
European Union plans to tax tech giants on local revenue - justaguyhere
https://techcrunch.com/2018/03/05/european-union-plans-to-tax-tech-giants-on-local-revenue/
======
derriz
I don't see an actual EU angle in this? It seems like a proposal that the
French want to present to the EU council of ministers. At which point it will
be dropped as it is simply a tarif in everything but name and has almost zero
chance of attracting unanimous support it would require in the council.

I'm European but it amuses me that it is always the revenues of American tech
companies that seem to provoke such irrational outrage in Europe. I never hear
the same outrage caused by the fact that German companies don't pay
corporation tax on their sales to China or French aeronautical companies can
sell their stuff all over the world without having to pay local corporation
tax.

If I was cynical, I would suggest that it's motivated ugly jingoism but I
don't think it's the case. I've argued with friends and acquaintances about
this and they simply refuse to accept that there is anything comparable
between American tech companies selling stuff in Europe to European companies
selling stuff all over the world.

The inconsistency is that my friends will claim to be broadly in favor of
"free trade". It's as if the rules of free trade are fine for "old" stuff like
cars and aeroplanes, pharmaceuticals, banking, legal services, wine, etc. but
not for modern tech/IT.

I mean I can understand your position if you're against free trade in general.
In that case, putting up tarifs on "foreign" imports is a consistent stance.

~~~
jcfrei
If you are dealing with physical goods then establishing where a taxable
profit was made is relatively straightforward. For tech companies which only
distribute their services over the internet it's much more difficult to
determine (from an accounting perspective) which parts of your costs belong to
which revenue streams and where exactly a profit was made (geographically).

~~~
derriz
Is it really relatively more straightforward with physical goods? With modern
supply chains, components and raw materials are flying around the globe in a
complex dance before they end up on your local store shelf or in an amazon
warehouse. I believe there is decades of international tax case law which
attempts to cover this with transfer pricing rules.

Often it seems tech/IT is simpler. A software engineering team in California
write the code, then it's clear that nearly all of the value was created in
California. It's fairly easy to price the cost of foreign datacenters for
cloud hosting.

~~~
alkonaut
It’s not. The IKEA example is having the business in individual countries pay
“royalties” to a company that in turn sets up whatever Dutch/Irish loophole is
needed to not pay much taxes.

BUT - and this isn’t irrelevant - even though IKEA might not pay much taxes on
corporate profits in (say) Sweden, Selling physical goods in physical stores
still produces value. They manufacture in Sweden about as much as they sell in
Sweden. So overall, it’s much easier to accept the near zero tax.

The corporations whose large profits and zero taxes annoy people are the
online giants.

~~~
merb
> The corporations whose large profits and zero taxes annoy people are the
> online giants.

well SAP is probably one of them, but I never heard that somebody is annoyed
by their tax policy. I never heard anything said against them and I'm pretty
sure that they follow the same scheme than Apple, Google, Facebook, etc.

(P.S. I'm german)

~~~
pavlov
Where do you get that? SAP's 2017 financial statement says the company paid
970 million euros in income tax on a profit of about 5 billion €:

[https://www.sap.com/integrated-reports/2017/en/primary-
conso...](https://www.sap.com/integrated-reports/2017/en/primary-consolidated-
financial-statements.html)

~~~
TomMarius
Yes, but (mostly, except for VAT) in Germany, not in the countries where they
sold the software.

~~~
pavlov
AFAIK, most of SAP's business goes through local resellers and consultants.
They pay taxes in their countries.

The iPhone App Store is a completely different animal from SAP's consulting-
heavy sales model, and it seems understandable that the EU commission is
interested only in the former.

~~~
TomMarius
Then it was a wrong metaphor in the first place. You're right.

------
meddlepal
Taxing on revenue rather than profit feels wrong. If you run a loss you're
still on the hook for taxes? That doesn't make sense to me.

How far can the EU push before these companies decide it is not worth having
actual businesses there?

~~~
Barrin92
>How far can the EU push before these companies decide it is not worth having
actual businesses there?

Given that it's one of the single biggest and lucrative markets on the planet,
much farther I would guess.

People are way too screamish about the threat of companies running away.
Service providers aren't going to abandon hundreds of millions of high income
users.

~~~
NicoJuicy
Don't forget, most Europeans also speak English.

But tech companies don't have profits here because of their tax optimizations.
So, I guess it's not difficult where they got their sauce from.

