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  leave plenty of wiggle room.
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.
If the former, the logical conclusion of that approach is that every startup has to pay taxes in all 195 countries of the world, as soon as they open for business. This could be on $0.01 of ad revenue.
If the latter, I'm strongly incentivized to move my labor from the high-tax countries to the low-tax ones, which will push business out of the former. (I.e. at the margin, if I have a small office in Germany, it's probably not worth my while to keep it open since it incurs a massive tax liability).
They would only be able to deduct German costs, defined as the employment of someone with a NI number (or German equivalent) or another business with a tax number.
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.
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.
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.
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.
The way companies deal with this is to create artificial costs. For instance have the German part pay big patent license fees (loan interest is another option) to the Irish part. Then German sales - German costs = 0.
To do this requires two things:
1. That the license arrangement with the subsidiary is unique to that subsidiary.
2. That the license fee can be set to any value at any time.
For more concrete assets, for example a bag of coffee beans, it's easier to see when a parent company charges a subsidiary a different amount than the market rate. However, there is no comparable market for IP, so it's harder to see what a "fair" price for a copyright, trademark or patent might be.
One option might be to tax all IP licenses at the corporate tax rate. Another would be to adopt a "most favoured licensee" rule, requiring all licensees to pay whatever the cheapest rate was (or taxing the difference).
As for "taxing IP licenses at the corporate tax rate", that seems nonsensical given that it's profit (aka value added) that is subject to tax, not revenue.
Profits are subject to tax, as are people's incomes, consumer sales, assets such as cars, TVs and homes, and goods which cross customs borders. I was suggesting that another tax (or duty) be created to discourage the offsetting of profits using IP licenses.
A tax for megacorps based on revenue seems a lot simpler.
If selling a phone that cost $800 to make for $805 incurs an 80x tax liability compared to selling hammer that cost $5 to make for $10, then the modern economy of long supply chains and specialization grinds to a halt.
Another way to think about it: a single year in which the tax on revenue is higher than profit would require the business to be go into debt or be sold to pay the tax man; except then what's the value of that business to a creditor / acquirer if it has that threat hanging over its head?
For the sake of simplicity, assume 100% profit margin. Let R and R' be revenue generating without and with such tax law. Let T be tax rate.
So a company was hoping R into its bank account. But with the new taxes it would be (R - RT). Naturally the company would just increase the revenue to R' (by increasing prices) where it would give R'T to Govt and keep (R' - R'T).
R'(1 - T) = R
R' = R/(1-T)
Actually I underestimated new tax, for T=33% it would be 49.25%.
One option, which I've not thought through, would be something like the following:
You make £500 profit.
You pay 20% corporation tax, so that's £100. The question is who does that get paid to?
If 15% of your revenue comes from the UK and 50% comes from France, then £15 of the corp. tax goes to the UK and £50 goes to France.
More complicated with different company structures and corp. tax differences between countries, etc, but I think this may be what they're getting at.
Also when US says 20%. It means US gets £100. US aint the sharing type :p.
How would this even work with territorial taxation countries such as Singapore/Hong Kong ?
This kind of system will only work within a group of nations that agree that this is a good idea, such as the EU. Ireland and the Netherlands probably don't agree - but can hopefully be forced.
Obviously no countries in the EU have territorial taxation.
Thats why gave this example to show that it does not work as profit remains the same.
Lets assume there is no US Co. Ireland Co is parent company and its only doing business in EU. Then either Ireland  allows low tax rates to attract business in which case profit is low and thus UK/France share is low. Or Ireland is high-tax, then business move to another low-tax in EU.
This only work if there is single tax rate in EU. But if there is single tax rate, then why even go this complicated tax calculation route.
 Estonia (and in near future Latvia) does not tax untill profit distribution, reducing effective tax rate to 0%.
The "trick", if I understand, is to only care where the final service/product is actually delivered. So in your example the idea would be to ignore France SAS, or rather I imagine to assume Ireland Co and France SAS are one and the same, and tax them "together".
At first glance it sounds very hard to setup (and it certainly is), but that's what is being attempted here. On the other hand it's not particularly complicated to know whom Google is selling ads to, and where iPhones are sold, so there must exist a solution to this problem...
Say we have a hypothetical company that operates only in Sweden and Ireland, and has offices only in Ireland. It has a revenue of €10M and a profit of €1M.
