In my (limited) understanding I thought this was not supposed to happen, and that most goods and services could automatically be sold EU-wide. France could not charge import duties on Guinness trucks, nor demand that beer good enough to be sold in Ireland is not good enough to be sold in France.
(This does not sound at all like the usual discussion of the tax on multination's profits, and whether declaring that your business unit in the Bahamas actually made the profit is avoidance or evasion. It seems to be a brand new tax on some kinds of business-to-business sales.)
The EU rules demands that, in the market for beer (or trains or spyware) sold in France, the French govt. cannot favor French companies over Irish companies. The buyer must be free to buy from any of them on equal terms.
But it does not demand that the market for goods sold in Dublin is identical to the market for goods sold in Paris. Hence the VAT rates may differ, as may other more narrowly focused taxes, like on alcohol, or hotels. This tax is one more like that. A sin tax on spyware.
Edit: There remains the issue of deciding where a sale took place. Alcohol to be drunk in Paris has to be physically in Paris (even if the sin tax is collected long before the final sale), but an advertisement shown in Paris could have been bought by a company elsewhere. Why can't every French ad agency open a one-man office in Dublin to avoid this?
On the other hand, the really quite high threshold might well be subject to complaints on the basis of distorting the single market. All the large multinationals that would hit the threshold reside in Ireland / Luxembourg, whilst lots of French firms don't hit the threshold and thus gain a competitive advantage.
I'm neither a lawyer nor a tax advisor.
Google operates in France but is able to undercut France businesses for digital content sold to French people ( merchandise is traceable ) because it happens to have an Ireland operation?
The big issue is that digital services, particularly advertising, are so insanely profitable that most governments would also like to get their hands on a proportion of the profits accruing from sales of digital services in their country. They see the fact that Ireland / Luxembourg are able to book all the profit in one jurisdiction as unfair. There's probably not a huge likelihood of that happening any time soon at an EU level, so France has gone with the next best option from their POV.
(Tax avoidance strategies that allow a large multinational to not pay much tax to their host country is a different kettle of fish, since most of the benefit of tackling those would probably accrue to the country of incorporation not France - e.g. the Apple settlement)
The issue here is with omitting responsibilities. If a company makes hundreds of millions of income in a country, it should pay some taxes there.
There is a huge push in Poland now, to introduce non-refundable revenue tax (of 1.5%) on larger companies in place of income tax. This would solve the issue entirely.
I think it's very concerning that European countries are so focused on taxing access to their market rather than asking themselves the question of what they can offer to businesses and individual to make them more interesting as places to settle down or establish a company.
Google generates revenue in Poland. They have operations in Poland and all (so they use all the public goods like employees, infrastructure, safety etc.). They should pay taxes in tens of millions of Euros for this. But instead, they generate fake expense in Ireland, send an invoice to the Polish office, call it "branding" or something else, the invoice is big enough to generate a loss. They do not need to pay taxes in Poland since they are at "loss".
That's the issue. Not that Ireland has a different tax system. The issue is that companies are allowed to avoid taxes by generating fake expenses and the EU prohibits other countries from doing anything with it really.
IMO 1,5% fixed tax is very attractive rate.
If that is correct, then it makes perfect sense to shift profits - after all, it's not like Google Poland just came up with their new foobuz algorithm that is providing value. They're just selling it there.
> They're just selling it there.
This is literally the money generating part, the rest are cost centers.
Companies aren't allowed to vote for a reason.
> I hope you understand how deeply hypocritical it is to tout paying taxes as a moral obligation while at the same time refusing to be held accountable for how that money is being spent or denying companies a voice.
There's nothing hypocritical about not wanting corporations to have even more power than they already have.
Taxes are ways to keep the money in the country, reinvest it so it ripples back to the civilians.
Tech companies are avoiding this.
Ps. I hope your being sarcastic
You break the rules = fine
A political protection against something from other countries ( eg. Dumping and killing the internal market) = tariff
Taxes = helping the country/nation, based in money you earned from civilians/local businesses there
These are very different things.
Well, only if you're content with a 1.5% tax rate and a tax that punishes smaller non-vertically integrated companies.
They would probably be better off with something like DBCFT using a normal tax rate instead.
And a 1.5% rate isn't enough to replace those taxes, so it would be paid on top of them.
Moreover, revenue taxes disproportionately impact non-vertically integrated smaller companies. Megacorp is vertically integrated, they pay 1.5%. A supply chain containing twelve smaller companies pay 1.5% each, which compounds into nearly 20%.
Now megacorps don't pay taxes at all, so what's better?
Under your current economic structure, surely. But once you make it so that companies can reduce their supply chain's tax burden from ~20% to 1.5% by becoming vertically integrated, what do you expect to happen next?
> Now megacorps don't pay taxes at all, so what's better?
Option one is income tax at e.g. 20%, local companies pay 20% while megacorps pay ~0%.
