6 ms·

This is not about taxing revenues instead of profits. This is about taxing EU-wide profits in EU countries proportional to the revenues generated in that count

by sddfd 9y ago

This is not about taxing revenues instead of profits. This is about taxing EU-wide profits in EU countries proportional to the revenues generated in that country. At the moment, many big tech companies use bookkeeping tricks to make it look like all their profit is generated in, for example, Ireland, while the revenue is generated in other EU counties. Unfortunately, Ireland has special tax rates for these companies (the legality of which is contested), so their EU-wide effective tax rate is often ~1%.

jeffwass 9y ago
Many American companies (including most or all YC startups) do the same, incorporating in the low-tax state of Delaware for favourable tax treatment even though the company's offices and bulk of revenue-generation are elsewhere.
- immad 9y ago
  If you have headquarters in California you pay tax here as well as a bit in Delaware The reason to register in Delaware is because of business friendly courts there. I don't believe there is a tax advantage
  - dogma1138 9y ago
    The federal corporate tax can be up to 35%, which is the highest in the world outside of some literally banana republics. Delaware has a corporate tax rate of 8.7%, California has 8.84. So yes no one is incorporating in Delaware becuase of taxes, WA, TX, NV and a few others have zero corporate tax.
    - uiri 9y ago
      WA has business & occupation tax which functions like a corporate income tax but it is levied on revenue rather than profit.
      - ericd 9y ago
        Which is frequently much, much worse for companies than a higher tax on profits. Low margin businesses more than high margin businesses like software.
    - rtpg 9y ago
      Isn't this a misrepresentation of the global state? I think the corporate tax rate in France is 33% of profits, which isn't far from 35% Not sure how state tax rates interact with the federal one though
      - zdkl 9y ago
        Keep in mind we're the last effectively communist country in the world, I'm not surprised in the least to see corporate taxes up there with the "banana republics" gp was talking about. "Social" money has to come from somewhere!
        lovich 9y ago
        I don't believe I've ever heard France described as a communist country before
        zdkl 9y ago
        We have extremely influential labor unions, the public sector is a leading job provider (even a majority employer in some areas), healthcare and a lot of infrastructure is nationalised, huge welfare programs, free public education for all... But most importantly to the (joke) argument that we're the last communist country there's a massive popular adhesion to the points listed above and for some reason a deep seated mistrust of the wealthy.
        lovich 9y ago
        I mean, you only have to look at pretty much every wealthy person to see why they would have a mistrust of them. Even guys who are doing good things now, like Bill Gates, didn't get wealthy by acting like nice people. As for the communist thing, ah I didn't realize it was a joke argument, thought it was a serious one
      - dogma1138 9y ago
        Yes but iirc France has a system of tax credits that reduce the liability for large companies especially. You can deduct 7% from those 33% from the payroll tax credit alone as long as you pay your workers more than the minimum wage.
  - TimPC 9y ago
    Delaware doesn't have unusually friendly for business courts. It mostly just has a lot of established case law. It's cheaper for businesses when they know where the lines are on most laws because of previous cases and rulings. Ambiguity is more expensive than the level of bias in most legal situations.
- taxthrowaw4y 9y ago
  I don't think this is correct. It is more about case-law and the legal support system for companies in delaware. I do not believe the companies are taxed based on which state they are incorporated in. The exception is the franchise tax fee, which is a nominal amount even to a company with only six figures of revenue. http://www.bendlawoffice.com/2011/08/01/reasons-to-incorporate-in-delaware/ http://www.bendlawoffice.com/2011/08/01/reasons-to-incorpora...