This company had €4M (40%) of it's revenue in Sweden (tax rate 22%) and 60% of the revenue in Ireland (tax rate 12.5%). How should this corporation be taxed?
By proportion of revenue according to the normal tax rate in the country. So
In Sweden: Tax 40% (the proportion of revenue) of the profit
(€4M/10M) * €1M * 0.22 = €88k
In Ireland : Tax 60% of the profit
(€6M/10M) * €1M * 0.125 = €75k
So the total tax went from €125k to €163k, because the corporation was forced to pay taxes where it made business, rather than on Ireland alone.
Basically you just pretend that the corporation was in fact two corporations, where one €4M revenue corporation was in Sweden and the other was a €6M revenue corporation in Ireland. That's all.
So lets assume €10M is the already inflated ammount to accommodate for Ireland/Sweden share. Then only (€3.12m, €5.25) was needed from (Sweden, Ireland) if taxes were zero. €3.12m + €5.25m = €8.37m. €163k (€10m - €8.37) went to Govts. Then consumption taxes would be
(28.2%, 14.2%) for (Sweden, Ireland). Swedese are paying (.282-.142)/(1+.142) = 16.3% more than Irish for same product.
You can calculate all these from equation in my comment before. I write here again,
R'(1-T) = R
T is tax rates.
R' is inflated revenue.
R is zerotax revenue.
In this example Swedish consumers would potentially see price increases - but on the other hand they could see tax reductions if the increased tax revenue from corporations gives some reform space for income or consumption tax cuts. Potential for jobs moving in from Ireland has the same positive effect on the bottom line.
The losers in the above scenario is the Irish because they'd see increased prices, lost jobs, and potentially raised taxes to offset lost corporate tax revenue.
Why ? The payroll will increase even if profit remains the same.
The losers in the above scenario is the Irish because they'd see increased prices, lost jobs, and potentially raised taxes to offset lost corporate tax revenue.
I doubt it. Consumption tax are never popular. Instead of businesses, the people at large might migrate to Ireland for significantly low cost of living.
Or a bad idea because of how it would increase corporate taxes, which would land on consumers?
I can't see how it would be a net negative for those countries that would get a nonzero corporate tax from megacorps that today contribute around zero. Even with price increases, the net effect seems like it would be positive
I can't see how it would be a net negative for those countries that would get a nonzero corporate tax from megacorps that today contribute around zero. Even with price increases, the net effect seems like it would be positive
Because countries are not getting new money. Old money is just cycling between govt and people.
You keep saying that, and I keep not understanding it. I realize higher prices (Companies shifting the tax to consumers) is a burden for consumers. But at the same time, if government tax revenue increases, then taxes could be cut (of all kinds: income, VAT, and corporate).
E.g. IKEA in Sweden ships 3% of their revenue as "royalties" to a dutch company, thereby reducing their swedish tax amount by over €100M/yr. If that money and money from similar companies was actually paid in Sweden, then Sweden could have a lower tax rate (e.g. 20%) and still have the same revenue. Or the VAT could be slightly lowered from 25%, to offset the fact that for a few products from multinational corporations, the products would be slightly more expensive.
Also: the argument that higher corporate tax rate = Higher CoL = bad, could be extended too. But how far? If the rest of the EU adopted Irelands low corporate tax rate, what would happen then?
Could be a few issues with it still, e.g. declaring that your in-house logistics operation requires €100 to transport your €200 widget to Sweden, rather than €10 to Ireland, no?
If Google were taxed for each ad income based on the country of where the ad buyer is located, they couldn't manipulate it as easily. Also clients wouldn't be inclined to set up shop in tax havens, because why would they? It's not their problem.
I'm not sure this is a good solution, it might also be possible to game it, but at least that would make sense from the perspective of assigning benefit to a territory: if a myriad small businesses in, say, France, need Google ads, why not tax Google in France for that amount? It is in a sense Google's access to French market that we are taxing.
Could that work?
I like your idea, I'm just curious how this would work? Google might find themselves in violation of the law.
What do you think?
How about a yearly national tax proportional with the amount ad buyers pay for targeting a country - the argument here is that Google, Facebook, etc. are using a national infrastructure to do their business.
I don't know anything about policy in general, but I'd rather reconsider existing taxes and their mechanisms before introducing even more taxes. Still, I'm guessing just shifting the taxation based on buyer's location would be groundbreaking, possibly not functional for many companies, and introduce a lot of extra work just to get some money from multinationals....
