4 ms·

Majority of revenue is coming from ads. If Google were taxed for each ad income based on the country of where the ad buyer is located, they couldn't manipulate

by jakubp 9y ago

Majority of revenue is coming from ads. If Google were taxed for each ad income based on the country of where the ad buyer is located, they couldn't manipulate it as easily. Also clients wouldn't be inclined to set up shop in tax havens, because why would they? It's not their problem. I'm not sure this is a good solution, it might also be possible to game it, but at least that would make sense from the perspective of assigning benefit to a territory: if a myriad small businesses in, say, France, need Google ads, why not tax Google in France for that amount? It is in a sense Google's access to French market that we are taxing. Could that work?

ptaipale 9y ago
What? In EU, Google is taxed for each ad income, as well as app sales, based on the country of where the sale takes place. It's called Value Added Tax. Countries can set the rate. Mostly the rates are in the order of 20 %.
- user5994461 9y ago
  I am not sure if it's still ongoing but any immaterial good you buy on a major website used to be taxed at the Luxembourg rate, which is the smallest in Europe. It's a pretty clear sign that sales are not attached to the country of the customer.
  - germanier 9y ago
    That has changed. Companies are now required to charge the VAT rate of the customer's country for digital goods (and have to store some data to prove that they picked the correct country).
  - ptaipale 9y ago
    This changed long (10-15 years) ago. When I (resident in Finland) buy stuff from web shops in Germany, I pay tax at the higher Finnish rates, and it is withheld by the seller. (When I buy from e.g. China, I pay VAT at the customs, including VAT on freight.)
- germanier 9y ago
  Google's customers are almost all VAT collecting companies. That means that not Google but their customer is responsible for paying the tax. It can be deducted from their tax burden they have because they sell to end-consumers. The point of this discussion is not the tax on the sale itself (which is indeed already there) but on the profit at Google that results of this sale.
  - ptaipale 9y ago
    Google has plenty of non-VAT-collecting consumers as customers. For instance, anyone who purchases apps or makes in-app purchases.
    - germanier 9y ago
      Looking at their income statement (although not as detailed as one would like) reveals that this amount is minuscule compared to their ad revenue.
- deleted 9y ago
  [deleted]
- kbwt 9y ago
  VAT is not a tax on companies, it is a tax on consumer spending. VAT is merely collected by the companies on behalf of the tax authorities. What's the difference? Well, for one, the company cannot deduct VAT since it is zero-sum; they are only transferring it. Secondly VAT is exactly the same no matter which country the company operates in.
- jaclaz 9y ago
  VAT is a tax paid by the "last" link in the chain, the user, not by the supplier. Quick example, you are into the business of making - say - lemonade. Set aside the machinery involved, you buy lemons, water and sugar. The BOM for 100 glass or lemonade is: - 100 lemons 15 € + 0.6 € (VAT is 4 % on lemons) - 25 liters bottled mineral water 10 € + 2.2 € (VAT is 22% on mineral water) - 0.5 Kg sugar 0.70 € + 0.07 (VAT is 10% on sugar) So you have spent ( given to the supplier) 15+10+0.70=25.70 € + 0.6+2.2+0.07=2.87 VAT Then you sell the 100 glasses of lemonade and get at 1 € each 100 € (included VAT). The rate is 22% so you are actually getting 81.97 € + 18.03 VAT. Since you already spent 2.87 € VAT when you bought the ingredients, you owe the government 18.03-2.87=15.16 € for VAT. The whole idea of the VAT (or Value Added Tax) is that it applies to the differential in value. So you have 81.97 € remaining from which you subtract the 25.70 € you spent for the ingredients, and - say - 10.30 € for other (documented) expenses, electricity, depreciation of machinery, etc., local taxes for the stand, etc. You remain with a net income of 81.97-25.70-10.30=45.97 for which you own the government income taxes at a marginal rate of (still say) 35% 16.09 €. Now imagine that your lemon squeezing process is covered by a patent for which you have to pay a firm in Ireland (which is also yours) 0.35 € per produced glass. (to simplify, let's say that this is exempt from VAT). Now your income is 81.97-25.70-10.30-35.00=10.97, thus you owe the government 35% of that 3.84 €. Meanwhile in Ireland those 35 € (without expenses) are income taxed at a rate of (say) 10% so you give the Irish government 3.50 €. Instead of the 16.09 € in taxes, you paid 3.84+3.50=7.84 €.
