From Google to Amazon: EU goes to war against power of US digital giants
theguardian.com
theguardian.com
1) Taxes: This tax structure is legal, and used by the majority of large international companies operating in the EU. The EU has the power to change it, if it wants to, rather than just bitch about it. The US will also get its chance to tax this money, if Google/Amazon ever bring it back into the US (the US, unlike the rest of the planet, loves to tax companies for money made elsewhere).
2) Data: Data retention and anonymity is actually fairly regulated by the EU and the US (sometimes conflictingly). It is again within the power of the EU to change their regulations, which they have done in the past, instead of just bitching about it.
3) Antitrust: I like how they play up the search result "alleged" anti-trust angle. There are anti-trust laws on the books in all of these countries, and there were even congressional hearings in the US about this topic (which found nothing). Unless they are implying that the legal system in the EU is broken, I don't get why the politician is banging the drum on this one.
Some corporations really stretch the boundaries of legality. See, for example, Starbucks. Starbucks (the beanroasters) sell very expensive beans to Starbucks (the coffee shops). This weird set-up means that Starbucks (the coffee shop) in the UK makes no profit and thus pays very little tax.
While the company is not evading tax, and will have legal advice telling them their systems are legal, we don't really know for some of the schemes until they're tested in court. And it's expensive to take all these very rich multinational tax-avoiders to court, so we end up with deals being done. (See Vodafone paying a very small amount of the avoided tax after their scheme was shut down.)
After cost of goods, the gross margin is spent on operations like payroll, marketing, logistics, etc. Each entity in the line pays some form of tax (e.g. VAT in the UK, sales in the US), not to mention the billions in payroll taxes.
It is also surprising that litigation would be seen as so cost-ineffective. Google gets sued 100s of times per year, and I suspect the UK government would have a lot more to gain than the typical claimant.
Similarly for income taxes - I pay those as an employee although it is collected by the company.
The company makes use of the UK infrastructure (roads; policing; education; etc) so they should consider paying a bit more tax.
It's worse where a company charges the customer full UK VAT at 20% but pays a lower rate to some other country. (Not sure if this does actually happen, but I've heard it does. And I'm not sure if it's an intended part of the laws or a loophole.)
At the end of the day, it doesn't matter if you or Starbucks wrote the UK government the tax check. None of Starbucks' money started with them, it all starts with the UK consumer. Without Starbucks the entity, £0 gets paid to the UK government for both VAT and payroll tax. With Starbucks the entity, a lot of money gets paid to the UK government. As a result, Starbucks generates a lot of tax revenue within the UK, regardless of whose name is on the check.
Tax law, being very old and quite well worked out, is pretty specific. Starbucks is not breaking tax law by doing this unless governments give into temptation and try to retroactively change the rules.
The core problem is that attempting to slice up the profits of a fundamentally international business is a losing proposition that can ONLY end in bitter arguments. It's not surprising there are a billion loopholes; it can never be any different. Who is to say what Starbucks beans are worth? If you go in and say, well that's obviously "tax avoidance", you'll immediately hit lots of other much less clear cut cases. But once you abandoned the rules there won't be any way to decide on those less clear cut cases and it'll just turn into chaos.
Of course there is. Law is what's on the statute books and also how the courts interpret that. Some tax schemes seem to follow the letter of the law, but not the system, and the courts may well rule against them.
> Who is to say what Starbucks beans are worth?
There are a bunch of methods. You could use naive measures such as cost of beans + cost of roasting + transport and labour costs + X%; or you could compare market costs of other roasted beans; but it's probably a good idea to have a look at the effect of the expense of those beans on the company that they are sold to. And the beans are so expensive that the company make no profit, and thus avoids tax.
Law is interpreted by the courts according to what it says, not according to what would be convenient at the time. This is why you hear about people getting off on a technicality. At least that's how it's supposed to work.
If you look at the right to be forgotten, the problem there is that the underlying law is so vague that basically anything can be read into it. So then judges end up legislating from the bench, which they aren't meant to do, that's why we have separation of powers.
