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Taxing on revenue is simpler but utterly non-sensical. If selling a phone that cost $800 to make for $805 incurs an 80x tax liability compared to selling hamme

Taxing on revenue is simpler but utterly non-sensical. If selling a phone that cost $800 to make for $805 incurs an 80x tax liability compared to selling hammer that cost $5 to make for $10, then the modern economy of long supply chains and specialization grinds to a halt. Another way to think about it: a single year in which the tax on revenue is higher than profit would require the business to be go into debt or be sold to pay the tax man; except then what's the value of that business to a creditor / acquirer if it has that threat hanging over its head?

alkonaut 9y ago
Perhaps I was unclear: The suggestion is not to tax the revenue, but to tax based on revenue - that is: the tax would still be on $5 profit but where that tax is extracted is decided by where the company was doing business, rather than where it is incorporated.
- ringtail 9y ago
  Hmm thats effectively consumption tax of very significant rate (eg 33%).
  - alkonaut 9y ago
    How is that? The same corporation could be paying exactly the same corporate tax rate on exactly the same base, under such a scheme.
    - ringtail 9y ago
      In my understanding what you are saying is, a country will tax profit on revenue generating from its own territory by its own tax rate. For the sake of simplicity, assume 100% profit margin. Let R and R' be revenue generating without and with such tax law. Let T be tax rate. So a company was hoping R into its bank account. But with the new taxes it would be (R - RT). Naturally the company would just increase the revenue to R' (by increasing prices) where it would give R'T to Govt and keep (R' - R'T). R'(1 - T) = R R' = R/(1-T) Actually I underestimated new tax, for T=33% it would be 49.25%.
      - alkonaut 9y ago
        > In my understanding what you are saying is, a country will tax profit on revenue generating from its own territory by its own tax rate. Say we have a hypothetical company that operates only in Sweden and Ireland, and has offices only in Ireland. It has a revenue of €10M and a profit of €1M. This company had €4M (40%) of it's revenue in Sweden (tax rate 22%) and 60% of the revenue in Ireland (tax rate 12.5%). How should this corporation be taxed? By proportion of revenue according to the normal tax rate in the country. So In Sweden: Tax 40% (the proportion of revenue) of the profit (€4M/10M) * €1M * 0.22 = €88k In Ireland : Tax 60% of the profit (€6M/10M) * €1M * 0.125 = €75k So the total tax went from €125k to €163k, because the corporation was forced to pay taxes where it made business, rather than on Ireland alone. Basically you just pretend that the corporation was in fact two corporations, where one €4M revenue corporation was in Sweden and the other was a €6M revenue corporation in Ireland. That's all.
        wastedhours 9y ago
        So almost like an EU VATMOSS for profit? Could be a few issues with it still, e.g. declaring that your in-house logistics operation requires €100 to transport your €200 widget to Sweden, rather than €10 to Ireland, no?
        ringtail 9y ago
        But you are not increasing prices. Taxes gets passed on to consumers because companies do not take hit on profit margin just because of different tax rates. So lets assume €10M is the already inflated ammount to accommodate for Ireland/Sweden share. Then only (€3.12m, €5.25) was needed from (Sweden, Ireland) if taxes were zero. €3.12m + €5.25m = €8.37m. €163k (€10m - €8.37) went to Govts. Then consumption taxes would be (28.2%, 14.2%) for (Sweden, Ireland). Swedese are paying (.282-.142)/(1+.142) = 16.3% more than Irish for same product. You can calculate all these from equation in my comment before. I write here again, R'(1-T) = R whereas T is tax rates. R' is inflated revenue. R is zerotax revenue.
        alkonaut 9y ago
        Yes, all kinds of secondary effects may come of this. Such as price increases, (and from that then tertiary effects such as reduced consumption). A reasonable effect is also companies moving around somewhat to get closer to business rather than close to low taxes. In this example Swedish consumers would potentially see price increases - but on the other hand they could see tax reductions if the increased tax revenue from corporations gives some reform space for income or consumption tax cuts. Potential for jobs moving in from Ireland has the same positive effect on the bottom line. The losers in the above scenario is the Irish because they'd see increased prices, lost jobs, and potentially raised taxes to offset lost corporate tax revenue.