Yearly national tax probably reflects the instinct many people have, that other companies within these markets are taxed for similar activity, but multinationals aren't, and maybe they are getting too good a deal.
There is something similar going on in Poland and I'm guessing many other developing countries: foreign corporations open their shared services centers, recruit really well educated people but get significant tax benefits on this. Also supermarket chains are somehow exempt from some taxation. Supposedly this is to promote jobs locally, but in reality it seems more like a brutal scam: you get great, cheap workforce and do not have to pay as much for access to it in taxes.
Multinationals selling globally, but paying taxes where they like is similar. The sentiment among my friends is that the local corporations sucking in workforce, pulling it away from building our own products and services with international potential, AND getting tax deals is quite bad in the long term.
Quick example, you are into the business of making - say - lemonade.
Set aside the machinery involved, you buy lemons, water and sugar.
The BOM for 100 glass or lemonade is:
- 100 lemons 15 € + 0.6 € (VAT is 4 % on lemons)
- 25 liters bottled mineral water 10 € + 2.2 € (VAT is 22% on mineral water)
- 0.5 Kg sugar 0.70 € + 0.07 (VAT is 10% on sugar)
So you have spent ( given to the supplier) 15+10+0.70=25.70 € + 0.6+2.2+0.07=2.87 VAT
Then you sell the 100 glasses of lemonade and get at 1 € each 100 € (included VAT).
The rate is 22% so you are actually getting 81.97 € + 18.03 VAT.
Since you already spent 2.87 € VAT when you bought the ingredients, you owe the government 18.03-2.87=15.16 € for VAT.
The whole idea of the VAT (or Value Added Tax) is that it applies to the differential in value.
So you have 81.97 € remaining from which you subtract the 25.70 € you spent for the ingredients, and - say - 10.30 € for other (documented) expenses, electricity, depreciation of machinery, etc., local taxes for the stand, etc.
You remain with a net income of 81.97-25.70-10.30=45.97 for which you own the government income taxes at a marginal rate of (still say) 35% 16.09 €.
Now imagine that your lemon squeezing process is covered by a patent for which you have to pay a firm in Ireland (which is also yours) 0.35 € per produced glass. (to simplify, let's say that this is exempt from VAT).
Now your income is 81.97-25.70-10.30-35.00=10.97, thus you owe the government 35% of that 3.84 €.
Meanwhile in Ireland those 35 € (without expenses) are income taxed at a rate of (say) 10% so you give the Irish government 3.50 €.
Instead of the 16.09 € in taxes, you paid 3.84+3.50=7.84 €.
Not quite. As Wikipedia puts it, VAT is collected incrementally, based on the surplus value, added to the price on the work at each stage of production.
That is the actual tax incidence. That the tax payment is channeled via the last link in chain is just a technicality relevant for the most efficient implementation of this incremental scheme.
The one that pays the actual tax is the one getting the last (most valued) item, i.e. the final user (consumer).
The way it is collected (incrementally) is not connected to WHO pays WHAT.
If an user pays 122 € (100+22 €) that is the total tax (and is payed integrally by the user).
The government gets in total 22 € (integrally paid by the customer at the end) but it receives that amount in (say) 3 steps by differnt actors:
1 - 10% of 30= 3 The manufacturer buys the raw material, pays the VAT to the supplier that (hypothetically) has no preceding VAT costs and thus must give to the government the whole 3 €
2 - 22% of 80= 17,60-3= 14,60 then he does something with it and resells the product for 80 (i.e. it adds value, reselling it for 80 + VAT to a shop) and has to give to the government the differnece
3- 22% of 100=22-17,60=4,40 the shop sells the item to a consumer and has to give to the government the difference
The government gets 3+14.60+4.40=22 €
The final user has paid 22 €
The incremental collection method allows to have the tax largely paid in advance, but the amount at the end comes out of the final user pocket.
The Wikipedia has it very clear:
The point of this discussion is not the tax on the sale itself (which is indeed already there) but on the profit at Google that results of this sale.
When I (resident in Finland) buy stuff from web shops in Germany, I pay tax at the higher Finnish rates, and it is withheld by the seller.
(When I buy from e.g. China, I pay VAT at the customs, including VAT on freight.)
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.
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?
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.
We've got corps who won't repatriate money cuz profits overseas...[apple and indivs with overseas shell cos, etc.]
