
France, Germany, Italy, Spain seek to base taxes on digital giants' revenues - phiskk
http://www.reuters.com/article/us-eu-tax-digital/france-germany-italy-spain-seek-tax-on-digital-giants-revenues-idUSKCN1BK0HX
======
sddfd
This is not about taxing revenues instead of profits.

This is about taxing EU-wide profits in EU countries proportional to the
revenues generated in that country.

At the moment, many big tech companies use bookkeeping tricks to make it look
like all their profit is generated in, for example, Ireland, while the revenue
is generated in other EU counties.

Unfortunately, Ireland has special tax rates for these companies (the legality
of which is contested), so their EU-wide effective tax rate is often ~1%.

~~~
jaredklewis
If this system is enacted, will the benefits of staying in the EU out weigh
just moving all the shell companies to the Caymans or wherever?

I wish countries would give up on corporate taxes. They are either easily
circumvented, or you need a massive regulatory body to analyze all corporate
transactions and determine if they are "fair."

All the same tax revenue can be gained through much better systems that are
not trivially circumvented and do not create a perverse incentive for your
country's companies to up and move to the nearest tax haven.

~~~
markvdb
Much of the profit generated in the EU by these multinationals actually ends
up largely untaxed in Bermuda/Cayman islands/... subsidiaries.

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

~~~
candiodari
But that would not be able to happen if it wasn't for the EU. Then import
taxes would compensate.

------
albertgoeswoof
> A French court ruled in July French court ruled that Google, now part of
> Alphabet Inc, was not liable to pay 1.1 billion euros ($1.3 billion) in back
> taxes because it had no “permanent establishment” in France and ran its
> operations there from Ireland.

How strange. I didn't know Google were an Irish company. I see them when I
connect to the internet from all over the world.

It looks like Airbnb also have their EMEA HQ there, as do Apple, eBay,
Facebook, IBM, HP, ..., ...

I guess there must be a really big internet market in Ireland for all those
guys to be focused on that location, right?

On another note, I tried to pay my taxes through an off-shore location, but I
quickly realised I would get jail time for tax evasion.

~~~
eloff
That's illegal for a person to do, but legal for these big companies. Don't
blame the companies for exploiting loopholes. Blame the law. Fix the law.

~~~
toast0
The problem with a person doing this style of tax avoidance is that the
barrier to entrance is much higher than the gain.

Assuming general principals of US tax law, if you're already working as an
independent contractor, you could legally set up a local company and an
overseas company, have the local company bill the client, pay you a reasonable
amount, and pay the overseas company the remainder for the use of its name (or
whatever justification you like).

Your local company would have no net income, but may pay employer side taxes
on your wages, and any minimum taxes on corporations in the local
jurisdiction.

Your overseas company would have a net income, but you picked an overseas
jurisdiction with low taxes, right?

You would have recognized income of the wages, and unrecognized capital gains
in the overseas company. At such time as you take the money from the overseas
company, that would be recognized as a capital gain.

At the end of the day, you have to run two companies, one in an unfamiliar
jurisdiction, and you get to defer recognition of income and change the
character of the income from normal income to capital gains. You may also have
paid taxes to the overseas jurisdiction that I'm not sure qualifies for a
foreign tax credit. It's a real gain, but it may not outweigh the costs.

If you're a direct employee of a company, it's also not an option, since you
can't redirect your wages out of your recognized income.

~~~
charlesdm
Yes, if you're making $50k a year. But not if you're an entrepreneur pulling
in $1m a year. Everything involving intellectual property rights is generally
very fluid and easy to move around.

A smaller scale example would be living life as a perpetual traveller°: an
internet based entrepreneur who makes $200k a year and bases him/herself in a
jurisdiction that does not tax income. Or who travels around between countries
to avoid tax.

Instead of paying 40% tax on $200k (= $80k gone, poof) you put that in your
pocket and use that to pay for travel expenses. "Going into tax exile"
essentially ends up paying for itself, and then some. That is why companies
(and individuals) participate in tax avoidance.