  - ptaipale 9y ago
    > VAT is a tax paid by the "last" link in the chain, the user, not by the supplier. Not quite. As Wikipedia puts it, VAT is collected incrementally, based on the surplus value, added to the price on the work at each stage of production. That is the actual tax incidence. That the tax payment is channeled via the last link in chain is just a technicality relevant for the most efficient implementation of this incremental scheme.
    - jaclaz 9y ago
      >Not quite. The one that pays the actual tax is the one getting the last (most valued) item, i.e. the final user (consumer). The way it is collected (incrementally) is not connected to WHO pays WHAT. If an user pays 122 € (100+22 €) that is the total tax (and is payed integrally by the user). The government gets in total 22 € (integrally paid by the customer at the end) but it receives that amount in (say) 3 steps by differnt actors: 1 - 10% of 30= 3 The manufacturer buys the raw material, pays the VAT to the supplier that (hypothetically) has no preceding VAT costs and thus must give to the government the whole 3 € 2 - 22% of 80= 17,60-3= 14,60 then he does something with it and resells the product for 80 (i.e. it adds value, reselling it for 80 + VAT to a shop) and has to give to the government the differnece 3- 22% of 100=22-17,60=4,40 the shop sells the item to a consumer and has to give to the government the difference The government gets 3+14.60+4.40=22 € The final user has paid 22 € The incremental collection method allows to have the tax largely paid in advance, but the amount at the end comes out of the final user pocket. The Wikipedia has it very clear: https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax#With_a_value-added_tax https://en.wikipedia.org/wiki/Value-added_tax#With_a_value-a... https://upload.wikimedia.org/wikipedia/commons/2/28/VAT3b22.png https://upload.wikimedia.org/wikipedia/commons/2/28/VAT3b22....
andreime 9y ago
Strictly speaking of ads - what happens when someone is using VPNs, let's say because the are contracted by an american company? I like your idea, I'm just curious how this would work? Google might find themselves in violation of the law. What do you think? How about a yearly national tax proportional with the amount ad buyers pay for targeting a country - the argument here is that Google, Facebook, etc. are using a national infrastructure to do their business.
- jakubp 9y ago
  I don't understand the issue with VPN. The idea would be to tax the profit of an ad company based on the country of origin of the institution buying the service from them (not country of origin of the seller, which seems to easy to game). VPN can shadow users' location, but not corporate location of tens of millions of companies, at least that's my intuition. I don't know anything about policy in general, but I'd rather reconsider existing taxes and their mechanisms before introducing even more taxes. Still, I'm guessing just shifting the taxation based on buyer's location would be groundbreaking, possibly not functional for many companies, and introduce a lot of extra work just to get some money from multinationals.... Yearly national tax probably reflects the instinct many people have, that other companies within these markets are taxed for similar activity, but multinationals aren't, and maybe they are getting too good a deal. There is something similar going on in Poland and I'm guessing many other developing countries: foreign corporations open their shared services centers, recruit really well educated people but get significant tax benefits on this. Also supermarket chains are somehow exempt from some taxation. Supposedly this is to promote jobs locally, but in reality it seems more like a brutal scam: you get great, cheap workforce and do not have to pay as much for access to it in taxes. Multinationals selling globally, but paying taxes where they like is similar. The sentiment among my friends is that the local corporations sucking in workforce, pulling it away from building our own products and services with international potential, AND getting tax deals is quite bad in the long term.