- uiri 9y ago
  California corporate law is much worse than that of Delaware. Corporations are taxed by every state where they have to register to do business. For every corporation with a California HQ, that certainly includes the Golden State. Corporations, such as Microsoft, which are headquartered in states with nicer bodies of corporate law frequently choose to incorporate in their home state, such as Washington.
plandis 9y ago
Yes, this is the (I think) a step in the right direction. Don't have special judgements about taxes (i.e. Apple in Ireland) because companies try to minimize the tax they pay. Actually change the laws so it's consistent for all companies.
- candiodari 9y ago
  And if Hell would freeze over every summer it'd be excellent : free airco if you just dig a hole in the ground.
  - otp124 9y ago
    Was this comment really necessary? Couldn't you just address the OP, versus unrealistic sarcasm?
csomar 9y ago
Can you explain what are these tricks? Asking for a friend. A link is fine too.
- hkmurakami 9y ago
  It's been widely reported on by major news outlets over the years. Dutch Sandwitch (now defunct?) was one of them.
  - markvdb 9y ago
    The double Irish with a Dutch sandwich is still available and actively being used until 2020. https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
- rtpg 9y ago
  Basic trick: - Apple France is actually just a distributor for Apple Ireland - Apple Ireland sells Apple France an iPhone at MSRP - Apple France makes basically no profit because it sells "at cost" - Apple Ireland books a profit for an iPhone sold in France
  - dwaltrip 9y ago
    That sounds way too easy... Is there any extra sleight of hand required? I'm surprised they can get a way with such blatant maneuvers.
    - analog31 9y ago
      As I understand it, there is also some monkey business related to patents. Something like this: Apple sells its patents to Apple Ireland for a dollar. Then they pay "royalties" to Apple Ireland everytime they sell an iPhone. I can't confirm where I read this.
    - rtpg 9y ago
      My understanding is this structure is also possible in a "legitimate" setting For example if Apple France is really just a distributor, and they buy their products at low margins, then it is what it is I think a lot of tax agencies simply don't have the muscle to push forward on this
Iv 9y ago
This is one of the main criticism about how the EU was made: freedom for funds goods and (mostly) workers to move around in the EU zone, without tariffs or constraints but no fiscal harmonization has been done. Therefore countries with low taxes (Ireland but also Luxembourg) attract a disproportionate amount of big companies HQ. Ikea, for instance, is officially declared in Luxembourg. Why so many people in EU rejoice about the Brexit is because UK has been one of the main force opposing fiscal harmonization (apparently London is a bit of a tax haven for financial service companies) so hopefully this kind of efforts can go forward.
- Renaud 9y ago
  I don't know where you got that so many people in the EU rejoice at the defection of the UK. It is a sad state of affair that gets the rest if the EU sad and angry. I don't see what there is to rejoice about, although I'm sure that some will see it as a benefit in some narrow way.
  - zdkl 9y ago
    Rejoice is indeed a bit strong, but definitely at least Schadenfreude for the foot-bullet aimed at their trust & reputation centered industries.
    - Boothroid 9y ago
      In your opinion. Given the fascistic bullying of sovereign nations Hungary and Poland by Brussels for merely defending their citizens' interests, perhaps the writing is on the wall.
  - Iv 9y ago
    That's the general sentiment in France. Too often UK has used their veto to prevent some EU-wide change or to block any initiative that was not about purely trade. Most of the people who follow EU politics think that Brexit is an economical loss but a political gain. Here is for example an opinion piece by Michel Rocard, a former French PM (left-wing guy, really not a nationalist), before the Brexit: https://www.reddit.com/r/europe/comments/27e68h/what_rocard_former_french_pm_really_said_english/ https://www.reddit.com/r/europe/comments/27e68h/what_rocard_...
