As usual, highly inefficient governments trying to expand into every wallet in their sight, in order to keep funding their inefficiency with no accountability.
We need market de-regulation. End of government-sponsored monopolies. Accountability on budget spending. Enablement of profit-oriented policies that generate surpluses. Equal and fair taxation. Enabling equal opportunities to people of all social classes, and performance reviews to keep everybody accountable.
Can anyone comment on how this interacts with the idea of the single market? Why can Google Ireland Ltd. be charged a special tax for doing business in France?
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.)
On reflection, maybe I can answer my own question (but tell me if I'm wrong):
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?
There is already a difference in tax (VAT) rates based on the consumer's location. This move would be distinct from import duties or product standards in that it's not really creating a clear barrier to sales across the single market.
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.
Wouldn’t it be more accurate to say that it’s correcting an imbalance?
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?
IIRC, under EU VAT regs Google Ireland will charge and remit French VAT rates to the French treasury for digital content sold to consumers in France, so there's no imbalance there.
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 problem is not that Ireland is a country using its taxes more efficiently than another. The problem is that one country can offer a much lower rate that is only viable for them if companies make their entire EU business as if it was happening in this country.
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.
In this case, this will be the race to the bottom and smallest countries will be able to charge 0% tax just for the sake of office space rented since their domestic market is small enough to not bring much of income tax (Luxembourg for example).
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.
There would be no race to the bottom if there was a real, tangible benefit to being established in a high tax country - ie, better public services, a more educated workforce, more business friendly environment, etc. As it is right now, very few countries justify their tax rates and that prompts people and businesses to do the rational thing and go where they pay less for the same thing.
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.
I think you are completely missing what's going on...
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.
A company does not have to justify its business practices to anyone but its shareholders. A company should focus on serving its shareholders, not politicians.
> 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.
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.
The idea is to support small companies. I don't see how this would punish small companies at all. Those companies, due to the inability to avoid/reclaim taxes pay more than 10% now (even with an accountant). I know a lot of companies (a few people large) to pay that much.
> Those companies, due to the inability to avoid/reclaim taxes pay more than 10% now (even with an accountant). I know a lot of companies (a few people large) to pay that much.
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%.
Actually, it is. The 1.5% tax rates will bring more than the current system. This is not something made up. This was well researched and whole armies of economists are behind it. More and more countries are considering it.
Now megacorps don't pay taxes at all, so what's better?
> The 1.5% tax rates will bring more than the current system.
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 best 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 be a vertically integrated conglomerate).
That's interesting. Are there large companies who would pay this 1.5%, who do not at present pay much Polish VAT? Or employ many people?
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.
Companies like Google, Facebook etc. don't pay taxes in Poland by claiming expenses in Ireland/Holland. Thus they are "at loss" in Poland. The revenue tax would allow no tax avoidance due to that.
No tax avoidance. Companies pay millions in taxes just to get them back in refunds. While this is not bad, it starts to look bad when they don't generate fake expenses locally, but they do that in a different country. It means that the money gets neither to the government, nor the local market. So the revenue tax guarantees, that at least government can get that money.
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".
If a small country can afford a 0% tax, why shouldn’t they avail themselves to that competitive advantage? Unified tax rates amount to a tariff on more fiscally competitive countries.
They would have the right to do so. And other country might have the right to place a 150% tariff on this country goods. Or place those on the tax haven list. Other countries cannot stop them from applying a zero tax. But those same countries that provide all the markets, infrastructure, schools, manufacturing and support all the population to make it work can also choose not to trade with those.
It would be fair, but the EU prohibits it. So the company creates fake expenses in tax-flexible countries to avoid paying taxes in the country, where they generate revenue. That's the issue.
The very post you replied to answers your question: You get a race to the bottom. Competition pushes taxes lower than they would be if the democratic government of each country could set them freely as they believe is fair.
> On the other hand, the really quite high threshold might well be subject to complaints on the basis of distorting the single market.
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).
The issue is that large multi national corporations do advanced tax planning so they pay little or no tax. Usually they move profit vs losses around different countries to zero out the tax plus tax loop holes.
