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This is from earlier this year, so the debate may have progressed since then, but Sweden and Denmarks' concerns seem to stem from the way in which the EU aims t

This is from earlier this year, so the debate may have progressed since then, but Sweden and Denmarks' concerns seem to stem from the way in which the EU aims to apply the tax. >“A digital services tax deviates from fundamental principles of income taxation by applying the tax on gross income, i.e. without regard to whether the taxpayer is making a profit or not,” Swedish Finance Minister Magdalena Andersson, and her counterparts from Denmark and Finland, Kristian Jensen and Petteri Orpo, said in a joint statement on Friday. https://www.reuters.com/article/us-eu-digital-tax/nordic-countries-oppose-eu-plans-for-digital-tax-on-firms-turnover-idUSKCN1IW337 https://www.reuters.com/article/us-eu-digital-tax/nordic-cou...

exDM69 8y ago
I guess the reason for applying the tax this way is that tech giants (and non-tech corporations) use creative accounting tricks to avoid making a profit and thus paying taxes to the countries they operate in. It's either disguised as loan interest repayment or licensing fees, but the goal is tax avoidance.
friedman23 8y ago
I'm so happy the people of Sweden are sane, my biggest problem with these taxes is that they are on revenue which essentially makes all low margin internet businesses unprofitable. How does that benefit consumers?
- Ragnarork 8y ago
  Facebook, Amazon and co. are "low margin internet businesses"?
  - friedman23 8y ago
    Facebook no, Amazon started as one yes.
- klez 8y ago
  Honest question: why should I as a person be taxed on income (the closest I guess I can get to the concept of revenue) but a business should be taxed on profit? Can anyone explain to me the basis for such a distinction?
  - friedman23 8y ago
    Income taxes are a badly implemented tax so you wont get an argument from me there. We shouldn't be extending bad policy.
  - 0xffff2 8y ago
    (The following based on US income taxes) You as a person don't have a clear "profit" to tax. I would argue that the system of deductions is the nearest equivalent to taxing your individual income on your profits.
  - CompelTechnic 8y ago
    Let's say you operate a low margin business, such as a gas station. All numbers are before tax. For the year, you spend $1,000,000 paying for fuel, convenience store supplies, electricity, wages, etc. You get $1,050,000 in revenue from your customers, for a fairly realistic margin of 5%. Now let's say you run a software business. You pay $500,000 in electric bills, computers, wages, etc, and collect $1,000,000 in revenue for a margin of 50%. Would you rather live in a society where the gas station pays MORE tax than the software business? This would be the case if you taxed revenue instead of profit. If the revenue-tax rate were 4%, the owner of the gas station would be left with $10,000 at the end of the year, and the owner of the software business would be left with $460,000. Bringing these numbers back into normal, profit-based terms, the gas station owner would be paying an effective tax rate of 80%, with the software business owner paying an effective tax rate of 8%. If businesses were taxed on revenue instead of profit, low margin businesses and capital intensive businesses would be punished disproportionately. Businesses often face unplanned expenses or loss of revenue. This would have the effect of forcing businesses to raise prices to compensate for the increased risk, and would force lots out of business. This reduced economic activity would be bad for consumers, producers, the government, and society as a whole. Individual people's income taxes cannot be treated this way, because the closest analogy to "business expenses" for a person's lifestyle is their cost of living. If cost of living were deductible it would be highly gameable and ripe for abuse by numerous parties.
- pjc50 8y ago
  The margins of businesses like Amazon are largely a matter of fiction, since the subsidiaries can make arbitary charges among themselves: https://www.theguardian.com/technology/2012/apr/04/amazon-fulfilment-less-tax-uk-activities https://www.theguardian.com/technology/2012/apr/04/amazon-fu...
  - friedman23 8y ago
    A better solution would be to implement stricter accounting standards across the EU so that such tax dodges wouldn't be possible. This would solve the actual problem.
