
Tech Giants Set to Face 3% Tax on Revenue Under New EU Plan - adventured
https://www.bloomberg.com/news/articles/2018-03-17/tech-giants-set-to-face-3-tax-on-revenue-under-new-eu-plan
======
jfasi
Personally, I like this proposal. I like that it's simple: any overly complex
system will almost inevitably result in distortion and loopholes. A few points
of my favorite points:

* It's done on revenues and not profits. This avoids the impossible question of where profits are realized: if you make money in one country but displace that earning by costs somewhere else, it's practically impossible to determine where the tax should go.

* It's uniform across the EU and so it doesn't incentivize companies to base themselves in any member over another. This avoids the distortion we have now with Ireland's permissive tax system siphoning up all the company headquarters and with it the (scanty) tax revenue.

* Each member receives money based on the number of users they have in their own country, meaning they have a strong incentive to increase usage of digital services and a disincentive to put in place regulatory measures that would decrease adoption and harm growth.

One of the problems of the current situation is that it sets tech companies up
as these parasitic monsters that creep into a country, make huge profits,
alter the society as they see fit, and give nothing in return. The best thing
about this proposal is that it sets up a harmonious relationship: governments
get to make money while companies get to have their access to citizens
legitimized. With that legitimacy comes better PR and a seat at the table as
legal systems everywhere catch up to the world tech companies have created.

Plus it might finally put that ridiculous "tech companies are tax evaders"
meme to rest.

~~~
adventured
> The best thing about this proposal is that it sets up a harmonious
> relationship

It does the exact opposite. It spurs a further acrimonious relationship
between the major economies of the EU and the US. Particularly France and
Germany, which are a combined outsized share of the EU economy and represent
~80% of the trade deficit that the US has with the EU.

This new tariff exists solely because the EU can't compete on technology and
needs to raise barriers. It's the same reason any country chooses to implement
lopsided tariffs, as a shield from competition.

It encourages the US to figure out how to retaliate for a new tariff that was
designed to almost exclusively target US tech companies. The US will have no
choice but to respond with something equally punitive on EU imports. That'll
just make relations between the EU and US worse.

~~~
jfasi
You comment doesn't make sense to me.

Face it: some form of taxation was going to appear no matter what. It's
inevitable. You don't just roll into a country, make billions of dollars, and
expect to pay no tax in perpetuity. As tax proposals go, this one is pretty
reasonable.

This isn't a punitive measure because it sets no one apart for any past
behavior. It also isn't a "shield from competition" because all companies have
to adhere to it, not just American ones.

~~~
adventured
> You don't just roll into a country, make billions of dollars, and expect to
> pay no tax in perpetuity.

The reason this policy is being pushed, is because some nations have
benefitted a lot from US tech companies, eg Ireland, while others eg France
and Germany, are jealous that they're not getting their spoils (while
simultaneously seeing no large domestic tech company creation). France and
Germany have vast influence over the EU, they regard it as their little
fiefdom of power. To watch Ireland become richer and richer and richer by the
year, as their GDP per capita just keeps soaring ever higher, drives those
sleepy giants crazy.

GDP per capita

Ireland: $68,000

Germany: $44,000

France: $39,000

It's pretty obvious what's going on.

Ireland's economy has tripled in size in 17 years.

France's economy hasn't net expanded since 2006.

Germany's economy hasn't net expanded since 2007.

I seriously doubt France and Germany - both high corporate income tax nations
- want to see a bunch of Irelands further sprout up in the EU, pulling even
more economic benefit away from the power duo in the EU.

~~~
felipeko
Why don't Germany and France offer the same as Ireland?

~~~
anonymouz
1) It's a race to the bottom. If Germany or France lower their taxes, Ireland
will go even lower.

2) It works for Ireland to have low taxes, because they are a small country
collecting the tax for the entire profits in the EU. Even if their tax rate is
low, they still get a sizable benefit. This can't work for the big countries.

~~~
felipeko
1) Why would Germany and France care? They have not been collecting taxes
anyway, race to the bottom until Ireland can't anymore.

2) It works for Ireland because other countries prefer not to engage. If
Germany had the same tax rate it wouldn't work for Ireland anymore right? As
what is now Ireland only revenue would be split between the two or more
countries.

When this happen wouldn't Ireland have to raise taxes if it wanted to keep the
same money?

It appears to me that this would achieve an stable and healthier equilibrium
after some time.

~~~
Joeri
If all tax rates are lowered to ireland’s rate then there won’t be enough tax
revenue to fund the existing social infrastructure.

If lower taxes were always better why have any taxes at all?

~~~
felipeko
That's my point, isn't it?

Ireland can't win a race to the bottom, and it will have to have higher taxes
if others will lower theirs.

So all other countries have to do is lower taxes to force Ireland to raise its
own, and reach a new higher taxes equilibrium, that is beneficial to all
countries.

Isn't that what others are arguing for?

~~~
joejerryronnie
How is this strategy working for OPEC?

~~~
felipeko
Can you elaborate on that?

I'm not sure how this is comparable.