jaredklewis 9y ago
If this system is enacted, will the benefits of staying in the EU out weigh just moving all the shell companies to the Caymans or wherever? I wish countries would give up on corporate taxes. They are either easily circumvented, or you need a massive regulatory body to analyze all corporate transactions and determine if they are "fair." All the same tax revenue can be gained through much better systems that are not trivially circumvented and do not create a perverse incentive for your country's companies to up and move to the nearest tax haven.
- jacquesm 9y ago
  The goal is to make it pointless to use shell companies to avoid paying taxes. > I wish countries would give up on corporate taxes. I really wish they won't. Right now the small companies pay corporate taxes just fine, it is the big ones that play all kinds of shell games to get out from under their obligations.
- sfifs 9y ago
  You generally can't operate a running business in EU or any other country out of the Caymans. You could have share holding companies registered there but to actually run a physical business, you have to actually have a company registered in the market (or come in as a purely imported product) Ireland works simply because it is a member of the EU and any EU HQ business can operate anywhere else in EU.
- markvdb 9y ago
  Much of the profit generated in the EU by these multinationals actually ends up largely untaxed in Bermuda/Cayman islands/... subsidiaries. https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
  - candiodari 9y ago
    But that would not be able to happen if it wasn't for the EU. Then import taxes would compensate.
- sgt101 9y ago
MarkMc 9y ago
It depends how you define profit, and to me this is absolutely about taxing revenues instead of profit. I see profit as the 'value added' by a particular activity. At least 90% of the value created by Google, Facebook and Apple was created in California. Therefore the vast majority of worldwide income generated by these companies should be subject to the tax rates that apply in California - not Ireland, not Germany, not Spain. So Google, etc should be paying more tax - but they should be paying it to the US government, not the EU. If there is ever an EU Silicon Valley then the EU can tax the worldwide profit of those EU companies. Personally I would like to see a rule that intellectual property is fixed to the place where it is produced and forever taxed in that jurisdiction - just like land. If you write a book or develop a new drug or software then that IP stays where it was developed.
- zdkl 9y ago
  > At least 90% of the value created by Google, Facebook and Apple was created in California. I'm trying not to be snarky but I need to say wtf. FB & google don't make money from IP, they make money as service providers, connecting merchants on the advertisement hype train to our eyeballs. They take money from local and transnational businesses, and present ads, aggregation and search services to individual, local, users. How is this California related profits when I see ads for $smallbusiness in my french town? Because they host the servers there? Please. To be fair I'd concede Amazon may be different with regards to where the value they create resides but I'm sure you'll feel the same way I do when the tech giants step away from Silicon valley and it looses the sweet sweet techmonies. This not about IP rights, corporate liberties or socialism, it's about realising when you're defending the fire that's roasting you. 'Cause google and fb don't give a F about US vs EU further than how they can leverage them to lower operating costs.
  - kretor 9y ago
    Seems like you are thinking the value is created by customers, while the GP thinks it is created by employees.
    - zdkl 9y ago
danmaz74 9y ago
In all fairness, it's not just Ireland. Luxembourg and - partially - the Netherlands also participate and benefit from this.
- candiodari 9y ago
  And the guy who helped set that up - and personally made it worse by making custom tax deals for several multinationals - is now the head of the EU commission ! This will get a lot worse before it gets better.