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.
A key feature in many obfuscated corporate structures designed to avoid tax is differing corporate structure declarations in different tax juristictions.
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.
As others have said, it isn't evasion but avoidance. The issue is that there a lot of ways to put the money on the books wherever you want it. Let's say you want to sell mobile phones. You could create one company in France that builds, buys and sells phones. In this case it becomes pretty clear it is a French company and all the money will be taxed in France. But let's say you have that same company and split it up into three companies. You put your corporate company A in Ireland. That company A owns a company B in India that makes the phones. The corporate company A also owns a company C in France that only sells phones. Company A can decide which company is profitable by deciding who much B charges C for the phones they make. Company A can also charge B and C consulting fees for helping to run their businesses. Basically A can decide which of the three companies is profitable and make the others even "lose" money as far as the accounting goes. It is now very unclear if this is a French company and at who's tax laws the money should be assessed. Obviously, the company A can make this much more complicated. It is also really hard to know which of these organizational things are about tax avoidance and what is about efficiency of manufacturing and running a business.
I was listening to Presidential candidate Andrew Yang in his podcast with Joe Rogan. His plans, since there's a lot of avoidance, is to attempt a different route called a "value added" tax where there's a tax for trucking mileage and online transactions. He mentioned other countries to both of these, but don't remember which he mentioned off the top of my head.
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. https://youtu.be/cTsEzmFamZ8?t=843
A VAT tax makes a lot of sense. It would reduce the incentive for large market quasi-monopoly seeking companies to optimize for no profits to avoid taxes. The current dynamic is- why pay taxes when you can spend it to expand your market share?
Except Digital sales take place in no-man's land, and are hard to tax. A federal tax hits Amazon, but would it hit Alibaba? The specifics are what make these ideas so difficult.
VAT in European countries is often the highest or the second highest revenue stream. The downside is that it's usually a flat tax and it disproportionately affects poor people.
VAT taxes are extraordinarily regressive. Next to lowering taxes on the rich, it's among the worst possible options.
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.
Suddenly it strikes me that one fix might be eliminating international subsidiaries. It's possible it would be hard to enforce in practice, but the crux of the problem is the absence of a competitive relationship & autonomy between these supposedly independent companies.
Sounds very reasonable. I'm sure there's a catch, but I don't see where it is.
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.
Not an economist so I don't know the official reason. But a corporation can theoretically accumulate profits indefinitely without making a payout, while governments need stable yearly revenue.
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.
There's many valid reasons for accumulating profits, such as planning buyouts or expansions. That being said, sometimes it can be done for reasons such as waiting for a preferable tax regime. Due to that, some countries have a separate accumulated earnings tax that is similar to individual wealth taxes to disincentivize accumulating without a business purpose.
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
That incentivizes the creation of vertically-integrated conglomerates over small companies, in order to reduce the number of transactions; is that what you want to foster?
You need to take into account all the simplification it would imply in tax collection / paperwork / regulations etc. The cost of our current ways of taxing wealth and profits is huge
The trouble with that is it will penalise low margin businesses, Apple could easily afford it on their 30% margin but a budget PC maker with a 3% margin would struggle.
Small businesses are already penalized by our current laws and ways of taxing profits. I believe the alternative I am proposing (that will never come to reality) is easier for everyone
Not like GST : it would be on all transactions in the legal currency, including B2B. There wouldn't be an artificial difference between "businesses" and "customers"
Not like VAT : VAT is way more complex and expenses are deducted at each step
It would kill any business with a long supply chain, the only manufacturers left would be the ones where ore arrives at one end of the factory and finished goods come out of the other end.
It would be cheaper for everyone because of tax simplifications. Current system is already unfair to a lot of group of people, including small businesses. And large company also have money transfers so I am not sure to understand the example unless we go into the specifics a little bit more
> one fix might be eliminating international subsidiaries
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.
It's tax avoidance because we call it that, so why don't we start by not saying tax avoidance anymore and call it tax evasion like it literally is when a company invests massively in accounting to abscond with their taxes.