Ireland's low tax works for Ireland because it has no competition, so it gets
the "market" all to itself. If competition arrived, Ireland would have no
option but to raise taxes to make it up for it - as it needs this funds. It
would essentially force Ireland's hand on this issue.

On the OPEC side they have external and internal competition. Sometimes they
can make it work because demand is higher than what external competition has
to offer and what internal competition need, but if external competition has
enough supply or internal competition need more than they are getting, it does
not work anymore (and the price drops because of extra supply).

~~~
joejerryronnie
Admittedly, my reply was lacking necessary detail. The parallel I was trying
to draw with OPEC is that, in order for a cartel to work effectively, each
member has to adhere to the rules established by the cartel, sometimes to the
short-term detriment of any individual cartel member. With OPEC, this means
strict controls on the output of oil. In good times, each member seems to keep
production in line with the OPEC established standards, but the minute any
stress is added to the system (primarily dropping oil prices), all bets are
off and we see individual members increasing their production to maintain
short-term cash flow - you essentially said this same thing in your comment.

It seems like your proposal would establish a cartel-like structure related to
corporate tax rates. I was trying to point out the inherent fragility of this
type of arraignment, especially in the EU where there are many stressors
between member countries.

~~~
felipeko
Thanks, I see the similarities now.

I think the system will work only as far as you have power players that are
able to punish everyone who gets out of line - by racing to the bottom and
driving profits out as a punishment [1].

That's exactly what I think complaining countries should do. They're not
getting any revenue now, so they are able to power play Ireland into fair
taxation, and the system will be as stable as their possibility to do so. If
you take into account that any country cheating will take revenue away from
others (thus their reason for a high tax), they should always be able to
counter, as they are now.

[1] [https://www.nytimes.com/1988/11/03/business/saudis-use-
pain-...](https://www.nytimes.com/1988/11/03/business/saudis-use-pain-to-
pressure-opec.html)

------
lovich
Why are a large amount of people treaing access to other nations markets as a
human right? I can see the argument behind saying you should have access to
your local market be realtively free, you have to live somewhere, and you and
your local societies interests are relatively aligned.

However,when it comes to foreign markets many people here seems to want the
best of both worlds. It's a paraphrase but it seems like saying "let me work
however I want in your home, but don't limit me at all", seems to be the
rallying cry.

How is this not hypocritical?

~~~
lovich
As a response to several people stating that free trade is better for
everyone.

I've taken economics courses, I understand how free trade is better overall.
However, those calculations only work when both sides follow the same rules.
Once you have different groups of people with different values, whether it's
the EU valuing privacy, China valuing domestic production, or the US valuing
intellectual property, absloute free trade seems to break down.

You can't freely trade if you're using different units

~~~
barry-cotter
That’s not true and if you can believe that after taking several economics
courses it speaks poorly of your teachers.

The main benefits of free trade are in specialisation. People specialise in
what they’re good in and trade for other goods and services. Specialisation
leads to greater efficiency, meaning you can do the same with less, or more
with the same amount. Notice the complete lack of the words domestic
production or intellectual property.

The case for free trade is that in the long run specialisation makes us
richer. Units have nothing to do with it. Metric or imperial, services and
goods are what they are.

~~~
asdfaoeu
He is admitting those benefits. His point is that with different tax rates and
regulations the market is distorted and if anything imposing tariffs / revenue
taxes is just equalising the market.

I don't think he's talking literally about units.

~~~
barry-cotter
If other people do stupid things you don’t have to do stupid things too.
Market distortions, different tax rates and regulations do not change how
returns to specialisation and gains from trade work.

Anti-dumping tariffs are stupid because it not notnto your benefit to punish
people for giving you cheap stuff that should be expensive. Being able to have
different tax rates is part of the power to tax, which is part of being
sovereign. Equalising the market is a fool’s game. The market is what it is.
If you want to help some people or groups by all means do it, but tariffs are
a very inefficient way to do it. Transfer payments ftw!

~~~
bobcostas55
> But once you lost that capability it may become prohibitively expensive to
> regain it because the initial costs to rebuild the knowledge and
> infrastructure is going to be much higher than the marginal costs for an
> established industry and you would have to accept, at least to some extend,
> which ever price they ask for.

This has literally never happened. People keep bringing up this objection, but
nobody can point to a single instance of it ever happening. It's irrelevant.

~~~
andosa
How has it not ever happened? China, who essentially blocked Google, Amazon et
al, now have Baidu, Alibaba, Tencent and other massively successful tech
companies, while EU is stuck with aforementioned monopolies with near-zero
chance of a local competitor competing with them.

~~~
barry-cotter
Google, Amazon, Microsoft etc. are still there. The US can still produce steel
and computer chips. Other countries subsidising domestic production of
software, steel and computer chips did not lead to the US being unable to do
so.

And amazon is pretty big in China, taobao and jingdong are just bigger and
better.