I agree that governments should strife for a fairer tax and a good start would be a simpler tax. There I agree that unnecessary complexity have created loopholes. I however do think that the European Union should set the example and start paying taxes like normal citizens in their respective countries. The European Patent Offices in Europe do not pay any taxes in the countries they are situated. They have their own internal low tax system. Talk about writing your own rules for avoiding taxes.
Just to touch on the issue of USA companies not repatriating money back to the USA. This is a problem with the USA tax code. The Netherlands for example do not have this issue, since they have double tax treaties with various countries and when they do not have a treaty the participation exemptions kicks in. The participation exemption says that you will not be taxed again in the Netherlands if you own >= 5% of a foreign company when a dividend is payed from the daughter company to parent companies. The logic of the dutch is that foreign dividends have been taxes and is therefore exempt.
I hope they get a fat bill.
Of course tech companies are not blameless here, they have decided that paying taxes in Ireland is preferable to paying taxes in the US, but if they had their tax location in the US, I don't see how the EU would have a leg to stand on.
I hope you are not serious.
The question is, why is your country entitled to tax their revenue/profits? That is far bigger than the marginal stress they put on your resources.
If they were a company selling physical products that they paid someone like DHL to deliver, this would be a completely silly discussion.
Because my country offers highly educated personell and their education is enabled to exist due to taxes not only towards people being employed but for companies taking out profits as well.
The idea of a company taking out profits from another country even if the value of the product is created in my country by our trained personell is fucked up and will in the long run result be an economic disaster for my country since we can't fund our establishments.
Also, it will render the market less competative since smaller shops have a harder time to compete against these giants who pay nearly 0% tax.
Globalization means that nations, provinces, and municipalities compete for the patronage of businesses. If you want a global economy, but you also want to be the legal home of Google and Microsoft, you will need to compete globally to offer better ROI: both in the cost of doing business, and in the proportion of the return which they get to keep. This is also why we keep piling on exceptions and deductions in order to stop the bleeding and keep at least some major firms from migrating all of their capital out of the country.
Take all of this away and a corporation is going to be killed instantly (you're a victim of fraud on a massive scale? you haven't payed your taxes this year, so no retribution for you).
So no, I don't think the fundamental issue is just the ROI.
Wouldn't this all impact ROI?
In what way is Ireland a bad actor? Locally operated businesses get a good deal too. What about Poland? Those shipyards aren't moving to your tax hell any time soon, but that doesn't make Poland a "bad actor".
It may surprise you, but no country has the obligation to exploit and screw over businesses as much as yours would like to.
Of course, there are cultural differences which would probably get in the way of the U.S. reaching goals like this with such efficiency, but surely Singapore proves that it's possible.
Can you explain your reasoning more?
So, for example an internet user in the EU is paying some local ISP to request services from google.com. The ISP presumably pays taxes on the revenues or profits from using local fiber & infrastructure in order to connect the user with google.com.
In this case, they are no different than any other website/domain/internet service aside from scale and all of the taxes to fund infrastructure would come from the ISP and some portion of government financing.
What I am missing is how Google is "us[ing] our well developed infrastructure for their own benefit" in a different manner than say skysports.com?
If they employ people in Sweden, sick days are covered by the government, health, roads, parental leave, governmental services, public transportation etc..
If they avoid taxes by simply saying they have no profit here, because they give all the revenue to the parent company, it means that everybody else in Sweden needs to cover their costs since they will probably pay close to zero in taxes. While any other shop needs to pay taxes.
I don't know if skysports operate in Sweden, but my guess is that they do not.
The thing is, I don't want Sweden to become like the US. Because our way of doing things are so much superior in my mind. I don't want to get a bill after I go to the hospital, I want free education, I want good roads and internet connectivity. All the stuff we have companies like these help to destroy to increase their profits.
If you tax it, the prices just go up, nothing really changes.
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.
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?
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?
* Ireland is a stepstone to not taxing most of their profits at all. Read about the double Irish with a Dutch sandwich (expiring in 2020). Google for example was (is?) an aggressive user of this technique.
* Ireland has made (according to the EU) illegal custom agreements with multinationals. These erode the taxable base in a way that has no link with reality whatsoever. That goes against OECD and EU principles.
The guardian writes:
"Google pays €47m in tax in Ireland on €22bn sales revenue"
"Ireland has [in 2014] become a small net contributor to the EU Budget for the first time since it joined the bloc in 1973"
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.
I disagree. The profits are not essential here, because the issue is that the profits are quite small because a tax accounting trick called "double irish" was used (which is explained in the article).