Edit: (downvotes not agreeing with the term "most")

> robinson7d mentioned 38% as second language, 13 % as first language. So =>
> 51% (or, "most")

Source:
[https://en.wikipedia.org/wiki/English_language_in_Europe#Oth...](https://en.wikipedia.org/wiki/English_language_in_Europe#Other_countries)

~~~
jfaucett
> Don't forget, most Europeans also speak English.

Just pointing out that's not true. The number is around 38% who have a working
knowledge, second place is tied with German and French at 14% [1].

1\.
[https://en.wikipedia.org/wiki/English_language_in_Europe#Oth...](https://en.wikipedia.org/wiki/English_language_in_Europe#Other_countries)

~~~
NicoJuicy
All those who you get in contact with then ;)

Those numbers also don't have a correct representation of English speaking
business owners and English speakers ( first language). Since your numbers
mention "English as foreign language".

Same wiki :

The language is also a required subject in most European countries.[3] Thus,
the percentage of English speakers is expected to rise.

~~~
freeflight
> Thus, the percentage of English speakers is expected to rise.

The number of English speakers has been steadily increasing for quite a while
already, at least in Germany. Mere 10 years ago speaking English was a skill
which wasn't that common and thus quite a bit valued, nowadays most modern
(and especially IT-centric) companies expect you to know English, it's nothing
really special anymore, at this point it's rather expected.

------
iagooar
> Maybe some day European countries will all get together and agree on a
> single, unified corporate tax level across the European Union.

I completely agree. European countries should start thinking more about their
shared, common good than how to outrun their partners.

~~~
wrren
As an Irish person, I consider this perspective to be hilariously naive.
Without tax incentives, our ability to attract foreign direct investment is
massively reduced and the jobs that need to attract will instead go to
mainland Europe.

It might work if we started by establishing a framework of financial transfers
between states, but without something like that in place Ireland and a bunch
of smaller countries will keep vetoing attempts to normalise tax rates.

~~~
stefan_
If your economy is "jobs" in the exchange for favorable taxing & EU access
that just makes you a Rentier state. All the value is in the tax avoidance
scheme, not whatever the employees are doing. It's not far removed from Saudi-
Arabia, the biggest game of the Sims ever played.

~~~
simonh
It’s not at all like Saudi Arabia. Having those technical and finance jobs in
Ireland builds up a reservoirs of skilled labour in those areas that attracts
companies. I saw this first hand at at a previous employer. We would
preferentially move technology roles to Ireland - speak excellent English, in
the EU, cheap office space and plenty of technically capable workers. Without
the latter, nurtured by businesses chasing tax advantages, it would have been
significantly less attractive. To be honest I think that would be happening to
an extent anyway, but certainly many of the tax break business is contributing
to establishing economic depth in Ireland in a way extractive industries
don’t.

------
tomcooks
> It's as if the rules of free trade are fine for "old" stuff like cars and
> aeroplanes, pharmaceuticals, banking, legal services, wine, etc. but not for
> modern tech/IT.

European Union angle is: stop opening up branches in Luxemburg and Ireland (or
other tax havens) to sell products to customers in other EU nations. Aka pay
where you generate income.

I hope i understood you correctly, but it really has nothing to do with modern
tech/IT. Such regulations have been already applied to Ebay, Amazon and other
companies which sell the 'old' stuff you are talking about.

Just like you, I fail to see where the jingoism would be in forcing non-EU
members to pay a fair amount of taxes and punish those who try to exploit the
system.

EU has _never_ been a free market and if you want to play you have to follow
rules (and IMO that's partly why EU refused to sign the TTIP). Same thing for
foreign companies trying to export goods to the USA, especially these days -
no?

