Italy Approves ‘Google Tax’ on Internet Companies
bloomberg.com
bloomberg.com
And then they wonder why their economy sucks.
For example, Denmark's taxes are about 1.5x Greece's (50% of GDP versus 35% of GDP, overall). But Denmark is generally a nicer and easier place to do business. The bureaucracy is large and expensive, but in return for all the money it costs, you get quick, non-corrupt, predictable service. You can register a company in literally hours (online!), for example, while it takes weeks in lower-tax Greece.
I work at an Italian ISP and we ran some statistics ourselves and found that percentage to be around 5%, which is lower but still massive. If you consider that the average Internet user doesn't even know what "DNS" is... that means a considerable part of tech-savy users are not using their ISP's DNS (which breaks down many kind of things, among which CDNs).
That's a direct consequence of Government-issued DNS censorship, which all Italian ISP need to obey.
[1] https://labs.ripe.net/Members/gih/measuring-googles-public-d...
Is every CDN's depended on privileged position inside ISP's? DNS by design is on the edge of the network, and works perfectly fine regardless of who ask the server for a lookup. If the DNS server want to do geo-depended service, they only have to use geo-ip to figure out where a request is coming from and sending the closest geo-located server as answer. You can even do it with http server and redirects.
ISP based dns resolver existed because early networks took time and money to send a single package back and forth from the client to the server. Those economics should not be considered in 2013. Having a third-party doing your dns resolving is like calling the local police office for directions when driving. Antiquated, unnecessary, and not very safe any more for privacy reasons.
If it comes from 8.8.8.8 then you've got no clue. If it comes from an ISPs recursive DNS you can guess : most ISPs have limited geographical reach. If it comes from Telecom Italia's DNS servers, it's either Italy or the middle east (and due to seabone, you will feed them the same entry point to the CDN)
When a request comes from Google (or for that matter, another global network like Level3) you have a problem. The request doesn't specify where the client is, and the request will be cached. So what do you do ? Which entrypoint do you feed it ? You're essentially stuck with anycast, and that has it's own problems.
Italy is one of those very few countries where for years you couldn't legally run an open wifi spot - you had to file ID cards of each and every user, and send them to the police on request. Where the early cypherpunk scene was criminalised and associated with terrorism - the police would just sequester entire servers on a whim, just to collect SSH keys and mailing lists of activists. Where authorities cracked down hard on P2P while at the same time supporting a copyright regime that is much worse than the equivalent US one (the association of publishers and music labels is legally tasked of collecting royalties and copyright-related taxes, with no oversight whatsoever on where the money actually ends up). Where law-mandated DNS blocks were pioneered.
All this in a country with corruption and organised crime at levels unseen elsewhere in Europe, an economy that's been stalling for almost 20 years now, a huge anti-business bureaucracy, and gigantic public debt. It's like, "don't you have anything more urgent to worry about, rather than bothering our Net with laws so inane, even the EU will likely strike them down?"
If this sounds like something out of Fox, I invite you to watch any political talk-show on Italian TV. You think Fox is bad? HA!
The problem at hand is not complicated, but it's something that 1) must be solved at the European level (otherwise, why did we create a unified market?), 2) does not touch real revenues being siphoned to tax havens, which are the real problem -- does Apple sell ads or internet services? not really, but they're THE prime example of this problem, and still won't be touched by this law. It's the usual buffoonery devised by one of the worst political and economic elites in the developed world.
But in Germany, open wifi spots are also a pain. A huge pain
Most places won't bother. However, the problem is not opening it, it's what's done with it and who's responsible if anything is done with it (read, copyright infringement).
Google last year moved nearly $12 billion to the Bermuda unit, the majority of its worldwide income, cutting more than $2 billion off its global income tax bill. Google’s Italian unit last year reported total income taxes of just 1.8 million euros, corporate filings show.
Google's tax-avoidance has nothing to do with this new law. It's true that Google shifts profits around to avoid paying taxes where they do their actual labor. But changing that wouldn't change the fact that Google isn't based in Italy. For the sake of simplicity let's say that Google stayed in Ireland when they stopped abusing the system. They would sell all their European ads from Ireland, and pay a hefty tax with no loopholes. And their tax payments in Italy... would not change.
This law is strictly anti-outsourcing. It does nothing to stop Google's tax avoidance, and would still be just as 'needed' even if Google didn't avoid taxes. Bringing it up muddies the water and serves no purpose other than making Google look like a bad guy.
An italian subsidiary would have to pay its mother company for the services it provides (which is everything, since no user would be serviced from Italy). So the Italian company could easily make 0 (or very few) profit.
