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European Union plans to tax tech giants on local revenue
- gohbgl 9y agoThe EU should force the other countries to lower their corporate tax instead.
- Sevii 9y agoIt sounds like a tariff on software imports.
- _rpd 9y agoOr on digital goods more generally. I can't see how it will survive a challenge at the WTO.
- jopsen 9y agoCan't we do smarter than revenue? Like tax world wide profit at a rate proportional to revenue in each country? ie. if 10% of your revenue happens in country A, then 10% of your world-wide profit must be taxed in country A at whatever corporate tax rate country A offers. This could also be structure as: If 10% of your revenue happens in country A, then 10% of your wold-wide profit must be taken out in country A. Or something similar... perhaps just make it easier to prosecute profit exports for tax evasion purposes. IMO, I would rather see resource based taxing, as companies will find a to optimize taxes no matter what.
- mrschwabe 9y agoWe can do even smarter than that. 0% worldwide revenue or profit tax (on both corporations and individuals). Nations, provinces/states, and municipalities and even businesses are free to charge whatever sales tax they want at time of purchase. The massive amount of wealth preserved, saved and created as a result will allow for an exponentially more efficient economy worldwide; one that isn't handicapped by militaries and monopolymen.
- jopsen 9y agosales tax is really bad, won't that encourage large corporations, as transactions between corporations would be taxed? With VAT that doesn't happen.
- mrschwabe 9y agoVAT, GST, etc - yes that is what I meant by sales tax. Let entities charge any tax they like at time of purchase; it is there prerogative; it's a completely non-invasive tax that encourages competition (ie- little or no sales tax entities will be favored) and savings (ie- your not punished for simply earning money).
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- vidarh 9y agoIf you want the rise of mass poverty and political instability, then that is how to do it, as it'd destroy government revenues and destroy the welfare systems that were put in place to temper the threat of violent uprisings and revolutions.
- Joeri 9y agoLe Maire told the JDD that they should expect to be taxed between 2 percent and 6 percent of their revenue. He also added that the final figure will be closer to 2 percent than to 6 percent. So 2% must then be a significant increase over the current effective tax rate? Or is this just some politicians posturing for votes?
- ojbyrne 9y ago2% of revenue. Whatever low rate they pay in Ireland is based on profits.
- andruby 9y agoDepends on the profit margin of the company. 2% revenue tax equals 8% of the profit for a company with 25% margin. For a company with 5% margin, 2% of revenue equals 40% of profit. This is my biggest problem with a revenue tax. It disproportionately punishes “high volume, low margin” business models over “low volume, high margin”
- julbaxter 9y agoBut one can argue that his biggest problem with a profit tax is that it disproportionately punishes “low volume, high margin” business models over “high volume, low margin”.
- andruby 9y agoDoes it? Profit is what determines the value to shareholders (of mature steady companies). 10% profit tax is the same amount for comapnies with the same amount of profit.
- charlesdm 9y agoI guess the country where the actual profit is booked (i.e. Ireland) will allow these payments to be deducted from the gross profit, before taxing. But you're right. A business selling airline tickets online from Ireland, running on razor thin margins, will pay a lot of tax. A business selling software licenses at 90% margin will pay very little.
- meddlepal 9y agoTaxing on revenue rather than profit feels wrong. If you run a loss you're still on the hook for taxes? That doesn't make sense to me. How far can the EU push before these companies decide it is not worth having actual businesses there?
- mtkd 9y agoSo how would you fix the national treasury impact of profitless megacorps moving in to a country and taking out layers of smaller businesses (some of whom make profit and pay tax on it)? Are you really going to threaten those countries with taking your non-tax paying elsewhere? Edit: Amazon paid just £15m in tax on European revenues of £19.5bn 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...
- merb 9y agoWell Amazon actually has low profits so they barly pay taxes, because they use all their money in expanding their business. This is actually something which you can do as a german in germany anyways. And since ~2016 or earlier? amazon pays taxes in every country they operate. In germany they even changed the invoice address to be german ~2016-2017. a long time they used luxemburg as their invoice address which was really clever, until it broke out a scandal. http://europa.eu/rapid/press-release_IP-17-3701_en.htm http://europa.eu/rapid/press-release_IP-17-3701_en.htm It contains a good picture, which explained it. And now all sales are recorded in the operating countries. and amazon now needs to provide certain tax related information on a per country basis.