[0]([https://en.wikipedia.org/wiki/Transatlantic_Trade_and_Invest...](https://en.wikipedia.org/wiki/Transatlantic_Trade_and_Investment_Partnership))

~~~
shady-lady
> pay where you generate income.

This doesn't make sense & defeats the point of European Single Market. Sales
tax is paid on & goes to the country the item was purchased in.

What does make sense is revenue being realized in the country of the company
that sold* the product/service. *this being a whole other can of worms.

The issues some countries(France/Germany) have are:

a) that their country wasn't chosen to be the entrypoint to the EU market

b) firms are realizing the revenue in a country which technically owns the
product/service IP but is not(in all likelihood) the company's main base.

So, let's pretend b) is a legit issue & we change that. The revenue from the
sale is not going to go to some other EU country(why would it?). It's going
back to the "main" country of the host company.

So, let's say $US-multinational didn't pay tax in Ireland or Luxembourg. That
money would just flow direct to $caribbean-country(which now would hold all
the relevant IP etc.) and held there - similar to what happens now. Because,
even if Europe changes it's laws, $US-multinational still gets to game the US
tax system cos it's 'better' than paying more in taxes than you legally have
to.

The next logical choice is for the EU to just bang an import tariff on all US
goods/services and let the consuming country collect it. Let's see how that
plays out...

------
cletus
This sort of thing is only a matter of time and entirely reasonable and I'm
not surprised at all that it's the EU rather than the US pushing this.

The idea that a US company can sell its IP to a foreign subsidiary and then
pay "royalties" for use of the IP to reduce US taxable income (all blessed by
the IRS) and then pay basically no taxes on this through Double Irish Dutch
Sandwich is apparently all fine legally but conceptually, we have a
government, a military, infrastructure (roads, bridges, etc) and so on... who
exactly is going to pay for all that?

More broadly, we have an increasing class of stateless ultrawealthy who really
don't pay taxes anywhere. There is any sort of justification for this.
Governments waste money. Individuals can direct money to charities more
effectively (while this might be true, it's still a net less "tax" paid in
donations that would otherwise have gone to tax and tends to have a social
climbing element that directs funds to "sexy" causes; no one is contributing
money to repair Interstates in Wyoming).

It's all just a smokescreen for paying less money to the stable society and
political system that makes your wealth even possible. Pay your goddamn taxes.

I expect to see a rule for multinationals come about that'll go something like
this: if you earned X% of your total global revenue in our country then X% of
your total global profit is taxable in our country. And if the EU is the one
that brings this about then good for them.

------
csomar
This is stupid and taxation for taxation purposes. It is all annoying. Why not
have all taxes generated from sales Tax (VAT). For example, set the VAT for
30% and be done with it. No revenue tax. No profit tax. No capital gain tax.
Just determine how much money you'r going to need, estimate the country
consumption and then set the VAT.

Bonus point? No complicated tax reporting. No tax avoidance or evasion.
Everything is simple.

But no, we gotta keep the system complicated to freakout new comers, terrorize
the current small businesses and enable the big guys to get away with it
however sophisticated it is.

~~~
tdb7893
I'm American so I don't fully understand how VAT tax works but aren't these
sorts of sales taxes generally regressive (i.e. poorer people pay a larger
share of their income). I think the tax code can be simplified but I don't
think a pure VAT system is such an obvious winner

~~~
zanny
The difference between a VAT and sales tax is easy to understand in simplest
terms:

Sales tax is a percentage of the final sale price of a good or service.

VAT tax is a fraction of the profits / revenue of every business involved in
the production of a good or service.

VAT is only complicated for businesses that sell things, but it also is not
because the business basically writes off their purchases when they then sell
them again to an end consumer. Between their purchase and sale they added
value, and that difference is the tax passed on to the final consumer. All the
government cares about is strict bookkeeping on how much stuff a company pays
for and how much it makes from selling that stuff again in order to check that
the VAT is accurate, and those figures are already required in most economies
due to corporate taxes and / or payroll taxes.

~~~
avar
VAT also encourages the formation of conglomerates since you'll need to pay
VAT to source some component of your product, but not if you make it in-house.

This is mitigated in some cases by lower VAT rates for businesses or recouping
schemes, but how much of a difference that makes depends on the jurisdiction

~~~
kgwgk
Say a company sells a product to a end customer for 100+VAT.

A) the company builds the product from scratch => the whole VAT amount
collected is transferred to the state

B) the company buys components from a provider for 50+VAT => half of the VAT
collected is given to the provider, the other half to the state

How are A) and B) different for the company as far as the VAT is concerned?

~~~
avar
They're not as far as the amount paid, but VAT introduces taxation overhead to
supply chains.

Let's say company A makes a pencil in-house, and company B sources all the
materials from 100 subcontractors. Company B will inevitably incur more
overhead because it and its suppliers need to deal with the accounting of 100
taxable events, company A only needs to deal with one.

Thus those 100 companies forming B will inevitably merge into one to compete
with A and fire their state-imposed army of accountants.

