7 ms·

I 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 dr

by derriz 9y ago

I 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 ago
If 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 ago
  This is exactly what it is. This will allow EU to tax virtual goods.
- derriz 9y ago
  Is 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.
  - doktrin 9y ago
    > 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. I don't follow. Just because the software was written in California doesn't mean they don't have customers and derive profit from other regions. Likewise, sales tax on physical goods is applied at the point of sale, not manufacturing.
    - derriz 9y ago
      I should have made clear that I was discussing corporation tax where the principle is that where the value is created determines how the generated profit should be subjected to tax. This is the principle behind the current international tax system for corporations, I believe. But actually my point was really to try to refute the intuitively attractive idea that intangibles are more difficult to tax than physical goods within this framework. Taxing consumer goods is extremely complex these days because of global supply chains and vertical integration. On the other hand in many cases, services like legal work, consulting, etc. are simple to tax under this system despite the fact that intangibles are being traded.
      - jcfrei 9y ago
        Not intangibles in general but websites in particular make it very difficult. I think there's just not detailed enough reporting available to associate revenue and costs. And if you would create much more extensive reporting frameworks you would likely put a huge burden on small companies. Let's take the facebook news feed as an example. Loading just the page might cause requests from CDNs in three different countries. Then the frontend might have been written in the UK and the backend in the US. The ads manager for the ad you just clicked worked in Germany. I doubt any modern IT company can track expenses on that level of detail. And associating costs with revenues is non-trivial either: Did the front end contribute to the revenue generated with the ad click? Did the backend or just the work of the ads manager in Germany? There's so much leeway for companies right now. IT companies like Google and Facebook have one single product (ads) that generates most of their revenues. The country where the revenue occurred can be easily established (eg. an ad sold to a German company). But the costs to create this product (the whole platform) have been accrued all over the world. Without intimate knowledge of the corporate structure and the technical setup companies can basically tell you any story about where these costs were incurred.
- EggsOnToast 9y ago
  I think there's a second angle to this, which is that the assumption in your example is that the tech company is the one distributing the good within a particular country. There's an argument to be made that, unless the company has hardware housed in the nation, the transaction equally resembles someone crossing the border to purchase a good and then coming back across.
batmansmk 9y ago
You are not very data driven :). Facebook in UK paid £5.1M in tax for £842.4M in revenues. Criteo in USA paid $83M sold for $332M. The effective tax rate of the GAFA is 8% versus 25% for traditional export companies such as Airbus.
- derriz 9y ago
  Maybe :) but if you're going to provide numbers like that, then I'd be interested in hearing, for example, how much foreign corporation tax was paid by French aeronautical companies on their 50B worth of exports? Or German car companies on their 100B worth of exports? Or any UK companies on their exports?
- tonfa 9y ago
  Wasn't the 8% due to the deferment of foreign income tax? And with the US tax reform they will pay it for all those years of accumulated profit (and they are no longer able to defer it). Eg. Alphabet had a 3B loss last quarter due to taxes.
Tarq0n 9y ago
Just like Amazon's search for a new HQ, taxation based on borders is broken in a globalized world. Megacorporations can shop around to find a tax regime they like, playing countries off against each other to get a good deal. [0] Reaching for solutions that either provide for extraterritoriality is only logical, given how impossible it is to unify the whole world behind a common tax scheme. It's a typical tragedy of the commons. [0] https://www.reuters.com/article/us-google-tax/google-accounts-show-11-billion-euros-moved-via-low-tax-dutch-sandwich-in-2014-idUSKCN0VS1GP https://www.reuters.com/article/us-google-tax/google-account...
- downunderman 9y ago
  It would be interesting to ponder where would companies choose to go if every nation harmonised their tax system globally. Removing all tax incentive.
  - tonyedgecombe 9y ago
    We are heading to a harmonised tax system, zero corporation tax everywhere.
    - freeflight 9y ago
      "Harmonised tax system" makes it sounds so nice and useful, let's rather call it what it actually is: A race to the bottom, without an actual bottom. It's not just zero tax, in some cases they are literally handing out incentives, at the expense of the remaining taxpayers.
  - dane-pgp 9y ago
    Or, slightly more achievably, imagine that the EU and a few other economically large countries agreed that any corporation with more than, say, a billion dollars in annual revenue has to pay at least X% effective tax rate somewhere (and report their accounts to each of the countries concerned), or be forbidden from operating within any of their borders. Extra rules would need to be in place to stop large corporations splitting themselves into smaller smurf companies, but the X% number could initially be set to a value which doesn't cause any low-tax countries to lose any corporations which base themselves there.
Symbiote 9y ago
> always the revenues of American tech companies Clearly not. Vodafone: https://www.theguardian.com/uk-news/2014/jun/14/uk-uncut-vodafone https://www.theguardian.com/uk-news/2014/jun/14/uk-uncut-vod... Topshop: https://www.theguardian.com/business/gallery/2010/dec/04/uk-uncut-protest-tax https://www.theguardian.com/business/gallery/2010/dec/04/uk-... Barclays: https://www.theguardian.com/uk/2011/feb/19/barclays-ban-protests-tax-avoidance https://www.theguardian.com/uk/2011/feb/19/barclays-ban-prot...
eeZah7Ux 9y ago
> anything comparable between American tech companies selling stuff in Europe to European companies selling stuff all over the world Many european companies are located in their countries of origin where they cannot dodge certain taxes on revenue, profit, employees salaries/pensions, environment, local taxes and so on. OTOH the famous tech companies use extremely aggressive tax avoidance schemes (e.g. the Double Irish and so on).