- matthewmacleod 9y agoTaxing on revenue rather than profit feels wrong. If you run a loss you're still on the hook for taxes? That doesn't make sense to me. True, in that it would better to fix the underlying problems that allow companies to pretend they have no profit. In practice though, it’s not likely to be a problem. How far can the EU push before these companies decide it is not worth having actual businesses there? Very, very far. They’re not being pushed much at the moment.
- iagooar 9y ago> Maybe some day European countries will all get together and agree on a single, unified corporate tax level across the European Union. I completely agree. European countries should start thinking more about their shared, common good than how to outrun their partners.
- wrren 9y agoAs an Irish person, I consider this perspective to be hilariously naive. Without tax incentives, our ability to attract foreign direct investment is massively reduced and the jobs that need to attract will instead go to mainland Europe. It might work if we started by establishing a framework of financial transfers between states, but without something like that in place Ireland and a bunch of smaller countries will keep vetoing attempts to normalise tax rates.
- jopsen 9y agoBut you are attracting foreign investment at the expense of everybody else. This is like peeing your pants when it's cold outside, it's nice an warm at first :) If you look at America you'll see what this race to the bottom does. Amazons new headquarter selection process is entirely about luring tax incentives out of various states. These schemes are largely outlawed in the EU, for good reason. The play Ireland makes only works because most of the European governments have too much integrity to play this game, and refuse to be beholden by corporate interest.
- mark_edward 9y agoIf there only thing your country has to offer is tax shelter instead of infrastructure, talent, resources, etc. Maybe work on that
- GFischer 9y agoI wonder how much prodding will they take until they take measures.. if EU successfully does this, you bet that the regressive South American countries will try to ape it. OTOH they can probably take a 2% tax hit. Edit: I was thinking in terms of negotiating strategy for the big companies. Also, I am a citizen in one of said South American countries.
- AsyncAwait 9y ago> if EU successfully does this, you bet that the regressive South American countries will try to ape it. Oh, I forgot I should feel sorry for the richest corporations on this planet, they're being repressed, aren't they? It isn't them defrauding workers by wage fixing, not paying their fair share of taxes etc. it's the EU and the oppressive South American governments, (damm communists! there isn't enough redbaiting in the U.S. these days), thanks for reminding me who is the real victim here.
- GFischer 9y agoI am a South American in a member country of Mercosur, while I'm not happy with Facebook et al doing every tax evasion trick in the book, it doesn't mean that what Mercosur countries do isn't populist... (see: Brazil randomly blocking Whatsapp whenever they want). I was also thinking in terms of business strategy. It's like negotiating with terrorists.
- kolbe 9y agoInteresting. I can't help but think that creating a new tax that almost exclusively hits US companies will simply add fuel to these trade war talks.
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- distances 9y agoWhy do you assume it would almost exclusively affect US companies? They are the names that are usually floated around with this topic, but this doesn't sound at all like it would only affect US companies.
- kolbe 9y agoBecause, according to Reuters, who claims to have seen the draft, it's targeting companies with EU digital revenues in excess of some large amount. After you get above Spotify's digital revenue, the only companies left are American (and Spotify looks like it's exempted). https://www.reuters.com/article/us-eu-tax-digital/eu-plans-new-tax-for-tech-giants-up-to-5-percent-of-gross-revenues-idUSKCN1GA25R https://www.reuters.com/article/us-eu-tax-digital/eu-plans-n...
- walterbell 9y agoWhat’s the minimum revenue to be considered a tech giant?
- Hermel 9y agoIsn’t that essentially the same as VAT, which also is a local tax on revenue?
- cm2187 9y agoI guess if a french advertiser pays Google Ireland to show ads to french consumers it pays Irish VAT.
- ancorevard 9y agoThis is wrong. Taxation should happen where value is created.