~~~
andosa
Yes, they are still there, but the protectionism is what allowed the local
companies (Baidu, Tencent, Alibaba etc) to compete initially and be better in
the end. Whereas in EU, local competition has been crushed and it is now stuck
with the monopolies.

~~~
barry-cotter
Baidu is still not better than Google, even in Chinese, for what it’s worth.

Infant industry protection may make sense in some cases but it’s more commonly
used as a smokescreen for corruption. It was used as a justification for high
tariffs and low quality domestically produced goods all over the world
throughout the 50s to at least the 80s.

If the EU doesn’t have much in the way of domestic IT companies so what?
They’re still rich. The fact that others are getting rich in other, different
ways does not make them poorer.

~~~
dahdum
It makes the EU asymmetrically dependent, which is not a good position in a
competitive world.

------
throwaway77384
This is fantastic and I am all for it. Even if this gets passed on to the
customer, it ends up in infrastructure and the kind of things the EU does
well. I'd love to see more of this. If the international conglomerates had
wanted to avoid this, maybe they wouldn't have dodged taxes like they did in
the first place. Brilliant and long overdue. My main worry is that countries
which capitalise on enabling the tax dodgers (cough, Ireland, cough) will vote
against this.

~~~
shady-lady
What was the point of the European Single Market then?

Or was that just meant to benefit the larger industrial nations(cough,
Germany, cough)?

It would seem to be sour grapes on the parts of France & Germany that they
weren't chosen to the main entrypoint to the EU for some US companies.

~~~
throwaway77384
Well, I think you are making a very valid point. Germany and France sure like
throwing their weight around and have earned plenty of appropriate criticism
for their actions. They will most likely continue to do so. Just like with the
US on a global level, large, influential economies will often bully smaller
ones into situations favourable to their own goals.

I do not know what the point of the European Single Market was. In fact, I'd
be interested to hear someone with the know-how tell me. Was it to create a
trading zone where the same rules applied to everyone? Or was it just supposed
to ease trade across borders by creating some kind of customs framework and
abolishing tariffs, etc.?

Now the point I was making wasn't specifically about Ireland. I could have
said Italy as well. I just wanted to point out that paying taxes is a huge
deal. Not just for filling the coffers of the European Union, but as a symbol
of everyone paying into the social contract.

If people see nothing but giant corporations exploiting the legal systems of
countries to dodge taxes, people think they could do so, too. It
disenfranchises the populace and just ends up giving more rise to populism,
which is possibly the biggest scourge on society at this moment in time.
Populism leads to fascism. The whole tax malarkey plays into this. It's not
the root cause of populism (not sure there is one) and it's certainly not
Ireland's fault that they managed to attract business through favourable
business tax rates, but something needs to be done about the blatant tax
avoidance by these international players and I think this is a good first
step, which will surely see some refinement down the line.

So, again, I think you make a valid point, but I also believe that my original
point stands also.

By the way, there's one country that was afraid enough of tax regulation that
they fooled a sufficiently large proportion of their populace into voting for
one of the most insane political decisions of the last decades. In a non-
binding referendum, which is somehow, miraculously, being implemented with a
kind of fervour and passion not seen since the Apollo program. (While actually
important societal issues would never be put up to a referendum and even then,
if people voted the wrong way (aka, against short term financial gain, or
archaic doctrine), would simply go ignored. Hmmmm....)

~~~
mancerayder
_I do not know what the point of the European Single Market was. In fact, I 'd
be interested to hear someone with the know-how tell me. Was it to create a
trading zone where the same rules applied to everyone? Or was it just supposed
to ease trade across borders by creating some kind of customs framework and
abolishing tariffs, etc.?_

I'm kind of glad someone asked that because the answer is pretty interesting,
and not surprising given history.

It started as the European Steel and Coal Community as a way for nations that
had been at war with one another to pool together power and steel resources
(those engines of war) to make it harder or impossible for war to recur. It
was France and Germany who essentially created it, and it included the Benelux
countries. I believe creating a common economic powerhouse against the, at
that time, giant newly invincible United States was a factor too. This was all
in the backdrop of WWII.

([https://en.m.wikipedia.org/wiki/European_Coal_and_Steel_Comm...](https://en.m.wikipedia.org/wiki/European_Coal_and_Steel_Community))

~~~
throwaway77384
That is very interesting and does make a lot of sense. Thank you :)

------
Zenst
Many comments seem to of missed this key aspect: "Tax on tech companies to be
based on where users are located"

So this is money made from EU based users and revenue they make from them.

~~~
jimmywanger
>So this is money made from EU based users and revenue they make from them.

That's a gross oversimplification. Especially with the internet, it's not
clear anymore.

Let's say that I live in Thailand, have US citizenship, sell products on
Amazon in England, ship to France, and then advertise on Google. Who do I pay
taxes to and at what rate?

Provenance of profit is not easy. You're paying Amazon a cut for
shipping/fulfillment, and Google for the ad revenue, but your customer is a
French national and you're a US citizen but currently residing in Thailand.

~~~
sjg007
It's pretty clear. You are selling in the UK so the revenue would be taxed
there. Post-brexit the French customer will pay customs duty.

The Google ad revenue will be paid by Google based on the market. So the ad
run in France generates EU revenue. Doesn't matter if the payor was an
American or anyone else.