by derriz 9y ago

jcfrei 9y ago

If 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 ago
This is exactly what it is. This will allow EU to tax virtual goods.
derriz 9y ago
Is 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.
- doktrin 9y ago
  > 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. I don't follow. Just because the software was written in California doesn't mean they don't have customers and derive profit from other regions. Likewise, sales tax on physical goods is applied at the point of sale, not manufacturing.
  - derriz 9y ago
    I should have made clear that I was discussing corporation tax where the principle is that where the value is created determines how the generated profit should be subjected to tax. This is the principle behind the current international tax system for corporations, I believe. But actually my point was really to try to refute the intuitively attractive idea that intangibles are more difficult to tax than physical goods within this framework. Taxing consumer goods is extremely complex these days because of global supply chains and vertical integration. On the other hand in many cases, services like legal work, consulting, etc. are simple to tax under this system despite the fact that intangibles are being traded.
    - jcfrei 9y ago
      Not intangibles in general but websites in particular make it very difficult. I think there's just not detailed enough reporting available to associate revenue and costs. And if you would create much more extensive reporting frameworks you would likely put a huge burden on small companies. Let's take the facebook news feed as an example. Loading just the page might cause requests from CDNs in three different countries. Then the frontend might have been written in the UK and the backend in the US. The ads manager for the ad you just clicked worked in Germany. I doubt any modern IT company can track expenses on that level of detail. And associating costs with revenues is non-trivial either: Did the front end contribute to the revenue generated with the ad click? Did the backend or just the work of the ads manager in Germany? There's so much leeway for companies right now. IT companies like Google and Facebook have one single product (ads) that generates most of their revenues. The country where the revenue occurred can be easily established (eg. an ad sold to a German company). But the costs to create this product (the whole platform) have been accrued all over the world. Without intimate knowledge of the corporate structure and the technical setup companies can basically tell you any story about where these costs were incurred.
EggsOnToast 9y ago
I think there's a second angle to this, which is that the assumption in your example is that the tech company is the one distributing the good within a particular country. There's an argument to be made that, unless the company has hardware housed in the nation, the transaction equally resembles someone crossing the border to purchase a good and then coming back across.

batmansmk 9y ago

You are not very data driven :). Facebook in UK paid £5.1M in tax for £842.4M in revenues. Criteo in USA paid $83M sold for $332M. The effective tax rate of the GAFA is 8% versus 25% for traditional export companies such as Airbus.

derriz 9y ago
Maybe :) but if you're going to provide numbers like that, then I'd be interested in hearing, for example, how much foreign corporation tax was paid by French aeronautical companies on their 50B worth of exports? Or German car companies on their 100B worth of exports? Or any UK companies on their exports?
tonfa 9y ago
Wasn't the 8% due to the deferment of foreign income tax? And with the US tax reform they will pay it for all those years of accumulated profit (and they are no longer able to defer it). Eg. Alphabet had a 3B loss last quarter due to taxes.

Tarq0n 9y ago

Just like Amazon's search for a new HQ, taxation based on borders is broken in a globalized world. Megacorporations can shop around to find a tax regime they like, playing countries off against each other to get a good deal. [0] Reaching for solutions that either provide for extraterritoriality is only logical, given how impossible it is to unify the whole world behind a common tax scheme. It's a typical tragedy of the commons. [0] https://www.reuters.com/article/us-google-tax/google-accounts-show-11-billion-euros-moved-via-low-tax-dutch-sandwich-in-2014-idUSKCN0VS1GP https://www.reuters.com/article/us-google-tax/google-account...

downunderman 9y ago
It would be interesting to ponder where would companies choose to go if every nation harmonised their tax system globally. Removing all tax incentive.
- tonyedgecombe 9y ago
  We are heading to a harmonised tax system, zero corporation tax everywhere.
  - freeflight 9y ago
    "Harmonised tax system" makes it sounds so nice and useful, let's rather call it what it actually is: A race to the bottom, without an actual bottom. It's not just zero tax, in some cases they are literally handing out incentives, at the expense of the remaining taxpayers.
- dane-pgp 9y ago
  Or, slightly more achievably, imagine that the EU and a few other economically large countries agreed that any corporation with more than, say, a billion dollars in annual revenue has to pay at least X% effective tax rate somewhere (and report their accounts to each of the countries concerned), or be forbidden from operating within any of their borders. Extra rules would need to be in place to stop large corporations splitting themselves into smaller smurf companies, but the X% number could initially be set to a value which doesn't cause any low-tax countries to lose any corporations which base themselves there.

Symbiote 9y ago

> always the revenues of American tech companies Clearly not. Vodafone: https://www.theguardian.com/uk-news/2014/jun/14/uk-uncut-vodafone https://www.theguardian.com/uk-news/2014/jun/14/uk-uncut-vod... Topshop: https://www.theguardian.com/business/gallery/2010/dec/04/uk-uncut-protest-tax https://www.theguardian.com/business/gallery/2010/dec/04/uk-... Barclays: https://www.theguardian.com/uk/2011/feb/19/barclays-ban-protests-tax-avoidance https://www.theguardian.com/uk/2011/feb/19/barclays-ban-prot...

eeZah7Ux 9y ago

> anything comparable between American tech companies selling stuff in Europe to European companies selling stuff all over the world Many european companies are located in their countries of origin where they cannot dodge certain taxes on revenue, profit, employees salaries/pensions, environment, local taxes and so on. OTOH the famous tech companies use extremely aggressive tax avoidance schemes (e.g. the Double Irish and so on).