So despite being a law, it's (probably) not legal. I find it very hard to believe that there is anyone in the Italian parliament, which is filled with lawyers, that doesn't know this. They are merely voting in this law to appease constituents, and of course the targets of this law (not just Google, but any internet seller. It's just as much apple or microsoft or kickstarter.com) have zero incentives to point this out : they simply don't pay, knowing full well they can't be sued for this.
So constituents are "happy", lawyers get re-elected and nothing changes. There are no implications, everything will simply remain status-quo.
Google employs lots of local people in many different countries to sell ads, etc.
In order to do so it has national companies that are owned by Google US, but are separate legal entities.
But what's happening is the national sales people are closing deals but then book those ads through a different legal entity in Ireland, even though the sale happened with a local sales person, in a local company. This is with the express purpose of avoiding tax and claiming it was 'only following the law', when it is clearly deliberately avoiding tax.
That is why it started getting into serious trouble in the UK when it became clear that it was the Google UK sales people who were closing the deals but then the deals would magically appear on Google Ireland's books.
As far as I understand it, it then uses the double dutch loophole to avoid paying even Ireland's corporation tax.
Google US does not employ the Italian or the French or the UK sales people.
So what you said, as far as I understand it, makes no sense. Google are based in Italy.
http://www.google.co.uk/about/company/facts/locations/
Notice how a lot of the locations have localised version of the US's 'Inc' like 'Ltd', 'GmbH', 'n.v.'. They're all owned by Google Plc (US).
There is a small Google there, but they are satellite, not headquarters. (I assume. Perhaps Italy is in the top couple percent and actually does significant things other than sales, then substitute another country here.)
>But what's happening is the national sales people are closing deals but then book those ads through a different legal entity in Ireland, even though the sale happened with a local sales person, in a local company. This is with the express purpose of avoiding tax and claiming it was 'only following the law', when it is clearly deliberately avoiding tax.
Are you arguing that there is something unethical/immoral/unfair about a big company paying a small local one to sell ads on behalf of the big company? I guess I'll just have to disagree if so. I see no reason the price of the ads should be counted as revenue for the local company.
Right now Google is funneling all the money through one country because it has the lowest taxes. Even if they stopped using loopholes, I don't see why they would stop selling from the country with the best tax rates. So Google Italy, Google France, etc. would not still book the ads.
It's not that they're selling American ads.
They're selling essentially nation-less 'let's not pay any tax to anyone at all' ads.
They're not paying any tax on this stuff. They're not paying EU tax, they're not paying US tax, they're taking advantage of all the local infrastructures, the laws, the protections from harm, all of which cost the nations a shit load of money to maintain, and not paying a penny.
Just to be clear. On Italian sales, they aren't paying Italy taxes. They're not paying Ireland taxes where they claim the sales are to do a Double Irish. They're not paying Holland taxes where they route the money through to do the Dutch Sandwich. They're not paying the US taxes, they park the money in an offshore account and lobby congress to grant a tax asylum.
They are simply not paying taxes.
This is happening in all the EU countries.
And then every now and then they lobby the US congress for a massive tax holiday to bring the money back to America tax free.
And what really confuses me is that they then often have the cheek to claim that they are contributing to the countries they're scamming because they employ people and those people pay tax, which is disgusting as it's actually the tax of their employees that they're merrily claiming is their contribution!
This is as far as I understand the issue. I think in some places you should probably replace 'not paying' with 'paying a ridiculously small amount'.
I know that, and that is a problem. But even if they stopped doing that, Italy could easily see none of the taxes on profit. Italy's new law doesn't actually fix the underlying problem. Instead it's a tariff that somewhat works around the problem but also bans an entire category of inter-country trade, which is quite problematic.
Maybe I wasn't clear enough when I used a hypothetical situation to illustrate why Italy's law is attacking the wrong thing.
Italy's law blocks a German corporation from selling German-served ads on German servers to Italian customers. That's a problem.
Italy's law doesn't block a German corporation from using tax loopholes to never pay anything. Therefore those loopholes shouldn't be mentioned as a justification.
Yes, you don't seem to be in disagreement with me. It doesn't block German companies from serving ads off of German servers, featuring Italian businesses. But they can only do so for free. They cannot be paid by the Italian businesses. I find this to be a rather ridiculous restriction on the purchase of services.
Especially if there is no exception allowing Italian companies to use German-served ads to target Germans.