Option two is revenue tax at e.g. 1.5%, non-vertically integrated companies cumulatively pay ~20% while megacorps pay 1.5%.
Option three is something like 20% DBCFT, so that everyone who sells domestically pays 20%. This is the better option.
Arguing that two is better than one is a false dichotomy that preserves most of the bad consequences of existing system (multinational megacorps pay less than others) while introducing some new ones (highly advantageous to become a vertically integrated conglomerate).
And even if megacorps would grow vertically - that's OK, since this would force them to grow locally, take parts of the market and optimize it. It's a win-win.
I also don't think DBCFT would work in an OPEN market like EU. Your opinion seems very US-oriented, while this thread is about EU. The EU rules and tax system is completely different to US and it cannot be compared.
DBCFT could work if the issue would be EU vs World, not EU within.
That is how many things work. One company sells saplings, another operates a tree farm, another logs the trees and transports them to the sawmill, another operates the sawmill, another distributes the bulk lumber to wholesalers in different cities, another operates warehouses and wholesales the lumber to local businesses, another shapes the lumber into custom forms, another assembles the custom lumber into unfinished furniture, another finishes and paints the furniture, another wholesales the finished furniture, another packages the furniture into prepackaged furniture sets, another retails the furniture sets, and then finally the end customer buys it.
This is not inefficiency, it's specialization. Operating a sawmill is not the same skill set as retailing prepackaged furniture sets.
> The revenue tax would force the market to optimize and become more competitive.
It would force the market to vertically integrate and become less competitive.
> And even if megacorps would grow vertically - that's OK, since this would force them to grow locally, take parts of the market and optimize it.
Megacorps don't have to grow vertically, they already are. It's why the tax gives them an advantage over local businesses that aren't.
And they wouldn't to do so locally. They could just show up with an imported finished product and retail it directly themselves.
> I also don't think DBCFT would work in an OPEN market like EU.
DBCFT is basically VAT. The primary difference is that local wages are deductible. It does not seem like a real problem to allow for "local wages" to mean anywhere within the EU rather than only in the sale destination country. Or to just use VAT instead if you like, though the wage deduction from VAT does seem like a good idea in general (since wages are already taxed to the employee and double taxing employment is undesirable).
> The EU rules and tax system is completely different to US and it cannot be compared.
If you're designing new tax rules, you can compare the new rules to whatever you want. The EU could implement the US system verbatim or vice versa if they wanted to and had the votes.
Otherwise, why not tweak existing large taxes? You could do it on the employer's social security contribution (i.e. the part paid before not after the nominal salary) to make it sound better.
But my question about what Google et. al. actually do in Poland. Is it a sales office for a product made elsewhere? (Few employees, large cash flow.) An engineering office for a product sold elsewhere? (Little VAT, lots of income tax.) Etc.
I know where you are going with this - the issue is that they don't pay pretty much any taxes due to avoidance, yet they drain the market from the revenue thus limiting the ability for local companies who cannot avoid taxes trying to develop in this space.
No, the EU and other trade agreements prohibit this.
Both of these statements are based on very big presumptions indeed.
Other benefits are virtually no accounting (the money would be taken on a bank level), lower taxes for the majority of society (SMB's paying fraction of what they pay now), no tax-gray areas and limiting to long chains of "middle man".
Let say you are Luxembourg, and the average tax is 30% of your profit in the EU. Luxembourg is roughly .1% of the EU population. Assuming an ideal world, a company would them make .1% of its profit in Luxembourg. Now, let say Luxembourg offers a deal with a company so that they can artificially put all the profit from its EU operations in Luxembourg: in order for the country to keep the same taxes, it would only need to have a tax rate of 0.03%. From the Luxembourg point of view, they have the same tax amount as before. And from the company perspective, they are now paying taxes as if they were only paying taxes in Luxembourg, which is peanuts for them.
Now, the current situation is not as caricatural as this scenario, but that is what is happening. The end result is just lower taxes created artificially (but legally). And the big problem is that it is not easy to fix while being in a EU context: the easiest solution would be to have common tax rates, though that would create some other issues. At the very least, closer tax rates would help the matter as moving your profit from one country to another is not free for the companies.
It probably should, but this is certainly not the first time a EU member country has tried (and gotten away with!) protectionism. Some other examples are stricter safety/quality standards that only (surprise!) local businesses' meet and government guarantee of private company debt (I have no idea how this is legal).
French people need French tax so that they can build schools, roads and hospitals. Large corps later benefit from having public infrastructure in the form of advanced labor.
The only way forward is to shut down the model of "redirecting profits to the place with the lowest tax". Kill it with fire.
As companies are made up of many different sub companies by declaring your corporate structure as one way to the US tax authorities and another to the, say, Luxembourg tax authorities you can make intra group loans appear and disappear from different sets of accounts. And as a result the costs and, crucially, income from those 'loans' materialise wherever you want. Or not appear at all.