    - richardwhiuk 8y ago
      So they setup a business outside of the EU's jurisdiction and move the profit their? So all of the business in the EU is done at net no revenue (sales - costs - 'licensing fees' == 0). What accounting standard means that business is making a profit in the EU?
      - dbdjfjrjvebd 8y ago
        You could apply a tarrif on the licensing fees? This might upset the WTO.
    - pjc50 8y ago
      Loophole free tax law is like bug free code: much harder than it sounds. Especially since the EU countries are actually independent and can have their own tax law.
      - unpopular42 8y ago
        Actually, it's not that hard. It only becomes hard when you try to use taxes to induce the set of behaviours you want. And then, completely suddenly Goodhart's law kicks in.
mabbo 8y ago
It's an intriguing concept. What effect would a tax purely on size (income rather than profit) have on the world economy, if everyone were to adopt such policies? It would discourage large companies and encourage small ones. It seems like employees do better when there is a bigger and more diverse marketplace for work, ie, many smaller companies. So they would win out, hopefully. Customers may or may not do better. It would encourage companies to keep prices low to reduce gross income, and give an advantage to incumbents in the same marketplace. But one Amazon with it's fulfillment centers, delivery networks, etc, is more efficient than two overlapping half-sized Amazons. Twice the delivery trucks means twice the delivery costs and pollution. Overall I'd be for such a system, provided it were not too onerous and didn't target specific companies.
- friedman23 8y ago
  >What effect would a tax purely on size (income rather than profit) have on the world economy, if everyone were to adopt such policies? It would discourage large companies and encourage small ones. How so? Your argument makes 0 sense because the tax is proportional regardless of size. What it will encourage is high margin business and it will discourage low margin business. Larger businesses are able to increase their margins because of increased efficiencies.
  - mabbo 8y ago
    No, taxes are based on profits. I work for Amazon, which notoriously has nearly zero profit most years. The company pours money into investments instead. That's how it's gotten so big. What I'm saying is that if there were a small additional tax on giants based purely on their company value or gross sales, it would 'level the playing field' for incumbents who don't have the efficiencies of scale that the big companies have, which I think is beneficial to society.
- jopsen 8y ago
  It seems more like companies would have stronger incentives to keep the profit margin high.. I would be concerned if low profit margins is a problem.. companies with a low profit margin is the reason we can afford so much stuff.
ionised 8y ago
Why should we care whether they are making a profit or not? There are so many ways a company can legally and artificially lower its profit numbers.
- EpicEng 8y ago
  >Why should we care whether they are making a profit or not? Because it is generally in everyone's best interest for companies to invest in themselves rather than increase margin at all costs. Growth is good. Many companies would simply go under if you tax them on revenue. >There are so many ways a company can legally and artificially lower its profit numbers Then you try to cut those off as much as possible. Like most things in the real world, there's no perfect solution, but we weigh the pros and cons and make a decision.
  - ionised 8y ago
    > Growth is good Given our current economic situation and our effect on our environment I'm not convinced that it is that simple.
    - EpicEng 8y ago
      Well it's not of course, and you're right in a way. It's also not good for a whole host of low margin / capital heavy businesses to tank.
_Codemonkeyism 8y ago
The way tech companies are reducing income to zero by shifting around IP and IP license costs it's sadly impossible to tax income. So either tax revenue (or at VAT to digital goods delivered in a country like ads) or close IP license loopholes.
_Codemonkeyism 8y ago
"Yet the Nordic countries, which are home to several large digital companies like Sweden-based music streaming service Spotify (SPOT.N) [...]"