> You can't compete on tax with
> fiscal paradises that provide
> no infrastructure to operate a
a classic move branded under some guilt assuming title to prey on people's ignorance to support it.
while there may need to be limits on how sweet of deals that can be made the idea that you can "harmonize" taxes across such a diverse number of countries is unrealistic. Those large countries using this idea to protect their tax base aren't going to also turn around and bring up the poorer countries
This is partially but not 100% correct. Tax laws are controlled or "administered" by individual countries but overseen by EU directives. This means that while individual countries apply the law, their application must comply with EU guidelines. The Irish government has been found guilty in EU court of violating EU law in a tax deal they made with Apple, and this is following on examining tax deals Ireland (or other states, I'm not quite clear on that point myself?) has(/have) made with other large multinationals, and what they would/could be found similarly guilty of were it brought before an EU court.
The reality is that in the treaties the EU very explicitly does not have control over tax. In fact, this was a key issue in the last Irish referendum on the EU treaty changes. The Irish rejected the treaty until they received explicit assurances from the EU that they'd never lose any control over local tax and the EU wouldn't attempt to undermine their local corporate tax rates.
But as it turns out, the EU's assurances on such things were useless and the Irish people were misled.
Irish opinion is thought to have swung behind the "Yes" vote this time because of the severity of the economic downturn, as well as the legal "guarantees" on Irish sovereignty that the EU pledged after the first referendum. The legally binding "guarantees" state that Lisbon will not affect key areas of Irish sovereignty, such as taxation, military neutrality and family matters such as abortion - significant issues in last year's campaign in Ireland. But they have not yet been attached to the treaty.
> But as it turns out, the EU's assurances on such things were useless and the Irish people were misled.
Leaving aside the absolute spurious nature of that BBC article (there is nothing to support the supposition that the No vote (nor the swing to Yes) had anything to do with taxation or - most ridiculous of all - abortion), even in an imaginary world where those issues were of import, I can't see where anyone was misled. Can you cite cases where the guarantees have been broken?
Obviously, nobody told the Irish people that their nation's tax decisions might be retroactively re-classified as "aid" ... and nobody told them that because they were explicitly told that tax was not an EU competency.
There's really no way around that outcome. Regardless of how the EU likes to reinterpret the treaties to grant it newfound powers nobody thought it had, the people of Ireland know what they were promised and know that it's been violated.
Or is basing it on revenue in this instance just supposed to make the "percentage paid" smaller to make FB and Google look worse?
Profit numbers are very susceptible to accounting gymnastics. EBITDA and revenue, on the other hand, are more difficult to manipulate. If you make assumption that companies in the same domain have similar operations, then profit margin, and by extension taxes paid on reported profits, should be similar. Based on this assumption, one can say that it is worth looking into when companies in the same domain have significantly different reported profit margins or reported profit margins differ significantly based on location. Tax to revenue ratios in this case differing by two orders of magnitude raise some eyebrows.
> "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.
The poster above has it right. The EU's goal is to become a new country that eliminates the existing countries. To do that it must have either have its own tax base, or control the member states tax. It is working on both of those simultaneously, trying to control Ireland's tax policies, and also trying to treat fines on tech firms for vague anti-trust "violations" as a kind of taxation. Note that the EU Commission does not have to win in court to claim billion dollar fines, they can simply declare a fine by fiat, thus giving them a massive incentive to abuse their powers.
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.
One of the biggest loopholes is _finally_ expiring in 2020: https://en.wikipedia.org/wiki/Double_Irish_arrangement .
Something else Ireland is limited in is custom tax deals/rulings with individual companies. As an EU member state, one can not just decide to apply an individual tax base or tax rate reduction without basing this in reality, hence https://www.nytimes.com/2016/08/31/technology/apple-tax-eu-i... .
What? EU countries are not saying that repatriating profits is bad, what they say is that companies use strategies to avoid to pay taxes.
If USA government think Volkswagen pay so little taxes for revenue done in USA they are the ones that have the saying
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?
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).
Does anyone know what percent of US revenue Google pays in US taxes? I'm pretty sure it's not 9%
Typo in the headline? Seems to be off by a factor of 10.
In English, otoh, billion = 10^9.
see, for instance:
and anyway, even if you limit it to "real economy" (if anything in cyberspace can really be counted as real, which is highly suspect) it comes from ad revenue. all taxing eu ad revenue in cyberspace will do is ensure eu companies cant competitively show their ads in cyberspace, doing so will lose the eu a lot more than just "tax".