------
Joeri
_Le Maire told the JDD that they should expect to be taxed between 2 percent
and 6 percent of their revenue. He also added that the final figure will be
closer to 2 percent than to 6 percent._

So 2% must then be a significant increase over the current effective tax rate?
Or is this just some politicians posturing for votes?

~~~
andruby
Depends on the profit margin of the company. 2% revenue tax equals 8% of the
profit for a company with 25% margin. For a company with 5% margin, 2% of
revenue equals 40% of profit.

This is my biggest problem with a revenue tax. It disproportionately punishes
“high volume, low margin” business models over “low volume, high margin”

~~~
julbaxter
But one can argue that his biggest problem with a profit tax is that it
disproportionately punishes “low volume, high margin” business models over
“high volume, low margin”.

~~~
andruby
Does it? Profit is what determines the value to shareholders (of mature steady
companies). 10% profit tax is the same amount for comapnies with the same
amount of profit.

------
danbruc
Why not put the tax on global_profit * local_revenue / global_revenue?

~~~
BrandonM
That's sensible, but I think accountants defeat it pretty easily. For example,
suppose _Acme EU, Inc._ has $50MM in revenue from the EU, and $25MM in on-the-
ground costs to deliver that revenue. Lo and behold, they also have a bill
from _The Real Acme, Inc._ for $25MM for "intellectual property and technology
services".

So using your equation, Acme EU would get taxed on $0 × $50MM / $50MM.

Of course, we want to have a way to say, "But wait, both Acmes are actually
the same company!" I think that's the hard problem to solve.

~~~
danbruc
Iterate recursively, _The Real Acme, Inc._ obviously also operated in the EU,
they made a revenue of $25MM from goods and services they sold to _Acme EU,
Inc._ , therefore they owe taxes on global_profit * $25MM / ($25MM +
non_EU_revenue). I admittedly didn't really think this through for more than a
minute. This also feels like I am reinventing value-added tax, this is
definitely not my area of expertise.

------
Hermel
Isn’t that essentially the same as VAT, which also is a local tax on revenue?

~~~
cm2187
I guess if a french advertiser pays Google Ireland to show ads to french
consumers it pays Irish VAT.

------
sjtgraham
What leverage does the EU believe it has here? Tech companies only put
branches in Ireland, Netherlands, etc because of the US tax code. Another
jurisdiction will just compete on price and win the business. Jobs will leave
(high paying ones at that) the EU, income tax receipts will be hit,
unemployment up, wages down. It's just suicide. Corporations and the super-
rich are the leading edge of tax arbitrage. Like it or not this is the future
of tax for everyone, it's just a question of when technology enables you to do
your job remotely.

~~~
bluecalm
If they want to sell in European countries they will pay tax on revenue there.
They can move manufacturing to the Moon and report profits to authorities on
Mars while buying licensing from a company outside the Milky Way and we will
still tax them on things they sell here. That's possible because we just need
to count their sells on our turf. We don't need a tax treaty with Martians to
monitor their books as we do now.

~~~
sjtgraham
If there is no nexus, there is no justification to tax. Similarly, if you a
widget online from abroad the widget vendor doesn't pay tax where you're
domiciled. The best the government can do are import tariffs, hard to see how
that works for services IMO.

------
edpichler
It’s not companies that pay taxes, it is who consumes their products (us).

------
jopsen
Can't we do smarter than revenue?

Like tax world wide profit at a rate proportional to revenue in each country?

ie. if 10% of your revenue happens in country A, then 10% of your world-wide
profit must be taxed in country A at whatever corporate tax rate country A
offers.

This could also be structure as: If 10% of your revenue happens in country A,
then 10% of your wold-wide profit must be taken out in country A.

Or something similar... perhaps just make it easier to prosecute profit
exports for tax evasion purposes.

IMO, I would rather see resource based taxing, as companies will find a to
optimize taxes no matter what.

~~~
mrschwabe
We can do even smarter than that. 0% worldwide revenue or profit tax (on both
corporations and individuals).

Nations, provinces/states, and municipalities and even businesses are free to
charge whatever sales tax they want at time of purchase.

The massive amount of wealth preserved, saved and created as a result will
allow for an exponentially more efficient economy worldwide; one that isn't
handicapped by militaries and monopolymen.

~~~
jopsen
sales tax is really bad, won't that encourage large corporations, as
transactions between corporations would be taxed?

With VAT that doesn't happen.

~~~
mrschwabe
VAT, GST, etc - yes that is what I meant by sales tax. Let entities charge any
tax they like at time of purchase; it is there prerogative; it's a completely
non-invasive tax that encourages competition (ie- little or no sales tax
entities will be favored) and savings (ie- your not punished for simply
earning money).

------
bambax
> _While they’ve all claimed that everything is legal_

It very well may be, but here's the thing: the law can be changed. Not
retroactively of course, but we can decide about the future.

------
walterbell
What’s the minimum revenue to be considered a tech giant?

------
kolbe
Interesting. I can't help but think that creating a new tax that almost
exclusively hits US companies will simply add fuel to these trade war talks.