If you are US citizen then you pay world wide income tax. You can deduct
foreign taxes paid up to a limit. Better to actually incorporate though so you
can pay less tax.

~~~
nothrabannosir
_> Post-brexit the French customer will pay customs duty._

Out of interest: Would they? This is an EU law, so that would assume UK kept
it after brexit , either specifically or through some wholesale “fork all the
trade laws”. But it would also imply a lack of inter-European treaties, i.e.
fork the laws but don’t keep the treaties.

I haven’t kept fully up to date with the latest brexit developments , are we
far enough along in the negotiations to know this stuff yet? Last I heard it
was still a complete s __*show : /

~~~
ben_w
IIUC, all trade from UK to EU will be subject to customs checks & tariffs,
because the UK government is more likely to collapse than accept continued
membership of the single market/customs union. Simultaneously, the UK
government lacks the capacity to enforce significant customs or border checks
in the other direction, so will accept almost (but not quite) all imports from
the EU blindly.

------
cromwellian
What right does the EU have to tax revenue (not even earnings) from money made
on non-EU citizens? I could understand an argument that they have a right to
levy a tax on money created by selling services to EU citizens, but global
revenues?

They mention Twitter as an example in the article, but Twitter's revenues for
2017 was $3.83 billion, and their net-earnings is mostly negative, or barely
positive. So they'd be asking Twitter for money they don't even have.

This seems too crazy to pass, like the Trump tariffs, it just seems to be a
footgun.

~~~
cryptoz
> What right does the EU have to tax revenue (not even earnings) from money
> made on non-EU citizens?

Every right. Their government, their citizens, their laws.

> but global revenues?

These companies exist globally. They would be vastly smaller and have far less
impact if they did not have EU citizens. Network effects matter and ignoring
them is choosing to not understand the big picture.

> So they'd be asking Twitter for money they don't even have.

It doesn't strike me they would try to collect this retroactively!

Also, I would argue that clearly Twitter should not exist at all if it cannot
pay a reasonable tax in the areas where it operates.

Edit: What right does _Twitter_ have coming into the EU, collecting data on
its citizens, earning revenues from that, and not paying tax? Seems insane to
me.

Edit 2: I guess all the downvotes trigger a switch, I'm not allowed to post
any more on HN I guess. Bye all.

Edit 3: To the replies below, I'm not "boxed in" by some silly argument. I'm
just banned from replying.

~~~
cromwellian
> Every right. Their government, their citizens, their laws.

If a company doesn't have offices in your country, it's not yours.

>These companies exist globally

Well, maybe the net result is to get out of the EU then, if the costs of 3% of
global revenues exceed profits.

If you don't think a company that is mostly non-profit (Twitter) shouldn't
exist, I feel that's a pretty pathetic position. So you're either a very
greedy, high margin profit company,or the EU says you shouldn't exist?

~~~
TheCoelacanth
This is not a tax on global revenues. It is a tax on EU revenues. This article
does not make that clear but other articles about the subject[1][2] include
that important detail.

[1] [http://www.dw.com/en/eu-prepares-revenue-based-tax-on-us-
tec...](http://www.dw.com/en/eu-prepares-revenue-based-tax-on-us-tech-
giants/a-43009838)

[2] [https://www.bloomberg.com/view/articles/2018-03-16/eu-
digita...](https://www.bloomberg.com/view/articles/2018-03-16/eu-digital-tax-
is-back-and-as-wrong-as-ever)

~~~
rmah
It really is a tax on global revenues. It's a tax on global revenues that is
enabled by the fact that EU residents get services for free, which _enable_
the global revenues. But the companies are also paying a VAT/GST/sales tax on
some of those revenues in nations that charge them.

Let's use lumber as an analogy. Let's say the trees are in nation A. And a
company from nation B is cutting them them down to make lumber (and is paying
appropriate taxes in A for licenses, employees, land, etc). Lumber which is
sold to companies in nations C, D and E. And appropriate taxes are paid on
those sales. The company also pays income tax in nation B. The EU tax is like
nation A saying, "you're using our trees to make even more money in nations C,
D and E -- pay us a share of those sales!" In this analogy, the users are the
trees.

To use another analogy, it's like demanding farmers pay taxes on the revenues
that McDonalds makes. It's just silly.

~~~
Yptur
I don't really see where the problem with that is. If it bothers company B so
much they can just look for a different market right?

------
Buge
Let's say a company has their headquarters in country A. A user from country B
uploads a video filmed in country C. Someone from country D buys an ad to be
placed on that video, and the purchase is processed in country E, while the
sales agent is based in country F. A different user in country G watches the
video and clicks on the ad. The video was served from a server in country H,
and the ad from a server in country I.

Where does the company pay taxes?

~~~
pimmen
Country D, I think. That's where the sale was made.

~~~
sumedh
> Country D, I think. That's where the sale was made

How can the company determine if a user is from Country D, ip address or what
the user enters in the address box?

~~~
ben_w
Billing address, given a sale is involved. Bank accounts tend to be attached
to an address, and they can be traced if any silly loopholes get exploited.

