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Can anyone comment on how this interacts with the idea of the single market? Why can Google Ireland Ltd. be charged a special tax for doing business in France?

by iguy 8y ago

Can anyone comment on how this interacts with the idea of the single market? Why can Google Ireland Ltd. be charged a special tax for doing business in France? In my (limited) understanding I thought this was not supposed to happen, and that most goods and services could automatically be sold EU-wide. France could not charge import duties on Guinness trucks, nor demand that beer good enough to be sold in Ireland is not good enough to be sold in France. (This does not sound at all like the usual discussion of the tax on multination's profits, and whether declaring that your business unit in the Bahamas actually made the profit is avoidance or evasion. It seems to be a brand new tax on some kinds of business-to-business sales.)

jsty 8y ago
There is already a difference in tax (VAT) rates based on the consumer's location. This move would be distinct from import duties or product standards in that it's not really creating a clear barrier to sales across the single market. On the other hand, the really quite high threshold might well be subject to complaints on the basis of distorting the single market. All the large multinationals that would hit the threshold reside in Ireland / Luxembourg, whilst lots of French firms don't hit the threshold and thus gain a competitive advantage. I'm neither a lawyer nor a tax advisor.
- r00fus 8y ago
  Wouldn’t it be more accurate to say that it’s correcting an imbalance? Google operates in France but is able to undercut France businesses for digital content sold to French people ( merchandise is traceable ) because it happens to have an Ireland operation?
  - jsty 8y ago
    IIRC, under EU VAT regs Google Ireland will charge and remit French VAT rates to the French treasury for digital content sold to consumers in France, so there's no imbalance there. The big issue is that digital services, particularly advertising, are so insanely profitable that most governments would also like to get their hands on a proportion of the profits accruing from sales of digital services in their country. They see the fact that Ireland / Luxembourg are able to book all the profit in one jurisdiction as unfair. There's probably not a huge likelihood of that happening any time soon at an EU level, so France has gone with the next best option from their POV. (Tax avoidance strategies that allow a large multinational to not pay much tax to their host country is a different kettle of fish, since most of the benefit of tackling those would probably accrue to the country of incorporation not France - e.g. the Apple settlement)
    - dfilppi 8y ago
      IOW, they see some loot to grab.
  - sbacic 8y ago
    If the imbalance is that an Irish company is more competitive than a French one, then no, not really.
    - BartBoch 8y ago
      In this case, this will be the race to the bottom and smallest countries will be able to charge 0% tax just for the sake of office space rented since their domestic market is small enough to not bring much of income tax (Luxembourg for example). The issue here is with omitting responsibilities. If a company makes hundreds of millions of income in a country, it should pay some taxes there. There is a huge push in Poland now, to introduce non-refundable revenue tax (of 1.5%) on larger companies in place of income tax. This would solve the issue entirely.
      - iguy 8y ago
        That's interesting. Are there large companies who would pay this 1.5%, who do not at present pay much Polish VAT? Or employ many people? Otherwise, why not tweak existing large taxes? You could do it on the employer's social security contribution (i.e. the part paid before not after the nominal salary) to make it sound better.
        BartBoch 8y ago
        Companies like Google, Facebook etc. don't pay taxes in Poland by claiming expenses in Ireland/Holland. Thus they are "at loss" in Poland. The revenue tax would allow no tax avoidance due to that.
        iguy 8y ago
        I understand but disagree about the tax on profits, see https://news.ycombinator.com/item?id=19295683 https://news.ycombinator.com/item?id=19295683 But my question about what Google et. al. actually do in Poland. Is it a sales office for a product made elsewhere? (Few employees, large cash flow.) An engineering office for a product sold elsewhere? (Little VAT, lots of income tax.) Etc.
  - tonyedgecombe 8y ago
    There are plenty of imbalances within the EU, Greece grows olives, Germany grows Volkswagens.
- sbacic 8y ago
  > On the other hand, the really quite high threshold might well be subject to complaints on the basis of distorting the single market. It probably should, but this is certainly not the first time a EU member country has tried (and gotten away with!) protectionism. Some other examples are stricter safety/quality standards that only (surprise!) local businesses' meet and government guarantee of private company debt (I have no idea how this is legal).
iguy 8y ago
On reflection, maybe I can answer my own question (but tell me if I'm wrong): The EU rules demands that, in the market for beer (or trains or spyware) sold in France, the French govt. cannot favor French companies over Irish companies. The buyer must be free to buy from any of them on equal terms. But it does not demand that the market for goods sold in Dublin is identical to the market for goods sold in Paris. Hence the VAT rates may differ, as may other more narrowly focused taxes, like on alcohol, or hotels. This tax is one more like that. A sin tax on spyware. Edit: There remains the issue of deciding where a sale took place. Alcohol to be drunk in Paris has to be physically in Paris (even if the sin tax is collected long before the final sale), but an advertisement shown in Paris could have been bought by a company elsewhere. Why can't every French ad agency open a one-man office in Dublin to avoid this?
acd 8y ago
The issue is that large multi national corporations do advanced tax planning so they pay little or no tax. Usually they move profit vs losses around different countries to zero out the tax plus tax loop holes. French people need French tax so that they can build schools, roads and hospitals. Large corps later benefit from having public infrastructure in the form of advanced labor.

