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This isn't really as big a deal as it's been made out to be, IMO. This is Pillar 2 of the OECDs tax reform for corporations. Pillar 1 is much more interesting

This isn't really as big a deal as it's been made out to be, IMO. This is Pillar 2 of the OECDs tax reform for corporations. Pillar 1 is much more interesting, and would require corporations to actually book profits where they are made (so not putting everything through Ireland for example). This will have a much bigger impact imo than this 15% ruling, because right now there are a bunch of tricks you can use to get round any tax rate. For example, even though Ireland's headline tax rate is currently 12.5%, the effective rate after all the tricks for many US tech cos was <1% to the Irish state.

Nextgrid 4y ago
Out of curiosity, how do you define where profits are made when it comes to selling digital services? There is no physical movement of goods. Do you determine it based on where the software was originally written?
- torben-friis 4y ago
  Surely if, say, netflix is offered to french costumers profit is made in france?
  - toast0 4y ago
    Why should the profit be made in france if the engineering that went into delivery was made in the US, the content was made in X, the deal for the content was negotiated in Y, network source is Z (probably france, but not necessarily) VAT in France on the subscription makes sense, but figuring out where the profit lies, is more nebulous.
    - redm 4y ago
      It's where the profits are, not where the cost centers are. If the customers are in France, the profits are in France.
      - dantheman 4y ago
        Are you confusing profit with revenue? The revenue is in France - easy. Profit is revenue - cost, which costs do you factor in?
        mywittyname 4y ago
        At some point, I think governments are going to need to break down and start taxing revenue instead of profits. A 3% tax on total revenue is the same as a 15% tax on the profits of a product with 20% profit margins.
        nickff 4y ago
        This would benefit large and established companies with stable margins, while penalizing smaller businesses and startups. I don’t think this is the intended result. It also discourages long-term investments, and further rewards short-termism (which everyone seems to dislike).
        ClumsyPilot 4y ago
        you can apply a rule only to companies with over 10 billion in revenue
        twoodfin 4y ago
        And now you have companies inefficiently splitting themselves up into <$10B chunks, and paying lawyers and accountants lots of dead-weight costs to ensure their degree of coordination (think “Amazon West Virginia Ltd.”) doesn’t cross some ill-defined legislative or judicial threshold.
        jandrewrogers 4y ago
        Taxing revenue has turned out to be a terrible idea every time it has been tried. It creates perverse incentives that encourage companies to be inefficient and wasteful. One of the biggest policy problems with revenue taxes is that the effective tax rate is much higher on smaller companies than larger companies. A large vertically integrated company like Apple would pay a lower effective tax rate on an iPhone than any of their competitors, giving them a natural advantage. These are pretty dis-economic policy outcomes and the main reason no one seriously considers revenue taxes.
    - wernercd 4y ago
      If you offer a service in France, charge $10 and pay %15 on that $10... then when that money makes it into the US and Netflix has to decide what the profit is (after server fees, electricity, content fees, paying off politicians, etc)? Not sure but I'm seeing 2 different conversations here: flat tax on what you pay at the pump... and what the company reports as profit at the end of the day. France doesn't care if you make a profit or not on the 8.50... just like Apple doens't care when they take 30% off the top. Am I reading it wrong? Is it 15% off the top ala Apple Store? or 15% off of profits? both of which are different conversations. Looking at the article, it seems like a nothing burger until it's voted in officially... The Paris Accord was "passed"... and then left because it was just a verbal agreement. What's enforcing this and stopping the next POTUS from leaving it all together?
      - closewith 4y ago
        You are thinking of VAT, which in France is normally 20%. That is not the tax that is being referred to here, which is Corporation Tax - the tax on corporate profits.
    - _8j50 4y ago
      Because that is where the sale happened. You buy a lot of stuff that was made in China but pay tax in your country right? Not only was the sale in france, the goods that the customer pay for (video content) are delivered too france like normal goods and watched/consumed in france.
      - Ygor 4y ago
        No, you pay VAT/sales tax for stuff made in China. The company pays taxes on profits where the company is registered. When you pay for Netflix in France, you pay VAT on the transaction too.
        ClumsyPilot 4y ago
        Is that why iPhone is design in US, Built in china but the taxes are paid in bermuda? Totally legitimate?