------
cryptoz
We are all in this world together. It is insane that corporations have been
able to reap untold profits while hardly being taxed at all. These companies
could not exist without the societies of the people who buy their products.
They should pay taxes wherever they do business, even if fiat currency isn't
changing hands (i.e., Facebook and Twitter free users) as specified here.

Good move EU. Higher taxes on megacorps will improve quality of life globally
and will ensure stronger societies that are more resilient to disaster (like
the 2008 crash, or even a natural disaster). Higher taxes on megacorps will
increase the probabilities of stable societies with healthy middle classes.
Higher taxes on megacorps will enable more people to be entrepreneurs
themselves, as more people will grow up with the resources and skills to start
something of their own. It's win-win-win all around.

If the megacorps want to earn more money, they should pay more tax. They'll
earn more money in the long run that way.

Edit: I'd love to reply to the comments below, but all you downvoters made
that impossible. I'm now banned from commenting and replying on HN presumably
from some automatic downvote ban switch. Thanks for silencing the debate
downvoters and HN filters. Goodbye.

~~~
cromwellian
Well, tax them on the money they make from EU sales then. I hardly see why the
EU has a claim on revenues made by overseas companies on non-EU citizens. How
about the US levy a tax on global BMW and Benz revenues?

~~~
toomuchtodo
> I hardly see why the EU has a claim on revenues made by overseas companies
> on non-EU citizens.

For the same reason the US government has claim on all global income of both
its citizens and corporations. [1] [2]

Corporations brought this on themselves by using accounting cleverness to
"hide" billions in profits [3]. This is simply a regulatory response. Tech
companies can choose not to operate in the EU as well. This gets to the crux
of the problem: taxing where the use takes place, not where the corporation is
located.

[1] [https://www.irs.gov/businesses/income-from-abroad-is-
taxable](https://www.irs.gov/businesses/income-from-abroad-is-taxable)

[2] [https://www.irs.gov/newsroom/people-with-foreign-income-
or-f...](https://www.irs.gov/newsroom/people-with-foreign-income-or-foreign-
assets-have-us-tax-obligations)

[3]
[https://en.wikipedia.org/wiki/Double_Irish_arrangement](https://en.wikipedia.org/wiki/Double_Irish_arrangement)

------
zhyder
The EU's proposal isn't the best, but it'll hopefully spur more debate and
shake us out of our current local optima, where corporate taxes for multi-
national corporations are just odd. How about this proposal: tax company on a
fraction of global profits, where the fraction is the fraction of revenue that
was attributable [1] to the EU?

[1] - Different ways of determining attribution, but simplest is based on
billing address of the customer making purchases, including purchasing ads

~~~
patall
But it goes even further. In Germany, due to the former divide of the country,
lots of big companies like Siemens or Osram have left the state where they
were founded and moved to somewhere else. Because corporate tax is paid on a
federal state level this means to now many more of companies pay their taxes
for example in Bavaria and less so in for example Berlin. So in theory you
would also need to have companies pay money on a federal state level (or be
distributed somehow "equally" by a central government). In Germany we have
whats called a "Länderfinanzausgleich" that redistributes some of the money
between states even though that is highly controversial.

------
Eridrus
How is this different to a tarriff? The EU has basically no companies that fit
this description.

~~~
disgruntledphd2
Spotify? King? Ubisoft? Probably a whole bunch more that I'm missing.

~~~
Eridrus
This original article doesn't say this, but there are reports that
subscription companies like Netflix (& Spotify) would not be affected:
[https://phys.org/news/2018-03-eu-tech-titans-tax-
riles.html](https://phys.org/news/2018-03-eu-tech-titans-tax-riles.html)

We'll see exactly how they define digital companies, but expect it to be
highly political.

------
gaius
Google et al: (smugly) we comply strictly with the letter of the law, if you
want us to pay more change the law

Government: hold my beer

Google: it’s not fair!!! (fx: bitter tears)

Let’s charge them the back taxes for all their evading years too

~~~
adventured
Avoidance is not evasion, so your back tax / theft premise will fall apart
there. It would never survive a legal challenge.

This EU fake tax is actually a new tariff.

The EU has a $100 billion net trade surplus with the US. Germany - by far the
largest economy in the EU - in particular has an _extreme_ trade imbalance
with the US in relation to the size of the trade between the two countries.

The German trade deficit is so extreme, it's larger than the total sum of all
exports from the US to Germany in fact.

The US is the least trade dependent developed nation on earth:

[https://i.imgur.com/q7TrEZF.jpg](https://i.imgur.com/q7TrEZF.jpg)

Every nation that has a large surplus with the US, that decides to pick a
trade fight, will be guaranteed to lose a lot more than the US does
accordingly.

