8 ms·

Or do like Europe is finally starting: just tax revenue. They can suppress their 'profit' whichever way they want, they can't suppress their revenue in a given

Or do like Europe is finally starting: just tax revenue. They can suppress their 'profit' whichever way they want, they can't suppress their revenue in a given country. The digital services tax is imposed at a rate of 3% on the gross revenues derived from digital activities of which French “users” are deemed to play a major role in value creation. The law not only affects digital companies but, more generally, digital business models. https://home.kpmg/us/en/home/insights/2019/07/tnf-france-digital-services-tax-enacted.html#:~:text=The%20digital%20services%20tax%20is,more%20generally%2C%20digital%20business%20models https://home.kpmg/us/en/home/insights/2019/07/tnf-france-dig....

jlokier 6y ago
> Or do like Europe is finally starting: just tax revenue. That rapidly turns into a disaster of consolidations and monopolies. You don't want that. Think about the difference between big company $BIG selling you the consumer a million Widgets for 10^9 currency units, versus 26 small companies $a..$z each selling to the next in a long supply chain which results in a million Widgets. In revenue taxation, big company $BIG pays 10^9∗$TAX_RATE. Whereas the 26 small companies pay something more like 26∗10^9∗$TAX_RATE because each time a company pays the next company, that's revenue for the next company. The difference in tax between those two scenarios is so enormous, that it would create enormous pressure for companies $a..$z to consolidate into a single company. Repeat this across the entire economy, and you have enormous pressure to consolidate everything into as few companies as possible.
- tpxl 6y ago
  VAT is literally tax on revenue and it works fine. You tax the added value, so each company pays tax only on (sell_price - purchase_price).
  - dmurray 6y ago
    That's literally tax on profit.
    - marcosdumay 6y ago
      Hum... I suggest you take a look on how taxes on profit work. That's literally a tax on value added.
      - srtjstjsj 6y ago
        The definition of "value added" is price minus costs, aka profit. https://www.investopedia.com/terms/v/valueadded.asp https://www.investopedia.com/terms/v/valueadded.asp
        marcosdumay 6y ago
        "Purchase price" is not the same thing as costs and "revenue price - purchase price" is completely different from profits. With a broad enough definition and inclusion of other, unrelated prices at that negative part, one can claim that in a time-frame of several years, both average to nearly the same. But that doesn't make them equal, and if you go read those tax-codes, you will discover the ones being discussed add to very different figures even on the long term. I'll just add here another encouragement to go out and get an understanding of tax codes. Odds are they will be relevant for everybody that frequents here at some point on their lives, and odds are that if you don't know them, you'll only discover their relevance after the fact, when they have already caused you some problem.
        dmurray 6y ago
        Yeah. To be pedantic maybe we should say "a tax on gross profit". Regardless, it's closer to taxing profit than what most people mean when they propose a revenue tax.
    - jlokier 6y ago
      There are multiple definitions of profit. For example, if you sell something before you have paid for it (this is very common), and then put the money from selling into a bank where it earns interest, and then withdraw that money and pay for the thing you sold: You will have made sale_price - purchase_price + interest. In a VAT system, you will pay VAT on sale_price - purchase_price (or your customer will, depending on how you sell things), but not on the extra interest you earned. So that's already a loophole. You can game the tax system by selling things before you buy them and earning interest. If you're smart enough, you might even sell things for exactly the same as you pay for them, and still make a profit due to the interest while you hold the money. You could get even smarter, and hold that money on behalf of your upstream supplier to withdraw when they need to spend it. Before you know it, you're paying zero VAT, and all your profit looks like interest. But you have to pay an accountant to make sense of all these for you. The cost of the accountant isn't a direct cost of making the thing you're selling. So that gives you the difference between gross profit (sales price minus costs associated with the thing you're selling) and net profit (what you have after paying for everything needed to run the business).
  - robertlagrant 6y ago
    VAT is not tax on revenue. Only the end customer pays VAT.
    - jlokier 6y ago
