4 ms·

If you're interested, you can estimate the profit on revenue in all countries relatively easily by multiplying the country revenue by the overall margin. These

by derriz 7y ago

If you're interested, you can estimate the profit on revenue in all countries relatively easily by multiplying the country revenue by the overall margin. These numbers tell you how much profit _Apple USA_ made in those countries. Say Apple USA typically makes $300 on an $800 iphone sold in Germany. Where should this $300 be taxed? To me, it seems perfectly reasonable that most of it is taxed in the US, since the iPhone was invented, developed, engineered in the US and ultimately the business and product was created in the US. And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains. If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany, then you are claiming that the innovation, engineering and design that occurred in the US contributed ZERO value to the iPhone. And even if you did that, it would not change Apple's tax liability (much) as it would just mean shifting corporation tax rights from the US to Germany. It's not strange that all the European calls for shifting the right to tax corporates from the countries where they do the most work/create the value to other countries only seem to apply to "internet giants" but not "car giants" or "aviation giants" or "food giants" which whould result in European countries having to give up large amounts of corporation tax income to other countries.

mytailorisrich 7y ago
> If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany That's just complying with the law. The rest of your comment is irrelevant and is not how taxation works. This is solely an issue of accounting and tax rules that allow an international company to effectively be taxed wherever this suits it best, i.e. where the rate is lowest, be reporting no or very low profits in countries with higher rates because 'profit' depends on many parameters which an international company can tweak. This is very difficult to prevent legally because the rules companies use are reasonable when running a business and thus cannot realistically be removed. The only solution left is therefore to tax what cannot be tweaked: revenue.
- derriz 7y ago
  No it's not complying with any law. For example, Germany car exporters do not pay corporation tax on the _whole_ supply chain profit in the countries where sales are ultimately made. Of that example $800 retail price, the cost break down (I'm making up these figures) might look something like: $80 German sales tax, $50 for the German retail outlet, $30 Germany logistics and distribution, $50 Ireland internationalization and packaging, $70 Chinese manufacturing, $250 USA engineering and development. I don't see why you feel the correct thing would be for Germany to tax all of the $300 profit, given Ireland, China and particularly the US contributed far more to the value of the finished product. This idea - when a product or service involves international supply chains - that the profit is taxable based on where the value was created has been the basis of interational trade. And there are huge bodies of work and accounting rules on how corporations are allowed to split that $800 up among all the countries involved in the supply chain.
  - mytailorisrich 7y ago
    You mentioned profits in Germany, now you're talking about the whole supply chain's profit or cost... It's difficult to follow your argument. The issue, which I explained, is that they can set prices along the supply chain to arbitrarily end up with 0 profit in Germany (following your example) and all the profit with a notional trading or licensing subsidiary located where tax is lowest.
    - derriz 7y ago
      If it's difficult to follow my argument that's my fault. I should have been more clear about the distinction between "profits on sales in Germany" and "profits made by the German operation". The $300 is the (global) profit on the sale in Germany. The profit made by the German operation would be relatively small in this case - assuming for example that the Germany operation is purely involved in logistics and retail. These type of operations are quite low margin. It is simply not the case that corporations can arbitrarily set the prices along the supply chain for accounting purposes. There are decades of international tax case law to determine where profits can be assigned in a global supply chain. Transfer pricing is governed very strictly. Clearly, in this example, the German logistics and retail can only claim a very small proportion of the value - given that typically their profits are single digit percentages. The US can claim nearly all of it since it's US engineering which adds the most value (like German engineering adds the most value to a car sold in the US).
hoi 7y ago
So if company Y created a genetic variant of a vegetable in Country X, and if this vegetable is shipped and sold in supermarkets around the world, the profit made from sales of that vegetable should only be charged in Country X, and not in the country that made the sale to the end consumer?
- derriz 7y ago
  To be straight here, yes that's pretty much how it's supposed to work. There would have to be sales, logistics and back office functions in the consuming country and those operations would be taxable. There would like to also be general sales tax in the consuming country but these would apply to all sales, not just the sales of "foreign" goods. Countries have tried heavily taxing revenues of "foreign" imports - they're called tarrifs or import duties - and generally the result has been to make everyone poorer. But it's a populist meme at the moment - both on the left and on the right - Trump's misguided/dangerous trade policies for example - that international trade is impoverishing or a zero-sum game.
JanSt 7y ago
> To me, it seems perfectly reasonable that most of it is taxed in the US It doesn't matter what you consider reasonable. If you want to access the European market, you better pay the taxes that are demanded. > And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains. We are talking about tax loop-holes. This is about closing such a loop-hole. In Apple's case it seems even worse, because Ireland gave them a special tax deal, lowering their tax rate below Irelands normal rate, which is illegal under EU law. > And even if you did that, it would not change Apple's tax liability So, why doesn't Apple pay those German taxes?
GlobalFrog 7y ago
The point here is that those sales in any country benefit also from the public infrastructures: even where there is the least use of the public money, those infrastructures play a big role in allowing any company, national or foreign, to exercise their activity and make profits. Most of the countries in the world have their internet/telecom networks setup by private companies, but they are helped a lot by the public sector. Those investments help the internet giants to operate and again, to make profits, so my view is that they should be taxed just the same as the local companies. Even in the US, the public sector is mandatory when there are big infrastructures to be put in place. Which is for example a reason why the foreign automakers can be taxed in the USA, because they benefit from this. If you think that all exports to any country should be taxed only in the country of origin, no foreign company would be be taxed in the USA anymore for any of their export there, and going back to my example, no german automaker should be taxed for their cars (invented, developped and engineered in Germany) in the USA. Given that they benefit from the public spending on the roads and so on, that wouldn't be fair also. So in a way, this french digital tax is just the same as the USA not allowing the deferred taxation of foreign income, albeit about a single sector. Therefore, I don't quite see why the USA are seeing it as unfair, given they are doing the same thing. Actually, what all countries should do is to have the exact same law as the USA, to be able to tax all companies (internet giants included) for the real profits they make locally, by removing intra-corporation licenses or fees that allow for the tax evasion to work. But obviously, those companies would probably find another scheme to do that, so I am really wondering whether taxing the income and not the profits is such a bad idea. It would have to be offset by a mechanism on the real expenses excluding intra-corp ones.
- derriz 7y ago
  I agree with a lot of what you say here. Corporations benefit greatly from public infrastructure and they should pay taxes for the benefits they derive from it. A sales tax or VAT achieves these goals. But you misunderstand my argument - I have never claimed that Apple only pay corporation tax in the US. My arguement is that Apple should (and do) pay taxes based on where the work/value was done. In a post above I suggest that an $800 iPhone could consist of something like: $50 for the French shop selling it, $80 French sales tax, $30 French logistics and distribution, $40 Irish localization, $40 Chinese manufacturing, $300 US engineering and and management. Leaving $300 or so profit. International tax law says that each of the countries involved in this supply chain: USA, China, Ireland and France only get to tax the value added in that country. This is why nearly all the profit is taxable in the US and very little is taxable in in France (and Ireland for that matter) as logistics does not hadd a huge amount of value. And I disagree with you that all the $300 profit in this example should be taxable in France just because the sale occurred in France.

