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This problem has a rather profound solution: Common Consolidated Corporate Tax Base https://en.wikipedia.org/wiki/Common_Consolidated_Corporate_Tax_Base https:

This problem has a rather profound solution: Common Consolidated Corporate Tax Base https://en.wikipedia.org/wiki/Common_Consolidated_Corporate_Tax_Base https://en.wikipedia.org/wiki/Common_Consolidated_Corporate_... Companies should have never been taxed based on a virtual, and fundamentally nonsensical, figure as the location of their headquarters. They should be taxed based on substantial things, like (the location of) capital, labour and sales. This is what CCCTB establishes. States are still free to set the tax rate as they wish. It's just that then the companies can't escape with the turnover money to another state, essentially robbing the state where the profit was generated. This is the most important tax legislation of this day. No other debate about taxes, like the rate itself, or harmonisation of the rates across states, makes sense before this gets implemented. The reason is that now the tax rate is evadable and only stifles local/small businesses who don't/can't cheat. Sadly, there are few states that are successfully blocking this: Netherlands, Ireland, Malta, etc. But I hope to see this one day.

AceJohnny2 6y ago
> Sadly, there are few states that are successfully blocking this: Netherlands, Ireland, Malta, etc. I.e the ones benefiting from the current regime, and to lose in the reformed one.
- rapnie 6y ago
  I'm Dutch and ashamed we are in these lists. Regular folks in The Netherlands don't really benefit too. Can't find it now, but I read a study some time ago that without our current tax paradise regulations we'd be better off. I suspect these things are mostly kept in place by enterprises and people in higher positions who successfully lobby the politicians.
ghostwriter 6y ago
> essentially robbing the state where the profit was generated. It's a very interesting line of thinking when a company that produces new value and makes money by providing the value to the customers by voluntary transactions (and regardless their location) somehow is considered a robber of the state that produces nothing.
- cool_dude85 6y ago
  It's a very interesting line of thinking when a government that allows a company to incorporate, protects the company's physical and intellectual property by force and with a large legal apparatus, enforces the company's contracts, trains the company's workers, is somehow considered a robber when they ask the company to pay taxes.
  - Joky 6y ago
    > trains the company's workers How much of these products are designed and built in these Europeans countries though?
  - JoshTriplett 6y ago
    > allows a company to incorporate Leaving aside cases of companies that actually have legal entities in a location (such as Apple), the comment that started this sub-thread was about companies that don't necessarily have any nexus in a location, and just provide services to people regardless of where those people are.
  - fidelramos 6y ago
    $13b seem to me an outrageous bill for those services. Could we see an itemized bill to make sure we are not overpaying the state? Or is it more like they have the monopoly of violence and we have to pay whatever they want or else?
    - allendoerfer 6y ago
      > Or is it more like they have the monopoly of violence and we have to pay whatever they want or else? You have to switch we and they. We are not Apple, but we are the people of a state.
      - fidelramos 6y ago
        I too have to pay whatever taxes the state determines, so I think "we" is the right pronoun here.
AnthonyMouse 6y ago
> Companies should have never been taxed based on a virtual, and fundamentally nonsensical, figure as the location of their headquarters. They should be taxed based on substantial things, like (the location of) capital, labour and sales. This is fundamentally the right answer, but don't underestimate the political difficulty in getting there. Taxing "profits" in the location of the headquarters was always a seduction. You have an international company paying developers in California, manufacturing products in China, selling them in Germany, but if their headquarters is in France then France gets a cut of the profit from all of that whether they had anything to do with it or not. Very nice deal for France. Until Ireland sets a lower rate and the company moves their headquarters there, and then the crying starts. No, it was a stupid way to tax from the start, not when they moved the headquarters to Ireland. But you tax capital and labor and sales, well, the implications of that are different. Now if they have operations and employees where you are, they can't avoid the tax, except by moving out. But uh oh, if the taxes are too high they might do exactly that, so now you've got to worry about the rate again if you don't want to lose jobs to other countries. Or your people would have to accept lower salaries to keep that from happening. And on top of that if you lose the jobs you still lose the tax revenue. The company also can't avoid taxes on sales if they want to sell to your people, but if the company wasn't in a monopolistic industry to begin with then it could easily be the customers paying most of those taxes and not the company. So the taxes get paid, but so do the true costs of taxing things heavily. The free money everybody always wanted was never really available. And there may be some wailing and gnashing of teeth as people figure that out.
- simongr3dal 6y ago
  How can the tax ever be worse than a sale? Even if the tax is 100% on the profits from a sale it would still contribute to economies of scale at the production end of things thereby subsidizing all other units in countries with more favourable tax rates and increasing the profits in those countries.
  - AnthonyMouse 6y ago
    > How can the tax ever be worse than a sale? For one thing, sales taxes are on revenues rather than profits (because the entire price is profit to somebody, and otherwise you're giving incentive to corporate shell games again), and that means the tax could exceed the profit to the entity making the decision. Also, any non-zero profits aren't necessarily better than the alternative, because the alternative is to deploy the same capital somewhere else. Your factory is producing as many widgets as it can for a unit cost of $5, France was paying $10, now with tax you're only seeing $7.50 of that, but people in Oregon (no sales tax) would pay $9.75 so it's now more profitable to sell to them instead. Or you could stop making widgets entirely and turn your factory into condos if that's now more profitable. For that to make sense the profit from widgets doesn't have to be zero, only less than what you can get from doing something else. Meanwhile if the customer in France still wants the widget, they can get it, but they've got to pay enough so that the after-tax price is still ~$10. So in that case the company keeps making widgets and selling them to France but it's the customer eating the tax.
ThrustVectoring 6y ago
The problem is more fundamental: corporate profits are easy to move, and make a poor practical target for taxation. Corporations are free to optimize their structure for tax purposes, so there's nothing stopping the surplus cashflow from returning as bond coupons, intellectual property rent payments, or whatever other clever thing that doesn't book "profits" in the taxing jurisdiction. Like, as a concrete example, suppose you're an American who owns some car washes in France. $15m in sales, $10m in costs, $5m profit. You could do an equity-for-debt swap, and own the exact same assets in the form of bonds that pay $3m per year and a more indebted company with a $2m per year profit. Poof, you've just moved $3m of European profits and transformed it into $3m of American interest income. Maybe not the best idea, but if you live in the right jurisdiction...