      Although true, that seems moot because all tax on business (whether VAT or not) is, one way or another, passed along to the end customer (or not passed on according to business pricing decisions). No matter which company in the supply chain pays it! With VAT, it's raised prices and shown on the receipt. With other business taxes, it's raised prices and not shown on the receipt. Customer pays either way. Of course, competition and other factors also govern prices. It's not a given that changing business taxes always causes a business to change its prices by a related amount. But that is the same for VAT and other business taxes too.
      - robertlagrant 6y ago
        There's no receipt if it's a bank, for example.
  - jlokier 6y ago
    Yes, VAT is tax on revenue of the entire supply chain as a whole (not individual companies), so long as it is within a group of countries using VAT. But it didn't look to me like that's what the GP comment meant. I assumed they meant tax on revenue taken by each company. No need to account for expenses... I'd hoped that would be obvious from my comment, but if not I hope I've clarified that now. ps. It looks like other commenters here are confused about this language, and arguing over the semantics of what "tax on revenue" means. VAT doesn't solve all tax fairness problems unfortunately, which is a shame because it's a fairly well administered system, and good at catching fraud. There are good reasons why VAT is not the only tax on businesses. One of those reasons is that immediate revenue and expenses are a poor model of many business accounts. Accountants use more sophisticated models (there are professional standards they have to adhere to), and despite their quirks and loopholes, these are generally better, fairer, more representative models of the state and value of a business and the money flowing through it, and as a result, for most "ordinary" businesses (i.e. not international corps gaming the system heavily), that ends up making taxation fairer. Someone mentioned using a higher rate for higher revenue. That suggests an example where the better models which incorporate time and stored value results in fairer, more appropriate taxation. If you have a higher sustained revenue, year on year, it makes sense to use the higher rate if that's the policy. But if you make zero in year $X and twice your normal in year $X+1, then back to normal in years $X+2..., all just because you had a big customer pay late for the first year, fairness says you ought to end up paying the appropriate tax rate for your steady normal in the long run, not twice as much tax thanks to your late-paying customer! The accountants' model handles that just fine, as it says you earned the money fair and square in year $X even though you didn't get paid that year. And that's generally better for limiting tax avoidance too, because it reduces the ways in which co-operating companies can game the system by timing their payments to each other to cheat. (VAT doesn't show this problem because it's a fixed percentage, but it occurs with progressive taxes, meaning variable percentage.)
    - tpxl 6y ago
      My comment actually wasn't in relation to the GP comment, I meant that revenue taxing in the form of VAT works fine for certain situations. My current biggest gripe with taxation is that it's mostly paid in the countries where the corporation lives, not where the revenue is made. Facebook sells 10 mil worth of ads in France? Facebook should pay (some) taxes for the 10 mil in France.
  - sokoloff 6y ago
    VAT is a tax on revenue from the last purchaser, but not on revenue for each company.
- jagged-chisel 6y ago
  You adjust the tax curve to address this situation. More revenue, even higher tax rate.
  - stdbrouw 6y ago
    And now you've solved one problem and have created a bunch of others. Welcome to tax design!
    - jagged-chisel 6y ago
      Indeed. I believe that pretty much applies to any financial regulations.
- croon 6y ago
  Or you just tax the end result (per country). Ie, you buy through 1000 transactions, and you sell through 1500 transactions for a net total of +€5k within the country. Tax that €5k, not the individual transactions. Unless I'm missing something.
  - a3camero 6y ago
    “Transfer pricing” is why this doesn’t work out.
    - croon 6y ago
      Could you elaborate? Reading up on it it's not clear what you mean.
      - a3camero 6y ago
        Companies buy a combination of goods and IP (patents and trademarks). The goods come from a developed country and the IP is licensed from a tax haven. The goods are sold at near cost with the markup being in the IP. The result is a supply of goods between countries that causes a significant diversion of the revenue to the tax haven. This is used by most big companies in tech, pharma, etc. The government can’t challenge these schemes because there is no open market for IP (because they’re monopoly rights) so there’s no way to argue that the price paid wasn’t the open market price.
        croon 6y ago
        Sure, but this was a discussion about taxing revenue produced within a country. What you are describing is avoiding for example profit tax, is it not? I'm still not seeing how it applies to the proposed example.
        disgruntledphd2 6y ago
