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Amazon and Apple hit by EU tax crackdown
- danmaz74 9y agoIt's good that the EU is taking steps against these unfair deals, but IMHO it's not enough. In this "web era", we just can't accept that it's enough to open your headquarters in Luxembourg to only pay Luxembourg corporate taxes, when actually your EU operation is like 97% outside of Luxembourg. It's just not sustainable, it needs to change - Luxembourg is just stealing taxes from all other EU countries, that's all.
- onli 9y agoYes. In a globalized world that model just can't work anymore. That's just siphoning off wealth from all countries to enterprises, backed by one single country. Sorry to open that can of worms, but taxing on profit in the country (and not headquarter placement) is actually one of the few early Trump suggestions that differed from the mainstream and made sense.
- mcny 9y agoTaxing profit is essentially a tax break for spending. Amazon.com in the US reinvests almost everything it makes back into Amazon from what I understand (please correct me if I'm wrong). Is it ok for them to pay no taxes? Let's say someone buys $1B worth of junk, has expenses like salary etc of $1B, does something with it and sells products and services worth $2.2B. Do they pay taxes on $2.2B or on $0.2B? I think we can fix some kinds of tax dodging by taxing the $2.2B. If I'm on a low margin business, that's not the government's problem to pick winners and losers, right?
- sjwright 9y agoThe $1B of salaries are being taxed as income and the $2.2B of sales most likely hits a sales tax. (Or the $1.2B difference, if it’s a VAT/GST style tax.) I personally don’t see the point of corporate tax, other than to make other taxes seem smaller than they’d otherwise have to be. Profits are not in and of themselves useful to people; they have to be converted to income somehow.
- neoeldex 9y agoThe problem with taxing income is that it taxes the lower/middle class heavier than upperclass. Usually the upperclass has ways of diverting their income into other means. Taxing profits is the current approach. There's been talk about taxing revenue for companies. Which is measurable on a nation's level
- sjwright 9y agoThen identify the ways wealthy people can divert income (e.g. Australia's fringe benefits tax) and force them to report it as income.
- themihai 9y agoI think you are wrong: - I'm sure Amazon did its best to pay the lowest possible tax. In EU they are taxed on profit so if they woundn't make a profit(i.e. they would reinvest) they would not be taxed. - Amazon Europe is not Amazon US. They don't want to trade as Amazon US in Europe because they would pay even more tax(in the US). - It's not enough that they are registered in a country with the lowest possible tax, they get a special deal there too to pay less tax than the other Luxembourg based companies/business. This is what EU is sueing them for...they've got state aid(as tax break) from Luxembourg.
- vixen99 9y agoits best
- empath75 9y agoIt’s a tax break for investment
- zaqokm321 9y ago> Let's say someone buys $1B worth of junk, has expenses like salary etc of $1B, does something with it and sells products and services worth $2.2B. Do they pay taxes on $2.2B or on $0.2B? I think we can fix some kinds of tax dodging by taxing the $2.2B. That does not quite add up .... let's say the tax rate is 20%. The tax on $0.2B is $40m, the tax on $2.2B would be $440m, which would mean the company is making a $220m loss. But not only that, say the salaries are $1B then the government would $200m in double taxation, maybe socialise the loss and take $200 million from the workers salaries. Then not only that, lets say the $1B of junk is made in the same country as the above company, the government would make another $200m by taxing them. That is a little regressive.
- ams6110 9y agoAmazon is paying payroll taxes on all its salaries, sales taxes on everything it buys, property taxes on its physical locations, plus employing thousands of people. They are not "dodging" any responsibilities.
- gpresot 9y agoCompanies are generally taxed on income (so in your example, 20% on $0.2B). This is the "corporate tax". In addition other taxes may be applied (VAT, labor taxes etc), but this is another matter. Companies try to reduce the amount paid in corporate tax (on income) in many ways. Some legal (e.g. creating a separate company that owns the IP, like brands and patents, which then charges a fee for their use to other part of the corporation; this way they can shift profit from a high rate country (France, US) to a lower rate country (Ireland). This seems to be the case here, plus the fact that Luxembourg offered a deal on this tax rate. Another legal way to reduce taxes is by investing your income: this generates depreciation which reduces your profit for the following years (but not your cash at year end, particularly if you finance part of the investment through debt). Illegal ways to reduce your profits: fake invoices, etc. The EU is now discussing ways to tax some companies (in particular tech companies with substantial cost bases abroad (e.g servers, ip, brands could be owned by a separate company in Bermuda which charges sister companies in UK, France, US, thus leaving potentially zero profit to be taxed in those countries) based on revenues (e.g. you have revenues of $1B in UK, you pay 3% tax on that (equivalent to charging 20% tax rate on $150 Million of profit. This would make the separate IP company useless.
