
EU lost up to €5.4B in tax revenues from Google, Facebook: report - prostoalex
http://www.reuters.com/article/us-eu-tax-digital/eu-lost-up-to-5-4-billion-euros-in-tax-revenues-from-google-facebook-report-idUSKCN1BO226?feedType=RSS&feedName=technologyNews
======
elgenie
Taxing multinational corps is pretty difficult.

Let's say a parent company UsTech, which makes money from ads on a ubiquitous
digital platform, has an Irish subsidiary UsTechDublin,LLC and a German
subsidiary UsTechBerlin,GMBH. UsTechBerlin hosts a bunch of very well paid
engineers who work on app performance and backend infrastructure efficiency;
UsTechDublin hosts a bunch of low paid customer service reps that provide
support to end users. Both offices clearly provide _something_ of value that
helps the parent company UsTech make money, but nobody has paid a (euro)cent
to purchase ads from either the Irish or German offices while those offices
have paid a bunch of money in salary and benefits. So, how much should they
owe the tax man in each country?

That's up to UsTech. The "revenue" "earned" by UsTechDublin is an accounting-
only transfer from UsTech for providing customer service. The "revenue"
"earned" by UsTechBerlin is an accounting-only transfer from UsTech for
performance improvements and infrastructure designs. If corporate tax rates in
Germany and Ireland are higher than those in the US and UsTech accountants
aren't total morons, the transfer payment to each subsidiary will be exactly
enough to ensure that revenue matches expenses and there's no profit to be
taxed on the books of either UsTechDublin or UsTechBerlin. If, on the other
hand, the corporate tax rate in Ireland is lower than in the US and the
corporate tax rate in Germany is higher then magically services of the
customer service reps of UsTechDublin may be "sold" to UsTech at usurious
rates while those of the software engineers of UsTechBerlin are "sold" for a
pittance.

The "lost" tax revenue being claimed here is essentially saying that
multinationals chose their transfer payments in such a way as to not have
their profits appear in high-tax EU nations. Well … duh.

The problem is that it's hard to envision a governmental bureaucracy capable
of challenging and very accurately assessing the true rates on intra-
subsidiary transfers without it being breathtakingly large in scope and
stifling to the functioning of the economy in question. Current rules for it
[1] leave plenty of wiggle room.

[1]
[https://en.wikipedia.org/wiki/Transfer_pricing](https://en.wikipedia.org/wiki/Transfer_pricing)

~~~
aembleton
Require UsTech to run their sales to their Ireland and German customers
through their Ireland and German subsidiaries. Then tax them based upon the
result of their (sales to Irish customers - Irish costs) and in Germany, the
equavelent (sales to German customers - German costs).

It's quite possible in those two places, they would pay no tax because their
costs are higher, but this is also an incentive to keep employing people in
said countries.

To help enforce this, other companies in Ireland and Germany would only be
able to reduce their taxes by purchasing from Irish and German registered
companies (tax based on Irish costs - Irish sales) which would mean that they
would be incentivised to buy from these rather than UsTech global corp.

~~~
aembleton
I should add that it would only be possible to require a company to have a
local subsidiary if it has a physical presence in the country. Someone like
Amazon will because they have warehouses.

Someone like Google could probably get away with doing business remotely, but
then any business that buys from them would not be able to deduct that as a
cost when calculating tax which would effectively mean that they pay the tax,
making a local rival more competitive.

~~~
taysic
So unfair competitive advantage to the local companies? If it were so easy I
wonder why they don't do this already.

Additionally what about services or products that don't exist or haven't had
time to be replicated in one's country. Then that country cannot be on the
cutting edge of new technology simply because they penalize buying from
international companies.

~~~
aembleton
It would be an advantage to local companies - yes! At the moment, local
companies are often at a disadvantage because they're paying more tax than
those companies who are legally based overseas.

If the product or service doesn't exist locally, then the purchasing company
will indeed need to pay tax, if and only if it's local sales are greater than
local costs. If buying this overseas service such as AWS hosting gives it an
advantage such as cheaper and simpler scaling then it may well be worth them
buying it to pay the tax.