A recent European study has shown that the more company win money, the less they pay in taxes (in percentage).
Is it because of bad laws? Corrupt politicians? Something else?
Here's the podcast for those interested, there's a lot of other interesting discussions here that are related to this topic, such as automation and basic income.
Increasing the income tax and taxing capital gains at regular income rates, along with bolstering estate taxes on the rich, are the ideal near-term solutions to the US budget problem. The US still has a lot of slack taxing capacity on the wealthy. That should be maxed out long before we look at a VAT.
They might even make the economy more efficient. I'll leave that argument to the economists, though.
> That should be maxed out long before we look at a VAT.
This is relative. The US government sucks at being efficient.
Taxing a business looks like a weird thing to do: a business can only spend money on business-related stuff pretty much by definition.
In order for money to be spent on non-busines things, it should be paid out as a salary, dividends or something like that which we know how to tax pretty well.
I'm certainly missing something, but what?
Maybe more material from a public policy point of view is that we like to tax different things at different rates, to favor or disfavor spending on various things. Hard to tax a salary based on what the employer spent their money on.
You could still implement Pigovian taxes such as fuel or alcohol duties.
By "profits" I meant to stop business being able to claim expenses and reduce the tax. We could replace complex taxation scheme only-on-positive-profit with a simple 1% (for example) tax on all transfers, on the total amount, no matter what is the purpose of the money transfer
Not like VAT : VAT is way more complex and expenses are deducted at each step
I believe that means "no multinational companies" - one could certainly argue for that, but it's a much bigger discussion. And I think you would have to end up forbidding citizens (residents? how does it work when you move countries?) of country A owning shares of company in country B if you really wanted that to work.
Putting money in a retirement account is a form of tax avoidance, but it was provided and is working as intended. The issue is not the definition, it's that legal loopholes allows unintended tax avoidance. The way to correct it would therefore be to close the loopholes, and many of the remaining loopholes span international borders and are tough to close without negative unintended consequences.
Tax law should be interpreted by the lawmakers intention and companies should be ready to be fined or uptaxed if authorities find they pay less taxes than is reasonable given global profits and relative turnover within their jurisdiction.
Constructs such as paying “royalties” to parent companies, or taking very expensive internal loans to effectively move all profits to tax havens (using Dutch BV’s etc) should simply be outlawed. Countries simply shouldn’t recognize these as acceptable practices.
This obviously leads to what companies like to call a “hostile business climate” - so a country will need to be pretty attractive in other aspects to not scare off international business.
First, tax laws don't have clear intentions to begin with -- if a tax law passes with 51 out of 100 votes in the legislature, all 51 representatives could be supporting the "letter" of the law for 51 different actual intentions, many of which might not be noble in the first place (e.g. give a particular local factory a tax break to win more votes next election).
Second, because of this, "intention" would be left open to completely different interpretation by different judges and result in completely arbitrary, non-predictable outcomes in different cases, which would be a nightmare for companies to even attempt to comply with. There's a reason that laws are interpreted by their letter -- it's the only fair way to do it.
Third, the tax laws are passed by different countries and are not harmonized, so even if they had clear intentions, their intentions can completely conflict, and there's no reason why they should be harmonized -- different countries are allowed to have legitimately different philosophies on taxation, there's no "right" answer.
The things you say should "simply be outlawed" -- how? How are you going to determine which internal loan is merely
"expensive" (OK) versus "very expensive" (not OK)? How are you going to differentiate between legitimate payments and the "royalties" you put in quotes that you call a construct?
Example for interest rates: Credit risk and intrabank/central bank rates are considered by courts when judging whether a rate is “too high”.
Swedish tax authority guidelines from past cases
- interest rates should be based on market conditions and credit risk
- internal loans should not use significantly higher (or lower) than loans between independent parties.
So: the authority already makes a judgment of e.g credit risk. If the tax authority thinks the interest rate was too high, they will say what would have been reasonable - and the company will be taxed for the increased profit as a result of the lower interest rate.
I don’t see anything controversial about this and I assume this is how tax law is interpreted and enforced globally.
It should be noted that such cases are usually lost by the authority - that is, the courts do usually not find the tax authority could prove that the interest rate wasn’t a normal rate based on market rates and risk. I don’t think that’s a problem, but I think it’s important that this is how it works.
A few percent here or there is all it takes to make a company unprofitable. Most companies don't have huge margins even when they're not trying to reduce them on purpose. You don't need the rate to be higher by a lot, only a little.
And then there is the principal. If you want profits in a jurisdiction, the entity there can get cash by e.g. selling its shares to the parent, which it then has without having to pay interest on. If you don't want profits there, the parent pays nothing (or some nominal amount) for shares and the subsidiary borrows all of its capital, which it then has to pay interest on at prevailing rates which may by itself exceed its profits indefinitely.
And loans are far from the only opportunity for this sort of thing. Pay slightly more for COGS to a sister company and you make significantly less profit, because a small percentage of gross is a large percentage of net.