        Ygor 4y ago
        I'm not arguing that the setup is legitimate. I'm pointing out that the above analogy is confusing different tax types. The sales tax is not in question here. I'm all for revisiting how profits are taxed based on where they are made, but sales taxes/VAT is already collected correctly for both iphone and netflix.
    - beachy 4y ago
      True in theory (and much more so for physical goods) but in practice for services like Netflix, Google and Facebook, from the EU's point of view, who cares. Giant tech company, pay your 15% based on local advertising revenue from local customers. We all know you'll still be making huge profits regardless of your costs. Your whole business is built on fixed costs and infinite scaling of revenue. If you really can't afford to pay 15% then leave the market, someone will certainly take your place.
    - msh 4y ago
      You could argue that the profit is made where the money is made.
      - toast0 4y ago
        You could argue the profit is made where the money is earned. No CDN, no streaming; No content, no streaming, etc. How much would Netflix pay a (probably US based) CDN company to do what they do inhouse... that should probably still go to the CDN team, etc.
    - mpweiher 4y ago
      > engineering that went into delivery was made in the US That's a cost, not profit. > the content was made in X Cost, not profit. > the deal for the content was negotiated in Y Negotiating the deal also sounds like a cost to me. > network source is Z Cost. The profit is made where you get money, not where you spend it.
      - toast0 4y ago
        If you paid an external company to make all those things for you, they'd have profit in all those places, but if you do it in house, the profit just moves to the point of sale? Why not replace income tax with VAT/sales tax if sales is the basis of taxation anyway?
      - everforward 4y ago
        That doesn't account for infrastructure/governmental costs associated with creating the stuff that makes the profit. As a hypothetical, if a German company writes some software and US companies are the only ones that buy that software, the US harvests 100% of the taxes on profits while the German government is left holding the bill to take care of the roads that lead to the office, electricity infrastructure, employee's healthcare, etc. It puts the government in a weird spot where they really don't want any businesses that primarily sell to foreign countries since they don't get tax revenue to fund public services for that company.
- colechristensen 4y ago
  Digital services are taxed where the services are rendered. In other words, the location of the user.
  - betaby 4y ago
    VAT taxed in this case, sure. Those are taxes on consumers. Article is bout corporate profit taxes.
    - colechristensen 4y ago
      Likewise corporate tax should be in the jurisdiction where services are rendered. You sell something digitally in a market then you are locating yourself in that market and that’s where you should pay tax on profit for goods sold there.
      - tdhoot 4y ago
        It's not that trivial to track down. Say a US company's French subsidiary sold something for $10 in France. If the software is developed in the US, then the US company will sell it to the French subsidiary for $9, so then they only have pay profits on $1 in France. Then in the US, they will say they paid $3 in costs and sold the software to their French counterpart for $9, booking $6 of profits in the US at a lower rate.
    - deleted 4y ago
      [deleted]
- foepys 4y ago
  The person buying is usually on planet earth and inside a country. This country is where the profit was made.
  - tenebrisalietum 4y ago
    Welcome to my factory on a boat and also my remote controlled factory on a satellite.
    - deleted 4y ago
      [deleted]
- sokoloff 4y ago
  Or licensing deals. If I license a processor and put it in my product that's designed in the US, using an ARM core licensed from the UK, manufactured in China, sold to a distributor in Switzerland, and sold to an end user in Australia. Where were the profits from that device made? Surely not entirely in Australia (or any of the other single jurisdictions), as actual value was added in several different locations.
- mox1 4y ago
  billing zip code seems to be the standard in the united states.
- brnt 4y ago
  For VAT this is already defined (in the EU): wherever the purchaser is when they get their goods handed to them. If I drive over the border to Germany, I pay German taxes. If I buy online and have it shipped to the Netherlands, I pay Dutch taxes. A digital good is handed to me wherever I am when I purchase it, so I pay taxes in that jurisdiction.
  - moonchrome 4y ago
    That's not a good analogy - VAT is simply added to base price at the time of purchase. Profits are entirely different - how would you account expenses for example. Not to mention various tax benefits that differ from country to county.
  - ratg13 4y ago
    If you sell concert tickets, would this mean that you need to book the profits in the respective countries of anyone anywhere in the world?
    - Xylakant 4y ago