by jakubp 9y ago

ptaipale 9y ago

What? In EU, Google is taxed for each ad income, as well as app sales, based on the country of where the sale takes place. It's called Value Added Tax. Countries can set the rate. Mostly the rates are in the order of 20 %.

user5994461 9y ago
I am not sure if it's still ongoing but any immaterial good you buy on a major website used to be taxed at the Luxembourg rate, which is the smallest in Europe. It's a pretty clear sign that sales are not attached to the country of the customer.
- germanier 9y ago
  That has changed. Companies are now required to charge the VAT rate of the customer's country for digital goods (and have to store some data to prove that they picked the correct country).
- ptaipale 9y ago
  This changed long (10-15 years) ago. When I (resident in Finland) buy stuff from web shops in Germany, I pay tax at the higher Finnish rates, and it is withheld by the seller. (When I buy from e.g. China, I pay VAT at the customs, including VAT on freight.)
germanier 9y ago
Google's customers are almost all VAT collecting companies. That means that not Google but their customer is responsible for paying the tax. It can be deducted from their tax burden they have because they sell to end-consumers. The point of this discussion is not the tax on the sale itself (which is indeed already there) but on the profit at Google that results of this sale.
- ptaipale 9y ago
  Google has plenty of non-VAT-collecting consumers as customers. For instance, anyone who purchases apps or makes in-app purchases.
  - germanier 9y ago
    Looking at their income statement (although not as detailed as one would like) reveals that this amount is minuscule compared to their ad revenue.
deleted 9y ago
[deleted]
kbwt 9y ago
VAT is not a tax on companies, it is a tax on consumer spending. VAT is merely collected by the companies on behalf of the tax authorities. What's the difference? Well, for one, the company cannot deduct VAT since it is zero-sum; they are only transferring it. Secondly VAT is exactly the same no matter which country the company operates in.
jaclaz 9y ago
VAT is a tax paid by the "last" link in the chain, the user, not by the supplier. Quick example, you are into the business of making - say - lemonade. Set aside the machinery involved, you buy lemons, water and sugar. The BOM for 100 glass or lemonade is: - 100 lemons 15 € + 0.6 € (VAT is 4 % on lemons) - 25 liters bottled mineral water 10 € + 2.2 € (VAT is 22% on mineral water) - 0.5 Kg sugar 0.70 € + 0.07 (VAT is 10% on sugar) So you have spent ( given to the supplier) 15+10+0.70=25.70 € + 0.6+2.2+0.07=2.87 VAT Then you sell the 100 glasses of lemonade and get at 1 € each 100 € (included VAT). The rate is 22% so you are actually getting 81.97 € + 18.03 VAT. Since you already spent 2.87 € VAT when you bought the ingredients, you owe the government 18.03-2.87=15.16 € for VAT. The whole idea of the VAT (or Value Added Tax) is that it applies to the differential in value. So you have 81.97 € remaining from which you subtract the 25.70 € you spent for the ingredients, and - say - 10.30 € for other (documented) expenses, electricity, depreciation of machinery, etc., local taxes for the stand, etc. You remain with a net income of 81.97-25.70-10.30=45.97 for which you own the government income taxes at a marginal rate of (still say) 35% 16.09 €. Now imagine that your lemon squeezing process is covered by a patent for which you have to pay a firm in Ireland (which is also yours) 0.35 € per produced glass. (to simplify, let's say that this is exempt from VAT). Now your income is 81.97-25.70-10.30-35.00=10.97, thus you owe the government 35% of that 3.84 €. Meanwhile in Ireland those 35 € (without expenses) are income taxed at a rate of (say) 10% so you give the Irish government 3.50 €. Instead of the 16.09 € in taxes, you paid 3.84+3.50=7.84 €.
- ptaipale 9y ago
  > VAT is a tax paid by the "last" link in the chain, the user, not by the supplier. Not quite. As Wikipedia puts it, VAT is collected incrementally, based on the surplus value, added to the price on the work at each stage of production. That is the actual tax incidence. That the tax payment is channeled via the last link in chain is just a technicality relevant for the most efficient implementation of this incremental scheme.
  - jaclaz 9y ago
    >Not quite. The one that pays the actual tax is the one getting the last (most valued) item, i.e. the final user (consumer). The way it is collected (incrementally) is not connected to WHO pays WHAT. If an user pays 122 € (100+22 €) that is the total tax (and is payed integrally by the user). The government gets in total 22 € (integrally paid by the customer at the end) but it receives that amount in (say) 3 steps by differnt actors: 1 - 10% of 30= 3 The manufacturer buys the raw material, pays the VAT to the supplier that (hypothetically) has no preceding VAT costs and thus must give to the government the whole 3 € 2 - 22% of 80= 17,60-3= 14,60 then he does something with it and resells the product for 80 (i.e. it adds value, reselling it for 80 + VAT to a shop) and has to give to the government the differnece 3- 22% of 100=22-17,60=4,40 the shop sells the item to a consumer and has to give to the government the difference The government gets 3+14.60+4.40=22 € The final user has paid 22 € The incremental collection method allows to have the tax largely paid in advance, but the amount at the end comes out of the final user pocket. The Wikipedia has it very clear: https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax https://en.wikipedia.org/wiki/Value-added_tax#With_a_value-added_tax https://en.wikipedia.org/wiki/Value-added_tax#With_a_value-a... https://upload.wikimedia.org/wikipedia/commons/2/28/VAT3b22.png https://upload.wikimedia.org/wikipedia/commons/2/28/VAT3b22....

andreime 9y ago

Strictly speaking of ads - what happens when someone is using VPNs, let's say because the are contracted by an american company? I like your idea, I'm just curious how this would work? Google might find themselves in violation of the law. What do you think? How about a yearly national tax proportional with the amount ad buyers pay for targeting a country - the argument here is that Google, Facebook, etc. are using a national infrastructure to do their business.

jakubp 9y ago
I don't understand the issue with VPN. The idea would be to tax the profit of an ad company based on the country of origin of the institution buying the service from them (not country of origin of the seller, which seems to easy to game). VPN can shadow users' location, but not corporate location of tens of millions of companies, at least that's my intuition. I don't know anything about policy in general, but I'd rather reconsider existing taxes and their mechanisms before introducing even more taxes. Still, I'm guessing just shifting the taxation based on buyer's location would be groundbreaking, possibly not functional for many companies, and introduce a lot of extra work just to get some money from multinationals.... Yearly national tax probably reflects the instinct many people have, that other companies within these markets are taxed for similar activity, but multinationals aren't, and maybe they are getting too good a deal. There is something similar going on in Poland and I'm guessing many other developing countries: foreign corporations open their shared services centers, recruit really well educated people but get significant tax benefits on this. Also supermarket chains are somehow exempt from some taxation. Supposedly this is to promote jobs locally, but in reality it seems more like a brutal scam: you get great, cheap workforce and do not have to pay as much for access to it in taxes. Multinationals selling globally, but paying taxes where they like is similar. The sentiment among my friends is that the local corporations sucking in workforce, pulling it away from building our own products and services with international potential, AND getting tax deals is quite bad in the long term.