The US for example imports three times from China, what China does from the
US. A trade war with China is ideal for the same reason it's going to be ideal
with Germany and the EU broadly. In a perfect world, the US will import
dramatically fewer consumer goods from China, Germany and overall in general.
Instead the US should consume less from abroad and shift those resources to
domestic capital formation and investment toward greater US production. That's
further ideal at a time when automation gains will make it easier to reshore
ever greater manufacturing. The vast US capabilities around manufacturing and
energy, make the US uniquely positioned among major economies to not need very
many outside nations.

~~~
esarbe
It's pretty much obvious that the tax avoidance perpetuated by Google, Apple,
Amazon and Microsoft is against the spirit of the (tax) law, even if it is not
against the letter. But you are right; it would never stand a legal challenge.
That's why there is this new tax.

When you consider that companies like Apple, Amazon and Google - using these
tax loopholes and sandwiches - get to pay a much lower tax rates that your
local carpenter or grocery store, I don't see this as a new tariff, but as
enforcement of an existing one.

About the 'trade fights'; I think you really do underestimate the straits the
U.S. is currently in. The only reason the U.S. can import as much as it is
currently doing is because of the strength of the U.S. Dollar. The median
inflation adjusted income in the U.S. has been sinking for three decades. Even
more automated production will not produce purchase power, especially if the
value of the Dollar suffers because of a trade conflict.

Interested to hear your thoughts!

------
mankash666
Incorporate your business outside the EU. It will protect you from
unreasonable taxes and regulations. The internet has no boundaries or
residency or citizenship. Especially if you are a software-as-a-service
business, ignore everything about the EU and domicile outside it.

~~~
adventured
The EU will block your service's access into the EU market. That's their only
possible next recourse if you simply ignore them and stay out of their
jurisdiction physically (in a scenario where you continue to sell to EU
customers, but refuse to abide by their policies such as this tax). They'll
also go after the payments side, they'll try to shut off your ability to get
the payments from EU customers.

Going down the roads that the EU is toward further centralized bureaucratic
control over the Internet, they have to build their own version of the Chinese
firewall to control EU Internet access eventually. There can be no other
possibility if they plan to see this path through to its logical conclusion.

~~~
ocdtrekkie
The critical difference here is that China is trying to block their citizens
from seeing data hostile to the government, whereas the EU is trying to
protect its citizens from companies hostile to its citizens.

I wish all our countries were so enlightened as to stand up to protect us from
multinational corporations exploiting loopholes in the law.

~~~
balfirevic
Citizen of EU here. Can I opt out of that protection?

------
spectrum1234
If you are gonna have a form of corporate tax, a tax on revenue is the best
way to do it.

This will raise prices of goods the least and directly target the largest
companies.

~~~
harryh
This is 100% wrong. Walmart buys[1] goods for 97 cents and sells them for a
dollar. Google produces technology for 50 cents and sells it for a dollar.

A 5% tax on revenue would make Walmart a money losing enterprise while being a
minor annoyance for Google.

This is why we tax profit and not revenue. Different industries have radically
different cost structures.

~~~
AnthonyMouse
> This is why we tax profit and not revenue. Different industries have
> radically different cost structures.

That is completely irrelevant as long as the tax is only collected once at
final sale and not every time the goods change hands within a supply chain.

If Walmart has 97 cents of cost per dollar in revenue then the sum total
profit within their supply chain is 97 cents. _Somebody_ is getting every
penny in the dollar.

If the government says that for every dollar in revenue you have to pay 20
cents in taxes then Walmart will either raise prices by ~20% or require their
suppliers to lower prices by ~20%. In no event do they go out of business,
because their customers still need what their suppliers produce.

It's possible for a tax to destroy a market, but it has nothing to do with
margins of the final retailer and everything to do with how much total surplus
exists. If the government demands a certain number of dollars in taxes and
either the manufacturers or customers can eat that and still be willing to
engage in the transaction, that's what happens. But if there isn't that much
surplus in the transaction, it no longer happens. Because before somebody was
spending an hour to make a certain amount of money and after they have to
spend an hour to make only 80% that much money, which can cross over the
threshold where they say screw it and fold up shop. That has nothing to do
with whether you call it sales tax or income tax.

It's true of _any_ tax on _any_ product. There are products with high margins
that a small tax could nonetheless destroy because the industry is high risk,
so investors won't invest without high returns. If the tax makes the risk-
adjusted returns fall below what it is for other investments, the product
ceases to exist despite high margins, because the high margins may be entirely
necessary to compensate for the risk.

~~~
conanbatt
> If the government says that for every dollar in revenue you have to pay 20
> cents in taxes then Walmart will either raise prices by ~20% or require
> their suppliers to lower prices by ~20%. In no event do they go out of
> business, because their customers still need what their suppliers produce.

You are assuming there is no elasticity here. People would stop working for
walmart and go work for google, in this example, so yes, the tax would destroy
walmart.

~~~
discodave
This is nonsense. Unless Google opens thousands of "walk-in-distribution
centers" close to consumers, or 100% of commerce moves online, then there will
still be demand for what Walmart sells.

Walmart sells essentials like food, clothes, and medicine. In what world does
a consumer need an Android, or the internet, but not food.

~~~
conanbatt
Some abstract thought here: the OP mentioned only 2 companies and I responded
within that limitations, but in reality walmart competes with amazon. So if
amazon has higher margins than Walmart because of the business model then
walmart is disproportionately hit by the tax.

~~~
AnthonyMouse
> So if amazon has higher margins than Walmart because of the business model
> then walmart is disproportionately hit by the tax.

Still not how that works.