- teamhappy 9y agoApple pays taxes in Luxembourg. It doesn't matter where the app developers live or where the people buying the apps live. The money goes to Luxembourg. Is that where the value is created?
- zanny 9y agoIts also arguable to want to collect taxes at point of sale, IE, whenever the person with the phone making the purchase is, or more reasonably where they live. Which is what this proposal is, after all.
- csomar 9y agoThis is stupid and taxation for taxation purposes. It is all annoying. Why not have all taxes generated from sales Tax (VAT). For example, set the VAT for 30% and be done with it. No revenue tax. No profit tax. No capital gain tax. Just determine how much money you'r going to need, estimate the country consumption and then set the VAT. Bonus point? No complicated tax reporting. No tax avoidance or evasion. Everything is simple. But no, we gotta keep the system complicated to freakout new comers, terrorize the current small businesses and enable the big guys to get away with it however sophisticated it is.
- tdb7893 9y agoI'm American so I don't fully understand how VAT tax works but aren't these sorts of sales taxes generally regressive (i.e. poorer people pay a larger share of their income). I think the tax code can be simplified but I don't think a pure VAT system is such an obvious winner
- jopsen 9y agoI always saw VAT as a sales tax that only applies to individuals. When a company buys something it doesn't pay VAT, but it pays it when selling to end-users. Benefit being that if companies A sells a half finished product to company B and company B sells it to a consumer then VAT is only paid once. Where as simple sales taxes would apply to transactions between company A and company B. Thus, incentivizing the formation of a conglomerate company AB consisting of both A and B. Reducing competition and flexibility, favoring big players over small. Am I wrong?
- xyzzyz 9y agoYes, you are completely wrong. This is rather how sales tax works. With VAT, you do pay it on every link of the chain, but then businesses are allowed to recoup it on their purchases, while end-users are not. For example, if you are making and selling chairs, you pay VAT on the wood you are buying, and your buyer is also paying VAT on the chairs they buy from you. However, you are allowed to deduct the VAT you paid for wood from the VAT owed to the government by selling chairs. To make it concrete, suppose you buy wood for $1000, and sell chairs for $2000. Suppose VAT rate is 22%. Then you actually pay $1022 to wood wholesalers, and sell your chairs for $3066. Your sale of the chairs makes you owe $66 to government, but the invoice you got from wood wholesalers allows you to deduct from your tax bill the $22 you already paid when you bought wood, and in the end you only owe $44, which is exactly the 22% of the value you added ($3000-$1000 = $2000).
- drinchev 9y agoWell it's not like we have universal income, but increasing taxes on Fortune 500 companies always makes me happy. I really hope the taxes won't go into another corrupted Berlin airport scheme.
- bambax 9y ago> While they’ve all claimed that everything is legal It very well may be, but here's the thing: the law can be changed. Not retroactively of course, but we can decide about the future.
- EggsOnToast 9y agoBetween the broad nature of the GDPR and now this, it seems like the EU is really just pursuing legislation that disproportionately affects foreign tech companies and making up reasons as they go. Obviously that's entirely conjecture but it's hard to take the justifications for these measures at face value when EU specific scandals like the Volkswagen fiasco result in slaps on the wrist by comparison.
- detaro 9y agoWhy is GDPR disproportionally a problem for foreign tech? You really think there isn't tons of work to do for many local companies as well?
- EggsOnToast 9y ago>Why is GDPR disproportionately a problem for foreign tech? The legal resources being actively applied against foreign companies, and I'm including the legal resources of civil groups that receive state funding in that definition if it matters, is concentrated predominantly on foreign entities. The raw economic impact, in part due to the concentrated nature of the legal action being pursued, is much larger against foreign entities such as FaceBook, Google, etc. Put succinctly, it's disproportionately a problem because the realized effects of the GDPR have been more hostile towards those entities. > You really think there isn't tons of work to do for many local companies as well? I think you're either being rhetorical or you've misunderstood my point. I'm not arguing EU companies don't have any work to do. I'm arguing that from a legislative perspective it's a small trade when you compare the size of the foreign sector to the domestic sector. In my parent comment I acknowledged that this doesn't immediately imply foul play before going on to say that it's hard to not view these actions as such when the EU treats its own corporate scandals/misbehavior so lightly by comparison such as in the case of Volkswagen.