      In case of services it’s in the country where the service is provided - thus in the location of the concert. Now, online streaming again is provided is provided in the location of the viewer, that’s a bit of a mess (used to be involved in running conferences, same thing there)
    - chrisandchris 4y ago
      A concert ticket is not a digital good. The service is given to you at the concert itself, therefore the country in which the concert is, is the country where you will pay taxes.
- alkonaut 4y ago
  If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country. So if a company had $100B global revenue and $10B global profit and 0% of the profit was in France while 10% of the revenue was in France, then the company should be taxed based on the $1B profit that can be attributed to France based on revenue there. Any other scheme seems it’s prone to creative licensing schemes and similar.
  - cscurmudgeon 4y ago
    > If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country. Why is that fair? In your example, if UK provided 100% of the labor shouldn’t UK get 100% of the tax to support social programs for that 100% labor? Labor seems a better way to distribute and incentivize employment.
    - breakfastduck 4y ago
      Not really because its extremely exploitable. Revenue is not - it DOES come from someone somewhere - its traceable. Work effort could be distorted in whatever fashion the country wants. They could declare all their work is done in some off shore 0% tax nation and pay nothing.
    - bilbo0s 4y ago
      This seems to just scream "outsource to low or no tax developing nation".
    - yardstick 4y ago
      > if UK provided 100% of the labor shouldn’t UK get 100% of the tax to support social programs for that 100% labor? The UK gets 100% already from the income tax for their workers.
    - alkonaut 4y ago
      It’s “fair” only in that it’s understandable and somewhat enforcacble (and not possible to avoid with loopholes). It’s not fair in the sense that the right countries necessarily get the tax money - but it’s certainly more likely than it is today. It’s not fair in that it guarantees businesses aren’t taxed too much or too little, but it does guarantee that the profits are taxed somewhere which ends the incentive to shift the profits around. Perhaps “fair” is the wrong word. I mean “fair” as in hard to evade overall, not fair distribution.
- zeruch 4y ago
  Depends. If it's services, I could see where the services are delivered from (e.g. location of platform or service personnel), OR where the services are destined for (client location) and commit the rev-rec there.
- smachiz 4y ago
  Generally, for tax purposes, it's the address of the customer for cloud services. If they give you a NL address, you tax according to Dutch law. If they give you a DE address, you tax according to German laws, regardless of where services are actually provisioned. It would not be that difficult to pay EU taxes based on % of revenue attributed to each country. I.e. if you made $1B, and 70% of your revenue came from The Netherlands, and 30% came from Germany, you'd pay Dutch taxes on $700M and German taxes on $300M.
cwkoss 4y ago
Is this a tax on profits? If so, I worry it will remain weak to hollywood-accounting attacks: it's easy to spend money until there are no 'profits'. I'd really love to see progressive taxation of corporate revenue: the bigger a company is the higher the tax rate. Huge corporations benefit from economies of scale, so there is an incentive for power concentration. This power concentration is bad for society: it delivers increasing wealth disparity and allows businesses to grow "too big to fail" leading to corruption.
- treewalking 4y ago
  It’s weird that individuals are taxed on revenue but corporations are (usually?) taxed on profit.
  - Diggsey 4y ago
    Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product. To solve this, in most countries, companies are taxed VAT instead, so intead of taxing the total value of product at every step, you are only taxing the value the company adds in the process. Effectively the government is taxing the total value of the product at a fixed rate once but that tax is being split among the companies which helped supply that product proportionally to the value added by each company.
    - 2Gkashmiri 4y ago
      i would explain this in this way. there are 2 taxes. direct and indirect. direct taxes are paid by recipient themselves. (income tax is an example. a person/corp pays a tax on "net income after deductions" at whatever percentage) indirect taxes are "collected" by the taxpayer but the person who ultimately buys a product pays it as the cost of product is inclusive of this indirect tax. VAT or GST or whatever. a business who is registered for indirect tax collects it from the customer and pays it to government. this indirect tax is not shown in their profit and loss account because for a business, they are just an intermediary. direct tax OTOH, is shown in p&l because it there is PBT>tax>PAT.
rkagerer 4y ago
How do you determine where they're made? Where the employees are? The customers?
cvalka 4y ago
The DST is much much better than Pillar 1.