Suppose a knickknack costs $1 at Walmart. They pay their supplier $.50, $.47
is the cost of operating the store (rent, utilities, staff, etc.) and $.03 is
profit.

Amazon sells the same knickknack for the same $1 and buys it for the same $.50
but the cost of operating their store is only $.10 so they make $.40 profit.

Now the government says they must both pay $.20. Suppose both the manufacturer
and the customer are completely inelastic. They won't change their prices at
all. Which store is at a disadvantage? You still don't know.

It could be that Amazon needs higher returns to generate investment because
online stores are higher risk. They have more competition and lower barriers
to entry, their assets are heavily skewed toward goodwill and branding which
are more susceptible to damage by scandal than e.g. real estate holdings, etc.
It could be that if you cut their profits in half like that, they get no
investors.

Meanwhile Walmart has to come up with the $.20 out of their store operating
costs, but those costs are an opportunity to cut something that Amazon doesn't
have. They could improve the energy efficiency of their stores. They could lay
off some greeters. They could renegotiate the lease on their stores against
the fact that all other retailers will have to pay the same new tax, which
reduces the market value of commercial rental property.

There is no guarantee that Amazon is the one that comes out ahead.

~~~
conanbatt
> Meanwhile Walmart has to come up with the $.20 out of their store operating
> costs, but those costs are an opportunity to cut something that Amazon
> doesn't have. They could improve the energy efficiency of their stores. They
> could lay off some greeters. They could renegotiate the lease on their
> stores against the fact that all other retailers will have to pay the same
> new tax, which reduces the market value of commercial rental property.

Walmart makes up for the difference profit margins with amazon because of
volume. Reducing operating costs at pure profit is already at walmarts
disposable: what they could do is reduce the quality of products (worse chain
of supply, worse produce, worse items) which is in practical terms also a tax
in consumers.

They really are distorting.

~~~
AnthonyMouse
> Reducing operating costs at pure profit is already at walmarts disposable:
> what they could do is reduce the quality of products (worse chain of supply,
> worse produce, worse items) which is in practical terms also a tax in
> consumers.

What you're missing is that the tax _itself_ may give them leverage. If there
is suddenly a 20% tax on retail goods then the cost of commercial properties
may go down, because the retailers need to cut costs to cover the tax and the
property owners will have no customers if the retailers go out of business, so
it could be the property owners who end up eating some of the tax. They may
have to lower rents enough to make retailing out of their space profitable.
And the same for any other operating costs the retailers have. They may be
able to pay lower wages because all retailers would have to do that in order
to be profitable, so wages for retail employees go down across the board and
the employees eat part of the tax.

And the same applies to offering crappier service so that the customer eats
some of the tax. It's possible for customers to prefer that to higher prices.
And when the tax causes that to happen across the board, the customers may
have no alternatives so the store may lose no business. Customers still need
bread, now all the bread in every store either costs more or tastes worse, so
the customer picks their poison and the store stays in business one way or the
other.

> They really are distorting.

Oh, a tax really will affect two different businesses differently. But the
distinguishing factor isn't the size of their margins. Profits are just a
different type of cost -- the cost of raising investment capital. You may be
able to get the investors to eat the tax, but they may also walk away, just
like a customer or supplier might, and then you're just as out of business.

The true distinguishing factor how easy it is to get some combination of
involved parties to eat the total amount of the tax and still be willing to do
business. In other words, whether the total surplus is more than the amount of
the tax.

------
sgroppino
As an answer big techs will likely break these companies into 100 smaller ones
to avoid the thresholds? "The levy would cover companies that have annual
worldwide total revenue exceeding 750 million euros ($920 million) and total
taxable annual revenue from offering digital services in the EU above 50
million euros."

~~~
awalton
> As an answer big techs will likely break these companies into 100 smaller
> ones to avoid the thresholds?

That sounds like a huge win to me. More competition is better for the market
at a whole, and these 100 smaller companies will not be able to stop from
competing with each other (or maybe we'll learn they just were better off as
separate companies in the first place...)

~~~
themihai
>> More competition is better for the market at a whole,

Hold on...they will be different companies just on the paper...more like
Google1, Google2 and Google3.. instead of one big Google.

~~~
TheCoelacanth
Are they listed separately on the stock exchange?

If so, then they really separate companies, not just different on paper. Their
ownership of the different companies will eventually diverge from each other
and the companies will need to compete with each other to satisfy their
owners.

If not, then the taxman will probably be smart enough to send the bill to the
parent company instead of the mini-Googles.

~~~
themihai
>> If so, then they really separate companies, not just different on paper.
Their ownership of the different companies will eventually diverge from each
other and the companies will need to compete with each other to satisfy their
owners.

You don't get it... the tax man proved not to be that smart to send the bill
to the parent company. You may want to google: "What is a shell company?"

~~~
vidarh
Shell companies work because it allows them to shift profit around. That is
exactly why this proposal goes after revenue. The problem is not identifying
ownership.

------
hartator
Is that just another form of tariff?

------
DenisM
The state of Washington has a very similar concept: Business and Occupation
tax. If you have nexus you pay taxes on local revenue. That’s in addition to
the sales tax. The tax rates vary by industry, mostly a fraction of a percent.

I don’t know how successful the giants are in dodging taxes though. Perhaps
they are trying to setup “independent” out of state entities that handle all
of the sales.

There is also a trend afoot that pushes all businesses to pay sales tax across
the entire US, nexus or not. The idea is that modern software makes compliance
easy across all local tax regimes, so the old excuse of unmanageable
complexity is losing its power. I don’t know the details though. So We might
end up with the idea of nexus being deprecated too.