"We're not doing anything illegal.", they'd say. "The law allows for this."
I've learned that as soon as a company says something like that, they're doing something ethically shady.
Like applying for government funding when replacing whole datacenters full of slow, old, energy-slurping HP servers. How old? 6 months old.
"But these new machines are much more eco-friendly than the ones we're currently running. So we're entitled to government funding for replacing all those bad bad units with more eco-friendly units!"
After replacing those machines with more energy-efficient (and faster!) machines, we'd make more money in a day than most of us will make in a lifetime.
The 6 month old machines got scrap-heaped. With money that the Government was supposed to have spend on ecologically sound business cases.
We weren't doing anything illegal. But it sure felt like it.
So Point 1): Clear NO. The EU does not have the power to change tax laws, that is in the domain of the national EU member states. That is actually what the whole article is about - that the EU commission is using the trick of declaring tax advantages as a form of "state aid", because then it falls under EU competition law, for which the EU commission's DG Competition does have a competence. For the same reason the LIBOR price fixing that is investigated in the USA by the SEC was dealt with by the EU's DG Competition under antitrust law - because otherwise the EU probably wouldn't have been able to act.
Point 2): No it is not easily in the power of the EU to change the data protection regulations - there is actually a huge fight going on at the moment about the new EU data protection regulation, mainly because Germany is blocking it.
Point 3): The USA and the EU are two different organizations with different legal systems. Because something does not violate US antitrust law doesn't mean it is ok under European antitrust law - Microsoft has already paid billions of fines under EU competition law for offenses that were dropped under US law. Moreover there is the famous Honeywell merger, that went through in the US and then got blocked in the EU.
On the various points, thank you for adding detail, but I don't see any contradictions with what I have above.
The EU wants to regulate the tech sector more, treating companies that provide critical infrastructure as utility companies. Given that internet has become as important in many companies (and even households) as electricity and water, something's to be said for that.
IMO it would for example be better if lock-in was reduced through requiring that large tech companies adhere to standards. Choice is good, and it would be awful if you couldn't move e-mail from Google Mail to another service because Google removed IMAP support (which is a future possibility).
Just looking out for my best interests and giving me choice by restricting what products companies can offer.
But Zoho is still US-based, apparently ( http://en.wikipedia.org/wiki/ZOHO_Corporation ).
There is probably something by Yandex (Moscow-based company, that is officially registered in Netherland).
I've wondered if there is a case that Silicon Valley is guilty of product dumping when giving services away. Euphemistically this is moat building, but the reality looks very similar.
This is all why we need an easy to use in the cloud OS that end users can deploy services on. Detach the app development organisation from the hosting again. While that link remains the whole thing will remain a mess.
I would think it's perfectly legitimate if government administrations refused to communicate sensitive personal information on american email addresses.
Before gmail and good mobile devices I used mutt on a shell account to get access constant access but that was only mail + contacts.
The problem is not the device but the providers.
That's what I did a while ago and I haven't looked back, using Gmail/Yahoo/whatever is a miserable experience in comparison.
As a simple employee I cannot evade taxes (and might have to pay double taxes in the EU and US if I am a US citizen/perm resident working in the EU), yet large corporations can.
In fact, I use a ton of software made by people who, by chance, were born in Europe. But the moment you start to rail against 'US companies' (I work in a US company) I begin to think, waitaminuite, that guy is against me - he wants to hurt me, maybe I shouldn't use his stuff either ...
It is really incredible that if I sell the 99.99% of my product out of Luxembourg I pay all taxes only in Luxembourg, for example. (edit obviously using the various holes in the EU law system)
BUT .... that doesn't mean they avoid the US taxes! For Google the money ends up sitting in Bermuda: not a place noted for its abundance of cheap colo space or computer scientists. Obviously it isn't going to stay there because there's nothing to spend it on. Instead the money sits offshore until something more useful is found.