Nextgrid 4y ago

Out of curiosity, how do you define where profits are made when it comes to selling digital services? There is no physical movement of goods. Do you determine it based on where the software was originally written?

torben-friis 4y ago
Surely if, say, netflix is offered to french costumers profit is made in france?
- toast0 4y ago
  Why should the profit be made in france if the engineering that went into delivery was made in the US, the content was made in X, the deal for the content was negotiated in Y, network source is Z (probably france, but not necessarily) VAT in France on the subscription makes sense, but figuring out where the profit lies, is more nebulous.
  - redm 4y ago
    It's where the profits are, not where the cost centers are. If the customers are in France, the profits are in France.
    - dantheman 4y ago
      Are you confusing profit with revenue? The revenue is in France - easy. Profit is revenue - cost, which costs do you factor in?
      - mywittyname 4y ago
        At some point, I think governments are going to need to break down and start taxing revenue instead of profits. A 3% tax on total revenue is the same as a 15% tax on the profits of a product with 20% profit margins.
        nickff 4y ago
        This would benefit large and established companies with stable margins, while penalizing smaller businesses and startups. I don’t think this is the intended result. It also discourages long-term investments, and further rewards short-termism (which everyone seems to dislike).
        ClumsyPilot 4y ago
        you can apply a rule only to companies with over 10 billion in revenue
        twoodfin 4y ago
        And now you have companies inefficiently splitting themselves up into <$10B chunks, and paying lawyers and accountants lots of dead-weight costs to ensure their degree of coordination (think “Amazon West Virginia Ltd.”) doesn’t cross some ill-defined legislative or judicial threshold.
        jandrewrogers 4y ago
        Taxing revenue has turned out to be a terrible idea every time it has been tried. It creates perverse incentives that encourage companies to be inefficient and wasteful. One of the biggest policy problems with revenue taxes is that the effective tax rate is much higher on smaller companies than larger companies. A large vertically integrated company like Apple would pay a lower effective tax rate on an iPhone than any of their competitors, giving them a natural advantage. These are pretty dis-economic policy outcomes and the main reason no one seriously considers revenue taxes.
  - wernercd 4y ago
    If you offer a service in France, charge $10 and pay %15 on that $10... then when that money makes it into the US and Netflix has to decide what the profit is (after server fees, electricity, content fees, paying off politicians, etc)? Not sure but I'm seeing 2 different conversations here: flat tax on what you pay at the pump... and what the company reports as profit at the end of the day. France doesn't care if you make a profit or not on the 8.50... just like Apple doens't care when they take 30% off the top. Am I reading it wrong? Is it 15% off the top ala Apple Store? or 15% off of profits? both of which are different conversations. Looking at the article, it seems like a nothing burger until it's voted in officially... The Paris Accord was "passed"... and then left because it was just a verbal agreement. What's enforcing this and stopping the next POTUS from leaving it all together?
    - closewith 4y ago
      You are thinking of VAT, which in France is normally 20%. That is not the tax that is being referred to here, which is Corporation Tax - the tax on corporate profits.
  - _8j50 4y ago
    Because that is where the sale happened. You buy a lot of stuff that was made in China but pay tax in your country right? Not only was the sale in france, the goods that the customer pay for (video content) are delivered too france like normal goods and watched/consumed in france.
    - Ygor 4y ago
      No, you pay VAT/sales tax for stuff made in China. The company pays taxes on profits where the company is registered. When you pay for Netflix in France, you pay VAT on the transaction too.
      - ClumsyPilot 4y ago
        Is that why iPhone is design in US, Built in china but the taxes are paid in bermuda? Totally legitimate?
        Ygor 4y ago
        I'm not arguing that the setup is legitimate. I'm pointing out that the above analogy is confusing different tax types. The sales tax is not in question here. I'm all for revisiting how profits are taxed based on where they are made, but sales taxes/VAT is already collected correctly for both iphone and netflix.
  - beachy 4y ago
    True in theory (and much more so for physical goods) but in practice for services like Netflix, Google and Facebook, from the EU's point of view, who cares. Giant tech company, pay your 15% based on local advertising revenue from local customers. We all know you'll still be making huge profits regardless of your costs. Your whole business is built on fixed costs and infinite scaling of revenue. If you really can't afford to pay 15% then leave the market, someone will certainly take your place.
  - msh 4y ago
    You could argue that the profit is made where the money is made.
    - toast0 4y ago
      You could argue the profit is made where the money is earned. No CDN, no streaming; No content, no streaming, etc. How much would Netflix pay a (probably US based) CDN company to do what they do inhouse... that should probably still go to the CDN team, etc.
  - mpweiher 4y ago
    > engineering that went into delivery was made in the US That's a cost, not profit. > the content was made in X Cost, not profit. > the deal for the content was negotiated in Y Negotiating the deal also sounds like a cost to me. > network source is Z Cost. The profit is made where you get money, not where you spend it.
    - toast0 4y ago
      If you paid an external company to make all those things for you, they'd have profit in all those places, but if you do it in house, the profit just moves to the point of sale? Why not replace income tax with VAT/sales tax if sales is the basis of taxation anyway?
    - everforward 4y ago