exDM69 8y ago

I guess the reason for applying the tax this way is that tech giants (and non-tech corporations) use creative accounting tricks to avoid making a profit and thus paying taxes to the countries they operate in. It's either disguised as loan interest repayment or licensing fees, but the goal is tax avoidance.

friedman23 8y ago

I'm so happy the people of Sweden are sane, my biggest problem with these taxes is that they are on revenue which essentially makes all low margin internet businesses unprofitable. How does that benefit consumers?

Ragnarork 8y ago
Facebook, Amazon and co. are "low margin internet businesses"?
- friedman23 8y ago
  Facebook no, Amazon started as one yes.
klez 8y ago
Honest question: why should I as a person be taxed on income (the closest I guess I can get to the concept of revenue) but a business should be taxed on profit? Can anyone explain to me the basis for such a distinction?
- friedman23 8y ago
  Income taxes are a badly implemented tax so you wont get an argument from me there. We shouldn't be extending bad policy.
- 0xffff2 8y ago
  (The following based on US income taxes) You as a person don't have a clear "profit" to tax. I would argue that the system of deductions is the nearest equivalent to taxing your individual income on your profits.
- CompelTechnic 8y ago
  Let's say you operate a low margin business, such as a gas station. All numbers are before tax. For the year, you spend $1,000,000 paying for fuel, convenience store supplies, electricity, wages, etc. You get $1,050,000 in revenue from your customers, for a fairly realistic margin of 5%. Now let's say you run a software business. You pay $500,000 in electric bills, computers, wages, etc, and collect $1,000,000 in revenue for a margin of 50%. Would you rather live in a society where the gas station pays MORE tax than the software business? This would be the case if you taxed revenue instead of profit. If the revenue-tax rate were 4%, the owner of the gas station would be left with $10,000 at the end of the year, and the owner of the software business would be left with $460,000. Bringing these numbers back into normal, profit-based terms, the gas station owner would be paying an effective tax rate of 80%, with the software business owner paying an effective tax rate of 8%. If businesses were taxed on revenue instead of profit, low margin businesses and capital intensive businesses would be punished disproportionately. Businesses often face unplanned expenses or loss of revenue. This would have the effect of forcing businesses to raise prices to compensate for the increased risk, and would force lots out of business. This reduced economic activity would be bad for consumers, producers, the government, and society as a whole. Individual people's income taxes cannot be treated this way, because the closest analogy to "business expenses" for a person's lifestyle is their cost of living. If cost of living were deductible it would be highly gameable and ripe for abuse by numerous parties.
pjc50 8y ago
The margins of businesses like Amazon are largely a matter of fiction, since the subsidiaries can make arbitary charges among themselves: https://www.theguardian.com/technology/2012/apr/04/amazon-fulfilment-less-tax-uk-activities https://www.theguardian.com/technology/2012/apr/04/amazon-fu...
- friedman23 8y ago
  A better solution would be to implement stricter accounting standards across the EU so that such tax dodges wouldn't be possible. This would solve the actual problem.
  - richardwhiuk 8y ago
    So they setup a business outside of the EU's jurisdiction and move the profit their? So all of the business in the EU is done at net no revenue (sales - costs - 'licensing fees' == 0). What accounting standard means that business is making a profit in the EU?
    - dbdjfjrjvebd 8y ago
      You could apply a tarrif on the licensing fees? This might upset the WTO.
  - pjc50 8y ago
    Loophole free tax law is like bug free code: much harder than it sounds. Especially since the EU countries are actually independent and can have their own tax law.
    - unpopular42 8y ago
      Actually, it's not that hard. It only becomes hard when you try to use taxes to induce the set of behaviours you want. And then, completely suddenly Goodhart's law kicks in.

mabbo 8y ago

It's an intriguing concept. What effect would a tax purely on size (income rather than profit) have on the world economy, if everyone were to adopt such policies? It would discourage large companies and encourage small ones. It seems like employees do better when there is a bigger and more diverse marketplace for work, ie, many smaller companies. So they would win out, hopefully. Customers may or may not do better. It would encourage companies to keep prices low to reduce gross income, and give an advantage to incumbents in the same marketplace. But one Amazon with it's fulfillment centers, delivery networks, etc, is more efficient than two overlapping half-sized Amazons. Twice the delivery trucks means twice the delivery costs and pollution. Overall I'd be for such a system, provided it were not too onerous and didn't target specific companies.

friedman23 8y ago
>What effect would a tax purely on size (income rather than profit) have on the world economy, if everyone were to adopt such policies? It would discourage large companies and encourage small ones. How so? Your argument makes 0 sense because the tax is proportional regardless of size. What it will encourage is high margin business and it will discourage low margin business. Larger businesses are able to increase their margins because of increased efficiencies.
- mabbo 8y ago
  No, taxes are based on profits. I work for Amazon, which notoriously has nearly zero profit most years. The company pours money into investments instead. That's how it's gotten so big. What I'm saying is that if there were a small additional tax on giants based purely on their company value or gross sales, it would 'level the playing field' for incumbents who don't have the efficiencies of scale that the big companies have, which I think is beneficial to society.
jopsen 8y ago
It seems more like companies would have stronger incentives to keep the profit margin high.. I would be concerned if low profit margins is a problem.. companies with a low profit margin is the reason we can afford so much stuff.

ionised 8y ago

Why should we care whether they are making a profit or not? There are so many ways a company can legally and artificially lower its profit numbers.

EpicEng 8y ago
>Why should we care whether they are making a profit or not? Because it is generally in everyone's best interest for companies to invest in themselves rather than increase margin at all costs. Growth is good. Many companies would simply go under if you tax them on revenue. >There are so many ways a company can legally and artificially lower its profit numbers Then you try to cut those off as much as possible. Like most things in the real world, there's no perfect solution, but we weigh the pros and cons and make a decision.
- ionised 8y ago
  > Growth is good Given our current economic situation and our effect on our environment I'm not convinced that it is that simple.
  - EpicEng 8y ago
    Well it's not of course, and you're right in a way. It's also not good for a whole host of low margin / capital heavy businesses to tank.

_Codemonkeyism 8y ago

The way tech companies are reducing income to zero by shifting around IP and IP license costs it's sadly impossible to tax income. So either tax revenue (or at VAT to digital goods delivered in a country like ads) or close IP license loopholes.

_Codemonkeyism 8y ago

"Yet the Nordic countries, which are home to several large digital companies like Sweden-based music streaming service Spotify (SPOT.N) [...]"