- taysic 9y agoTaxing based on revenue sounds very detrimental for companies with low margins - say your profit is only 1% of your revenue. Then you would go out of business by this tax. Also seems very harmful to yet unprofitable startups.
- taysic 9y ago> If I'm on a low margin business, that's not the government's problem to pick winners and losers, right? So you would penalize companies that are offering a useful service and making less profits over those that are offering a useful service and making more profits. The former may be reducing cost greatly to the consumer but may not be able to stay in business due to this type of tax. Thus, it would artificially prop up the cost of goods to the consumer.
- themihai 9y ago>> few early Trump suggestions that differed from the mainstream and made sense. That doesn't really make sense for America First...Why would US want its corporations taxed with 20% all over EU instead of 1% in Luxembourg? It would be less left to bring back home (whenever the corporate tax is lowered to make that possible).
- Moru 9y agoTrump most likely sees this as European companies should pay tax in US.
- deleted 9y ago[deleted]
- themihai 9y agoBut they do pay tax in the US, don't they? I'm not familiar with any Luxembourg-like scheme employed by EU companies in US.
- onli 9y agoIf BMW sells a car in the US, where is the profit from that taxed? See https://www.reuters.com/article/us-trump-usa-tax-trade/u-s-tax-plan-would-break-wto-rules-lawyers-say-as-eu-business-frets-idUSKBN15G5EH?il=0 https://www.reuters.com/article/us-trump-usa-tax-trade/u-s-t... for an explanation. The idea was to tax local turnover, not income.
- themihai 9y ago> If BMW sells a car in the US, where is the profit from that taxed? The profit made in US is taxed in the US. Isn't that so? Maybe I didn't understand it but the article is more about the import/customs tax. As far as I understand from that link Trump wants to make the import costs non-deductible and basically pay an extra tax(due the lack of deductibility) on top of the custom tax. It's a pure protectionist policy. The issue in EU is different. The companies operate in a certain state(i.e. Italy) but pay the tax in a different one(i.e. Luxembourg). Like BMW would do all its tax/accounting in EU with no regard to US's IRS even if it operates a business in US(i.e employs people, sells products etc). See the excerpt: >> Lawyers said the impact of the border adjustment and deductions for U.S. costs meant that imports would face an effective tariff of up to 20 percent. “The total tax rate on the 100 percent domestically-produced good is going to have a lower effective tax rate than the rate on the import,” said Scott Lincicome, counsel with White & Case in Washington. That would breach Article 3 of the General Agreement on Tariffs and Trade, which is policed by the WTO. This allows signatory states to impose permitted tariffs on goods entering their country, but precludes them from treating a domestic item more favorably than an imported one when it comes to internal taxes like sales or income taxes.
- easytiger 9y agoAbsolute complete nonsense. Not only a misunderstanding of the situation but a crazy and completely incorrect understanding of EEC principles. This particular problem aside, for there are reasonable nuances from the EUs POV. Your statment: > we just can't accept that it's enough to open your headquarters in Luxembourg to only pay Luxembourg corporate taxes Yes. We can. That is quite literally the point of being in the EEC and isn't at all the nuance of the issue Amazon and Ireland have encountered and not something even remotely in question by this report. Complete misrepresentation. You only pay appropriate taxes in the nation state in which you HQ. This allows poorer countries to compete with richer countries, and allows wealth to "drain" into poorer countries whilst providing cheaper services to the richer ones.