by sddfd 9y ago

jeffwass 9y ago

Many American companies (including most or all YC startups) do the same, incorporating in the low-tax state of Delaware for favourable tax treatment even though the company's offices and bulk of revenue-generation are elsewhere.

immad 9y ago
If you have headquarters in California you pay tax here as well as a bit in Delaware The reason to register in Delaware is because of business friendly courts there. I don't believe there is a tax advantage
- dogma1138 9y ago
  The federal corporate tax can be up to 35%, which is the highest in the world outside of some literally banana republics. Delaware has a corporate tax rate of 8.7%, California has 8.84. So yes no one is incorporating in Delaware becuase of taxes, WA, TX, NV and a few others have zero corporate tax.
  - uiri 9y ago
    WA has business & occupation tax which functions like a corporate income tax but it is levied on revenue rather than profit.
    - ericd 9y ago
      Which is frequently much, much worse for companies than a higher tax on profits. Low margin businesses more than high margin businesses like software.
  - rtpg 9y ago
    Isn't this a misrepresentation of the global state? I think the corporate tax rate in France is 33% of profits, which isn't far from 35% Not sure how state tax rates interact with the federal one though
    - zdkl 9y ago
      Keep in mind we're the last effectively communist country in the world, I'm not surprised in the least to see corporate taxes up there with the "banana republics" gp was talking about. "Social" money has to come from somewhere!
      - lovich 9y ago
        I don't believe I've ever heard France described as a communist country before
        zdkl 9y ago
        We have extremely influential labor unions, the public sector is a leading job provider (even a majority employer in some areas), healthcare and a lot of infrastructure is nationalised, huge welfare programs, free public education for all... But most importantly to the (joke) argument that we're the last communist country there's a massive popular adhesion to the points listed above and for some reason a deep seated mistrust of the wealthy.
        lovich 9y ago
        I mean, you only have to look at pretty much every wealthy person to see why they would have a mistrust of them. Even guys who are doing good things now, like Bill Gates, didn't get wealthy by acting like nice people. As for the communist thing, ah I didn't realize it was a joke argument, thought it was a serious one
    - dogma1138 9y ago
      Yes but iirc France has a system of tax credits that reduce the liability for large companies especially. You can deduct 7% from those 33% from the payroll tax credit alone as long as you pay your workers more than the minimum wage.
- TimPC 9y ago
  Delaware doesn't have unusually friendly for business courts. It mostly just has a lot of established case law. It's cheaper for businesses when they know where the lines are on most laws because of previous cases and rulings. Ambiguity is more expensive than the level of bias in most legal situations.
taxthrowaw4y 9y ago
I don't think this is correct. It is more about case-law and the legal support system for companies in delaware. I do not believe the companies are taxed based on which state they are incorporated in. The exception is the franchise tax fee, which is a nominal amount even to a company with only six figures of revenue. http://www.bendlawoffice.com/2011/08/01/reasons-to-incorporate-in-delaware/ http://www.bendlawoffice.com/2011/08/01/reasons-to-incorpora...
uiri 9y ago
California corporate law is much worse than that of Delaware. Corporations are taxed by every state where they have to register to do business. For every corporation with a California HQ, that certainly includes the Golden State. Corporations, such as Microsoft, which are headquartered in states with nicer bodies of corporate law frequently choose to incorporate in their home state, such as Washington.

plandis 9y ago

Yes, this is the (I think) a step in the right direction. Don't have special judgements about taxes (i.e. Apple in Ireland) because companies try to minimize the tax they pay. Actually change the laws so it's consistent for all companies.

candiodari 9y ago
And if Hell would freeze over every summer it'd be excellent : free airco if you just dig a hole in the ground.
- otp124 9y ago
  Was this comment really necessary? Couldn't you just address the OP, versus unrealistic sarcasm?

csomar 9y ago

Can you explain what are these tricks? Asking for a friend. A link is fine too.

hkmurakami 9y ago
It's been widely reported on by major news outlets over the years. Dutch Sandwitch (now defunct?) was one of them.
- markvdb 9y ago
  The double Irish with a Dutch sandwich is still available and actively being used until 2020. https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
rtpg 9y ago
Basic trick: - Apple France is actually just a distributor for Apple Ireland - Apple Ireland sells Apple France an iPhone at MSRP - Apple France makes basically no profit because it sells "at cost" - Apple Ireland books a profit for an iPhone sold in France
- dwaltrip 9y ago
  That sounds way too easy... Is there any extra sleight of hand required? I'm surprised they can get a way with such blatant maneuvers.
  - analog31 9y ago
    As I understand it, there is also some monkey business related to patents. Something like this: Apple sells its patents to Apple Ireland for a dollar. Then they pay "royalties" to Apple Ireland everytime they sell an iPhone. I can't confirm where I read this.
  - rtpg 9y ago
    My understanding is this structure is also possible in a "legitimate" setting For example if Apple France is really just a distributor, and they buy their products at low margins, then it is what it is I think a lot of tax agencies simply don't have the muscle to push forward on this

Iv 9y ago

This is one of the main criticism about how the EU was made: freedom for funds goods and (mostly) workers to move around in the EU zone, without tariffs or constraints but no fiscal harmonization has been done. Therefore countries with low taxes (Ireland but also Luxembourg) attract a disproportionate amount of big companies HQ. Ikea, for instance, is officially declared in Luxembourg. Why so many people in EU rejoice about the Brexit is because UK has been one of the main force opposing fiscal harmonization (apparently London is a bit of a tax haven for financial service companies) so hopefully this kind of efforts can go forward.