One percent here, two percent there and soon a 10% margin is -0.1%.
What causes this is trying to tax something (profit) which is independent of any specific activity or jurisdiction. If a company makes phones and sells them, there is no principled reason why a certain percentage of the profit should go to the place where the phone is manufactured vs. designed vs. sold vs. the residence of the investor(s). If your jurisdiction is the one where they're sold but not manufactured or designed etc. and you want to tax that, the bleeding obvious way to do it is with VAT or some similar product/service tax. Trying to contort income tax into that shape is silly and just provides more opportunities for lawyers and accountants to find new loopholes.
I am not an accountant, but couldn't most corporate structures be reimagined by taxing authorities as an idealized "single company"?
Then calculate the difference between taxes that would be owed by that company vs the actual structure?
If there's a statistically significant discrepancy, require the company to provide a rationale. Or pay some penalty.
I suspect it would be easier to have a subsidiary rate rule - they may charge percentage either net or gross but not expenses for any IP including required external salaries but even that probably has loopholes or inviabilities.
You can say the same about law in general, yet law isn't "simple and explicit". It is very complex, hard to grok, therefore only a small amount of people are able to, leading to expensive lawyers and a law system which the poor cannot afford (ie. class justice).
Yes, ideally I also want laws to be simple and explicit. I'd even argue that worked quite well before globalization. Now it doesn't anymore. We need to adapt.
Like, if you say "this tax break is intended solely for people who sell second hand cars" then you don't have to spend 100 pages exactly specifying every nuance to 100% prevent people not selling second hand cars from taking advantage of it.
Ots called principles based tax code and it works.
I was initially high sceptical of the idea but, based on outcomes, it is a vastly superior system to rules based tax codes. It makes it far simpler and clearer to everyone.
Then you have to clarify how much of your expanses are eligable. Just those directly involved in the sale? Upkeep of your main facility? Upkeep of your satalite corporate offices? Your finance division?
What if you sell new and used cars? What if you are actually a battery manufacturer that makes and sells cars and also buys back and resales used cars?
What if you are a software engineer who sells your current car every 6 months?
All the car buying and selling is racked up by agents working on their behalf and they pay absolutely no heed to buying a selling cars?
(I'm a tax lawyer.)
Governments should reduce the number of unintentional loopholes but (a) it's far easier to pass new laws than amend old ones, (b) if you change a law that an existing big domestic firm or voting block is exploiting they will let you know at the polls; with a new law you can sell it as "balanced fiscal justice - righting a great wrong by making big foreign multinationals pay their fair share!"
I'm definitely not against tax reform, my big concern is the common approach of new taxes as political theater without any honest attempt at simplification, broad application or coordination with other jurisdictions. All this tax is doing is targeting a small, low-vote target that will figure out a complicated way to shift taxable revenue into a different jurisdiction, perpetuating the exact problem it supposedly addresses.
They are intentional. Source: tax lawyer friends.
The problem with that is that the other jurisdictions have no interest in closing tax loopholes. The irish bend over backwards to let Apples unique sheme qualify as double irish (their tax office had to issue several private rulings) and they had no interest in getting rid of the double irish itself either. For a tax haven making even a cent in taxes they wouldn't have otherwise gotten while costing a different country a million is a win.
A lot of people see that as a feature. "Competitive governance" may be the biggest reason the world works as well as it does.
1) Companies would not pay most of their taxes where they put the greatest strain in public infrastructure.
2) Moderate differences in VAT rates would create enormous price differnces, which would invite smuggling.
3) The incentive for rich people to move to low tax destinations would be even greater than it already is.
I won't deny that the solution has upsides as well though.
The issue is that when Google shows ads to someone in the UK to monetize a search service used by the UK person, Google uses almost no UK resources.
It appears to me that the only thing that has changed is that the US has left everyone else in the dust, which causes envy.
Why is that an argument against moving from corporation tax to VAT though? I don't think it would change much in terms of the UK's (in)ability to tax Google.
I don't know why people keep harping on this, it simply isn't true at all. If it were, all the rich people would be living in Somalia right now, and they aren't, they're living in high-tax, high-CoL areas.
Very few rich people live in a way that allows them to live anywhere on the planet. Most "rich" people in the US are still working, and have to live someplace that allows them to continue to work. Some millionaire running a business in Silicon Valley can't just relocate to rural Alabama and expect to continue that.
Nebraska isn't exactly third-world either.
Although I'd also like everyone to stop using the term "income tax" for this. It's a tax on corporate profits, and has nothing at all to do with personal income tax, a tax on wages.
and the issue isn’t evasion. it’s avoidance. which allowance for is intentional by governments for good and bad reasons.
Sovereign countries are free to set their tax rate to 0 in order to attract companies there.