AceJohnny2 6y ago

> Sadly, there are few states that are successfully blocking this: Netherlands, Ireland, Malta, etc. I.e the ones benefiting from the current regime, and to lose in the reformed one.

rapnie 6y ago
I'm Dutch and ashamed we are in these lists. Regular folks in The Netherlands don't really benefit too. Can't find it now, but I read a study some time ago that without our current tax paradise regulations we'd be better off. I suspect these things are mostly kept in place by enterprises and people in higher positions who successfully lobby the politicians.

ghostwriter 6y ago

> essentially robbing the state where the profit was generated. It's a very interesting line of thinking when a company that produces new value and makes money by providing the value to the customers by voluntary transactions (and regardless their location) somehow is considered a robber of the state that produces nothing.

cool_dude85 6y ago
It's a very interesting line of thinking when a government that allows a company to incorporate, protects the company's physical and intellectual property by force and with a large legal apparatus, enforces the company's contracts, trains the company's workers, is somehow considered a robber when they ask the company to pay taxes.
- Joky 6y ago
  > trains the company's workers How much of these products are designed and built in these Europeans countries though?
- JoshTriplett 6y ago
  > allows a company to incorporate Leaving aside cases of companies that actually have legal entities in a location (such as Apple), the comment that started this sub-thread was about companies that don't necessarily have any nexus in a location, and just provide services to people regardless of where those people are.
- fidelramos 6y ago
  $13b seem to me an outrageous bill for those services. Could we see an itemized bill to make sure we are not overpaying the state? Or is it more like they have the monopoly of violence and we have to pay whatever they want or else?
  - allendoerfer 6y ago
    > Or is it more like they have the monopoly of violence and we have to pay whatever they want or else? You have to switch we and they. We are not Apple, but we are the people of a state.
    - fidelramos 6y ago
      I too have to pay whatever taxes the state determines, so I think "we" is the right pronoun here.