°: exception; this doesn't apply to Americans. You get to pay US taxes
wherever you reside, above a certain income threshold.

~~~
csomar
How does this apply to other countries? Aren't you supposed to get residence
in some country before losing the residence connection of your original
country?

That being said, there are countries with loose taxation like Thailand where
you can establish residence and avoid taxes as long as you are not operating
in the country itself.

~~~
charlesdm
Not really, but it's better to have official residency somewhere, though. Some
countries are quite flexible on residency, however. Cyprus offers residency
after spending 60 days per year in the country, and exempts foreign income
from tax. In Malta you can get residency by paying €20k a year (no requirement
to spend any time in the country), and foreign income is also exempt from tax,
etc.

> That being said, there are countries with loose taxation like Thailand where
> you can establish residence and avoid taxes as long as you are not operating
> in the country itself.

I believe you can run foreign companies from Thailand without having to pay
tax there, as they have no CFC laws. So the example the poster above gave
basically applies, but you would book all your income in ForeignCo and take a
small salary in the Thai company from fees you charge ForeignCo. That's
essentially a zero tax country then.

~~~
seanmcdirmid
No countries tax foreign income but the USA and Eritrea.

~~~
eloff
Not true at all. Canada, for example, taxes your worldwide income.

USA and Eritrea are unique in that they will tax your worldwide income even if
you no longer live in those countries (are non-resident.) No other countries
in the world have the brass balls to do that.

~~~
seanmcdirmid
Only if you are resident in Canada. A lot of countries do that. The USA will
tax you even if you aren't resident as long as you have at least a green card
or other immigrant visa.

How many people are collecting income from a full time job while living in
Canada anyways? Doesn't foreign income (vs. say capital gains) generally imply
non residency?

~~~
charlesdm
Directors of Canadian companies who are living abroad is probably one example.

Also, people who, say, commute from CA to the US on a daily basis will
generally be exempt from Canadian taxes because the work is performed in the
US (just an example, I have no idea whether you can commute from CA -> US on a
daily basis)

~~~
seanmcdirmid
Well, I was "taxed" on my Chinese income, but never paid a dime. Foreign tax
credits and foreign income exclusions mean most of us pay nothing (well, we
pay Chinese taxes, just not US taxes).

------
joshfraser
Someone needs to start a company that offers transfer pricing as a service.
Sign up and get a physical address, subsidiary corporations, bank accounts and
even employees & board members in Ireland. Much of this can be shared
infrastructure of course. If tax avoidance is going to be legal for the big
guys, why not make it accessible to everyone?

~~~
prostoalex
As soon as you personally take advantage of the money on that account, it's
treated as personal income to you. But IRS Does have a concept of foreign
income [https://www.irs.gov/individuals/international-
taxpayers/fore...](https://www.irs.gov/individuals/international-
taxpayers/foreign-earned-income-exclusion)

~~~
joshfraser
That's why so many corporations keep their money offshore and figure out
creative ways to spend it without repatriating it.

~~~
prostoalex
Only works with the foreign revenue, US-based revenues will be taxed
regardless of where they end up eventually.

Europeans kinda shot themselves in the foot by not having a similar rule, and
looks like they're wising up to that.

------
agumonkey
I find the whole system lame. I feel web giants of today are not making the
web better, just different, more structured and massive. Instead of taxing
them to grab a share of their earnings (whether it makes sense or not), I'd be
happier if more people would write longer and denser web page as it was until
the late 90s. Give incentives for people to produce.

~~~
wslh
> Give incentives for people to produce.

Even in US there is only one Google, Facebook, Microsoft, Apple, etc. It seems
like these global monopolies are a new phenomenon that requires to rethink
past economic ideas.