        So, the reason that people want to tax revenue is to negate the benefits of transfer pricing. For instance, Google France makes 1bn euro in revenue, but purchases Google services from Google Ireland for 999mn, thus almost no profit and thus no tax. Google Ireland make 20bn but pay 19.99bn to Google Bermuda, which is the exclusive licensee of Google IP worldwide (even though the IP is almost exclusively produced in the US). Taxing revenue means that these shenanigans do not reduce the tax paid in a particular country to zero.
- riknox 6y ago
  You can always address that, like VAT (and other commentators have said), by allowing refunding of tax on purchase (for example) for business purposes.
  - jlokier 6y ago
    GGP comment (apexalpha) proposes that would could tax revenues instead of what we are currently doing. GP comment (me) points out that the proposed change is not a good idea. P comment (riknox) points out we can always address that problem by doing what we currently do already (VAT). I agree, we can solve the problem of the proposed change by continuing to do what we are already doing :-)
- bsanr2 6y ago
  Simply swing the antitrust hammer judiciously, in that case. I'm suddenly hit with the image of a child whining that having to do homework AND chores is too hard, and their parent telling them to suck it up. Besides, tax revenue doesn't just disappear into some govt hole, it gets redistributed as services and grants and the like. The loss in operating revenue is likely made up in increased business. Your low margin goods get fked but people are more willing to purchase the higher margin value-adds.
  - ludston 6y ago
    Given that we are all using fiat currency, an interesting way to think about taxation is that the Government is destroying money through taxation, and creating money from via spending. With this thinking, you can very much say that tax revenue does just disappear into some hole. The effect of taxation in this thinking is that it applies brakes upon the accumulation of wealth and causes existing wealth to be worth more (via deflation). This is counteracted by the inflation from created wealth via govt spending. A weird alternative to taxation could be to print more and more money without taxing any of it. This would be functionally a flat tax on all existing wealth in that fiat currency via inflation.
    - jlokier 6y ago
      > With this thinking, you can very much say that tax revenue does just disappear into some hole. It doesn't just disappear into the misty fog of the central bank though. It goes onto some government ledger. This ledger has some considerable effect. It greatly constrains what the government can spend. If the ledger meant nothing, you would not see government needing to borrow via issuing bonds when it needs to spend more. The cost to government of borrowing goes up and down according to circumstances, and is outside of government's direct control. In other words, all the parts are related, partly by design, and this strongly affects the consequences of issuing (or destroying) currency at the central bank to the point where it's not really meaningful to think of taxation as destroying currency. If the government did issue enough currency to go on a spending spree, before long not only would inflation harm other parts of the economy, it would also find that the prices of its spending spree went up, so it would have to issue more, and... Ultimately no matter how much currency it issues, there's a strong drag in real terms on how many things the government can obtain from others and cause others to do via commerce. That limit on its spending power makes the ledger balance something much stronger than a hole into which tax disappears.
- salawat 6y ago
  The obvious solution to that is to make it more difficult to consolidate companies. Disallow at will M&A's,and also force anyone that still goes down that route and manages to succeed to justify their continued consolidated existence. In short the market/regulatory environment should support disaggregated business as a first class citizen, mergers and vertical integration as a very second-class construct. To the tune of if you merge, you must maintain 3 sets of accounts. The original accounts separately, and a combined set. You must gain more capability or utility to create value for the public as the combined company than by being separate. The capacity to measure the utility amplification being facilitated through the extra set of books. As more companies are bought and merged, the audit workloads would increase very quickly. Failure to make a good case for why you should continue to run as a merged company kicks in an orderly spin-off of the previous acquisition to get operated by someone else. M&A's should not be one and done. This greatly complicates hostile takeovers, makes the business model by which large entrenched entities buy out and kill up and coming competitors, at best, a stalling tactic, but more often a worthless waste of time to the perpetrating company as much as it is to the public. If you let M&A's have their cake (the capital assets of another company) while giving them the option to cut fat without insisting that they "compensate" the public for the decrease in competition, only one side will ever benefit, and it won't be the public.