alkonaut 9y ago

Perhaps I was unclear: The suggestion is not to tax the revenue, but to tax based on revenue - that is: the tax would still be on $5 profit but where that tax is extracted is decided by where the company was doing business, rather than where it is incorporated.

ringtail 9y ago
Hmm thats effectively consumption tax of very significant rate (eg 33%).
- alkonaut 9y ago
  How is that? The same corporation could be paying exactly the same corporate tax rate on exactly the same base, under such a scheme.
  - ringtail 9y ago
    In my understanding what you are saying is, a country will tax profit on revenue generating from its own territory by its own tax rate. For the sake of simplicity, assume 100% profit margin. Let R and R' be revenue generating without and with such tax law. Let T be tax rate. So a company was hoping R into its bank account. But with the new taxes it would be (R - RT). Naturally the company would just increase the revenue to R' (by increasing prices) where it would give R'T to Govt and keep (R' - R'T). R'(1 - T) = R R' = R/(1-T) Actually I underestimated new tax, for T=33% it would be 49.25%.
    - alkonaut 9y ago
      > In my understanding what you are saying is, a country will tax profit on revenue generating from its own territory by its own tax rate. Say we have a hypothetical company that operates only in Sweden and Ireland, and has offices only in Ireland. It has a revenue of €10M and a profit of €1M. This company had €4M (40%) of it's revenue in Sweden (tax rate 22%) and 60% of the revenue in Ireland (tax rate 12.5%). How should this corporation be taxed? By proportion of revenue according to the normal tax rate in the country. So In Sweden: Tax 40% (the proportion of revenue) of the profit (€4M/10M) * €1M * 0.22 = €88k In Ireland : Tax 60% of the profit (€6M/10M) * €1M * 0.125 = €75k So the total tax went from €125k to €163k, because the corporation was forced to pay taxes where it made business, rather than on Ireland alone. Basically you just pretend that the corporation was in fact two corporations, where one €4M revenue corporation was in Sweden and the other was a €6M revenue corporation in Ireland. That's all.
      - wastedhours 9y ago
        So almost like an EU VATMOSS for profit? Could be a few issues with it still, e.g. declaring that your in-house logistics operation requires €100 to transport your €200 widget to Sweden, rather than €10 to Ireland, no?
      - ringtail 9y ago
        But you are not increasing prices. Taxes gets passed on to consumers because companies do not take hit on profit margin just because of different tax rates. So lets assume €10M is the already inflated ammount to accommodate for Ireland/Sweden share. Then only (€3.12m, €5.25) was needed from (Sweden, Ireland) if taxes were zero. €3.12m + €5.25m = €8.37m. €163k (€10m - €8.37) went to Govts. Then consumption taxes would be (28.2%, 14.2%) for (Sweden, Ireland). Swedese are paying (.282-.142)/(1+.142) = 16.3% more than Irish for same product. You can calculate all these from equation in my comment before. I write here again, R'(1-T) = R whereas T is tax rates. R' is inflated revenue. R is zerotax revenue.
        alkonaut 9y ago
        Yes, all kinds of secondary effects may come of this. Such as price increases, (and from that then tertiary effects such as reduced consumption). A reasonable effect is also companies moving around somewhat to get closer to business rather than close to low taxes. In this example Swedish consumers would potentially see price increases - but on the other hand they could see tax reductions if the increased tax revenue from corporations gives some reform space for income or consumption tax cuts. Potential for jobs moving in from Ireland has the same positive effect on the bottom line. The losers in the above scenario is the Irish because they'd see increased prices, lost jobs, and potentially raised taxes to offset lost corporate tax revenue.