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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 dome

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.
    - BartBoch 8y ago
      Sales for a product made elsewhere. I know where you are going with this - the issue is that they don't pay pretty much any taxes due to avoidance, yet they drain the market from the revenue thus limiting the ability for local companies who cannot avoid taxes trying to develop in this space.
briandear 8y ago
If a small country can afford a 0% tax, why shouldn’t they avail themselves to that competitive advantage? Unified tax rates amount to a tariff on more fiscally competitive countries.
- makapuf 8y ago
  They would have the right to do so. And other country might have the right to place a 150% tariff on this country goods. Or place those on the tax haven list. Other countries cannot stop them from applying a zero tax. But those same countries that provide all the markets, infrastructure, schools, manufacturing and support all the population to make it work can also choose not to trade with those.
  - BartBoch 8y ago
    It would be fair, but the EU prohibits it. So the company creates fake expenses in tax-flexible countries to avoid paying taxes in the country, where they generate revenue. That's the issue.
  - stale2002 8y ago
    > can also choose not to trade with those. No, the EU and other trade agreements prohibit this.
- anoncake 8y ago
  The very post you replied to answers your question: You get a race to the bottom. Competition pushes taxes lower than they would be if the democratic government of each country could set them freely as they believe is fair.
  - sbacic 8y ago
    I don't think there's a single government that sets taxes based on fairness. Rather, I'd wager that most governments set taxes as high as they can without suffering consequences such as economic slowdowns or capital flight.
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).
IanCal 8y ago
That sounds like a version of VAT that favours large integrated companies. What are the proposed benefits?
- BartBoch 8y ago
  No tax avoidance. Companies pay millions in taxes just to get them back in refunds. While this is not bad, it starts to look bad when they don't generate fake expenses locally, but they do that in a different country. It means that the money gets neither to the government, nor the local market. So the revenue tax guarantees, that at least government can get that money. Other benefits are virtually no accounting (the money would be taken on a bank level), lower taxes for the majority of society (SMB's paying fraction of what they pay now), no tax-gray areas and limiting to long chains of "middle man".
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.
      - 8y ago

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.
  - BartBoch 8y ago
    Sales for a product made elsewhere. I know where you are going with this - the issue is that they don't pay pretty much any taxes due to avoidance, yet they drain the market from the revenue thus limiting the ability for local companies who cannot avoid taxes trying to develop in this space.

briandear 8y ago

If a small country can afford a 0% tax, why shouldn’t they avail themselves to that competitive advantage? Unified tax rates amount to a tariff on more fiscally competitive countries.

makapuf 8y ago
They would have the right to do so. And other country might have the right to place a 150% tariff on this country goods. Or place those on the tax haven list. Other countries cannot stop them from applying a zero tax. But those same countries that provide all the markets, infrastructure, schools, manufacturing and support all the population to make it work can also choose not to trade with those.
- BartBoch 8y ago
  It would be fair, but the EU prohibits it. So the company creates fake expenses in tax-flexible countries to avoid paying taxes in the country, where they generate revenue. That's the issue.
- stale2002 8y ago
  > can also choose not to trade with those. No, the EU and other trade agreements prohibit this.
anoncake 8y ago
The very post you replied to answers your question: You get a race to the bottom. Competition pushes taxes lower than they would be if the democratic government of each country could set them freely as they believe is fair.
- sbacic 8y ago
  I don't think there's a single government that sets taxes based on fairness. Rather, I'd wager that most governments set taxes as high as they can without suffering consequences such as economic slowdowns or capital flight.

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).

IanCal 8y ago

That sounds like a version of VAT that favours large integrated companies. What are the proposed benefits?

BartBoch 8y ago
No tax avoidance. Companies pay millions in taxes just to get them back in refunds. While this is not bad, it starts to look bad when they don't generate fake expenses locally, but they do that in a different country. It means that the money gets neither to the government, nor the local market. So the revenue tax guarantees, that at least government can get that money. Other benefits are virtually no accounting (the money would be taken on a bank level), lower taxes for the majority of society (SMB's paying fraction of what they pay now), no tax-gray areas and limiting to long chains of "middle man".

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.
    - 8y ago