At the moment, an outside company can come in and pay little to no tax by
licensing IP from another subsidiary in a third country. A local company is
then at a disadvantage and is effectively paying for the infrastructure
through their own taxes to support a competitor.

~~~
taysic
This is one of those things that sounds great on paper but in practice
basically kills any chance of a startup environment in the country. Why would
a startup wish to grow in such a nation if there are other places where the
ability to buy useful services from other international companies are so much
cheaper?

~~~
aembleton
Because a startup is likely to have greater local costs than local sales and
so wouldn't pay any taxes.

When you start a company, you have many local costs (wages, rent, utilities)
and yet you haven't made any sales. In the tech sector, when you do make sales
they are likely to be at least in part overseas.

Therefore, it will be a while before you then have to pay any tax. When you
get big enough that your local sales become larger than your local costs, then
you will probably be able to afford the extra tax as you are now benefiting
from the infrastructure provided by the state.

------
SilentCrossing
So I want to implement Common Consolidated Corporate Tax Base CCCTB across
Europe, which means I want to have the power to determine the rules for the
whole EU. I then create a report projecting that we could increase our tax
revenue if we pass the law to give me more power.

I have some thoughts. 1) The projected windfall from this CCCTB will not
materialize... if we take history as a indicator. When ever does companies or
people not react to increased taxes? 2) Losing the ability to attract
international companies will hurt countries / cities that are lower on the
marketability scale. Would the 'Celtic Tiger' miracle have happened if they
did not have the sovereignty to attract international companies with lower
taxes. That is doubtful at best. 3) Competition, including taxes, is great for
Europeans. If we study history we see that competition is one of the
components that resulted in the dominance of the west. (see Civilization: Is
the West History?) 4) The biggest reason Brussels is doing this is not to have
to ask each country for money anymore. These negotiations have become more
tough for Brussels, since the countries are pushing back on exorbitant
spending by Brussels.

~~~
jmfayard
> Competition, including taxes, is great for Europeans. If we study history we
> see that competition is one of the components that resulted in the dominance
> of the west. (see Civilization: Is the West History?

I don't know. Competition for making the best science, technology, music,
literature, food, ... seems different to me than just giving big corporations
clever ways to avoid paying taxes for funding education, social security,
infrastructure, ...

Or, if that kind of competition is so positive, is the US tech sector doomed
because it does not give enough leverage for google and facebook to avoid
paying taxes there?

~~~
SilentCrossing
I agree, that having companies compete on bringing out the best products or
services is different from having countries compete on taxes. Just to clarify,
countries do not give big corporates clever ways to avoid paying taxes
totally, but do give them ways to pay less taxes in order to make themselves
more attractive. There are various reason they do this, but they only do it if
they as a location is not attractive compared to other locations.

The issue is more complex if you dig deeper and start comparing the US and EU.
As a general rule western Europe has lower corporate tax and higher income tax
than the USA. If you dig deeper you can also see that certain business cluster
do not need to give any tax breaks to attract and keep companies, because they
have a thriving business cluster. Think of the wine-growing industry in
California and the flower-growing business in the Netherlands.

My main issue with centralizing the tax rules is that it will hurt the less
attractive regions of Europe.

~~~
jmfayard
There are better ways than a broken tax system to help less attractive
regions, for example less deflationary pressure from countries like Germany. A
deal better than the status quo is possible

------
staticelf
I really hope a new tax bill comes through, I am tired of US companies (and
others) that can simply avoid paying tax while small shops pay a lot of taxes
in the EU. They use our well developed infrastructure for their own benefit
and does not pay anything back.

I hope they get a fat bill.

~~~
microcolonel
They pay for your infrastructure already (aside from last-mile stuff, which
you pay for [partially] whether or not it's a local company).

If you tax it, the prices just go up, nothing really changes.

~~~
danmaz74
> They pay for your infrastructure already

Lol, what? The whole point is that WE pay for the infrastructure with our
taxes, and those companies use the infrastructure without paying for it.