There's a big difference between the two. Tax evasion is breaking the law to pay less tax. Tax avoidance is working within the confines of the law to pay less tax.
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.
The difference between avoidance and evasion is only relevant if you have tax law interpreted to the letter only.
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?
> The things you say should "simply be outlawed" -- how? How are you going to determine which internal loan is "expensive" versus "very expensive"? 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”.
Summary - 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.
My parent post was a description of how we already have “arbitrary judgement” - so my previous suggestions to e.g tax income based on share of revenue in a jurisdiction would be arbitrary but no more arbitrary than what we already have.
The usual solution is a "General anti-avoidance rule" (GAAR). This doesn't get into the intent of the tax law, only into the intent of the business action. If there would be a simpler, more natural, and otherwise cheaper way to do it, but it's been done a particular way to avoid tax, then it's unlawful.
I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today, or that either will interpret the laws the same way they were intended, or that the group of people that wrote the laws all had the same intent.
Crimes much more serious than tax evasion have grey areas specifically to create room for judicial discretion. Words like “with malice aforethought” or “forcibly” are used in statutes because the law can’t preconceive of every possible way to commit a murder or rape.
> I disagree. Tax laws should be simple and explicit. The people in charge change over time. I don't trust that the people later will interpret the laws the same way as the people today [...]
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.
It's unreasonable to expect judges to divine lawmakers' intent on subtle issues of tax policy. If lawmakers want a tax to work a certain way then they need to just write that down so that it's clear to everyone.
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.
If it is that simple, you can add a clause to the law that makes selling second hand cars a requirement.
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?
But what if the people 'engaged' in the selling of the cars are only tenuously engaged in the activity and are simply trying to game the law and rack up paper losses?
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?
Enforcement of tax law is based on the spirit of the law, not just the text. Things which are legal for a few years could become illegal the best without any change in the tax laws themselves, though this is only a real risk if you structure your activities within the letter of the law but not the intent of the law.
tax evasion is illegal; tax minimization is lowering your tax burden using existing laws and is not illegal.
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.
> without any honest attempt at simplification, broad application or coordination with other jurisdictions.
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.
I could live in a world with a little less tax avoidance by the rich. So in this case I don't see the upside to a country violating long standing trade deals to make a little more on the side.
You can see the impact of that crackdown in their tax receipts and tax to GDP ratio. Government revenue from Double Irish tax arrangements was fully 5% of their GDP.
Banning tax evasion is easy. Just get rid of corporate income taxes and replace it with a sales tax. It's not like corporations pay taxes anyways; their customers do as tax is built into the cost of products.
Companies don’t put strain in public infrastructure. They’re legal abstractions. People and their activities (employees, shipping, factories) put strain on the public infrastructure, and they can be taxed (income, real estate, and pollution taxes) at that point.
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.
Exactly. What a lot of governments seem to want is some form of tax on foreign companies for the privilege of gaining access to their local population/market. For physical goods we call that an import duty.
They do indeed want that, but what is it that has changed recently that makes this so much more urgent? People claim that digitisation has changed the equation, but I don't understand why. Google is for the most part a regular US exporter.
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.
What's changed is that the "foreign competition" are winning to the point that "local businesses" are closing. Exactly the same thing that drives calls for protectionism in physical goods industries.
Governments need more tax revenue. Almost every country with social programs is on a timer to figure out ways to raise tax revenue to pay for those programs. Almost every developed country has a fiscal gap.
I get why everyone (me included) wants money. But if every government comes up with its own inconsistent ad hoc scheme to tax foreign corporations then they will unleash the mother of all trade wars.
>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.
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.
Yup. Tax things which really exist within a country, not accounting fictions (like precisely which arm of a multinational made how much profit).
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.
Not really, people also pay tax on profit not revenue. Expenses related to business activity can generally be deducted in most places no matter whether you are incorporated or not. It's the basis on which business expenses you claim back from your employer are not taxed and the way unincorporated sole traders and bare partnerships are usually taxed. The rules on what types of expenses are tax deductible are pretty similar. If you incur business expenses which are not repaid by your employer you can usually reclaim tax on them.