by derriz 7y ago

mytailorisrich 7y ago

> If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany That's just complying with the law. The rest of your comment is irrelevant and is not how taxation works. This is solely an issue of accounting and tax rules that allow an international company to effectively be taxed wherever this suits it best, i.e. where the rate is lowest, be reporting no or very low profits in countries with higher rates because 'profit' depends on many parameters which an international company can tweak. This is very difficult to prevent legally because the rules companies use are reasonable when running a business and thus cannot realistically be removed. The only solution left is therefore to tax what cannot be tweaked: revenue.

derriz 7y ago
No it's not complying with any law. For example, Germany car exporters do not pay corporation tax on the _whole_ supply chain profit in the countries where sales are ultimately made. Of that example $800 retail price, the cost break down (I'm making up these figures) might look something like: $80 German sales tax, $50 for the German retail outlet, $30 Germany logistics and distribution, $50 Ireland internationalization and packaging, $70 Chinese manufacturing, $250 USA engineering and development. I don't see why you feel the correct thing would be for Germany to tax all of the $300 profit, given Ireland, China and particularly the US contributed far more to the value of the finished product. This idea - when a product or service involves international supply chains - that the profit is taxable based on where the value was created has been the basis of interational trade. And there are huge bodies of work and accounting rules on how corporations are allowed to split that $800 up among all the countries involved in the supply chain.
- mytailorisrich 7y ago
  You mentioned profits in Germany, now you're talking about the whole supply chain's profit or cost... It's difficult to follow your argument. The issue, which I explained, is that they can set prices along the supply chain to arbitrarily end up with 0 profit in Germany (following your example) and all the profit with a notional trading or licensing subsidiary located where tax is lowest.
  - derriz 7y ago
    If it's difficult to follow my argument that's my fault. I should have been more clear about the distinction between "profits on sales in Germany" and "profits made by the German operation". The $300 is the (global) profit on the sale in Germany. The profit made by the German operation would be relatively small in this case - assuming for example that the Germany operation is purely involved in logistics and retail. These type of operations are quite low margin. It is simply not the case that corporations can arbitrarily set the prices along the supply chain for accounting purposes. There are decades of international tax case law to determine where profits can be assigned in a global supply chain. Transfer pricing is governed very strictly. Clearly, in this example, the German logistics and retail can only claim a very small proportion of the value - given that typically their profits are single digit percentages. The US can claim nearly all of it since it's US engineering which adds the most value (like German engineering adds the most value to a car sold in the US).