~~~
princeb
> those companies

you mean the people who work to build the structure, the teams, the lines of
reporting, the buildings, the equipment, the products, the provision of sales
and customer service, the management of all of these... they don't pay tax?

what is a company? _who_ is a company?

if you remove all the things that already pay tax (i.e. people) from a
company, does the company still exist? and can it pay tax?

~~~
newen
When the owner/stockholder lives in the US and peddle their stuff in France,
and don't pay France taxes while using their infrastructure.

------
Heliosmaster
Also not to forget is that sometimes companies make "deals" with countries, to
pay less taxes than what was owed in the first place:
[http://www.reuters.com/article/us-italy-apple-tax/apple-
to-p...](http://www.reuters.com/article/us-italy-apple-tax/apple-to-pay-
italy-318-million-euros-sign-tax-deal-source-idUSKBN0UD13K20151230)

------
DannyBee
"This resulted in estimated revenue losses for EU states, other than Ireland,
of between 51 and 54 billion euros between 2013 and 2015, the report
concluded."

So if i understand this right, this is basically: the EU didn't _really_ lose
anything, since ireland is in the EU, but the other states would have gotten
more in total if they weren't allowed to do this?

My other understanding is that the tax laws of all the EU countries are _not_
controlled by the EU, but by the individual countries?

If so, this sounds like it would be like saying "US states lose billions in
tax revenue from Google because they locate in delaware"

Is that a reasonable conversion for a US'ian?

~~~
sddfd
Not really. Ireland has some deals going with several digital multinationals.

The guardian writes:

"Google pays €47m in tax in Ireland on €22bn sales revenue"

[https://www.theguardian.com/business/2016/nov/04/google-
pays...](https://www.theguardian.com/business/2016/nov/04/google-
pays-47m-euros-tax-ireland-22bn-euros-revenue)

~~~
gaius
Ireland is only able to charge such low corporation tax due to the generous
subsidies it receives from the EU too.

~~~
Supernaut
Can we see some evidence for that claim? According to my research, Ireland is
a net contributor to the EU budget. In 2014, the last year for which complete
data is available, the country paid €168m more to the EU than it received in
grants and payments.

~~~
peteretep
Your comment is either unlucky or massively disingenuous in choosing 2014, as:

"Ireland has [in 2014] become a small net contributor to the EU Budget for the
first time since it joined the bloc in 1973"

[http://www.independent.ie/business/irish/ireland-
contributes...](http://www.independent.ie/business/irish/ireland-contributes-
more-money-than-it-gets-to-eu-for-first-time-34815450.html)

~~~
ptaipale
I think it is not massively disingenuous to use the newest data available. I
did not find much better figures for 2015 or 2016. Another source suggests
that Ireland has been net contributor since 2013 and continued so in 2015.
[http://www.thejournal.ie/ireland-financial-gain-from-eu-
fran...](http://www.thejournal.ie/ireland-financial-gain-from-eu-frances-
fitzgerald-facts-2894694-Jul2016/)

It is true that Ireland has been a huge net receiver from EU for a long time.
Now that it becomes a net contributor, I suppose we could call that
"development". And perhaps this shows that Irish tax policies do increase its
economic activities.

------
tyrw
Is the EU tax based on revenue instead of profit?

Or is basing it on revenue in this instance just supposed to make the
"percentage paid" smaller to make FB and Google look worse?

~~~
MarkCole
I believe the article is just poorly worded in that regard.

> "It says that Google pays taxes worth up to 9 percent of its revenues
> outside the EU"

They're simply asserting that Google currently pays 9% of its revenue in taxes
outside of the EU. I don't believe they are calculating their lost tax revenue
that way.

To answer your question in the EU corporate tax is yes based on profit. Your
revenue minus your expenses.

~~~
newen
Not really. The idea is that they are hiding their profits, and so their
profits are not being taxed. But the actual profit (as a percentage of the
revenue) that they are hiding is expected to be similar inside and outside of
the EU.

------
doe88
Seems fair to me you should pay in _any_ country proportionally as much as you
generate revenues from that country.