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- Moter8 9y ago
- derriz 9y agoI don't see an actual EU angle in this? It seems like a proposal that the French want to present to the EU council of ministers. At which point it will be dropped as it is simply a tarif in everything but name and has almost zero chance of attracting unanimous support it would require in the council. I'm European but it amuses me that it is always the revenues of American tech companies that seem to provoke such irrational outrage in Europe. I never hear the same outrage caused by the fact that German companies don't pay corporation tax on their sales to China or French aeronautical companies can sell their stuff all over the world without having to pay local corporation tax. If I was cynical, I would suggest that it's motivated ugly jingoism but I don't think it's the case. I've argued with friends and acquaintances about this and they simply refuse to accept that there is anything comparable between American tech companies selling stuff in Europe to European companies selling stuff all over the world. The inconsistency is that my friends will claim to be broadly in favor of "free trade". It's as if the rules of free trade are fine for "old" stuff like cars and aeroplanes, pharmaceuticals, banking, legal services, wine, etc. but not for modern tech/IT. I mean I can understand your position if you're against free trade in general. In that case, putting up tarifs on "foreign" imports is a consistent stance.
- jcfrei 9y agoIf you are dealing with physical goods then establishing where a taxable profit was made is relatively straightforward. For tech companies which only distribute their services over the internet it's much more difficult to determine (from an accounting perspective) which parts of your costs belong to which revenue streams and where exactly a profit was made (geographically).
- krutzger 9y agoThis is exactly what it is. This will allow EU to tax virtual goods.
- derriz 9y agoIs it really relatively more straightforward with physical goods? With modern supply chains, components and raw materials are flying around the globe in a complex dance before they end up on your local store shelf or in an amazon warehouse. I believe there is decades of international tax case law which attempts to cover this with transfer pricing rules. Often it seems tech/IT is simpler. A software engineering team in California write the code, then it's clear that nearly all of the value was created in California. It's fairly easy to price the cost of foreign datacenters for cloud hosting.
- rosege 9y agoThis is definitely a good idea - I believe similar to what happened in the movie industry to combat Hollywood Accounting https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting
- tomcooks 9y ago> It's as if the rules of free trade are fine for "old" stuff like cars and aeroplanes, pharmaceuticals, banking, legal services, wine, etc. but not for modern tech/IT. European Union angle is: stop opening up branches in Luxemburg and Ireland (or other tax havens) to sell products to customers in other EU nations. Aka pay where you generate income. I hope i understood you correctly, but it really has nothing to do with modern tech/IT. Such regulations have been already applied to Ebay, Amazon and other companies which sell the 'old' stuff you are talking about. Just like you, I fail to see where the jingoism would be in forcing non-EU members to pay a fair amount of taxes and punish those who try to exploit the system. EU has _never_ been a free market and if you want to play you have to follow rules (and IMO that's partly why EU refused to sign the TTIP). Same thing for foreign companies trying to export goods to the USA, especially these days - no? [0](https://en.wikipedia.org/wiki/Transatlantic_Trade_and_Investment_Partnership https://en.wikipedia.org/wiki/Transatlantic_Trade_and_Invest...)
- shady-lady 9y ago> pay where you generate income. This doesn't make sense & defeats the point of European Single Market. Sales tax is paid on & goes to the country the item was purchased in. What does make sense is revenue being realized in the country of the company that sold* the product/service. *this being a whole other can of worms. The issues some countries(France/Germany) have are: a) that their country wasn't chosen to be the entrypoint to the EU market b) firms are realizing the revenue in a country which technically owns the product/service IP but is not(in all likelihood) the company's main base. So, let's pretend b) is a legit issue & we change that. The revenue from the sale is not going to go to some other EU country(why would it?). It's going back to the "main" country of the host company. So, let's say $US-multinational didn't pay tax in Ireland or Luxembourg. That money would just flow direct to $caribbean-country(which now would hold all the relevant IP etc.) and held there - similar to what happens now. Because, even if Europe changes it's laws, $US-multinational still gets to game the US tax system cos it's 'better' than paying more in taxes than you legally have to. The next logical choice is for the EU to just bang an import tariff on all US goods/services and let the consuming country collect it. Let's see how that plays out...