As long as they are playing by the rules, no company has an obligation to try and guess what level of tax is fair for them to pay. Since they are taxed according to their interpretation of the situation (as represented in their account books) there isn't anything wrong with choosing an interpretation that is tax effective.
How do you tax a German company paying an Irish company to show ads in France?
In absence of a grand unified theory, tackle obvious concrete instances when they crop up.
If the different "simple" answers (which I am not sure exactly what that means) solve the problem, then I really do not care if there is some equivalence principle there; just pick one as long as it produces the concrete outcome that you want.
There are many simple answers to that question; who gets to decide which simple answer is the one enacted? Countries F, I, and U are likely to disagree on which simple answer is "best", which is why we rely on laws and courts to frame and adjudicate the issue.
So what you really ask is to get rid of the rule of law so you can target the bad guy du jour directly. Just remember that you may be "the bad guy" tomorrow.
The difficulty is to have a legal framework and not just some judge saying "I'll know it's porn when I see it".
This being said I am not a lawyer.
Then those companies should only sell products and services in those countries. Otherwise, something should be done about it. I'm not saying it's easy, but it can be improved.
Tax havens produce close to nothing, so they have very small exports. It's just a legal arrangement that has nothing to do with production.
What if that tax rate makes a business non-profitable in France but a money-making machine in Ireland?
Also, too much focus is centered around taxes when spurious regulations are generally more damning for a lot of companies. For example some friends of mine have attempted to start escape rooms, they have all abandoned their pursuits because here in Spain the legal framework is unclear. All escape rooms in this country are in a legal greyish area.
> What if that tax rate makes a business non-profitable in France but a money-making machine in Ireland?
I see your point, they are centred about maximizing profit. But, there are other goals as well. The goal of improving the taxation system is related to broad social issues like wealth redistribution. It has nothing to do with the only goal is to maximize short term profits for companies.
> Also, too much focus is centered around taxes when spurious regulations are generally more damning for a lot of companies. For example some friends of mine have attempted to start escape rooms, they have all abandoned their pursuits because here in Spain the legal framework is unclear. All escape rooms in this country are in a legal greyish area.
This is one of the many reasons regulations take a long time to be in place for new kinds of business:
I hope that your friends find a good way to start escape rooms in the end. If it is their passion they will succeed. Regulations may be slow, but regulations get set and then people can do business safely for everyone involved.
I’ve seen contractors with numbers in their paperwork that was obviously made up by putting a completely random number (they even admitted to that privately).
It’s important? No, is a risk that could destroy your bussiness? Certainly.
Suppose a guy from US purchases the service, shouldn't tax be paid there. Isn't that how its supposed to work? Taking only in terms of Giants.
Which country/countries should be able to tax the revenue?
The customer may need to pay sales tax on the purchase to Brazil, if Brazil has such a thing.
But I agree with your point - it does get quite complicated and bureaucratic.
You'd assume that, but you could also very well be wrong. Depending on tax treaties and the "effective place of management" principle, he could be liable for corporation tax in Spain or in both Spain and Ireland.
One reason why tax laws get very complicated very fast is because every country wants to tax everything it can which inevitably means that two different countries end up taxing the same thing. To avoid this, you get double taxation treaties and loopholes.
At least, this is the argument that the Dutch government uses to abandon as many taxes for companies as possible.
not a judgement call, just not sure how you frame the raison d'etre for something that oesn't embody life to begin with.
More broadly, society created the concept of the corporation and imbued it with valuable privileges such as limited liability and a potentially favorable tax regime. Some argue it would be morally reasonable to require it balance the interests of stakeholders.
For what it's worth it's pointless to complain about tax law complexity. Complexity increases with the amount of money you're trying to drag out of the economy. The more money you want the greater the temptation to create loopholes because they end up being worth more. Imagine a country where the tax rate is 100%. If you pass a law that taxes building cars at 90% you've effectively created an industry. Compare that with how much you'll be loved if the tax rate is 10% and you lower the tax on making cars to 9%. Still good but you'll only garner like not love.
Honestly this is why the details of tax law - how fair it is for example - only marginally interest me. The overall rate - and for that you might as well include borrowing, so it's easier to just ask - what percentage of GDP does the government spend are a lot more interesting to me.
Morally can be a different matter, though.
Countries that treat companies as if they a problem that need more tax (much of Western Europe) tend to have high unemployment and poorly performing economies where young people leave. Europe has the advantage that it got rich through its empires (and low taxes) and is now stagnating into poverty. Companies and people already pay a lot of tax compared to the rest of the world, Europeans should be trying to reduce this burden instead of figuring out how to tax more.
Maybe countries with high unemployment and poorly performing economies have a problem with companies paying too little taxes.
Another yardstick for comparing countries is how they treat and take care of the poor ones. High-tax countries often fare well in that and China, USA not so much.
My question was badly formulated. I meant to ask: why are we tolerating this situation?