  - jlokier 6y ago
    It's not an obvious solution, because in that regulatory environment people will avoid creating small companies in the first place. They won't avoid it to get some minor edge. They will avoid it because every company formation and financial advisor will point out that it's commercial suicide to start your own company in that environment, and that instead you should take your idea to an existing company which specialises in opening "nearly autonomous departments", for an instant 30% or so increases in post-tax income, or 30% edge over competition on prices, or 30% edge on salaries you can pay, for exactly the same kind of business. (30% representative of some countries not others... adjust for your locale). The few real companies specialising in that would love your M&A and tax regulations, as they could take a few % of every small business' profits, and have some levers of control, effectively government mandated. After that, the millions of small companies which already existed, who cannot consolidate due to your M&A restrictions, will gradually either go out of business due to competition, or find a way, though contracts, deeds etc, to transfer their activity into these "autonomous department" companies without actually merging. It's not uncommon to transfer some of a company's activity this way already, so that would just be scaling it up. You can try restricting all of that, but it will be very difficult as you would have to do it restrict what sorts of things people can agree to in contracts in a very significant way, and in doing so, restrict what are currently effective business arrangements for some companies to make them less effective. That would be an enormous change to business culture, and I suspect even if you did restrict what can be agreed in private contract terms, alternative ways to transfer what gets done where would be found very quickly and easily.
iguy 6y ago
I know this isn't exactly parallel to the digital service tax, but for the larger debate: The huge obvious revenue tax is VAT. On (almost) anything sold in France they get 20%, and it's very hard to dodge. It does not depend on where you claim your headquarters to be. All these arguments about which country gets to collect a few percent tax, of a few percent profit, are dwarfed by this much larger slice. Which every country is free to adjust as they wish.
- deleted 6y ago
  [deleted]
- FartyMcFarter 6y ago
  VAT is not a tax on business revenue. Only end-customers pay tax, that's why it's called "value-added" tax.
  - srtjstjsj 6y ago
    It's called "value added" because it's a tax on profit, and everyone in the supply chain pays it.
    - FartyMcFarter 6y ago
      The companies in the middle of the supply chain can reclaim any VAT they paid on goods/services used in the business [1], so effectively they don't pay it. VAT is definitely not a tax on profit, that's usually called "corporate tax" [2] which is a completely different thing. [1] https://www.gov.uk/reclaim-vat https://www.gov.uk/reclaim-vat [2] https://en.wikipedia.org/wiki/Corporate_tax https://en.wikipedia.org/wiki/Corporate_tax
  - Aeolun 6y ago
    Revenue tax is charged in the same location as VAT though, you just cannot offset it with the VAT you pay (or between two companies, it’s never zero).
  - iguy 6y ago
    Well, who pays tax is kind-of a complicated question. VAT is collected at many points along the supply chain (and sales tax typically at just one). But who pays economically depends on a bunch of elasticities: if the consumers will buy X at any price, then the tax lands on them, whereas if they will only pay at maximum Y (otherwise they go without) then the tax lands on the seller. (But in reality, nothing is at either endpoint.)
gomox 6y ago
I live in Argentina and we have a revenue tax. It's a shit show and basically any marketplace / fintech business that operates on low margins is either economically unviable or needs some flaky loophole to operate.
deleted 6y ago
[deleted]
seanmcdirmid 6y ago
Taxing revenue makes companies with high capital and/or labor overhead non viable, like banks, oil companies. Only companies with high profit to revenue ratios could survive in an environment like that, I’m sure even France has lots of exemptions. Better to tax value adds than revenue, which is simply money flowing through the economy.
iso1631 6y ago
Its interesting as many people have a revenue tax on people -- it's called income tax. Your expenses (rent, food, commute, power) are generally not removable -- some expenses can be taken off before tax, but most can't. Most people operate on low margins economically, saving 5% of your paycheck would be an outstanding achievement for many.
apta 6y ago
And end up with a situation where you can owe taxes and be in the negative even without making profit? No thanks.