~~~
3pt14159
What is "nexus" in this context? The frequent traveler program?

~~~
DenisM
No, sorry.

[...] Nexus, also called “sufficient physical presence,” is a legal term that
refers to the requirement for companies doing business in a state to collect
and pay tax on sales in that state. [....]

[https://quickbooks.intuit.com/r/taxes/what-is-nexus-and-
how-...](https://quickbooks.intuit.com/r/taxes/what-is-nexus-and-how-does-it-
affect-your-small-business/)

------
themihai
I think the tax should be on profit based on where the users are located not
on gross revenue.

This looks more like a capitulation in the fight against various tax evading
schemes employed by these companies. Isn't possible to just give a broader EU
law that criminalises this kind of schemes?(i.e. draining the profit by
various means). I'm sure that as soon as a bunch of executives along with
their lawyers are put in jail this madness would stop.

~~~
ganeshkrishnan
Most companies have negative profit. All the revenue is offset against r&d and
expansion

~~~
tonyedgecombe
The problem they are trying to resolve is companies shifting the profit to
another country with lower corporation tax.

~~~
ganeshkrishnan
Profits are always shifted legally. For example Google Australia is separate
entity from Google Ireland. What Google au might do is 'lease' trademarks,
copyrights, logo etc from Google Ireland and pay them for it. The amount paid
varies year to year but all of it is legal and money this changes countries
legally. This is Google au expense that's tax deductible.

Also, I chose Ireland as an example because it offers tax concessions to
industries ( at least it did in 2006 when I was in the valley)

~~~
saas_co_de
> Profits are always shifted legally

That is highly debatable. Companies and wealthy individuals obtain "legal
opinions" from lawyers stating that these schemes are legal, but that is just
cover from criminal prosecution.

Any government can declare any of these schemes invalid at will and impose any
tax they want. Taxation at this level is a complicated business though. These
corporations are larger than most of the world's governments and their owners
are permanent not elected.

------
dollar
It sure would be fun if Google, Facebook, Twitter collectively shut off EU
users on the day this tax went into effect.

~~~
zygimantasdev
As EU citizen I wouldn't mind. If these corps decide its not profitable for
them - for sure an alternative will pop. (Currently using two of those
services)

------
zerostar07
Can't tech giants just split their EU operations in 2, and thus split the
revenue, and thus dodge the tax

~~~
riffraff
The parent company will have the revenue of both. If there is no parent
company they have effectively spun off a separate business.

~~~
zerostar07
each could ship their profits to separate companies (parented by google)
outside the EU,

------
pleasecalllater
So if I work for US companies, and I live in Europe, I suppose I will also
need to pay additional 3%, right?

------
Jyaif
Out of curiosity, is there any European tech company that has 750m in taxable
annual revenues?

~~~
nopriorarrests
Spotify? Booking?

~~~
disgruntledphd2
I think Booking are safe, as they actually sell access to a physical product.
Spotify definitely though (and given that the records labels will take any
extra profit they make, this might actually be OK for them).

It's not going to pass though, these things never do, as unanimity is
required.

------
gonvaled
Tariffs should also be imposed.

------
juskrey
Which proves EU bureaucracy is in the livestock business and can do absolutely
nothing to boost entrepreneurship.

------
condiment
I think taxes based on users or revenue are misguided.

This sort of tax ought to be based on a relative share of megawatts of compute
power, and should be progressive in a way that prevents any single entity from
controlling more than N% of all computational capacity.

------
ryanworl
Revenue taxes on businesses that are effectively monopolies in their markets
are... not smart. They will raise prices by exactly the amount of the tax and
the only ones suffering are their customers who now pay 3% more for
everything. I bet it would even be added as line item to every invoice “EU
Revenue Tax, 3%”

I’m sure everyone will love it!

~~~
foobarian
But how does that work with a company like say Google? What prices are there
to raise? It's more like they happened upon an incredible natural resource
(the users' eyeballs connected to an unregulated digital network newly built
by government funds) and are charging whatever price the market will bear. The
tax is just a forced extraction of some of that margin, and I'm not sure how
they can compensate for that. If anything, if they really are a monopoly and
increasing prices could have got them more revenue presumably they would have
done it already.

~~~
alsetmusic
> If anything, if they really are a monopoly and increasing prices could have
> got them more revenue presumably they would have done it already.

A company cannot arbitrarily raise prices in isolation without risk of
alienating customers. The difference here would be that both Google and its
competitors would be subject to the same price hike.

~~~
lg
actually that's not the case here, google and its competitors will only be
subject to the same price hike if its competitors cross a certain gross
revenue threshold, so biasing the market in favor of smaller players.