AnthonyMouse 8y ago

> There is a huge push in Poland now, to introduce non-refundable revenue tax (of 1.5%) on larger companies in place of income tax. This would solve the issue entirely. Well, only if you're content with a 1.5% tax rate and a tax that punishes smaller non-vertically integrated companies. They would probably be better off with something like DBCFT using a normal tax rate instead.

BartBoch 8y ago
The idea is to support small companies. I don't see how this would punish small companies at all. Those companies, due to the inability to avoid/reclaim taxes pay more than 10% now (even with an accountant). I know a lot of companies (a few people large) to pay that much.
- AnthonyMouse 8y ago
  > Those companies, due to the inability to avoid/reclaim taxes pay more than 10% now (even with an accountant). I know a lot of companies (a few people large) to pay that much. And a 1.5% rate isn't enough to replace those taxes, so it would be paid on top of them. Moreover, revenue taxes disproportionately impact non-vertically integrated smaller companies. Megacorp is vertically integrated, they pay 1.5%. A supply chain containing twelve smaller companies pay 1.5% each, which compounds into nearly 20%.
  - BartBoch 8y ago
    Actually, it is. The 1.5% tax rates will bring more than the current system. This is not something made up. This was well researched and whole armies of economists are behind it. More and more countries are considering it. Now megacorps don't pay taxes at all, so what's better?
    - AnthonyMouse 8y ago
      > The 1.5% tax rates will bring more than the current system. Under your current economic structure, surely. But once you make it so that companies can reduce their supply chain's tax burden from ~20% to 1.5% by becoming vertically integrated, what do you expect to happen next? > Now megacorps don't pay taxes at all, so what's better? Option one is income tax at e.g. 20%, local companies pay 20% while megacorps pay ~0%. Option two is revenue tax at e.g. 1.5%, non-vertically integrated companies cumulatively pay ~20% while megacorps pay 1.5%. Option three is something like 20% DBCFT, so that everyone who sells domestically pays 20%. This is the better option. Arguing that two is better than one is a false dichotomy that preserves most of the bad consequences of existing system (multinational megacorps pay less than others) while introducing some new ones (highly advantageous to become a vertically integrated conglomerate).
      - BartBoch 8y ago
        I am surprised about you saying it would be 20% for small business. What (optimized) market requires for a raw source to change hands 13 times before it is a final product (mind that we are talking small business here). The revenue tax would force the market to optimize and become more competitive. And even if megacorps would grow vertically - that's OK, since this would force them to grow locally, take parts of the market and optimize it. It's a win-win. I also don't think DBCFT would work in an OPEN market like EU. Your opinion seems very US-oriented, while this thread is about EU. The EU rules and tax system is completely different to US and it cannot be compared. DBCFT could work if the issue would be EU vs World, not EU within.
        AnthonyMouse 8y ago
        > What (optimized) market requires for a raw source to change hands 13 times before it is a final product (mind that we are talking small business here). That is how many things work. One company sells saplings, another operates a tree farm, another logs the trees and transports them to the sawmill, another operates the sawmill, another distributes the bulk lumber to wholesalers in different cities, another operates warehouses and wholesales the lumber to local businesses, another shapes the lumber into custom forms, another assembles the custom lumber into unfinished furniture, another finishes and paints the furniture, another wholesales the finished furniture, another packages the furniture into prepackaged furniture sets, another retails the furniture sets, and then finally the end customer buys it. This is not inefficiency, it's specialization. Operating a sawmill is not the same skill set as retailing prepackaged furniture sets. > The revenue tax would force the market to optimize and become more competitive. It would force the market to vertically integrate and become less competitive. > And even if megacorps would grow vertically - that's OK, since this would force them to grow locally, take parts of the market and optimize it. Megacorps don't have to grow vertically, they already are. It's why the tax gives them an advantage over local businesses that aren't. And they wouldn't to do so locally. They could just show up with an imported finished product and retail it directly themselves. > I also don't think DBCFT would work in an OPEN market like EU. DBCFT is basically VAT. The primary difference is that local wages are deductible. It does not seem like a real problem to allow for "local wages" to mean anywhere within the EU rather than only in the sale destination country. Or to just use VAT instead if you like, though the wage deduction from VAT does seem like a good idea in general (since wages are already taxed to the employee and double taxing employment is undesirable). > The EU rules and tax system is completely different to US and it cannot be compared. If you're designing new tax rules, you can compare the new rules to whatever you want. The EU could implement the US system verbatim or vice versa if they wanted to and had the votes.