~~~
agumonkey
Is this new ? USA split Rockefeller empire which was unbelievably huge too.

~~~
wslh
Yes, it is new because it is global, Rockefeller was a local phenomenon.
Before you have monopolies per country and now these monopolies (or call them
as you want) are centralized in US.

------
Nokinside
There is room for innovation in taxation. We need new smart taxation for
information economy.

Taxing network externalizes and economic barriers for entry for example.
Taxation could be used as natural pressure to correct market failures. Taxing
revenue is not what EU countries propose, but it could be viable solution.

Thinking aloud: If company has market share of X% of the population it pays
tax from the revenue related to X. If retail company that has 30% market share
pays 0.3% extra from its revenue compared to tiny company with just 10,000
customers, it would probably be enough to even out the field and limit
barriers to entry.

~~~
justinmk
> Taxation could be used as natural pressure to correct market failures.

Taxation isn't natural.

By the way, I'd like to remind everyone: when the state taxes something, the
state now depends on that thing for its budget.

> If retail company that has 30% market share pays 0.3% extra from its revenue
> compared to tiny company with just 10,000 customers, it would probably be
> enough to even out the field and limit barriers to entry.

If you are really interested in barriers to entry, you can do a thought-
experiment (or a real experiment): try to start a business. See where the
friction is. And then ask yourself what the barriers were.

Another thought-experiment: imagine if starting and running a business (which
includes collecting revenue, paying employees, paying taxes, abiding by the
law) were nearly zero-friction. If starting a business had very low artificial
friction, then there would _actually_ be natural pressure against market
incumbents.

~~~
Nokinside
I run business in Finland and pay high taxes. Friction is not the taxes. If it
were, I would have moved my business to Estonia long time ago, it's just few
hours away. I could do it over internet in few hours and start within days.

There are different ways for countries compete as "business platforms". I'm
not saying that some way is better than another, what I'm saying is that there
are different strategies that can work.

High taxes in Nordic countries work as form of evolutionary pressure. They
harm low-tech low education requirement jobs and businesses. They drive them
to China and to the third world. They help high-tech companies and skilled
workers, because taxes pay for great education, safety nets general well-
being.

Within US different states have different strategies. High-tech hubs seem to
tax more and provide more just like Nordic countries. Some states choose to
compete with low regulation low pay jobs against Mexico, China and India. Good
luck with that.
[https://en.wikipedia.org/wiki/State_tax_levels_in_the_United...](https://en.wikipedia.org/wiki/State_tax_levels_in_the_United_States)

~~~
Houshalter
I think you've vastly confused cause and effect. Rich economies can afford
high tax rates because they are rich, and poor economies have to compete for
what businesses they can get.

Another obvious confounder is that richer states tend to be more urban, and
urban places tend to be more liberal. Which vote for higher tax rates and
social programs. Rural states are more conservative which favor smaller
governments. This is just an effect of political demographics, not a cause of
superior tax policies.

~~~
Nokinside
Many rich economies started poor.

Systematic investment to education and infrastructure have provided the tools
to become a rich economy. Becoming rich country with low level taxation is
possible only for countries with lots of natural resources, like oil.

~~~
Houshalter
Governments in most rich countries today are vastly larger than a century ago.
American in particular was basically an extreme libertarian system until
relatively recent times. These countries were already rich, or well on their
way to becoming so, when their governments bloated up. Rich societies cause
big governments, not the other way around.

Additionally, things like education and infrastructure are a tiny fraction of
government spending (although they tend to keep growing despite not getting
any better.) Almost no one disagrees that the government should fund those
things. That's not where the vast majority of your high taxes are going.

------
_up
They always talk about taxing giants, but in the end we get market entry
barriers for the small startups.

~~~
Spivak
There are tons of laws and regulations that only affect companies above a
certain size. Are these not satisfying?

------
cs702
I wonder what the impact will be on these companies' ability to compete
against entrenched players in those EU countries. For example, will this make
Amazon's prices non-competitive with European bricks-and-mortar retailers?

I also wonder what the impact will be on their stock prices, because taxes on
_top-line revenues_ have a disproportionate impact on profit margins. For
example, a 5% tax on revenues would render Amazon unprofitable in the EU and
would cut Google's 20%+ net profit margin by about a quarter in the region.

Finally, if this goes through, will other jurisdictions around the world
follow?