AnthonyMouse 6y ago

> Companies should have never been taxed based on a virtual, and fundamentally nonsensical, figure as the location of their headquarters. They should be taxed based on substantial things, like (the location of) capital, labour and sales. This is fundamentally the right answer, but don't underestimate the political difficulty in getting there. Taxing "profits" in the location of the headquarters was always a seduction. You have an international company paying developers in California, manufacturing products in China, selling them in Germany, but if their headquarters is in France then France gets a cut of the profit from all of that whether they had anything to do with it or not. Very nice deal for France. Until Ireland sets a lower rate and the company moves their headquarters there, and then the crying starts. No, it was a stupid way to tax from the start, not when they moved the headquarters to Ireland. But you tax capital and labor and sales, well, the implications of that are different. Now if they have operations and employees where you are, they can't avoid the tax, except by moving out. But uh oh, if the taxes are too high they might do exactly that, so now you've got to worry about the rate again if you don't want to lose jobs to other countries. Or your people would have to accept lower salaries to keep that from happening. And on top of that if you lose the jobs you still lose the tax revenue. The company also can't avoid taxes on sales if they want to sell to your people, but if the company wasn't in a monopolistic industry to begin with then it could easily be the customers paying most of those taxes and not the company. So the taxes get paid, but so do the true costs of taxing things heavily. The free money everybody always wanted was never really available. And there may be some wailing and gnashing of teeth as people figure that out.

simongr3dal 6y ago
How can the tax ever be worse than a sale? Even if the tax is 100% on the profits from a sale it would still contribute to economies of scale at the production end of things thereby subsidizing all other units in countries with more favourable tax rates and increasing the profits in those countries.
- AnthonyMouse 6y ago
  > How can the tax ever be worse than a sale? For one thing, sales taxes are on revenues rather than profits (because the entire price is profit to somebody, and otherwise you're giving incentive to corporate shell games again), and that means the tax could exceed the profit to the entity making the decision. Also, any non-zero profits aren't necessarily better than the alternative, because the alternative is to deploy the same capital somewhere else. Your factory is producing as many widgets as it can for a unit cost of $5, France was paying $10, now with tax you're only seeing $7.50 of that, but people in Oregon (no sales tax) would pay $9.75 so it's now more profitable to sell to them instead. Or you could stop making widgets entirely and turn your factory into condos if that's now more profitable. For that to make sense the profit from widgets doesn't have to be zero, only less than what you can get from doing something else. Meanwhile if the customer in France still wants the widget, they can get it, but they've got to pay enough so that the after-tax price is still ~$10. So in that case the company keeps making widgets and selling them to France but it's the customer eating the tax.

ThrustVectoring 6y ago

The problem is more fundamental: corporate profits are easy to move, and make a poor practical target for taxation. Corporations are free to optimize their structure for tax purposes, so there's nothing stopping the surplus cashflow from returning as bond coupons, intellectual property rent payments, or whatever other clever thing that doesn't book "profits" in the taxing jurisdiction. Like, as a concrete example, suppose you're an American who owns some car washes in France. $15m in sales, $10m in costs, $5m profit. You could do an equity-for-debt swap, and own the exact same assets in the form of bonds that pay $3m per year and a more indebted company with a $2m per year profit. Poof, you've just moved $3m of European profits and transformed it into $3m of American interest income. Maybe not the best idea, but if you live in the right jurisdiction...