That wouldn't prevent some of the shenanigans described above. For example, giving my IP away for cheap to a subsidiary in a low tax jurisdiction that actually performs the sale.
It's because for an international company there is really no clear cut way to say what is tax evasion and what is not. If your company is incorporated in France, has offices in Ireland and serves customers all over the world, how do you calculate where to pay what?
Sovereign countries are free to set their tax rate to 0 in order to attract companies there.
There is no science to what the 'correct' level of tax is, and assigning which part of a multinational corporation is responsible for what dollar of profit is genuinely complicated.
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.
Oh, I am not implying the "rules" are correct by any means either. Yes, I am saying that just because the rules/laws permit a thing, doesn't mean it isn't broken. The whole point of courts is to decide what broken laws mean, governments to fix holes in the laws, and people to decide who the government is.
much like the trolley problem and driverless cars, you can easily get lost in the weeds in a legitimate, complex theoretical question, when for a concrete problem a simple answer can easily be obtained. In fact, the theoretical question obscures or acts as cover for the concrete case. For driverless cars, you just apply the brakes. For google, do you outlaw "The double Irish with a Dutch sandwich"
sure, if you are trying to solve the fully parametric abstract equation over all possible inputs, which is precisely what I was saying to try to avoid.
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.
The problem can be roughly stated as: For a company registered in country I, selling product/service in country F, with inputs licensed from and/or created in countries N, U, B, G, A, and C, and costs incurred in a potentially different set of countries, what's the amount of tax due to each country represented in the graph?
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.
I'm merely stating why "make avoiding taxes illegal" is not a clear cut thing. Apple got to pay over 11 billion of back taxes to Ireland and another 500 million to France for example, so if there is clear fraud it's easy.
The difficulty is to have a legal framework and not just some judge saying "I'll know it's porn when I see it".
>Sovereign countries are free to set their tax rate to 0 in order to attract companies there.
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.
Doing business with tax havens should be illegal. A tax Haven creates an agreement between companies and a country to steal another country tax reveneu.
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.
You are assuming that somehow that tax revenue is theirs in the first place.
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.
> You are assuming that somehow that tax revenue is theirs in the first place. The big corporations that evade taxes are using the economic power, infrastructure and legal systems of countries without contributing to any of them. That is money that the corporations owe to the citizens of those countries.
> 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.
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.
Escape rooms and haunted houses are a nightmare in local fire code in the states as well. Ends up putting a lot of smaller productions out of business.
Tax havens are often highly desirable tourist destinations. Making it illegal to do business with them would anger a lot of tourists and is, frankly, a violation of freedom of movement.
Note that there already is a tax that people are paying 'where the customers are'. It's the VAT, which is one of the biggest sources of income for a state.
To complicate the situation, a French citizen, living in Spain, the sole owner of a company incorporated in Ireland, buys software from an American company to run for a customer in Brazil.
Which country/countries should be able to tax the revenue?
The company would pay corporation tax in Ireland. The French citizen, if resident in Spain, would probably pay taxes in Spain (generally countries tax residents).
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.
> The company would pay corporation tax in Ireland.
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.
It will: the process of paying employees is heavily taxed. Who writes the check and what the nominal salary is doesn't matter too much... between the cost to the company, and the employee getting to spend the money, the government gets what 30-40%? That's a lot. And it's hard to avoid, you can't move a hundred engineers to the Bahamas at the stroke of a pen.
It gets really hairy in cases like Google and Facebook, where the guy paying the service might be a US agency paying to show ads to YouTube/FB users in Europe.
My guess: Big corporations often have more potential to outsource, and are better known, and have a stronger PR and legal department. These traits give them a much better negotiation position (don't remember that governments profit from taxes, so it's a bit of a demand and supply thing: If taxes are high in one country, a big company will threaten to move to another, which costs the country money in the end).
At least, this is the argument that the Dutch government uses to abandon as many taxes for companies as possible.
Political economy and a race to the bottom. Though take hope, there are many people working on this and the silver lining of tech's centralization is that it will be easy to chase them down once the right laws are in place.