As a thought experiment, imagine the US reaction if Google was an Italian company - making loads of money in the US and paying 0 taxes :)
Note: this scenario has already been envisioned by tax advisers. Common solutions include either converting corporations to flow-through entities for income tax purposes, or levying penalty rates of income tax on undistributed profits.
So while Google might be forced to comply, most international websites won't, rendering them automatically illegal in Italy, which is probably unenforceable. While I agree with the spirit of making these large multinational companies pay their fair share of taxes I think this is a rather ham fisted attempt.
17-bis. Al decreto del Presidente della Repubblica 26 ottobre 1972, n. 633, dopo l'articolo 17 è inserito il seguente: «Art. 17-bis – 1. I soggetti passivi che intendano acquistare servizi on line sia mediante operazioni di commercio elettronico sia diretto che indiretto, anche attraverso centri media e operatori terzi, sono obbligati ad acquistarli da soggetti titolari di una partita IVA rilasciata dall'amministrazione finanziaria italiana. 2. Gli spazi pubblicitari on line e i link sponsorizzati che appaiono nelle pagine dei risultati dei motori di ricerca (servizi di search advertising), visualizzabili sul territorio italiano durante la visita di un sito internet o la fruizione di un servizio on line attraverso rete fissa o rete e dispositivi mobili, devono essere acquistati esclusivamente attraverso soggetti, quali editori, concessionarie pubblicitarie, motori di ricerca o altro operatore pubblicitario, titolari di partita IVA rilasciata dall'amministrazione finanziaria italiana. La presente disposizione si applica anche nel caso in cui l'operazione di compravendita sia stata effettuata mediante centri media, operatori terzi e soggetti inserzionisti.
Says here that the law applies to results visible on Italian territory.
No wonder Italians run to Germany, UK and Ireland to start their companies.
Also, good luck enforcing that law.
They get the business mostly because they are cheap (and educated workforce, of course)
Privacy is a big deal in Germany.
(And of course, doing all that in German, but in Berlin it's easy to do things in English. But not everybody speaks English)
This is the usual attempt from our politicians, who have no idea how a computer is turned on (no wait.. they play poker on their ipad while discussing laws), to regulat something they do not understand.
If an advertising company really were running some of their operation from Italy, they should certainly pay tax there (and not, say, in Ireland). But you can't expect to tax all ads that are purchased by Italians that really are sold from overseas.
Disclaimer: I'm a Canadian working for Google. And I have no opinion on this particular piece of legislature.
If properly implemented, territorial tax systems do not create a race to the bottom, because countries compete for the quality of service they can offer to businesses that operate there. In theory, a rich individual could live in a tiny country with no income tax, but the moment they tried to put that money to work, they would have to operate in some other country which imposed territorial taxation.
On the other hand, this law is more like a tariff. It seeks to impose a tax on value created (i.e. the selling of an ad to an Italian business) whether or not that value was created in Italy or not.
This is of course, 100% the problem. None of these countries seem to believe they can support themselves long term on the tax revenues earned by just their local people and businesses.
If that's really the case, they are doomed, long term, without changes.
You have such a high tax because of your governments incompetence.
That being said - I'm no fan of that kind of tax avoidance, they should definitely pay their taxes.
But what will happen until the EU has ruled on this (which can take many years), is that Italy will further reduce its competitive advantage because suddenly Italian corporations will be unable to buy Adwords, Facebook Ads and so on which should make them invisible to international customers.
Good luck competing with a startup/small business that cannot buy any ads.
For starters, they have no skin in the game. Unlike local businesses, they don't care what happens, at all. At least the mildly local large companies have some cares about what happens to the country (because they own land, have in-country employees). But the large multinationals basically don't. The number of in-country employees is usually very small.
Second, you have no control over their performance or policy decisions. They can do things that are completely and totally devastating to you (like close down the local branch and stop paying taxes), and you can do nothing, since you have no physical control over anything. Plus, you know, you will now be dependent on their performance globally (this is likely to happen to any sufficiently large company anyway, but ...)
As a result, as you become more dependent on them for tax revenue, government will have to do more and more to appease them to keep that revenue flowing. You have to be very careful, because other than X amount of revenue, you literally have nothing they need. In a country like Italy, the amount of money is not large, so you can't just play hardball with them, because they'll just take their ball and go elsewhere, and you will be left high and dry. If a few multinationals do it, Italy may very well have to run and appease a number of other companies to keep their revenue in Italy.
These are just some of the simple reasons. The short answer is: If you do this, you may as well just hand them your government (or prepare for long term economic hardship).
That sounds more the real issue of the problem to me.