Regardless of tax evasion / tax optimization or whatever is the wording, most people agree that these companies are not paying the amount of taxes they should. I get the why and how these companies are doing this. I just don't understand why we, as a society, accept that. Our society has never been so rich, yet we see decline in education, health, etc. I do think we should only have progress: more culture, better life, less work, etc.
They will say this because the news tells them this is true. But it seems far from obvious to me.
If a multinational sets up shop in France, then a whole pile of taxes do get paid: VAT is 20% of all sales. Then there is income tax / social security / etc. I don't know any French details, but I'm quite sure it's above 30% in total... all of which you should think of as being collected on the transaction that A pays Mr. B. If the company spends most of their revenue on salaries, then this already sounds like order of 50% of throughput goes to tax.
In addition to this, they may make some profit. And it seems pretty hard to know where the profit was made. How much is iOS worth? Or the Starbucks logo... quite a bit, your groggy airport customers know what they're getting, but there's no really obvious way to put a unique number on this. And thus it's honestly difficult to say where the profit was made.
Yet this is often the whole violent argument! Over maybe 20% of say 5% profit, 1% of sales... 1/50th of the taxes already collected above. If they wished to collect more, they could easily tweak those numbers. I'd go so far as to suggest that we should just give up, set the tax on corporate profits to zero globally... but at least they are generally moving down.
> Our society has never been so rich, yet we see decline in education, health, etc
But we collect more tax than ever. It it buys us worse healthcare, or education, than it did in the past, then the problem may lie elsewhere.
You have to remember that VAT, payroll, and income taxes roughly scale with revenue, but corporate taxes scale with profits.
Two things, mostly. The first is lack of financial transparency. The other is how corporate tax is levied.
With respect to transparency, there's no shortage of options to create structures in tax havens such that there's little if any paper trail that ties it to their owners or beneficiaries. And just in passing, the US and the UK are not void of problems here; on the contrary, they regularly appear on worst offenders lists:
The other issue is basically related to accounting and how corporate tax gets levied. If you're a multinational, it's possible to set up a subsidiary in a place with to no corporate tax and make your international profits all appear there instead of coming home where they get taxed. (This is the reason US businesses were so many billions abroad in the run up to Trump's tax cuts.) Related to this is the ability to move money out of countries that do tax, using questionable licensing fees and accounting tricks the like. Example:
Anyway, to fix this you basically need to get all countries together so there's more transparency, and dig into how corporate taxes get levied.
It’s obviously good to live a decent life and spend time with family, but at some point it cuts into your national productivity.
You have to remember Western Europe has developed economies. They aren't likely to grow at the rate Asian countries are as those economies have a lot of catching up to do.
Also European countries don't necessarily have the same priorities as the US for example. Most of us prefer decent workers rights and consumer protections over 1/2% on GDP.
Weird framing considering inviduals don’t care about the GDP. It would probably be better to say that people in the US tend to care about higher incomes vs state entitlements. This is evident in the fact that brining up tax cost per individual is an easy way to kill universal healthcare plans.
This is because they went from a system of extreme socialism, and moved towards capitalism.
They still might not be as capitalist as America is these days, but they are doing much better.
This might not be the best example, but take cars. A country like the US would build a interstate highway system, probably subsidize car manufacturing and go on to create a huge factor of progress for decades to come. You have successfully converted technological progress into a meaningful factor for society. While in a less developed country only the rich will have cars and roads will be broken. Of course these days that era is coming to an end.
The same is true for other things that are progressing. Yet, in few to no European countries would you expect that the fundamentals of the information age like education, health care, housing, infrastructure and work environment will get better and more accessible in the next ten years. At least not organically i.e. without a crash.
What you can say in most countries is that education is getting more competitive, health care more complex, housing less accessible, infrastructure more expensive and work environment less comfortable. This is people fighting each other trying to get whatever there is, not somewhere where people are preparing for the future as societies.
So the only conclusion I can make, while it certainly might not be the correct one, is that Europe is losing. Because if Europe was winning we would be investing in the future and getting it better. Unless we are just hopelessly arrogant, which doesn't bode well either.
I do expect that. Of course there are some problems like an ageing population and the fiscal irresponsibility of some countries, but those problems aren't unique to Europe.
To take your example of the highway system there is huge development going on across Europe...
Your conclusion is too gloomy, I know it's the standard message spouted by the media but I really don't think it's true.
Though the real lack of conversion isn't in one specific thing, it is that Europe (and probably much of the world for that matter) can't offer people good opportunities. I hope I am too gloomy. It is just a hard argument to make that in terms of life prospects it wasn't better to be young ten years ago than it is today in many places.
If people believe that someone else won't come and eat their lunch over that I think they are wrong. As I alluded to in another comment, Europe probably lost at least half of the tech industry it could have had if it wasn't for capital going into things like rents.
I people were expecting things to get better they wouldn't essentially hold back growth. We would see new rapid affordable development because not doing that would be losing out. But I don't see countries being concerned about that. They are perfectly happy taking decades building things and going over budget. They let mortgages double or triple, so everyone who came before win at the expense of those coming after. They sell companies with valuable technology are to foreign interests.