$5bn isnt going to balance Greece's budget. Setting aside the potential arguments defending Google (I have genuinely have no opinion on them or any of the other companies), a comprehensive law that requires every internet company to track every dollar by country and pay proportional taxes on their revenue could, in my opinion, severely cripple innovation in a continent that is finding itself falling behind at a global scale due to a variety of macro-issues. I like to give governments the benefit of the doubt that they won't do something silly like that, but then I look at this net neutrality issue and start to wonder.
Bottom line, there does not appear to be a consensus on this issue "morally" (for lack of a better word) which is why we're seeing such diversity of views on HN and globally. Just throwing it out there...
This 'reinvestment' is used to compete and drive profitable competitors out of business. This is an unfair practice. The result - no profitable companies, smaller taxable base and nothing for the taxman to collect.
The bigger the juggernaut, the more influence they have on the taxman ("but we're contributing to pay/income/property taxes - surely you don't want us to relocate abroad"). Large multinationals use their corrupting influence to strike sweetheart deals and use these deal-made tax savings to abuse the market even more.
Facebook isn’t anything new – maybe it adds 10% more value than MySpace would have had if Facebook didn’t exist in the EU. Maybe it adds 20% more value than the VZ Networks would have added.
You can’t just look at the entire value these companies provide, because local providers existed before Facebook and Google replaced them. Yes, Google and Facebook are overally more efficient, but only by a small amount.
Additionally, even if you say "don't care, if they leave we'll just build our own companies", now you are hamstringing the global growth of those companies.
(I'm just going to assume the companies that leave are not going to put your homegrown companies and people at a very serious technological disadvantage, which they might)
This is of course, why the EU wants everyone on the bus.
Disagree. Think about advertisers. A lot of products popular in the US are popular in the EU. When it comes to marketing the latest Hollywood blockbuster if they can't reach half a billion people through Facebook they'll go elsewhere. If half a billion people suddenly disappear from Facebook those people who have friends and family there will turn to other communication systems and Facebook may get used less and less.
Dangerous thinking? It was just an answer to a claim about the wealth they create as if they are exempt to be taxed because they create wealth.
> Over time, these companies will make infinitely more from developing nations outside of the EU than they would from the EU.
Over time, but I bet that any of those companies wouldn't trade the profit of one of the greatest markets in the world now for an hypothetical
> especially if the EU is taxing them heavily.
EU is not taxing heavily
They both have headquarters in Dublin.
So that's the reality they have to live with.
how many multinationals have left any big market just for taxation?
In other words, you are saying EU can deny its citizens right to buy foreign products ?
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.
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
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.
You're joking, isn't?
Google left the US.
So did Apple.
In fact, are there any multinationals left in high tax countries?
When the heck did Apple and Google left USA?
> In fact, are there any multinationals left in high tax countries?
I think you're confusing where the headquarters are located with presence in a market
If yu're seriously saying that Apple or Goole have left USA and the EU you're really don't know what we're talking about
and servers are now homed deep under the sea.
If there's any problem with taxation any country can order its banks to not process payments to Google/Facebook. Tax authorities don't give a shit who hosts the citizenry's family photos. That's not what "operating in" a country means.
I would like how they do businesses, including Amazon and Apple if they leave the EU because the way you see it is totally wrong.
Starting with data protection directives and following with dealing with VAT, and EU customers
First, it is "big" when you consider how that money could be used. Cynicism aside about funding wars and filling walls with cash, it could be used for substantive (read: big) social good
Secondly, this is an important market. If they don't want to pay taxes, they have the legal option to not do business in Europe. So while you say "5B is small compared to 100B", I say "5B is a small price to pay for the billions they made."
Do you see any way to do that other than to prevent eu businesses buying ads from google?
Because i think that might have a few severe unintented consequences for businesses in the eu, and have exactly zero impact on google.
The only thing that would change is companies outside of the eu will burn through their ad budgets faster.
plus a whole (not quite so new) industry would emerge outside the eu bypassing the regulations. such as happened in China.
The old world order would very much like to believe they have dominion over cyberspace, but they do not and should not.
That would damage Google a lot more than it would damage the EU nations.
Those eyeballs will still be worth the same.
it will make as much difference to google use as the us copyright fine made to sci hub.