------
marcell
Strategically, I wonder Google/FB/etc. would do better to pay more taxes. The
recent GDPR is a total disaster for them. Maybe it could have been avoided if
they paid more taxes, and were on friendlier terms with the EU.

~~~
TAForObvReasons
It's the same problem with any industry where the laws haven't caught up yet:
acting in good faith helps when the laws start to catch up, and being too
aggressive/exploitative only ensures the new laws will close the existing
loopholes and yet-to-be-envisioned ones

------
seanieb
"This resulted in estimated revenue losses for EU states, other than Ireland"

What does this mean? Ireland is in the EU. It's like complaining France or
Germany don't share their tax revenue proportionally with the rest of the EU
states.

Ireland and other EU states have sovereignty over their own tax laws. If you
change that you will basically change what the EU is.

~~~
anonymousDan
What I want to understand is what happens in the opposite direction, i.e. what
does the tax situation look like for e.g Volkswagen cars sold in the US? Do
they pay a minimal amount of tax in the US with most of the profits
repatriated to Germany? If so it's just a whiney tax grab by the French and
Germans who are used to getting their own way in the EU.

~~~
themihai
Well I don't see any issue repatriating taxed profits. After all they go to a
different market to make a profit, right? The issue is when they don't pay
their fair share of tax by using various tax evasion schemes more or less
"legal".

~~~
anonymousDan
The reason why they don't pay their fare share of tax is down to US
repatriation laws, nothing to do with Ireland:
[http://www.rollingstone.com/politics/news/the-biggest-tax-
sc...](http://www.rollingstone.com/politics/news/the-biggest-tax-scam-
ever-20140827)

The reason they pay so little tax in the EU is that in line with international
law they pay it in the country where most of the innovation that drives those
profits occurs, i.e. the US. Or at least they would if the US wasn't basically
using its weak repatriation laws as a way of giving its companies a
competitive edge against the EU. The moves by France et al can be viewed as a
way to address this, but I imagine it would require major changes to
international accounting rules and I would be surprised if there wasn't
retaliation from the US. I guess my point is you can't really blame Ireland
for not doing this unilaterally. Furthermore why should Ireland increase its
corporation tax rate when it is explicitly outside the competence of the EU?

~~~
themihai
>> they pay it in the country where most of the innovation that drives those
profits occurs, i.e. the US.

I believe that's quite unfair and wrong and pretty much BS. You ignore the
fact that by allowing a "monster" company like Apple to sell in your country
you undermine any potential local manufacturer. See the internet industry in
China. Would there be Baidu, Alibaba, Weibo etc leaders in the industry
without protectionist policies?I highly doubt it! You would see Google,
Amazon, Facebook and Twitter. You ignore the fact the the profit made in EU
helps Apple to innovate in the US. Without investment/money there is little
innovation.

Paying taxes in US for products sold in EU is like Ikea planting trees in
Germany to make up for the ones chopped off in Canada. The point is to give
back where you make profit, at the point of sale otherwise you end-up with
wastelands. You can do that by paying taxes(so that the local gov. can invest
on your behalf) or by investing in the local community(i.e. jobs/R&D).

------
MarkMc
The report "says that Google pays taxes worth up to 9 percent of its revenues
outside the EU, but this ratio goes down to no more than 0.82 percent inside
the EU".

Does anyone know what percent of US revenue Google pays in US taxes? I'm
pretty sure it's not 9%

------
gaius
_This resulted in estimated revenue losses for EU states, other than Ireland,
of between 51 and 54 billion euros between 2013 and 2015_

Typo in the headline? Seems to be off by a factor of 10.

~~~
s_dev
The rate approximates 10% so maybe thats the taxable amount vs the payed taxed
amount in headline.

~~~
gaius
No, both the headline and the text refer to tax revenue.

------
petre
The title says EUR 5.4B, the text of the article states "between 51 and 54
billion euros". How is this accurate reporting on Reuters' part?

~~~
cJ0th
Maybe something got lost in translation. In Germany (and maybe it's similar in
other EU countries), "Billion" = 10^12 and "Milliarde" = 10^9.

In English, otoh, billion = 10^9.

see, for instance:
[https://www.dict.cc/?s=billion&=DEEN&=](https://www.dict.cc/?s=billion&=DEEN&=)

------
wetpaws
Is it just me or trans-national corporations will eventually erode our concept
of states and borders?

