4 ms·

But 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 ago
If 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.
  - sangnoir 9y ago
    > The profit made in US is taxed in the US. Isn't that so? Hypothetical analogy: say BMW GmbH owned an American subsidiary (BMW Inc) that did all the US manufacturing under license via another subsidiary in Panama. BMW GmbH controls the cost of the IP (design, patents, control software) being licensed to BMW Inc - this cost can be tweaked so that BMW Inc never turns a profit, and so will not pay any American taxes. All the profits will be accumulating in Panama while waiting for Germany to rework its repatriation laws.
    - themihai 9y ago
      Well they would have to pay: - Import tax on all the products(IP, patenets, licenses etc) licensed/purchased from BMW Panama - Sales tax? So the US would get more customs and sales tax and less profit tax. Nevertheless the scheme you mentioned is meant to lower the tax paid(i.e. the import tax may be lower than the profit tax) so I fully agree that something should be done. I guess only solution would be the term "tax avoidance" to be defined, put into the trade agreements(i.e. WTO, EU etc) and governments allowed fine the companies employing such practices just like the "state aid". The issue in EU is way worse because there is no import or sales tax so using your hypothetical story BMW GmbH pays only the profit tax in Panama. Related: In Europe the operating company takes loans at high interest rates from its shell in Luxembourgh to siphon off the profits.

onli 9y ago

If 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.
- sangnoir 9y ago
  > The profit made in US is taxed in the US. Isn't that so? Hypothetical analogy: say BMW GmbH owned an American subsidiary (BMW Inc) that did all the US manufacturing under license via another subsidiary in Panama. BMW GmbH controls the cost of the IP (design, patents, control software) being licensed to BMW Inc - this cost can be tweaked so that BMW Inc never turns a profit, and so will not pay any American taxes. All the profits will be accumulating in Panama while waiting for Germany to rework its repatriation laws.
  - themihai 9y ago
    Well they would have to pay: - Import tax on all the products(IP, patenets, licenses etc) licensed/purchased from BMW Panama - Sales tax? So the US would get more customs and sales tax and less profit tax. Nevertheless the scheme you mentioned is meant to lower the tax paid(i.e. the import tax may be lower than the profit tax) so I fully agree that something should be done. I guess only solution would be the term "tax avoidance" to be defined, put into the trade agreements(i.e. WTO, EU etc) and governments allowed fine the companies employing such practices just like the "state aid". The issue in EU is way worse because there is no import or sales tax so using your hypothetical story BMW GmbH pays only the profit tax in Panama. Related: In Europe the operating company takes loans at high interest rates from its shell in Luxembourgh to siphon off the profits.