What US companies want to happen is that the US Govt puts in place a "tax holiday" in which they temporarily stop being idiots and use the same tax rules as the rest of the world, thus allowing those companies to move the money earned abroad back into the USA without it being taxed twice (once by the country where it was earned and once by Uncle Sam). This has happened before so they think maybe it'll happen again. Then they can spend it on building fancy offices and hiring splurges, all of which yields taxable income inside the USA.
What actually tends to happen is that politicians, even the ones that acknowledge the sense of this, don't like being seen to give big companies a tax break. So they prevaricate and eventually the money gets spent abroad in places like Europe or Asia, where double taxation treaties work properly. At that point the money gets taxed via payroll taxes, employee income taxes, VAT etc. Own goal for America.
Still ... the money doesn't sit there because they want to avoid US taxes. They generally want to avoid double taxation, and then spend the money saved inside the USA.
Like - all money made in Germany will be taxed at 20% and you pay your taxes with priority where you are incorporated.
So if in Luxemburg the taxation is 5% - you pay 5% to luxemburg but cough the rest 15% to germany on the profits made in germany.
The key is do they have the jurisdiction to tax you in the first place? If you only have a factory & employees in Luxemburg and just exported your product to the rest of the EU, is it really fair to tax you at Scandinavian tax rates for example?
But when you have English customers buying product in English shops from your English staff in your English branches - well, that sounds like an English business. To then have a Luxemburg company that sells very expensive coffee beans to those English coffee shops, thus making those shops operate at a loss but making the coffee roasting Luxemburg business very wealthy - that's just a scam and it needs to be shut down. How to shut it down when you're coordinating the tax raising laws of many different countries is going to take some time.
If the Luxembourg company opens up a sales office in Sweden, but it has only 4 employees and there are 500 in Luxembourg, does that suddenly mean all those companies sales to Sweden get taxed twice? If so why would they ever open up an office there? Why not just insist customers fly to Luxembourg and visit their office instead?
Governments are whipping up a mob over this issue and aren't thinking it through. Does Google really need an office in London? No. One exists there because, in the absence of other factors, it makes sense to hire internationally so you can access good employees who might not want to live in America (or vice versa). But if the first Google employee who started work in the UK suddenly meant ALL money coming from UK based customers got taxed twice, that first employee would never make financial sense. Companies just wouldn't do it. They'd insist the employees moved to them instead of them moving to the employees.
This outcome makes no sense, but in their desperate quest to squeeze ever more blood out of the stone, maybe that's where governments are going to take us ...
No one is asking for companies to be taxed twice.
But there is a strong concept in England of "not taking the piss" - people don't mind reducing your tax burden. That's expected behaviour. Reducing your burden from 50% to 38% is probably fine with most people. Reducing your burden from 40% to 3% is not fine with most people.
> but in their desperate quest to squeeze ever more blood out of the stone,
These are huge, very profitable, businesses that avoid tax in most jurisdictions. Governments are not squeezing blood from stones; they just want a few drips of blood from the very juicy blood-soaked sponge.
I'm from south of Manchester, for what it's worth. And I think British politicians need to drop this issue as it's way beyond taking the piss by now. Tax avoidance isn't even a thing. It means whatever the speaker wants it to mean. Tax evasion is a thing, that's pretty well spelled out by law, but avoidance just means someone legally paying less tax than the speaker would like them to. Your assertion that 50% to 38% is "probably fine with most people" is in the same area: it's an entirely arbitrary set of numbers. I'm sure there are plenty of people who wouldn't think that's fine, however, it doesn't matter because there's no moral obligation to pay more tax than necessary. Governments are not charities, the British government especially so!
[1] http://www.forbes.com/sites/kellyphillipserb/2014/07/05/euro...
The reason taxing a person's income is (relatively) easy is because you can't split a person up. Just count the number of days they spend in a country, if it goes over a certain level then they are resident for tax purposes and away you go. America ignores this of course with citizen based taxation a.k.a. modern slavery but in all the other civilised countries that's how it works.