First, it is not tax evasion if the law is being followed. The real problem is that tax laws have these various loopholes, and the question is why the law is written that way. Almost always it is because wealthy people benefit from the loopholes and lobby for politicians to either keep them in place or replace them with new loopholes (which is the likely outcome from this French tax). When the tax code is complicated enough, as it will inevitably become over time, you wind up with a situation where accountants find creative ways to combine different aspects of the tax code to minimize a company or individual's tax bill.
Evasion is a bug in the tax code. Avoidance is a feature. Laws are written to create the possibility of avoidance - e.g. we add a 20% tax on cigarettes. We create a 20% tax credit on solar panels. We don't tax interest gains off of savings accounts.
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.
Why moral imperative? Perhaps you mean ethical or legal, but is not even legally required, so far as I know, that a corporation must maximize return to investors.
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.
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.
> most people agree that these companies are not paying the amount of taxes they should
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.
Yeah, I find that the tax avoidance issue is overblown. The numbers look large because they have collected over several years, but in the grand scheme of things they're a cup in the bucket compared to VAT, payroll and income taxes.
You have to remember that VAT, payroll, and income taxes roughly scale with revenue, but corporate taxes scale with profits.
That is a great philosophical question. My banal answer: entertainment is also better than it ever has been, and the messes of people are this more numb and manipulable than they ever have been.
The point isn't tax evasion, it's France wanting more tax revenue without pissing off the public. Remember that the yellow vests protest started because of a tax increase on the general public.
You make it sound as if taxation is a good thing. In much of the world capitalism, retained profits and growing the economy is used to make people wealthier. The countries with fastest growth and highest employment, healthiest companies tend to have lower tax rates (China, USA).
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.
> 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.
Maybe countries with high unemployment and poorly performing economies have a problem with companies paying too little taxes.
The countries with fastest growth and highest employment, healthiest companies tend to have lower tax rates (China, USA).
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.
Anything taxed has to have an asset value determined for it, and reliably recorded. This is extremely complicated to enforce on almost anything if you sit down and really think about how - if it were the only thing you had of value to offer - you might be able to hide it's true value.
The problem is that European politicians and their sympathizers have gone to great lengths to make you think it is tax evasion that they are policing. Tax evasion is illegal, these companies read the rules and follow them, but in the EU they are still in jeopardy in the courts, because the courts are arbitrary.
> Couldn't we just ban tax evasion? What makes it so hard? (honest question)
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:
Europe is losing ~globalization and we are fighting over the scraps. Which European country do you think will be overall obviously better in ten years? And not in the sense that "everything gets better", but in the sense of having a high rate of success in converting progress to prosperity. I don't know of any.
From my travels it sounds like (some) Europeans don’t work that much compared to their American or Asian counterparts. Like, French citizens gets way more vacation than anyone I know.
It’s obviously good to live a decent life and spend time with family, but at some point it cuts into your national productivity.
I don't generally think it is that big a concern. You are unlikely to outwork people, especially with something like 20%. Or more specifically there are always people with less to lose than you do. It isn't something that European countries can compete by, and especially not smaller countries. I think greater concerns are systematic defect. But there is no meaning to have a lack of education, apartments or other things that would mean good conditions for being productive. Those are the things you can't afford as a smaller country that wants to be competitive.
The Eastern European countries have been growing consistently for years. If you only look at economics countries like Poland have been doing very well.
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.
>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.
I am not so much concerned about growth as such, but about European countries inability to convert progress into prosperity.
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.
>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.
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.[1]..[8]
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.
The example of the highway system was more for its time. Europe did, and has, just as the US built a lot of infrastructure over the years. But it is still lackluster in many places.
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.
As a European, I feel like the EU, in general, is on the losing side of globalization.
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.
> [...] 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.
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.
The VAT directive on digital goods most certainly did not come into effect in the last year or so.
> 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.
> 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.
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...
Essentially competitiveness. Countries that are, or at least aspires to be, competitive would be restricting foreign companies and invest in infrastructure. While Europe is doing the opposite. We are selling our companies and restricting the building of infrastructure.