sbacic 8y ago

There would be no race to the bottom if there was a real, tangible benefit to being established in a high tax country - ie, better public services, a more educated workforce, more business friendly environment, etc. As it is right now, very few countries justify their tax rates and that prompts people and businesses to do the rational thing and go where they pay less for the same thing. I think it's very concerning that European countries are so focused on taxing access to their market rather than asking themselves the question of what they can offer to businesses and individual to make them more interesting as places to settle down or establish a company.

anoncake 8y ago
A country does not have to justify its tax rates before Facebook. A country should focus on serving its citizens, not multinationals.
- barry-cotter 8y ago
  A company does not have to justify its business practices to anyone but its shareholders. A company should focus on serving its shareholders, not politicians.
- sbacic 8y ago
  It most certainly does - both to its citizens and the companies that do business there. Otherwise, the implicit idea that your taxes pay for public services is chucked out of the window and we're left with taxation as just another expense to be avoided if possible.
  - anoncake 8y ago
    Only to its citizens. Not to companies. The idea behind taxes is not to pay for public services, but for whatever the citizens want to use them for (which happens to include public services of course). Companies aren't allowed to vote for a reason.
    - sbacic 8y ago
      Keep in mind that companies are not just large multinationals but also small mom and pop stores, freelancers and everything in between. I hope you understand how deeply hypocritical it is to tout paying taxes as a moral obligation while at the same time refusing to be held accountable for how that money is being spent or denying companies a voice.
      - anoncake 8y ago
        And many companies are owned by citizens whose opinions actually matter just as much as those who don't own a company. > I hope you understand how deeply hypocritical it is to tout paying taxes as a moral obligation while at the same time refusing to be held accountable for how that money is being spent or denying companies a voice. There's nothing hypocritical about not wanting corporations to have even more power than they already have.
    - growlist 8y ago
      You seem to be labouring under the delusion that voting actually changes anything.
      - anoncake 8y ago
        Not enough. In part, that's because companies have to much of a voice.
BartBoch 8y ago
I think you are completely missing what's going on... Google generates revenue in Poland. They have operations in Poland and all (so they use all the public goods like employees, infrastructure, safety etc.). They should pay taxes in tens of millions of Euros for this. But instead, they generate fake expense in Ireland, send an invoice to the Polish office, call it "branding" or something else, the invoice is big enough to generate a loss. They do not need to pay taxes in Poland since they are at "loss". That's the issue. Not that Ireland has a different tax system. The issue is that companies are allowed to avoid taxes by generating fake expenses and the EU prohibits other countries from doing anything with it really. IMO 1,5% fixed tax is very attractive rate.
- sbacic 8y ago
  I'm genuinely curious - what operations does Google have in Poland? I was under the impression that all the "valuable" stuff was being made in the US and that their subsidiaries just handle localization, support and local sales. Is that incorrect? If that is correct, then it makes perfect sense to shift profits - after all, it's not like Google Poland just came up with their new foobuz algorithm that is providing value. They're just selling it there.
  - JetSpiegel 8y ago
    > local sales > They're just selling it there. This is literally the money generating part, the rest are cost centers.
NicoJuicy 8y ago
You are pretty wrong. Taxes aren't about limiting market access, tariffs are. Taxes are ways to keep the money in the country, reinvest it so it ripples back to the civilians. Tech companies are avoiding this.
- sbacic 8y ago
  What is the difference between a tax, a tariff and a fine?
  - NicoJuicy 8y ago
    A fine = following the rules & earning money. Ps. I hope your being sarcastic
    - sbacic 8y ago
      I was not being sarcastic - the question was purely rhetorical. From the company's perspective - there is no difference because they all result in the same thing - transfer of money from the company to the government.
      - NicoJuicy 8y ago
        They are not the same thing. You break the rules = fine A political protection against something from other countries ( eg. Dumping and killing the internal market) = tariff Taxes = helping the country/nation, based in money you earned from civilians/local businesses there These are very different things.
        rlanday 8y ago
        That’s not really true. Tariffs are clearly a form of tax. Both taxes and fines are used to discourage undesirable behavior. One difference is businesses typically assess on their own how much they owe in taxes, whereas the government tells them how much they owe in fines.