France.

Are you confusing profit with revenue? The revenue is in France - easy. Profit is revenue - cost, which costs do you factor in?

At some point, I think governments are going to need to break down and start taxing revenue instead of profits.

A 3% tax on total revenue is the same as a 15% tax on the profits of a product with 20% profit margins.

Taxing revenue has turned out to be a terrible idea every time it has been tried. It creates perverse incentives that encourage companies to be inefficient and wasteful.

One of the biggest policy problems with revenue taxes is that the effective tax rate is much higher on smaller companies than larger companies. A large vertically integrated company like Apple would pay a lower effective tax rate on an iPhone than any of their competitors, giving them a natural advantage. These are pretty dis-economic policy outcomes and the main reason no one seriously considers revenue taxes.

What about only taxing B2C revenue? Then the degree of vertical integration wouldn't matter.

It’s much easier to do that with something called a sales tax!

Isn't that more a value added tax, rather than a straight sales tax? Similar, but not identical.

VATs operate at every stage of the supply chain. A sales tax is only applied at the point of consumption.

That's kind of my point though - it ends up being charged on the 'value add' at each stage, so the vertical integration doesn't matter. X % of the final cost should still be VAT.

Quite the opposite. You can't fake revenue nearly as much as you can fake profits. Examples are legion - look at any company in the US that pays 0% (or negative) corporate tax rate.

You are not understanding the issue. Revenue can be trivially made to disappear, and this is what actually happens when governments tax revenue.

Revenue is recognized as the size of a sales transaction. The number of sales transactions required to build and sell a given product can vary enormously based on the structure of the business, usually as a product of optimizing for efficiency and specialization. When you tax revenue, businesses have a large incentive to restructure their business to optimize for minimizing the number of sales transactions in the course of building the product, because revenue taxes essentially compound as a function of the number of transactions which is then a cost of business. The compounding is why revenue taxes are so low, usually around 1%. Being tax efficient lowers your costs more than being business efficient, leading to bloated and non-competitive companies.

I've operated a business under one of the few revenue tax regimes. The perverse incentives to verticalize the business structure are very real. Revenue taxes add up quickly.

To make sure I understand your point, is the argument that without a revenue tax, you're incentivised to sell as much of your stuff as possible, whereas with a revenue tax you're incentivised to maximise your margin, and this makes things inefficient for everyone downstream of you?

This would benefit large and established companies with stable margins, while penalizing smaller businesses and startups. I don’t think this is the intended result.

It also discourages long-term investments, and further rewards short-termism (which everyone seems to dislike).

you can apply a rule only to companies with over 10 billion in revenue

And now you have companies inefficiently splitting themselves up into <$10B chunks, and paying lawyers and accountants lots of dead-weight costs to ensure their degree of coordination (think “Amazon West Virginia Ltd.”) doesn’t cross some ill-defined legislative or judicial threshold.

Its one of the reasons Value Added taxes are popular everywhere. (except USA)

I wouldn't say they're popular ... BA-DUM TSH!

I'm here all year, tip the waitress!

> Are you confusing profit with revenue?

Don't think so.

Profit only happens when there is revenue.

Cost is a negative influence on profit, revenue is the positive influence.

If you have zero cost, you still have profit (provided you have non-zero revenue).

If you have zero revenue, you don't have profit.

So it is obvious that the profit is where the revenue is, even though revenue ≠ profit.

What if Netflix France has to license their content and platform from Netflix US, the the license costs are coincidentally exactly the same as the revenue made in France? Then there will be no profits in France.

Actually that's what Coca cola has been doing for years... and it's quite pissing up every european gov

thats exactly the kind of accounting trick they are trick to get rid off.

The fact that it matches the revenue exactly shows that its not a real lisencing deal

In that case, they could always consider nationalizing Netflix France, and paying Netflix $0 in compensation. It is, after all, a completely profitless venture, losing it would be no big loss to Netflix.

Stupid games, stupid prizes, etc.

Apply business purpose test to license cost calculations.

Take the ratio of global revenue against national revenue and apply it to global expenses. Allow some leeway around any particularly unique national expenses and you've immediately put an end to the bullshit games these sociopaths play.

I strongly support immediately jailing anyone found to be playing these licensing games. They're parasites who have no place in society until they've shown reform.

If I make a physical good in the US and ship it to a buyer in France who pays above my costs, I don't owe France any income tax.

If I have a warehouse in France, some of the profit was in France and some was where it was made in the US. Same thing here where there's lots of small pieces done wherever.

True in theory (and much more so for physical goods) but in practice for services like Netflix, Google and Facebook, from the EU's point of view, who cares.

Giant tech company, pay your 15% based on local advertising revenue from local customers. We all know you'll still be making huge profits regardless of your costs. Your whole business is built on fixed costs and infinite scaling of revenue.

If you really can't afford to pay 15% then leave the market, someone will certainly take your place.

> engineering that went into delivery was made in the US

That's a cost, not profit.

> the content was made in X

Cost, not profit.

> the deal for the content was negotiated in Y

Negotiating the deal also sounds like a cost to me.

> network source is Z

Cost.

The profit is made where you get money, not where you spend it.

That doesn't account for infrastructure/governmental costs associated with creating the stuff that makes the profit. As a hypothetical, if a German company writes some software and US companies are the only ones that buy that software, the US harvests 100% of the taxes on profits while the German government is left holding the bill to take care of the roads that lead to the office, electricity infrastructure, employee's healthcare, etc.

It puts the government in a weird spot where they really don't want any businesses that primarily sell to foreign countries since they don't get tax revenue to fund public services for that company.

If you paid an external company to make all those things for you, they'd have profit in all those places, but if you do it in house, the profit just moves to the point of sale?

Why not replace income tax with VAT/sales tax if sales is the basis of taxation anyway?

If you offer a service in France, charge $10 and pay %15 on that $10... then when that money makes it into the US and Netflix has to decide what the profit is (after server fees, electricity, content fees, paying off politicians, etc)?

Not sure but I'm seeing 2 different conversations here: flat tax on what you pay at the pump... and what the company reports as profit at the end of the day.

France doesn't care if you make a profit or not on the 8.50... just like Apple doens't care when they take 30% off the top.

Am I reading it wrong? Is it 15% off the top ala Apple Store? or 15% off of profits? both of which are different conversations.

Looking at the article, it seems like a nothing burger until it's voted in officially... The Paris Accord was "passed"... and then left because it was just a verbal agreement. What's enforcing this and stopping the next POTUS from leaving it all together?

You are thinking of VAT, which in France is normally 20%.

That is not the tax that is being referred to here, which is Corporation Tax - the tax on corporate profits.

Because that is where the sale happened. You buy a lot of stuff that was made in China but pay tax in your country right? Not only was the sale in france, the goods that the customer pay for (video content) are delivered too france like normal goods and watched/consumed in france.

No, you pay VAT/sales tax for stuff made in China. The company pays taxes on profits where the company is registered. When you pay for Netflix in France, you pay VAT on the transaction too.

Is that why iPhone is design in US, Built in china but the taxes are paid in bermuda? Totally legitimate?

I'm not arguing that the setup is legitimate. I'm pointing out that the above analogy is confusing different tax types. The sales tax is not in question here. I'm all for revisiting how profits are taxed based on where they are made, but sales taxes/VAT is already collected correctly for both iphone and netflix.

You could argue that the profit is made where the money is made.

You could argue the profit is made where the money is earned. No CDN, no streaming; No content, no streaming, etc. How much would Netflix pay a (probably US based) CDN company to do what they do inhouse... that should probably still go to the CDN team, etc.

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