      That doesn't account for infrastructure/governmental costs associated with creating the stuff that makes the profit. As a hypothetical, if a German company writes some software and US companies are the only ones that buy that software, the US harvests 100% of the taxes on profits while the German government is left holding the bill to take care of the roads that lead to the office, electricity infrastructure, employee's healthcare, etc. It puts the government in a weird spot where they really don't want any businesses that primarily sell to foreign countries since they don't get tax revenue to fund public services for that company.
colechristensen 4y ago
Digital services are taxed where the services are rendered. In other words, the location of the user.
- betaby 4y ago
  VAT taxed in this case, sure. Those are taxes on consumers. Article is bout corporate profit taxes.
  - colechristensen 4y ago
    Likewise corporate tax should be in the jurisdiction where services are rendered. You sell something digitally in a market then you are locating yourself in that market and that’s where you should pay tax on profit for goods sold there.
    - tdhoot 4y ago
      It's not that trivial to track down. Say a US company's French subsidiary sold something for $10 in France. If the software is developed in the US, then the US company will sell it to the French subsidiary for $9, so then they only have pay profits on $1 in France. Then in the US, they will say they paid $3 in costs and sold the software to their French counterpart for $9, booking $6 of profits in the US at a lower rate.
  - deleted 4y ago
    [deleted]
foepys 4y ago
The person buying is usually on planet earth and inside a country. This country is where the profit was made.
- tenebrisalietum 4y ago
  Welcome to my factory on a boat and also my remote controlled factory on a satellite.
  - deleted 4y ago
    [deleted]
sokoloff 4y ago
Or licensing deals. If I license a processor and put it in my product that's designed in the US, using an ARM core licensed from the UK, manufactured in China, sold to a distributor in Switzerland, and sold to an end user in Australia. Where were the profits from that device made? Surely not entirely in Australia (or any of the other single jurisdictions), as actual value was added in several different locations.
mox1 4y ago
billing zip code seems to be the standard in the united states.
brnt 4y ago
For VAT this is already defined (in the EU): wherever the purchaser is when they get their goods handed to them. If I drive over the border to Germany, I pay German taxes. If I buy online and have it shipped to the Netherlands, I pay Dutch taxes. A digital good is handed to me wherever I am when I purchase it, so I pay taxes in that jurisdiction.
- moonchrome 4y ago
  That's not a good analogy - VAT is simply added to base price at the time of purchase. Profits are entirely different - how would you account expenses for example. Not to mention various tax benefits that differ from country to county.
- ratg13 4y ago
  If you sell concert tickets, would this mean that you need to book the profits in the respective countries of anyone anywhere in the world?
  - Xylakant 4y ago
    In case of services it’s in the country where the service is provided - thus in the location of the concert. Now, online streaming again is provided is provided in the location of the viewer, that’s a bit of a mess (used to be involved in running conferences, same thing there)
  - chrisandchris 4y ago
    A concert ticket is not a digital good. The service is given to you at the concert itself, therefore the country in which the concert is, is the country where you will pay taxes.
alkonaut 4y ago
If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country. So if a company had $100B global revenue and $10B global profit and 0% of the profit was in France while 10% of the revenue was in France, then the company should be taxed based on the $1B profit that can be attributed to France based on revenue there. Any other scheme seems it’s prone to creative licensing schemes and similar.
- cscurmudgeon 4y ago
  > If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country. Why is that fair? In your example, if UK provided 100% of the labor shouldn’t UK get 100% of the tax to support social programs for that 100% labor? Labor seems a better way to distribute and incentivize employment.
  - breakfastduck 4y ago
    Not really because its extremely exploitable. Revenue is not - it DOES come from someone somewhere - its traceable. Work effort could be distorted in whatever fashion the country wants. They could declare all their work is done in some off shore 0% tax nation and pay nothing.
  - bilbo0s 4y ago
    This seems to just scream "outsource to low or no tax developing nation".
  - yardstick 4y ago
    > if UK provided 100% of the labor shouldn’t UK get 100% of the tax to support social programs for that 100% labor? The UK gets 100% already from the income tax for their workers.
  - alkonaut 4y ago
    It’s “fair” only in that it’s understandable and somewhat enforcacble (and not possible to avoid with loopholes). It’s not fair in the sense that the right countries necessarily get the tax money - but it’s certainly more likely than it is today. It’s not fair in that it guarantees businesses aren’t taxed too much or too little, but it does guarantee that the profits are taxed somewhere which ends the incentive to shift the profits around. Perhaps “fair” is the wrong word. I mean “fair” as in hard to evade overall, not fair distribution.
zeruch 4y ago
Depends. If it's services, I could see where the services are delivered from (e.g. location of platform or service personnel), OR where the services are destined for (client location) and commit the rev-rec there.
smachiz 4y ago
Generally, for tax purposes, it's the address of the customer for cloud services. If they give you a NL address, you tax according to Dutch law. If they give you a DE address, you tax according to German laws, regardless of where services are actually provisioned. It would not be that difficult to pay EU taxes based on % of revenue attributed to each country. I.e. if you made $1B, and 70% of your revenue came from The Netherlands, and 30% came from Germany, you'd pay Dutch taxes on $700M and German taxes on $300M.