Renaud 9y ago
I don't know where you got that so many people in the EU rejoice at the defection of the UK. It is a sad state of affair that gets the rest if the EU sad and angry. I don't see what there is to rejoice about, although I'm sure that some will see it as a benefit in some narrow way.
- zdkl 9y ago
  Rejoice is indeed a bit strong, but definitely at least Schadenfreude for the foot-bullet aimed at their trust & reputation centered industries.
  - Boothroid 9y ago
    In your opinion. Given the fascistic bullying of sovereign nations Hungary and Poland by Brussels for merely defending their citizens' interests, perhaps the writing is on the wall.
- Iv 9y ago
  That's the general sentiment in France. Too often UK has used their veto to prevent some EU-wide change or to block any initiative that was not about purely trade. Most of the people who follow EU politics think that Brexit is an economical loss but a political gain. Here is for example an opinion piece by Michel Rocard, a former French PM (left-wing guy, really not a nationalist), before the Brexit: https://www.reddit.com/r/europe/comments/27e68h/what_rocard_former_french_pm_really_said_english/ https://www.reddit.com/r/europe/comments/27e68h/what_rocard_...

jaredklewis 9y ago

If this system is enacted, will the benefits of staying in the EU out weigh just moving all the shell companies to the Caymans or wherever? I wish countries would give up on corporate taxes. They are either easily circumvented, or you need a massive regulatory body to analyze all corporate transactions and determine if they are "fair." All the same tax revenue can be gained through much better systems that are not trivially circumvented and do not create a perverse incentive for your country's companies to up and move to the nearest tax haven.

jacquesm 9y ago
The goal is to make it pointless to use shell companies to avoid paying taxes. > I wish countries would give up on corporate taxes. I really wish they won't. Right now the small companies pay corporate taxes just fine, it is the big ones that play all kinds of shell games to get out from under their obligations.
sfifs 9y ago
You generally can't operate a running business in EU or any other country out of the Caymans. You could have share holding companies registered there but to actually run a physical business, you have to actually have a company registered in the market (or come in as a purely imported product) Ireland works simply because it is a member of the EU and any EU HQ business can operate anywhere else in EU.
markvdb 9y ago
Much of the profit generated in the EU by these multinationals actually ends up largely untaxed in Bermuda/Cayman islands/... subsidiaries. https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement
- candiodari 9y ago
  But that would not be able to happen if it wasn't for the EU. Then import taxes would compensate.
sgt101 9y ago

MarkMc 9y ago

It depends how you define profit, and to me this is absolutely about taxing revenues instead of profit. I see profit as the 'value added' by a particular activity. At least 90% of the value created by Google, Facebook and Apple was created in California. Therefore the vast majority of worldwide income generated by these companies should be subject to the tax rates that apply in California - not Ireland, not Germany, not Spain. So Google, etc should be paying more tax - but they should be paying it to the US government, not the EU. If there is ever an EU Silicon Valley then the EU can tax the worldwide profit of those EU companies. Personally I would like to see a rule that intellectual property is fixed to the place where it is produced and forever taxed in that jurisdiction - just like land. If you write a book or develop a new drug or software then that IP stays where it was developed.

zdkl 9y ago
> At least 90% of the value created by Google, Facebook and Apple was created in California. I'm trying not to be snarky but I need to say wtf. FB & google don't make money from IP, they make money as service providers, connecting merchants on the advertisement hype train to our eyeballs. They take money from local and transnational businesses, and present ads, aggregation and search services to individual, local, users. How is this California related profits when I see ads for $smallbusiness in my french town? Because they host the servers there? Please. To be fair I'd concede Amazon may be different with regards to where the value they create resides but I'm sure you'll feel the same way I do when the tech giants step away from Silicon valley and it looses the sweet sweet techmonies. This not about IP rights, corporate liberties or socialism, it's about realising when you're defending the fire that's roasting you. 'Cause google and fb don't give a F about US vs EU further than how they can leverage them to lower operating costs.
- kretor 9y ago
  Seems like you are thinking the value is created by customers, while the GP thinks it is created by employees.
  - zdkl 9y ago

danmaz74 9y ago

In all fairness, it's not just Ireland. Luxembourg and - partially - the Netherlands also participate and benefit from this.

candiodari 9y ago
And the guy who helped set that up - and personally made it worse by making custom tax deals for several multinationals - is now the head of the EU commission ! This will get a lot worse before it gets better.