So I don't really understand how someone e.g. would end up working less when they have twice the mortgage than their parents and the companies they work for are owned foreign investors who wouldn't mind moving activities abroad at any point.
And to that point almost all major successful companies are vertically integrating today, because with information being accessible there isn't much reason not to control your own activities. Yet, most European countries are doing the opposite. Outsourcing their main activities to complex constellations.
There is not a single European internet company in the top 15. I think part of the reason for this is cultural (aversion to risk), part of it is due to the environment (relatively low salaries for IT, limited access to venture capital) and a part of it is due to bad policies being enacted by the EU - most notably the EU VAT on digital services, the GDPR and now the Copyright directive.
When it comes to digital services, Europe is seen as a place to sell things, not make them. This state of affairs has left Germany and France bitter over the success of American tech giants, particularly as they put ever increasing pressure on local businesses. So the EU reacted in pretty much the only way it knows how - by introducing legislation against said businesses. This had the unintentional consequence of targeting European tech startups as well, making Europe an even worse place to start a new business than it already was. Instead of a single digital market, you have 28 different national markets, each with their own rules and regulation, only ~11 of which are actually interesting due to their size and purchasing power.
At the same time, austerity policies enacted after the 2008 recession have resulted in cuts in the scope and quality of public services. Prices for most goods and services are rather high. The middle and lower classes are particularly hard hit, leaving many to wonder whether globalization is worth it.
These rules came into effect the last year or so, the "battle" for the tech industry was fought ten to twenty years ago. US companies all have had a huge advantage "only" being under the (at the time very criticized) DMCA while European companies had to abide by local laws, often in multiple jurisdictions. Large US companies also avoided paying the same taxes European companies had to, amassing large reserves for acquisitions of any successful European companies.
That Europe can't produce technology companies is false, at least to the same extent that applies to the US. They just either got outmaneuvered by large US entities, got acquired or ended up limited in their growth by things like housing. If you look at e.g. Sweden you have MySQL (eventually acquired by Oracle), Skype (eventually acquired by Microsoft), Minecraft (acquired by Microsoft), Spotify (public with many offices). Any of these companies could have been really big domestically, if it wasn't for it being hard to grow and easy to get bought.
These rules, whether you agree with them or not, should have been there 20 years ago so everyone had to play by the same rules.
> US companies all have had a huge advantage "only" being under the (at the time very criticized) DMCA while European companies had to abide by local laws, often in multiple jurisdictions.
So we agree that Europe, in general, is a worse startup environment compared to the USA?
Also, I think it's pretty disingenuous to claim that large companies like Apple or Microsoft got big because they didn't pay taxes in Europe.
> Any of these companies could have been really big domestically, if it wasn't for it being hard to grow and easy to get bought.
They were big domestically. They were even significant internationally. Just not nearly enough to match US companies.
I didn't, that is another story. I am saying that they had an easier time than they should have competing with and acquiring any European competition by effectively having a ~30% advantage and discount.
> They were big domestically. They were even significant internationally. Just not nearly enough to match US companies.
They all except Spotify got acquired before they could potentially become big companies. If you want to have large companies with thousands of employees in Europe they have to survive as domestic companies. Spotify had potential to become one, but at that point the Stockholm housing market was already in a bubble. https://www.ft.com/content/bdf04bc2-6a0f-11e6-a0b1-d87a9fea0...
And while you can point to specific examples, like startups, that are successful in Europe it is mostly an illustration of how much we are leaving on the table.
No, it's because of the good laws. Taxation is theft.
And it's not called tax evasion but tax planning. No one is obliged to pay more than the minimum.
No it isn't. Property rights are determined by the state, hence taxation by the state cannot be considered theft.
As a citizen born in a country, you never enter into an agreement that the government should be able to take a cut of all of your transactions, but that’s what happens and refusal to partake results in violence (an arrest and time in prison).
It’s no different than the local mob going around giving beatdowns to get protection money from businesses. The people that voted for the government sure think it’s different, but it’s not much different to the people who didn’t.
There is a reason they had to put the ability to tax right in the constitution. And there is also a reason the US is no longer part of Britain.
Market extremism is a funny thought experiment, but ultimately absurd.
If I rent out an apartment in Paris, does it really matter if I collect the money as Pierre Francois, a french resident, or Pierre Francois LLC, a Delaware corporation? It mostly doesn't - I'm bound by French rent law, and pay french taxes related to rent either way (Income is more complicated).
Such a law is very simple: "You pay 5% of ad/media sales for the privilege to send data to french IPs", residence of person/corporation collecting the money not important.
If you, as a tax professional, find a taxation loophole that allows big businesses to lower their taxes - you get a $$$ compensation and the loophole gets publicized and "officially" patched.