- oblio 9y ago> This allows poorer countries to compete with richer countries. Yes, the poor, starving Grand Duchy of Luxembourg :D
- easytiger 9y agoYes, the appointed capital of The EU
- toyg 9y agoWhat? The most central EU institutions are based in Bruxelles, Belgium. The EU Parliament also spends half the time in Strasbourg, France. Only the Court of Justice is in Luxembourg. There is no "appointed capital". Bruxelles is the closest thing in practical terms, but the location of the institutions it hosts was an early choice that has since been slowly rejected. All new EU authorities are "dispersed" elsewhere, and there is talk of moving the Parliament to Strasbourg full-time, now that it's pretty clear that the French are nowhere as dominant in European institutions as originally feared.
- easytiger 9y agocapital being slang for "institutional seat"
- Keats 9y agoThe funny thing is that if you try to do it as a one person or small company, it won't work as your company will be considered a tax resident in the company you live in (as far as I'm aware).
- gutnor 9y agoThere are plenty of stuff that does not work as a small company. You know the easy way that large companies balance their cashflow between countries selling IP and stuff. Try that as a small company (eg: make money in the UK, try to hire some guy in Spain to build an app there, i.e. a genuine case of actual workflow issues) and realise that you can only charge for actual service and yes you can in theory have vague service like "consulting" but in reality if the tax office take an interest in your company you are going to be crucified. Cashflow balancing is corporate taxed both ways, better get it right.
- dogma1138 9y agoLuxembourg has a 29% corporate tax rate the 4th highest in Europe. This isn't Liechtenstein, Ireland or Estonia... Unlike Ireland Luxembourg also did not hand out tax credits. Shell paid less than 1 bln US in tax last year in the EU, and less than 5 bln US globally, and overall it's by far much more subsidized than Apple or Amazon, the difference being it's a European corporation. Most of not all of the largest European corporations excel at Tax avoidance, in fact they are the ones Google, Apple and Amazon learned the tricks of the trade from, heck the EU was just fine establishing tax heavens for their own corporations and canonizing them in EU law as long as they are the ones benefiting from them.
- olau 9y ago> Unlike Ireland Luxembourg also did not hand out tax credits. This seems to be contradicted by the story itself: "Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon's profits were not taxed," Ms Vestager added. She said Amazon paid four times less tax than other local companies.
- dogma1138 9y agoYou should read the actual source. Amazon paid normal tax rates on trade goods, it paid the lower tax rate on IP derived revenue such as AWS and several other digital services the deal wasn’t any different than what EU companies in Europe get including OVH. The difference is that Amazon like many other US tech companies have substantial revenue from IP and licensing while EU companies still rely on trade goods and services. This isn’t a court ruling like with Apple there is more than a good chance that this will not hold in the high court. Likely even better since Amazon didn’t get direct tax subsidies.
- riffraff 9y agoThis is the actual source http://europa.eu/rapid/press-release_IP-17-3701_en.htm http://europa.eu/rapid/press-release_IP-17-3701_en.htm And it says > The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies) [...] the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. IANAL, but I am not sure why you interpret this as different from Apple's. They both depend on the arbitrariness and non-generality of a company-specific tax ruling.
- MR4D 9y agoTo me this looks like a corporate shakedown. The EU has some truly dumb laws (as do we here in the US), but punishing companies that folllow the law shouldn’t be the solution. Fixing the law is the only right (and moral) option. Everything else is basically thuggery.
- kuschku 9y agoThe EU is based on a legal system that believes that the spirit of the law, if it is obvious, is above the letter of the law (and also it doesn’t have precedents, all courts can reinterpret law again, if you want to change something, you need to rewrite the laws). As a result, this is completely justified – Amazon and Apple broke the spirit of the law with a technicality.
- taysic 9y agoRealistically its those governments who offered them the deals that broke the law. I don't see why its the companies obligation to deny these tax deals and uphold the EU's wishes.
- ionised 9y agoI find it difficult to believe companies as big as Apple and Amazon don't have teams of tax lawyers aware of EU tax law that knew very well this deal wouldn't last, and yet they claim they knew nothing of how illegal this was. It's bollocks.
- ams6110 9y agoExactly. Government sees some successful operation, and sends the tax goons around to make sure they "pay tribute."
- ionised 9y agoTax is theft?
- cc81 9y ago
- simonebrunozzi 9y agoNot enough. A 250M fine is almost a joke. Companies like Amazon, Google, Facebook, etc, save Billions of dollars every single year by setting up "creative" tax schemes. A 250M fine is almost an incentive to keep doing it.
