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Comment by redm | Hacker News Reader

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.

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