We need market de-regulation. End of government-sponsored monopolies. Accountability on budget spending. Enablement of profit-oriented policies that generate surpluses. Enabling equal opportunities to people of all social classes, and performance reviews to keep everybody accountable.
Then, and only then, equal and fair taxation that promotes social wellness and stability.
Government-sponsored (oli)monopolies - This is sometimes a policy tool to get the country's key strategic interest moving. Sometimes some goods & services are obscenely expensive without Gov support directly or indirectly (that includes g&s you take for granted). In another case, if you don't sponsor, but other countries do, the other countries will become more competitive in the global market, impacting your countries long-term economic success.
Equal opportunity for all classes - At what point would you create equal opportunity? Is it providing basic, quality educational institutions? How do you account for parents willing to pay for extracurriculars, tutor and any new technologies that come along? Will you forbid higher income parents to spend their hard earned money to get their kids ahead in the name of equality?
Accountability on budget spending - Most advanced democracies allow you to review the budget of your city, state, federal and even get involved in the process (via elections, open forum,etc). It is mostly someone's prerogative to get engaged or not. Also, since governments are usually required to help create jobs, etc through different forms of stimulus, you will see money being spent in different ways with different levels of return.
Performance review - Govs and private institutions have performance review, even politicians have it via re-election. How would you optimize it? How would you fix its issues to ensure people don't exploit it? What makes your solution function better than the ones already tried?
As I said, although I agree that we should strive to be better at some, if not all the points you have listed, I think we need to move past throwing the words out there, and become more engaged in our communities. This will help everyone to better understand how the world around them actually works and how to improve it
Here is what I have learnt about Eurocrats: a) they don't understand economics b) they definitely don't understand unintended consequences c) I am willing to bet not one of them has ever bootstrapped a successful venture and finally d) there is a good reason why no country in Europe is able to create its own Silicon Valley - they are just too busy creating more busywork for themselves.
And to the well-intentioned person who comes along and says "Well, if you are clearly not the target of this, then why do you even worry?" I have a question - if it turns out that you are wrong, are you going to pay the taxes on my behalf? Actually, this is literally what I asked a friend of mine from Europe who expressed that sentiment. Not surprisingly, he wasn't really willing to put his money where his mouth was.
I am frankly astonished by all the people from EU who come in and comment things like "Oh, you don't really know how European laws actually work. If you did, then you wouldn't be worried". Do you not have nothing better to do in life than trying to understand the nuances between the "letter of the law" and the "spirit of the law" in every country around the world?
Oh, and by the way - HN will be very interested to know this: right now, there is a company called Paddle which is a Stripe competitor - and this one law (EU VAT MOSS) seems to have single handedly revived this company. It was (and apparently still is) a painful software to use, and Stripe is faaar superior in terms of API and integrations , but Paddle has now become the defacto choice  for everyone who actually cares about the EU VAT MOSS because Paddle handles all the annoying crap on your behalf. My guess is, Stripe - which is too Silicon Valley focused - is going to be blindsided by EU VAT MOSS, hand over a lot of their next generation of customers to Paddle, and won't even know what hit them in a few years if they don't pay careful attention to what is going on here.
> The Mini One-Stop-Shop (MOSS Scheme) enables you to supply digital services within the EU without the need to register in each EU country you supply to. It can be used by both EU-based businesses and non-EU businesses.
Honestly from reading the quick description of the law, if I was a business I would definitely try to take advantage of the law instead of registering in different countries for the single purposes of paying VAT.
I get that some payment actors allow you to do that easily, while others don’t (yet), and yes this would be a criterion in choosing a payment gateway. But apart from that, I don’t really see how this law is evil, or an illustration that Eurocrats don’t know anything about business (there are plenty of other examples, but this isn’t one). Can you explain in which way the MOSS is “horrible”?
I also need to disagree with the parent poster - the rules for what is and is not a digital service are relatively clear - but not clear enough that your local tax officials understand it, apparently. I've had situation where my local tax agency incorrectly interpreted that my services (freelance software development) could be construed as being digital services and thus could fall under this scheme.
Due to this and various other reasons, I am considering emigrating from Europe - some back of the napkin calculations show that I could live a comfortable middle to upper middle class lifestyle in other parts of the world just on the tax difference.
No, that limit was passed in 2017 and took effect for digital services in January 2019:
I.e. if your cross-border EU sales of digital services are less than 10 000 €, you can consider the sales domestic.
It's not much, but still better than nothing.
> MOSS means you don't need to register with tax authorities in every EU country you sell to, instead, you can register for VAT, file VAT returns and make payments in one single place.
Sounds pretty great to me.
I see. Do you mind spending another 5 and tell the answer to this question: suppose someone sells online courses. And they don't themselves reside in the EU, but the have customers who do. Should they register for VAT?
WTF? How the hell would anyone know that? What if you never sell to the UK, but someone goes on a run because some product randomly becomes popular. It is such an unnecessary minefield.