jlokier 6y ago

> Or do like Europe is finally starting: just tax revenue. That rapidly turns into a disaster of consolidations and monopolies. You don't want that. Think about the difference between big company $BIG selling you the consumer a million Widgets for 10^9 currency units, versus 26 small companies $a..$z each selling to the next in a long supply chain which results in a million Widgets. In revenue taxation, big company $BIG pays 10^9∗$TAX_RATE. Whereas the 26 small companies pay something more like 26∗10^9∗$TAX_RATE because each time a company pays the next company, that's revenue for the next company. The difference in tax between those two scenarios is so enormous, that it would create enormous pressure for companies $a..$z to consolidate into a single company. Repeat this across the entire economy, and you have enormous pressure to consolidate everything into as few companies as possible.

tpxl 6y ago
VAT is literally tax on revenue and it works fine. You tax the added value, so each company pays tax only on (sell_price - purchase_price).
- dmurray 6y ago
  That's literally tax on profit.
  - marcosdumay 6y ago
    Hum... I suggest you take a look on how taxes on profit work. That's literally a tax on value added.
    - srtjstjsj 6y ago
      The definition of "value added" is price minus costs, aka profit. https://www.investopedia.com/terms/v/valueadded.asp https://www.investopedia.com/terms/v/valueadded.asp
      - marcosdumay 6y ago
        "Purchase price" is not the same thing as costs and "revenue price - purchase price" is completely different from profits. With a broad enough definition and inclusion of other, unrelated prices at that negative part, one can claim that in a time-frame of several years, both average to nearly the same. But that doesn't make them equal, and if you go read those tax-codes, you will discover the ones being discussed add to very different figures even on the long term. I'll just add here another encouragement to go out and get an understanding of tax codes. Odds are they will be relevant for everybody that frequents here at some point on their lives, and odds are that if you don't know them, you'll only discover their relevance after the fact, when they have already caused you some problem.
      - dmurray 6y ago
        Yeah. To be pedantic maybe we should say "a tax on gross profit". Regardless, it's closer to taxing profit than what most people mean when they propose a revenue tax.
  - jlokier 6y ago
    There are multiple definitions of profit. For example, if you sell something before you have paid for it (this is very common), and then put the money from selling into a bank where it earns interest, and then withdraw that money and pay for the thing you sold: You will have made sale_price - purchase_price + interest. In a VAT system, you will pay VAT on sale_price - purchase_price (or your customer will, depending on how you sell things), but not on the extra interest you earned. So that's already a loophole. You can game the tax system by selling things before you buy them and earning interest. If you're smart enough, you might even sell things for exactly the same as you pay for them, and still make a profit due to the interest while you hold the money. You could get even smarter, and hold that money on behalf of your upstream supplier to withdraw when they need to spend it. Before you know it, you're paying zero VAT, and all your profit looks like interest. But you have to pay an accountant to make sense of all these for you. The cost of the accountant isn't a direct cost of making the thing you're selling. So that gives you the difference between gross profit (sales price minus costs associated with the thing you're selling) and net profit (what you have after paying for everything needed to run the business).
- robertlagrant 6y ago
  VAT is not tax on revenue. Only the end customer pays VAT.
  - jlokier 6y ago
    Although true, that seems moot because all tax on business (whether VAT or not) is, one way or another, passed along to the end customer (or not passed on according to business pricing decisions). No matter which company in the supply chain pays it! With VAT, it's raised prices and shown on the receipt. With other business taxes, it's raised prices and not shown on the receipt. Customer pays either way. Of course, competition and other factors also govern prices. It's not a given that changing business taxes always causes a business to change its prices by a related amount. But that is the same for VAT and other business taxes too.
    - robertlagrant 6y ago
      There's no receipt if it's a bank, for example.
- jlokier 6y ago