~~~
JanSt
Currently these giants have to pay less than bricks-and-mortar retailers[1],
which is why the system is unfair. Amazon pays less taxes on a book sold than
a small 1-person shop across the street. Until very recently, they didn't pay
taxes in some countries at all [2]

[1] [http://www.sueddeutsche.de/wirtschaft/steueroase-
luxemburg-a...](http://www.sueddeutsche.de/wirtschaft/steueroase-luxemburg-
amazon-soll-weniger-als-ein-prozent-steuern-zahlen-1.2162444)

[2] [http://www.sueddeutsche.de/news/politik/eu-amazon-zahlt-
jetz...](http://www.sueddeutsche.de/news/politik/eu-amazon-zahlt-jetzt-
deutsche-steuern-dpa.urn-newsml-dpa-com-20090101-150524-99-01771)

------
microcolonel
The idea of a revenue tax of course contradicts the stated justifications for
existing taxes on business: the funding of ephemeral services which contribute
indirectly to the business's revenue.

Google benefits from approximately no government infrastructure in France,
Germany, Italy, or Spain, but they want to get their grubby hands on it
nonetheless.

~~~
Oletros
When Google or Apple declares losses in Spain having record revenues so they
have fiscal benefits when that country has a very big crisis then we have a
big problem.

But hey, those countries ajust want to get their grubby hand in those poor
companies.

~~~
microcolonel
Google is not responsible for the corrupt and decadent governments in
countries they don't operate out of; they're hardly responsible for it where
they _do_ operate. When China manipulates the markets so much that they
collapse, and when Sweden spends its way into poverty, it will not be Google's
fault, nor their responsibility to pay for it.

~~~
andrepd
Decadent? I take issue. Google, like virtually every large corporation in the
world, spends a significant amount of time and resources finding the optimal
way to pay the least amount of taxes, through loopholes, borderline or
actually illegal schemes, lobbying etc. We're supposed to blame the
_countries_ for being defrauded in this way, not the multinationals doing the
defrauding? Come off it.

You want to do business in a country, you abide by the laws of that country.
Governments serve their citizens and their interests. Whatever is convenient
for corporations has (or should have) _zero_ bearing on any decisions. In true
liberal style: if they don't like the rules they're welcome to go elsewhere.

~~~
ben_w
I view tax codes like buggy software, lawful tax minimisation like zero day
exploits — only difference is that the law is not above itself, so if the tax
loophole is legal, then it's legal.

That said, just because something is legal doesn't make it moral, but even
though I think we agree on that, I'd have to argue loopholes are totally in
the domain of legislators to fix — if I understand correctly, UK law requires
tax payers to report any minimisation schemes they are party to. Does that
have teeth? I don't know, but it's a thought.

~~~
pyrale
> I view tax codes like buggy software, lawful tax minimisation like zero day
> exploits

I have it you view lobbying as having a hand in the code you subsequently
exploit, and therefore a major ethics breach ?

~~~
ben_w
Pretty much.

I view corporations as non-human intelligences, so while it's totally
unethical for a human to manipulate the law to their own ends, it's also
something I expect corporations to perceive as acceptable, in as much as that
makes sense (they will not shun each other for it) and in much the way we
humans generally agree it's wrong to kill but we don't shun people for
amputations or appendectomies.

This is why I prefer democratic corporations, rare as they are, to pure
capitalist ones — at least the metaphorical appendix has a vote.

------
sfifs
EU really needs to get into a fiscal and political union like India or the US
instead of their current mish mash. That will take care of both tax gaming
like this and stuff like refusal to take haircut on bad Greece debt to prop up
the balance sheets of German and French banks.

------
doener
[https://news.ycombinator.com/item?id=15207190](https://news.ycombinator.com/item?id=15207190)

------
polotics
I am surprised no one mentioned the Dutch sandwich yet. Look it up: the EU is
a taxation joke.