- jahnu 9y agoIt sets a precedence.
- ulfw 9y agoIt does indeed. A precedence for trying to pay no taxes and paying just a tiny percentage if one gets caught.
- kryptiskt 9y agoThe modest size of the fine is probably just because Amazon isn't all that into making profits and thus has little taxable income. Apple had to pay a lot more.
- skrause 9y agoThis is not a fine, it's back taxes. That's a very big difference.
- jlebrech 9y agolegal tax schemes are legal
- singularity2001 9y agoand amoral
- easytiger 9y agoI'm actually quite pro europe, but the insidious influence of the French in particular and, to a geat extent in other ways, the Germans, over their desire for economic imperialistic dominion (now enriched tenfold with GB no longer party to anything going on) is a problem. Ireland is a very small country with no natural resources. Its way of participating in the EU's drive for growth was the nation's economic policy and its well educated population as a base for American companies to bridge into Europe. France clearly is bent out of shape because if other EU members can survive without gouging business, citizens et al with incredible levels of punitive taxation, then they can't continue their own shakedown forever without seeing business flight. Sooner or later they will have to relent and reduce their own taxes. Same with the pursuit of Google, MS, Facebook et al. by Eurocrats with open portfolios. Its an old fashioned shake down by the biggest self protecting bureaucracy outside of China. In my opinion.
- onli 9y agoI don't think you are aware of just how big the taxcut was Ireland gave to these companies. There is no growth if nothing is earned.
- easytiger 9y agoI'm perfectly aware. No one in the successive Irish governments has done anything other than state they will stand by their current policies. Without them there would be few jobs in Ireland.
- deleted 9y ago[deleted]
- Radim 9y agoRight, an uneven playing field is not good. But how about levelling it by lowering the taxes for the other companies instead? The money that EU bureaucrats cannot see, is the money the EU bureaucrats cannot waste and embezzle. The European Commission is not even elected, and now it wants to hector entire countries? The Euro Soyuz is already bloated enough.
- mcny 9y agoPlease, no more of this "starve the beast" nonsense. Look at the US. Regardless of what you think of government, know that starve the beast does not work. If you want to reduce expenses, reduce them directly. Reducing income does not necessarily reduce expenses. There are no shortcuts here. Thanks, Ronald Reagan. You'll forever be one of the worst POTUS in modern history to me.
- Radim 9y agoReducing expenses is a commendable effort, but your comment is off-topic in this discussion. It is completely orthogonal to levelling the playing field when it comes to paying taxes (you can do both).
- bobcostas55 9y agoWhen Caesar divorced Pompeia, he said "my wife ought not even to be under suspicion". As a European I feel the same about the way the EU is plundering US tech companies. Maybe they really broke the law, but you should be above suspicion. When VW has not paid any fines in Europe for the emissions scandal, it's hard not to be suspicious about what's going on. The Eurostoxx 50 is still below its 2007 peak (and that peak was below the 2000 peak). GDP growth has been pathetic. Almost a decade into the Greek crisis they're still just kicking the can down the road. Is the EU trying to be a productive economic system or a kleptocracy that survives on the scraps it can extract from the Americans? Get your house in order, then maybe these fines would not look as bad.
- Oletros 9y ago> Is the EU trying to be a productive economic system or a kleptocracy that survives on the scraps it can extract from the Americans? Taking into account that Apple and Amazon case (and FIAT in Netherlands) are not fines and don't go to the EU I don't understand how are they scrapping anything
- NicoJuicy 9y agoPlundering US companies? At least back that up with numbers. You mean they pay almost no taxes on their profits in the EU. They are plundering Europe! Eg. the so called Double Dutch in the past https://en.wikipedia.org/wiki/Double_Irish_arrangement https://en.wikipedia.org/wiki/Double_Irish_arrangement and now this. By numbers: 15 million pound taxes on 19,5 billion pound revenue https://www.theguardian.com/technology/2017/aug/10/amazon-uk-halves-its-corporation-tax-to-74m-as-sales-soar-to-7bn https://www.theguardian.com/technology/2017/aug/10/amazon-uk...
- noarchy 9y ago>Plundering US companies? At least back that up with numbers. You mean they pay almost no taxes on their profits in the EU. They are plundering Europe! How can that be defined as "plundering"? Even if these companies didn't pay a single cent in taxes, that would merely mean that the EU government didn't plunder them.