- edpichler 9y agoIt’s not companies that pay taxes, it is who consumes their products (us).
- cletus 9y agoThis sort of thing is only a matter of time and entirely reasonable and I'm not surprised at all that it's the EU rather than the US pushing this. The idea that a US company can sell its IP to a foreign subsidiary and then pay "royalties" for use of the IP to reduce US taxable income (all blessed by the IRS) and then pay basically no taxes on this through Double Irish Dutch Sandwich is apparently all fine legally but conceptually, we have a government, a military, infrastructure (roads, bridges, etc) and so on... who exactly is going to pay for all that? More broadly, we have an increasing class of stateless ultrawealthy who really don't pay taxes anywhere. There is any sort of justification for this. Governments waste money. Individuals can direct money to charities more effectively (while this might be true, it's still a net less "tax" paid in donations that would otherwise have gone to tax and tends to have a social climbing element that directs funds to "sexy" causes; no one is contributing money to repair Interstates in Wyoming). It's all just a smokescreen for paying less money to the stable society and political system that makes your wealth even possible. Pay your goddamn taxes. I expect to see a rule for multinationals come about that'll go something like this: if you earned X% of your total global revenue in our country then X% of your total global profit is taxable in our country. And if the EU is the one that brings this about then good for them.
- danbruc 9y agoWhy not put the tax on global_profit * local_revenue / global_revenue?
- jopsen 9y agoYeah, a scheme like that would avoid killing low profit high volume businesses with long supply chains (which is otherwise favored by VAT).
- BrandonM 9y agoThat's sensible, but I think accountants defeat it pretty easily. For example, suppose Acme EU, Inc. has $50MM in revenue from the EU, and $25MM in on-the-ground costs to deliver that revenue. Lo and behold, they also have a bill from The Real Acme, Inc. for $25MM for "intellectual property and technology services". So using your equation, Acme EU would get taxed on $0 × $50MM / $50MM. Of course, we want to have a way to say, "But wait, both Acmes are actually the same company!" I think that's the hard problem to solve.
- danbruc 9y agoIterate recursively, The Real Acme, Inc. obviously also operated in the EU, they made a revenue of $25MM from goods and services they sold to Acme EU, Inc., therefore they owe taxes on global_profit * $25MM / ($25MM + non_EU_revenue). I admittedly didn't really think this through for more than a minute. This also feels like I am reinventing value-added tax, this is definitely not my area of expertise.
- bluecalm 9y agoStill a problem of being based in a "friendly" country which allows for liberal accounting standards.
- sjtgraham 9y agoWhat leverage does the EU believe it has here? Tech companies only put branches in Ireland, Netherlands, etc because of the US tax code. Another jurisdiction will just compete on price and win the business. Jobs will leave (high paying ones at that) the EU, income tax receipts will be hit, unemployment up, wages down. It's just suicide. Corporations and the super-rich are the leading edge of tax arbitrage. Like it or not this is the future of tax for everyone, it's just a question of when technology enables you to do your job remotely.
- bluecalm 9y agoIf they want to sell in European countries they will pay tax on revenue there. They can move manufacturing to the Moon and report profits to authorities on Mars while buying licensing from a company outside the Milky Way and we will still tax them on things they sell here. That's possible because we just need to count their sells on our turf. We don't need a tax treaty with Martians to monitor their books as we do now.
- sjtgraham 9y agoIf there is no nexus, there is no justification to tax. Similarly, if you a widget online from abroad the widget vendor doesn't pay tax where you're domiciled. The best the government can do are import tariffs, hard to see how that works for services IMO.
- gok 9y agoSo when a company is losing money, it will still pay taxes?