------
addHocker
Thats what china tought us all about mega-corps, they may try to outrun and
subvert all laws, but at the end, as long as you controll acess to the
citizens, you can make them dance.

------
VeronicaJJ123
EU lost ? or the governments lost ? It is a big difference actually.

------
DVassallo
I wonder how much tax revenue the EU would have lost if Google and Facebook
didn't exist.

~~~
Oletros
I wonder how much revenue and profit would have lost Google and Facebook if
they didn't exist in the EU

~~~
DVassallo
How do they "exist" in the EU? One way to see it is that people from the EU
are simply buying services from a US company. It's as if they caught a plane,
and paid at a cash register in California. But instead of making the trip,
they just sent a check.

~~~
seszett
> _How do they "exist" in the EU?_

They both have headquarters in Dublin.

~~~
DannyBee
Which i'm sure they would happily burn to the ground if it meant they weren't
taxed there. I don't think you want to go with the argument of physical
presence. It rarely works well with any multinational.

~~~
Oletros
> It rarely works well with any multinational.

how many multinationals have left any big market just for taxation?

~~~
ringtail
Are you saying Singapore Co cannot receive payments from French consumers
unless they pay corporate income tax to French Govt ?

In other words, you are saying EU can deny its citizens right to buy foreign
products ?

~~~
Oletros
No, I'm asking how many multinational have left a big market (one of the
biggest in the world) just for taxation.

~~~
ringtail
But what do you mean by "leaving a market" ? MNCs have been doing restructring
for decades for reasons ranging from regulations to taxes.

If Google do leave EU, all it will do is legal maneuvering. Nothing will
change for EU consumers. They can still do Google searches and buy ads. Profit
will stay the same.

~~~
Oletros
> But what do you mean by "leaving a market"

Pulling off any presence in that market, offices, stores, etc.

> If Google do leave EU, all it will do is legal maneuvering. Nothing will
> change for EU consumers. They can still do Google searches and buy ads.
> Profit will stay the same.

No, because there is all of the burden of a company from outside the EU doing
business with EU companies. And not talking about the restriction on data
protection.

And don't talk about companies like Amazon or Apple with physical goods

~~~
ringtail
Benefit of Sales/Stores are insignificant compared to proposed tax liability.
All these can/will be outsourced the moment it becomes reality.

How would EU calculate profit share between US R&D and Ireland R&D ? Even if
EU do tax R&D, exodus of talent will be just 2x salary increase away.

~~~
Oletros
> Benefit of Sales/Stores are insignificant compared to proposed tax
> liability.

You're joking, isn't?

------
whb07
I wonder what would happen if G/F just upped and "left" the EU? Ensuring to
close every physical location as they did so. I wonder how much of a bind the
politicians would be trying to remain in power as they would be in the
position of trying to add Google and Facebook to the ban list or just
continuing like normal except with less tax revenue.

Does anyone here really believe that any EU bureaucrat would ban Facebook and
Google? Enforce a massive ban like China or some dictatorship? I think it's
one thing to never have had. It's another to have had and then have it taken
away. The latter is infinitely more painful.

~~~
Thiez
Do you honestly think that without US companies, there will be no search
engines and social networks? Here in the Netherlands we had Hyves[1] before we
had Facebook, which was pretty big. If, for whatever reason, Facebook were to
vanish tomorrow from the EU tomorrow, I have little doubt that we'd all be on
a different social network by Christmas. Of course there would be a lot of
complaining during the first two weeks. I would miss Google more than I would
Facebook, but perhaps an influx of 500 million new users would give competing
search engines the income to improve their results to equal those of Google
(perhaps they're already of comparable quality and I just haven't noticed).

Google and Facebook are making a lot of money in the EU, and leaving the EU
because they have to pay more taxes would be like cutting off the nose to
spite the face. It just wouldn't make financial sense, and shareholders would
(understandably) be furious.

[1]:
[https://en.wikipedia.org/wiki/Hyves](https://en.wikipedia.org/wiki/Hyves)