Now consider Google. A German user goes to YouTube and sees an advert. Is this money made in Germany? Or was it made in America, where the software was developed? Or in America and Switzerland because there's a YouTube team in Switzerland too? Or was it made in Finland where the request was actually processed? Or was it made in Canada because that's where the advertiser is? Or was it made in Ireland because the advertisers contract was with Google Ireland Ltd?
Pretty quickly you realise this is a fools errand. There's no way to say where the money was made in such an international operation. Any definition you come up with will be fought over by governments endlessly because they all want to buy votes by taxing foreign companies which smells to them a lot like free money (and thus free voters).
So we end up with the simplest definition possible - the money is made where the company is headquartered. The headquarters can be anywhere. This solution was arrived at in both America and Europe. It sorta worked for a while because most companies were already established and new companies were small and poor so nobody cared about them much. Now we have the phenomenon of new companies that are extremely profitable, do all their business on the internet and therefore could pick a country to headquarter in purely for tax reasons. Cue moaning and wailing from stupid politicians who ran up enormous debts and now want a bigger slice of the pie.
But attempting to change this simple definition will just reopen pandora's box.
The best solution would be to just finish off the race to the bottom entirely and push corporate tax rates to zero everywhere. This would yield an approximately 25% hole in for example the UK budget. However the money can be made up elsewhere, such as by increasing VAT or personal income taxes. Of course that is politically difficult - people like corporation taxes because they don't like corporations, and taxing them feels like free money too.
We can see how arbitrary this all is with the fact that these companies, which have done business this way for years in full view of national governments, are only now getting investigated once government spending cuts start making politicians unpopular. If these arrangements actually were illegal under clearly defined law they would have been investigated and tried a long time ago.
IIRC the OECD thinks corporation tax has much higher deadweight costs than other forms of tax. I read this in an interesting article on the subject here:
http://www.theregister.co.uk/2012/11/25/tax_and_tech_biz/
.. however the original link was dead last time I looked.
The one thing Google has that so far I have not seen seriously challenged is search. Sure there are other search engines but none really compare in my experience when it gets down to it.
If you hobble your citizens from performing the best possible searches you are putting your society at a long term disadvantage in my opinion. Search really is that important in this day and age.
The answer isn't regulation. The answer is to build a better search engine.
Anyway. Personalisation improves search results somewhat. It does not improve them as much as, say, a good spelling corrector.
Source: I used to work at Google.
The lack of ability to specify what should be searched for hinders some searches.
So, there are some spaces for search:
1) better site specific searching. Searching Wikipedia for misspellings (in order to fix them) is frustrating. Searching Amazon is bafflingly awful - I honestly do not understand how Amazon search can stay so so terrible.
2) boolean style operators and stemming choices.
3) I dislike being kept in an English language bubble.
Silicon Valley has skated by with very little privacy regulation, but the tide is turning.
Those business models are largely an artifact of the dot.com bust and the need to find some way to make "free" pay... they're a recent development, probably not a permanent one, and are not synonymous with Silicon Valley.
For most of it modern incarnation -- say 1970 to present -- Silicon Valley was all about personal computing and democratizing technology. Hopefully it can return to its roots.
OT but I was watching a docu- on Goldman Sachs and found interesting parallels between the rise of the "surveillance" model in the tech sector and the financial sector. They both succeed based upon the successful monetization of customer data. That may be the content of your emails searches in Google's case or a client's trading position in Goldman's but the goal is the same.
Do we know for a fact that Google does not monetize its e-mail data by -- say -- offering insights to traders or hedge funds?
Boy would that ever be valuable.
Most of the technical revolutions in the past decade(s) was brought to us by the giants. Never by the governments.
The most that will happen is more variants of the demented "cookie law" and "Google deletion law".
There needs to be a regulation, because it's not a free market. You cannot just created a new operator because everything is licensed.
It is a brilliant law, but many people still don't understand why so. It has probably done most for privacy than anything else I can think of.
Try implementing it across a global 500 publisher with maybe 60+ major internet property's many of which are built from 3 or 4 CMS's over a decade and it quickly adds up.
Just finding all the pages on a large site to apply the changes to is a non trivial problem.