  Yes, VAT is tax on revenue of the entire supply chain as a whole (not individual companies), so long as it is within a group of countries using VAT. But it didn't look to me like that's what the GP comment meant. I assumed they meant tax on revenue taken by each company. No need to account for expenses... I'd hoped that would be obvious from my comment, but if not I hope I've clarified that now. ps. It looks like other commenters here are confused about this language, and arguing over the semantics of what "tax on revenue" means. VAT doesn't solve all tax fairness problems unfortunately, which is a shame because it's a fairly well administered system, and good at catching fraud. There are good reasons why VAT is not the only tax on businesses. One of those reasons is that immediate revenue and expenses are a poor model of many business accounts. Accountants use more sophisticated models (there are professional standards they have to adhere to), and despite their quirks and loopholes, these are generally better, fairer, more representative models of the state and value of a business and the money flowing through it, and as a result, for most "ordinary" businesses (i.e. not international corps gaming the system heavily), that ends up making taxation fairer. Someone mentioned using a higher rate for higher revenue. That suggests an example where the better models which incorporate time and stored value results in fairer, more appropriate taxation. If you have a higher sustained revenue, year on year, it makes sense to use the higher rate if that's the policy. But if you make zero in year $X and twice your normal in year $X+1, then back to normal in years $X+2..., all just because you had a big customer pay late for the first year, fairness says you ought to end up paying the appropriate tax rate for your steady normal in the long run, not twice as much tax thanks to your late-paying customer! The accountants' model handles that just fine, as it says you earned the money fair and square in year $X even though you didn't get paid that year. And that's generally better for limiting tax avoidance too, because it reduces the ways in which co-operating companies can game the system by timing their payments to each other to cheat. (VAT doesn't show this problem because it's a fixed percentage, but it occurs with progressive taxes, meaning variable percentage.)
  - tpxl 6y ago
    My comment actually wasn't in relation to the GP comment, I meant that revenue taxing in the form of VAT works fine for certain situations. My current biggest gripe with taxation is that it's mostly paid in the countries where the corporation lives, not where the revenue is made. Facebook sells 10 mil worth of ads in France? Facebook should pay (some) taxes for the 10 mil in France.
- sokoloff 6y ago
  VAT is a tax on revenue from the last purchaser, but not on revenue for each company.
jagged-chisel 6y ago
You adjust the tax curve to address this situation. More revenue, even higher tax rate.
- stdbrouw 6y ago
  And now you've solved one problem and have created a bunch of others. Welcome to tax design!
  - jagged-chisel 6y ago
    Indeed. I believe that pretty much applies to any financial regulations.
croon 6y ago
Or you just tax the end result (per country). Ie, you buy through 1000 transactions, and you sell through 1500 transactions for a net total of +€5k within the country. Tax that €5k, not the individual transactions. Unless I'm missing something.
- a3camero 6y ago
  “Transfer pricing” is why this doesn’t work out.
  - croon 6y ago
    Could you elaborate? Reading up on it it's not clear what you mean.
    - a3camero 6y ago
      Companies buy a combination of goods and IP (patents and trademarks). The goods come from a developed country and the IP is licensed from a tax haven. The goods are sold at near cost with the markup being in the IP. The result is a supply of goods between countries that causes a significant diversion of the revenue to the tax haven. This is used by most big companies in tech, pharma, etc. The government can’t challenge these schemes because there is no open market for IP (because they’re monopoly rights) so there’s no way to argue that the price paid wasn’t the open market price.
      - croon 6y ago
        Sure, but this was a discussion about taxing revenue produced within a country. What you are describing is avoiding for example profit tax, is it not? I'm still not seeing how it applies to the proposed example.
        disgruntledphd2 6y ago
        So, the reason that people want to tax revenue is to negate the benefits of transfer pricing. For instance, Google France makes 1bn euro in revenue, but purchases Google services from Google Ireland for 999mn, thus almost no profit and thus no tax. Google Ireland make 20bn but pay 19.99bn to Google Bermuda, which is the exclusive licensee of Google IP worldwide (even though the IP is almost exclusively produced in the US). Taxing revenue means that these shenanigans do not reduce the tax paid in a particular country to zero.
riknox 6y ago
You can always address that, like VAT (and other commentators have said), by allowing refunding of tax on purchase (for example) for business purposes.
- jlokier 6y ago
  GGP comment (apexalpha) proposes that would could tax revenues instead of what we are currently doing. GP comment (me) points out that the proposed change is not a good idea. P comment (riknox) points out we can always address that problem by doing what we currently do already (VAT). I agree, we can solve the problem of the proposed change by continuing to do what we are already doing :-)
bsanr2 6y ago
Simply swing the antitrust hammer judiciously, in that case. I'm suddenly hit with the image of a child whining that having to do homework AND chores is too hard, and their parent telling them to suck it up. Besides, tax revenue doesn't just disappear into some govt hole, it gets redistributed as services and grants and the like. The loss in operating revenue is likely made up in increased business. Your low margin goods get fked but people are more willing to purchase the higher margin value-adds.
- ludston 6y ago