"you are the product"
Isn't this reverse-progressive taxation? If Facebook were outraged at paying taxes enough to shut up shop in Europe, wouldn't that 100B (or something like it) still be kicking around, just in different hands?
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.
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.
They are never going to withdraw from the EU. The money they would lose would be immense.
The fact that people think Google and Facebook have this kind of power over a developed market of 500 million people is hilarious.
So yes, taxes are collected just like the Mafiosi collect their debts.
as I said, when someone can make such claims like this, no discussion is possible.
Would you rather multinationals were not taxed at all? If something is tricky to get right is it not worth doing at all?
If that's what you believe you're not going to find many on your side.
If you hold those basic tenets true, then why deal with taxing moneyless companies? If you're to look at the breakdown of stock ownership in a large public company you would find that it's large funds comprised millions of people's savings which really own Apple and Google.
If an Italian man owns Google stock then yeah he should be taxed according to the rules of the society he lives in. But why should the working grandmother in Idaho have to pay EU taxes as she owns a 0.000001% ownership or whatever in Google? In what rational world is that "fair"?
If you were to remove corporate taxes, more money would flow directly back to those who own the public company(in the form of dividends) or be invested back into R&D or more employees.
If we assume that our Idaho grandmother would get an extra $400 bucks in the form of a cheque from Google paying dividends, then maybe she could travel to Europe and spend more money directly than would have been possible had EU taxed Google.
Or, Grandma's investments would grow along with the funds of institutional investors who would have more capital and would love to invest elsewhere. So there would be more capital looking to be placed and you come up with a smart idea and get funded. Suddenly you create a new giant company in the heat of Europe(I'm guessing you're European?) and employ thousands of people which would otherwise be home with parents working temp jobs and being stifled by a deep bureaucracy in Brussels that keeps getting bigger and fatter every year!
She doesn't pay any taxes in the EU.
When Google gets taxed, grandma in Idaho gets taxed. Corporations don't have money, the people who own the corporation do. Any money coming in would either be invested back to further the company or passed back to the owners of the company. In this case, it's our grandma from Idaho. I'd love to hear any sound logic argument negating anything I just said.
There is no sound logic argument because your claim is completely wrong and ilogical at the same level as taxes are theft and States are like Mafia.
I'm a strong believer in freedom, to include freedom from unnecessary taxation. If G/F "leaves" EU, I meant it by closing physical locations and the farce they have to put up with for taxes, they could still serve citizens from EU.
Id love to see the story unfold if G/F said "we are American companies only going to pay US taxes" and they quickly closed offices in EU. Do you think EU would create a firewall removing citizens from Facebook/instagram/Gmail/Google search etc ?
Seems to me that in this crazy scenario the EU crooked politicians are left making threats they can't really follow through. They all probably use gmail and how easy is it exactly to start a new on an email account ? How about all your contacts and pictures on FB?
Seems to me that in this world F/G would operate just the same and EU politicians would walk away crying saying "you can't do that it's not fair "
Also, if you believe in freedom, why don't you believe that countries have the freedom to stop these massive corporations from extracting wealth from their society and returning nothing? Why does only the corporations freedom matter?
Take for instance the case of using what's app as a little store where people can offer services/goods. My mother in law dedicates her account on what's app to sell hand knitted baby clothes, and it provides her with reliable communication to clients.
Such applications are a NET BENEFIT to everyone involved and it's clear why What's App was given such a high price tag!
If I might ask what/where you are from that you think this way? I can tell you from personal experience and fundamental Adam Smith basic economics that these companies offer vastly more benefits to consumers and society as a whole than what little money can be taxed from them.
Also note, that Latin American countries and 99% of other countries don't propose to tax the tech companies and they still have vast benefits.
Yes they provide a benefit, but you're bringing up Adam Smith like this is a situation with perfect competition. I might be on the wrong side of this and they are providing a benefit big enough thay the EU would get less net benefit from a local company, but can you admit that there could ever be a case where a company was acting in a way that was detrimental?
So if you substantially lowered or entirely removed corporate taxes they would bring that money back to the US and spend it in R&D or capital investments, or return it in large forms to shareholders via dividends!
What oh what, do people usually do when they get sudden influxes of cash? They spend it or re invest it! They don't just bury it or burn the cash for warmth like Pablo Escobar. That seems like a better end goal than having the cash idly sitting abroad or being spent by crooked politicians who by virtue of being in office propose to be holier than thou and always manage to spend money not earned by themselves