~~~
distances
Why do you assume it would almost exclusively affect US companies? They are
the names that are usually floated around with this topic, but this doesn't
sound at all like it would only affect US companies.

~~~
kolbe
Because, according to Reuters, who claims to have seen the draft, it's
targeting companies with EU digital revenues in excess of some large amount.
After you get above Spotify's digital revenue, the only companies left are
American (and Spotify looks like it's exempted).

[https://www.reuters.com/article/us-eu-tax-digital/eu-
plans-n...](https://www.reuters.com/article/us-eu-tax-digital/eu-plans-new-
tax-for-tech-giants-up-to-5-percent-of-gross-revenues-idUSKCN1GA25R)

------
rosege
This is definitely a good idea - I believe similar to what happened in the
movie industry to combat Hollywood Accounting
[https://en.wikipedia.org/wiki/Hollywood_accounting](https://en.wikipedia.org/wiki/Hollywood_accounting)

------
gohbgl
The EU should force the other countries to lower their corporate tax instead.

------
gok
So when a company is losing money, it will still pay taxes?

------
Sevii
It sounds like a tariff on software imports.

~~~
_rpd
Or on digital goods more generally. I can't see how it will survive a
challenge at the WTO.

------
EggsOnToast
Between the broad nature of the GDPR and now this, it seems like the EU is
really just pursuing legislation that disproportionately affects foreign tech
companies and making up reasons as they go. Obviously that's entirely
conjecture but it's hard to take the justifications for these measures at face
value when EU specific scandals like the Volkswagen fiasco result in slaps on
the wrist by comparison.

~~~
detaro
Why is GDPR disproportionally a problem for foreign tech? You really think
there isn't tons of work to do for many local companies as well?

~~~
EggsOnToast
>Why is GDPR disproportionately a problem for foreign tech?

The legal resources being actively applied against foreign companies, and I'm
including the legal resources of civil groups that receive state funding in
that definition if it matters, is concentrated predominantly on foreign
entities. The raw economic impact, in part due to the concentrated nature of
the legal action being pursued, is much larger against foreign entities such
as FaceBook, Google, etc. Put succinctly, it's disproportionately a problem
because the realized effects of the GDPR have been more hostile towards those
entities.

> You really think there isn't tons of work to do for many local companies as
> well?

I think you're either being rhetorical or you've misunderstood my point. I'm
not arguing EU companies don't have any work to do. I'm arguing that from a
legislative perspective it's a small trade when you compare the size of the
foreign sector to the domestic sector. In my parent comment I acknowledged
that this doesn't immediately imply foul play before going on to say that it's
hard to not view these actions as such when the EU treats its own corporate
scandals/misbehavior so lightly by comparison such as in the case of
Volkswagen.

------
ancorevard
This is wrong. Taxation should happen where value is created.

~~~
teamhappy
Apple pays taxes in Luxembourg. It doesn't matter where the app developers
live or where the people buying the apps live. The money goes to Luxembourg.
Is that where the value is created?

~~~
zanny
Its also arguable to want to collect taxes at point of sale, IE, whenever the
person with the phone making the purchase is, or more reasonably where they
live. Which is what this proposal is, after all.

------
drinchev
Well it's not like we have universal income, but increasing taxes on Fortune
500 companies always makes me happy.

I really hope the taxes won't go into another corrupted Berlin airport scheme.

------
GFischer
I wonder how much prodding will they take until they take measures.. if EU
successfully does this, you bet that the regressive South American countries
will try to ape it.

OTOH they can probably take a 2% tax hit.

Edit: I was thinking in terms of negotiating strategy for the big companies.
Also, I am a citizen in one of said South American countries.

~~~
AsyncAwait
> if EU successfully does this, you bet that the regressive South American
> countries will try to ape it.

Oh, I forgot I should feel sorry for the richest corporations on this planet,
they're being repressed, aren't they? It isn't them defrauding workers by wage
fixing, not paying their fair share of taxes etc. it's the EU and the
oppressive South American governments, (damm communists! there isn't enough
redbaiting in the U.S. these days), thanks for reminding me who is the real
victim here.

~~~
GFischer
I am a South American in a member country of Mercosur, while I'm not happy
with Facebook et al doing every tax evasion trick in the book, it doesn't mean
that what Mercosur countries do isn't populist... (see: Brazil randomly
blocking Whatsapp whenever they want).

I was also thinking in terms of business strategy. It's like negotiating with
terrorists.

