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Require UsTech to run their sales to their Ireland and German customers through their Ireland and German subsidiaries. Then tax them based upon the result of t

Require UsTech to run their sales to their Ireland and German customers through their Ireland and German subsidiaries. Then tax them based upon the result of their (sales to Irish customers - Irish costs) and in Germany, the equavelent (sales to German customers - German costs). It's quite possible in those two places, they would pay no tax because their costs are higher, but this is also an incentive to keep employing people in said countries. To help enforce this, other companies in Ireland and Germany would only be able to reduce their taxes by purchasing from Irish and German registered companies (tax based on Irish costs - Irish sales) which would mean that they would be incentivised to buy from these rather than UsTech global corp.

theptip 9y ago
A problem with this solution -- as a US company without a German subsidiary (but as with most online businesses, with German customers), do I now have to pay taxes in Germany? If the former, the logical conclusion of that approach is that every startup has to pay taxes in all 195 countries of the world, as soon as they open for business. This could be on $0.01 of ad revenue. If the latter, I'm strongly incentivized to move my labor from the high-tax countries to the low-tax ones, which will push business out of the former. (I.e. at the margin, if I have a small office in Germany, it's probably not worth my while to keep it open since it incurs a massive tax liability).
- aembleton 9y ago
  No, you wouldn't have to pay taxes in Germany. But, if you sell to German businesses, such as providing hosting services then they wouldn't be able to deduct that as costs when calculating their taxes. They would only be able to deduct German costs, defined as the employment of someone with a NI number (or German equivalent) or another business with a tax number.
  - taysic 9y ago
    So you disincentivize using any services in countries other than the one your subsidiary is in? They would have to be significantly better than other options to be worth not being able to deduct those costs.
im3w1l 9y ago
> (sales to Irish customers - Irish costs) and in Germany, the equavelent (sales to German customers - German costs). The way companies deal with this is to create artificial costs. For instance have the German part pay big patent license fees (loan interest is another option) to the Irish part. Then German sales - German costs = 0.
- aembleton 9y ago
  If the German part pays big licence fees to the Irish part then that wouldn't be deductible. They would only be able to deduct German costs.
aembleton 9y ago
I should add that it would only be possible to require a company to have a local subsidiary if it has a physical presence in the country. Someone like Amazon will because they have warehouses. Someone like Google could probably get away with doing business remotely, but then any business that buys from them would not be able to deduct that as a cost when calculating tax which would effectively mean that they pay the tax, making a local rival more competitive.
- deleted 9y ago
  [deleted]
- taysic 9y ago
  So unfair competitive advantage to the local companies? If it were so easy I wonder why they don't do this already. Additionally what about services or products that don't exist or haven't had time to be replicated in one's country. Then that country cannot be on the cutting edge of new technology simply because they penalize buying from international companies.
  - aembleton 9y ago
    It would be an advantage to local companies - yes! At the moment, local companies are often at a disadvantage because they're paying more tax than those companies who are legally based overseas. If the product or service doesn't exist locally, then the purchasing company will indeed need to pay tax, if and only if it's local sales are greater than local costs. If buying this overseas service such as AWS hosting gives it an advantage such as cheaper and simpler scaling then it may well be worth them buying it to pay the tax. At the moment, an outside company can come in and pay little to no tax by licensing IP from another subsidiary in a third country. A local company is then at a disadvantage and is effectively paying for the infrastructure through their own taxes to support a competitor.
    - taysic 9y ago
      This is one of those things that sounds great on paper but in practice basically kills any chance of a startup environment in the country. Why would a startup wish to grow in such a nation if there are other places where the ability to buy useful services from other international companies are so much cheaper?

theptip 9y ago

A problem with this solution -- as a US company without a German subsidiary (but as with most online businesses, with German customers), do I now have to pay taxes in Germany? If the former, the logical conclusion of that approach is that every startup has to pay taxes in all 195 countries of the world, as soon as they open for business. This could be on $0.01 of ad revenue. If the latter, I'm strongly incentivized to move my labor from the high-tax countries to the low-tax ones, which will push business out of the former. (I.e. at the margin, if I have a small office in Germany, it's probably not worth my while to keep it open since it incurs a massive tax liability).

aembleton 9y ago
No, you wouldn't have to pay taxes in Germany. But, if you sell to German businesses, such as providing hosting services then they wouldn't be able to deduct that as costs when calculating their taxes. They would only be able to deduct German costs, defined as the employment of someone with a NI number (or German equivalent) or another business with a tax number.
- taysic 9y ago
  So you disincentivize using any services in countries other than the one your subsidiary is in? They would have to be significantly better than other options to be worth not being able to deduct those costs.

im3w1l 9y ago

> (sales to Irish customers - Irish costs) and in Germany, the equavelent (sales to German customers - German costs). The way companies deal with this is to create artificial costs. For instance have the German part pay big patent license fees (loan interest is another option) to the Irish part. Then German sales - German costs = 0.

aembleton 9y ago
If the German part pays big licence fees to the Irish part then that wouldn't be deductible. They would only be able to deduct German costs.

aembleton 9y ago

I should add that it would only be possible to require a company to have a local subsidiary if it has a physical presence in the country. Someone like Amazon will because they have warehouses. Someone like Google could probably get away with doing business remotely, but then any business that buys from them would not be able to deduct that as a cost when calculating tax which would effectively mean that they pay the tax, making a local rival more competitive.

deleted 9y ago
[deleted]
taysic 9y ago
So unfair competitive advantage to the local companies? If it were so easy I wonder why they don't do this already. Additionally what about services or products that don't exist or haven't had time to be replicated in one's country. Then that country cannot be on the cutting edge of new technology simply because they penalize buying from international companies.
- aembleton 9y ago
  It would be an advantage to local companies - yes! At the moment, local companies are often at a disadvantage because they're paying more tax than those companies who are legally based overseas. If the product or service doesn't exist locally, then the purchasing company will indeed need to pay tax, if and only if it's local sales are greater than local costs. If buying this overseas service such as AWS hosting gives it an advantage such as cheaper and simpler scaling then it may well be worth them buying it to pay the tax. At the moment, an outside company can come in and pay little to no tax by licensing IP from another subsidiary in a third country. A local company is then at a disadvantage and is effectively paying for the infrastructure through their own taxes to support a competitor.
  - taysic 9y ago
    This is one of those things that sounds great on paper but in practice basically kills any chance of a startup environment in the country. Why would a startup wish to grow in such a nation if there are other places where the ability to buy useful services from other international companies are so much cheaper?