hoi 7y ago

So if company Y created a genetic variant of a vegetable in Country X, and if this vegetable is shipped and sold in supermarkets around the world, the profit made from sales of that vegetable should only be charged in Country X, and not in the country that made the sale to the end consumer?

derriz 7y ago
To be straight here, yes that's pretty much how it's supposed to work. There would have to be sales, logistics and back office functions in the consuming country and those operations would be taxable. There would like to also be general sales tax in the consuming country but these would apply to all sales, not just the sales of "foreign" goods. Countries have tried heavily taxing revenues of "foreign" imports - they're called tarrifs or import duties - and generally the result has been to make everyone poorer. But it's a populist meme at the moment - both on the left and on the right - Trump's misguided/dangerous trade policies for example - that international trade is impoverishing or a zero-sum game.

JanSt 7y ago

> To me, it seems perfectly reasonable that most of it is taxed in the US It doesn't matter what you consider reasonable. If you want to access the European market, you better pay the taxes that are demanded. > And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains. We are talking about tax loop-holes. This is about closing such a loop-hole. In Apple's case it seems even worse, because Ireland gave them a special tax deal, lowering their tax rate below Irelands normal rate, which is illegal under EU law. > And even if you did that, it would not change Apple's tax liability So, why doesn't Apple pay those German taxes?

GlobalFrog 7y ago

The point here is that those sales in any country benefit also from the public infrastructures: even where there is the least use of the public money, those infrastructures play a big role in allowing any company, national or foreign, to exercise their activity and make profits. Most of the countries in the world have their internet/telecom networks setup by private companies, but they are helped a lot by the public sector. Those investments help the internet giants to operate and again, to make profits, so my view is that they should be taxed just the same as the local companies. Even in the US, the public sector is mandatory when there are big infrastructures to be put in place. Which is for example a reason why the foreign automakers can be taxed in the USA, because they benefit from this. If you think that all exports to any country should be taxed only in the country of origin, no foreign company would be be taxed in the USA anymore for any of their export there, and going back to my example, no german automaker should be taxed for their cars (invented, developped and engineered in Germany) in the USA. Given that they benefit from the public spending on the roads and so on, that wouldn't be fair also. So in a way, this french digital tax is just the same as the USA not allowing the deferred taxation of foreign income, albeit about a single sector. Therefore, I don't quite see why the USA are seeing it as unfair, given they are doing the same thing. Actually, what all countries should do is to have the exact same law as the USA, to be able to tax all companies (internet giants included) for the real profits they make locally, by removing intra-corporation licenses or fees that allow for the tax evasion to work. But obviously, those companies would probably find another scheme to do that, so I am really wondering whether taxing the income and not the profits is such a bad idea. It would have to be offset by a mechanism on the real expenses excluding intra-corp ones.

derriz 7y ago
I agree with a lot of what you say here. Corporations benefit greatly from public infrastructure and they should pay taxes for the benefits they derive from it. A sales tax or VAT achieves these goals. But you misunderstand my argument - I have never claimed that Apple only pay corporation tax in the US. My arguement is that Apple should (and do) pay taxes based on where the work/value was done. In a post above I suggest that an $800 iPhone could consist of something like: $50 for the French shop selling it, $80 French sales tax, $30 French logistics and distribution, $40 Irish localization, $40 Chinese manufacturing, $300 US engineering and and management. Leaving $300 or so profit. International tax law says that each of the countries involved in this supply chain: USA, China, Ireland and France only get to tax the value added in that country. This is why nearly all the profit is taxable in the US and very little is taxable in in France (and Ireland for that matter) as logistics does not hadd a huge amount of value. And I disagree with you that all the $300 profit in this example should be taxable in France just because the sale occurred in France.