  Given that we are all using fiat currency, an interesting way to think about taxation is that the Government is destroying money through taxation, and creating money from via spending. With this thinking, you can very much say that tax revenue does just disappear into some hole. The effect of taxation in this thinking is that it applies brakes upon the accumulation of wealth and causes existing wealth to be worth more (via deflation). This is counteracted by the inflation from created wealth via govt spending. A weird alternative to taxation could be to print more and more money without taxing any of it. This would be functionally a flat tax on all existing wealth in that fiat currency via inflation.
  - jlokier 6y ago
    > With this thinking, you can very much say that tax revenue does just disappear into some hole. It doesn't just disappear into the misty fog of the central bank though. It goes onto some government ledger. This ledger has some considerable effect. It greatly constrains what the government can spend. If the ledger meant nothing, you would not see government needing to borrow via issuing bonds when it needs to spend more. The cost to government of borrowing goes up and down according to circumstances, and is outside of government's direct control. In other words, all the parts are related, partly by design, and this strongly affects the consequences of issuing (or destroying) currency at the central bank to the point where it's not really meaningful to think of taxation as destroying currency. If the government did issue enough currency to go on a spending spree, before long not only would inflation harm other parts of the economy, it would also find that the prices of its spending spree went up, so it would have to issue more, and... Ultimately no matter how much currency it issues, there's a strong drag in real terms on how many things the government can obtain from others and cause others to do via commerce. That limit on its spending power makes the ledger balance something much stronger than a hole into which tax disappears.
salawat 6y ago
The obvious solution to that is to make it more difficult to consolidate companies. Disallow at will M&A's,and also force anyone that still goes down that route and manages to succeed to justify their continued consolidated existence. In short the market/regulatory environment should support disaggregated business as a first class citizen, mergers and vertical integration as a very second-class construct. To the tune of if you merge, you must maintain 3 sets of accounts. The original accounts separately, and a combined set. You must gain more capability or utility to create value for the public as the combined company than by being separate. The capacity to measure the utility amplification being facilitated through the extra set of books. As more companies are bought and merged, the audit workloads would increase very quickly. Failure to make a good case for why you should continue to run as a merged company kicks in an orderly spin-off of the previous acquisition to get operated by someone else. M&A's should not be one and done. This greatly complicates hostile takeovers, makes the business model by which large entrenched entities buy out and kill up and coming competitors, at best, a stalling tactic, but more often a worthless waste of time to the perpetrating company as much as it is to the public. If you let M&A's have their cake (the capital assets of another company) while giving them the option to cut fat without insisting that they "compensate" the public for the decrease in competition, only one side will ever benefit, and it won't be the public.
- jlokier 6y ago
  It's not an obvious solution, because in that regulatory environment people will avoid creating small companies in the first place. They won't avoid it to get some minor edge. They will avoid it because every company formation and financial advisor will point out that it's commercial suicide to start your own company in that environment, and that instead you should take your idea to an existing company which specialises in opening "nearly autonomous departments", for an instant 30% or so increases in post-tax income, or 30% edge over competition on prices, or 30% edge on salaries you can pay, for exactly the same kind of business. (30% representative of some countries not others... adjust for your locale). The few real companies specialising in that would love your M&A and tax regulations, as they could take a few % of every small business' profits, and have some levers of control, effectively government mandated. After that, the millions of small companies which already existed, who cannot consolidate due to your M&A restrictions, will gradually either go out of business due to competition, or find a way, though contracts, deeds etc, to transfer their activity into these "autonomous department" companies without actually merging. It's not uncommon to transfer some of a company's activity this way already, so that would just be scaling it up. You can try restricting all of that, but it will be very difficult as you would have to do it restrict what sorts of things people can agree to in contracts in a very significant way, and in doing so, restrict what are currently effective business arrangements for some companies to make them less effective. That would be an enormous change to business culture, and I suspect even if you did restrict what can be agreed in private contract terms, alternative ways to transfer what gets done where would be found very quickly and easily.