cwkoss 4y ago

Is this a tax on profits? If so, I worry it will remain weak to hollywood-accounting attacks: it's easy to spend money until there are no 'profits'. I'd really love to see progressive taxation of corporate revenue: the bigger a company is the higher the tax rate. Huge corporations benefit from economies of scale, so there is an incentive for power concentration. This power concentration is bad for society: it delivers increasing wealth disparity and allows businesses to grow "too big to fail" leading to corruption.

treewalking 4y ago
It’s weird that individuals are taxed on revenue but corporations are (usually?) taxed on profit.
- Diggsey 4y ago
  Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product. To solve this, in most countries, companies are taxed VAT instead, so intead of taxing the total value of product at every step, you are only taxing the value the company adds in the process. Effectively the government is taxing the total value of the product at a fixed rate once but that tax is being split among the companies which helped supply that product proportionally to the value added by each company.
  - 2Gkashmiri 4y ago
    i would explain this in this way. there are 2 taxes. direct and indirect. direct taxes are paid by recipient themselves. (income tax is an example. a person/corp pays a tax on "net income after deductions" at whatever percentage) indirect taxes are "collected" by the taxpayer but the person who ultimately buys a product pays it as the cost of product is inclusive of this indirect tax. VAT or GST or whatever. a business who is registered for indirect tax collects it from the customer and pays it to government. this indirect tax is not shown in their profit and loss account because for a business, they are just an intermediary. direct tax OTOH, is shown in p&l because it there is PBT>tax>PAT.

rkagerer 4y ago

How do you determine where they're made? Where the employees are? The customers?

cvalka 4y ago

The DST is much much better than Pillar 1.