- deleted 9y ago[deleted]
- ksec 9y agoI have always this question in my mind, If Amazon never made any profits, ( They are ALL invested back to somewhere ), or they decide to borrow $50 Billion, and have any profits left over from investment being paid to the loan's interest. Basically there are Zero profits. Why would there be Tax? It doesn't matter if you are in US, EU, or anywhere else in the world. Surely No Profits = No Collected tax, or am i missing something obvious?
- rbehrends 9y agoThat's exactly why the back taxes owed are only €250 million, a pittance compared to Amazon's EU revenue of over €20 billion. Note that Amazon's profits aren't high, but they aren't zero.
- _rpd 9y agoTax law is quite complex. Even for taxes based on profits, it is non-trivial to tie patterns of revenue and expense to particular tax jurisdictions (much less particular geographical locations). This is particularly true in the age of e-commerce - did the revenue occur where the purchaser clicked an icon, where a server received the buy message, where a server recorded/confirmed the transaction, where a bank sent/received currency, where a warehouse dispatched an item (what if it's a digital item), where the item was received, all of the above, some of the above depending on ever shifting tax law in multiple jurisdictions? There are more and different questions related to expenses. For example, should it have some relationship to where employees are located? Armies of people work every day to prevent upsetting some tax jurisdiction while minimizing tax expense. It's a sisyphean task. Compared to Amazon's revenues, $250m is a rounding error, so they have very good accountants working for them.
- glasz 9y agoeu tax crackdown. just another smoke screen while "the union" is on fire to keep the sheep calm and comfy on their fucking couch. greece? nobody's talking about that anymore. britain's decision to leave in peace? they're screwing around with that. catalonia? shows you the "values" of this great europe. votes have shown that people are greatly unhappy and the clowns in brussels have nothing better to do than to pretend a few corporate bucks will benefit the people.
- cinquemb 9y agoWell one thing is for certain, it is becoming easier to time shorts on certain European asset classes exposed to these political games…
- pwtweet 9y agoI see all the EU state aid and Single Market specialists are on here giving there expert opinions.
- Tyrannosaur 9y agoWhat I don't understand is why Amazon and Apple are getting the punishment. They were abiding by the laws of the country they were in, and now getting punishment. Surely if any party were to be punished it would be the governments of Ireland and Luxembourg which sanctioned these agreements in the first place? It seems that the EU is less interested in law-abiding and more interested in that sweet, sweet U$D. Ex post facto law at its finest.
- foepys 9y agoYou clearly only read the headline because it fits your agenda. The article clearly states that the EU is ordering Ireland and Luxembourg to tax Apple and Amazon correctly instead of giving them special tax rates.
- toyg 9y ago> You clearly only read the headline because it fits your agenda. Wow, no need for name-calling, dude. Let's keep it civil.
- ionised 9y agoWhere is the name calling there?
- kodablah 9y agoDid you read the comment you are replying to? Op said "I don't understand is why Amazon and Apple are getting the punishment" and you essentially said "The article clearly states that countries are ordered to enforce the punishment". You are talking past each other. The question is why the companies are being punished and why the states are not, not about the enforcement. What keeps Ireland and Luxembourg from doing this again? If the EU is going to strike down state-mandated tax deals, why not just require the tax deals to have approval from them in the first place?
- Fnoord 9y ago> Did you read the comment you are replying to? [..] The question is why the companies are being punished and why the states are not, not about the enforcement. It isn't a punishment, stop calling it like a punishment. There is no additional fine. The only thing which has to be paid is the due tax plus interest. It is you who has to read. From the article: "Meanwhile, the Commission said it planned to refer Ireland to the European Court of Justice for failing to recover €13bn in back taxes from tech giant Apple." > What keeps Ireland and Luxembourg from doing this again? If the EU is going to strike down state-mandated tax deals, why not just require the tax deals to have approval from them in the first place? Hopefully Ireland or Luxembourg won't let themselves be allowed to avoid taxes anymore. But since neither Apple, nor Amazon, nor Ireland, nor Luxembourg is being fined (again, there is no punishment) I'd speculate that it might still be lucrative. After all, being able to invest > interest.