iguy 6y ago

I know this isn't exactly parallel to the digital service tax, but for the larger debate: The huge obvious revenue tax is VAT. On (almost) anything sold in France they get 20%, and it's very hard to dodge. It does not depend on where you claim your headquarters to be. All these arguments about which country gets to collect a few percent tax, of a few percent profit, are dwarfed by this much larger slice. Which every country is free to adjust as they wish.

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FartyMcFarter 6y ago
VAT is not a tax on business revenue. Only end-customers pay tax, that's why it's called "value-added" tax.
- srtjstjsj 6y ago
  It's called "value added" because it's a tax on profit, and everyone in the supply chain pays it.
  - FartyMcFarter 6y ago
    The companies in the middle of the supply chain can reclaim any VAT they paid on goods/services used in the business [1], so effectively they don't pay it. VAT is definitely not a tax on profit, that's usually called "corporate tax" [2] which is a completely different thing. [1] https://www.gov.uk/reclaim-vat https://www.gov.uk/reclaim-vat [2] https://en.wikipedia.org/wiki/Corporate_tax https://en.wikipedia.org/wiki/Corporate_tax
- Aeolun 6y ago
  Revenue tax is charged in the same location as VAT though, you just cannot offset it with the VAT you pay (or between two companies, it’s never zero).
- iguy 6y ago
  Well, who pays tax is kind-of a complicated question. VAT is collected at many points along the supply chain (and sales tax typically at just one). But who pays economically depends on a bunch of elasticities: if the consumers will buy X at any price, then the tax lands on them, whereas if they will only pay at maximum Y (otherwise they go without) then the tax lands on the seller. (But in reality, nothing is at either endpoint.)

gomox 6y ago

I live in Argentina and we have a revenue tax. It's a shit show and basically any marketplace / fintech business that operates on low margins is either economically unviable or needs some flaky loophole to operate.

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seanmcdirmid 6y ago

Taxing revenue makes companies with high capital and/or labor overhead non viable, like banks, oil companies. Only companies with high profit to revenue ratios could survive in an environment like that, I’m sure even France has lots of exemptions. Better to tax value adds than revenue, which is simply money flowing through the economy.

iso1631 6y ago

Its interesting as many people have a revenue tax on people -- it's called income tax. Your expenses (rent, food, commute, power) are generally not removable -- some expenses can be taken off before tax, but most can't. Most people operate on low margins economically, saving 5% of your paycheck would be an outstanding achievement for many.

apta 6y ago

And end up with a situation where you can owe taxes and be in the negative even without making profit? No thanks.