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.
That’s not really a valid argument against “taxation is 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.
It's easy to establish the duty to pay your taxes even using "freedom of contract". By stepping foot on a public road, you accepted the terms and conditions.
Market extremism is a funny thought experiment, but ultimately absurd.
Money collected for services rendered through a French IP. That is, on ads shown to French viewers, on GSuite accounts paid while connected to a French IP address, etc.
The money is collected by Google Ireland. So they're going to charge Google Ireland? It's probably safe to assume they're not charging Google LLC in Delaware.
How? Based on VAT? I can think of multiple approaches, but each of them is convoluted or deviating from existing norms in its own way. Every time there's an announcement like this, it's often surprisingly low on actual details.
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.
This reminds me of a horrible tax I came to know of recently - something called the EU VAT MOSS on digital goods. Apparently, it is supposed to target giants like Amazon who route money via multiple countries to evade taxes. Not surprisingly, this ends up affecting the smallest players most drastically. Worst, the glib language used to describe who should pay the tax is utterly confusing. As always, this means the actual target company of this tax chalks it down as yet another thing they need to remember (amongst a million other things), while the tiniest players who are starting out and who don't reside in the EU will have to worry and stress endlessly about the stupidity of dealing with something like this.
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 [1], but Paddle has now become the defacto choice [2] 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 can sell services domestically up to a limit of about 40,000 euros before I need to register and account for VAT. If I make even a single EU sale, I must immediately register for VAT and pay tax on that sale, either through MOSS or directly to the country my customer is in. The EU is now "generously" considering introducing a limit of 10,000 euros before you need to register for VAT.
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.
Alright, thank you. Now, if I were to earn, say a total of $1000 [please feel free to substitute this with a more trivial number, however you may define trivial] for the whole year on online courses sold to EU residents (considering its a side gig, not too shabby), should I still register?
> 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.
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?
What do you mean "should they register for VAT"? You should be registering for VAT in your home country anyways. Or are you talking about additionally registering for VAT MOSS? The answer is no you don't have to, it's just convenient because it's less admin (as otherwise you should be registering for VAT in each EU country that you have customers). I knew all that from the previous 5 minutes I spent on it.
All this stuff is super confusing. https://www.austrade.gov.au/contact/faqs/i-want-to-export-my... says you need to register if: > your VAT taxable turnover is more than £85,000 (the 'threshold') in a 12 month period > you expect to go over the threshold in a single 30 day period
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.
The bullet point right below the 2 you quoted literally answers you question. "If neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (Same with EU)". Alternatively, don't do business in a country you consider to complex to deal with.
Might anyone have insights on why they're stopping at 5%?
If the idea is to tax the internet giants on the business they do in France, why not seek to tax them at the usual corporate tax rate? The internet giants will, I presume, fight it either way, and it's not like a tax is going to stop them from serving French customers.
Everyone pays VAT but if you’re a company you get reimbursed (by having your accountant compute all paid VAT and asking the state for a refund IIUC). VAT is only supposed to apply to the last transaction with the consumer, hence the “value added” in the tax ;)
Selling fake goods between companies and applying for the VAT refund for all the fake transactions is known as a VAT carrousel.
Yes. In the end the end customer pays the whole tax. But everyone along the chain has to collect its share for the taxman. In this way there is no need to check if the sale is or not subject to the tax. Everyone pays, always. It would be a simple system if it wasn’t for all the exceptions, special situations and opportunities for fraud.
In France, taxes account for an ever increasing proportion of a stagnant GDP. Nobody stops to ask if a "Digital Tax" makes any sense: are they saying that digital properties make use of some public resource without taxation, or is this just basically a tariff?
Why wont government taxation agencies have tax bounty programs?
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.
I don’t think knowledge of the loopholes is the issue. It’s reasonable to determine what loopholes were used after the fact. The problem is actually closing them and the political fallout involved.
The government needs funding to operate, efficiently or ineffectively but that's the voters problem.
They tax individual and corporate entities.
Companies gets cute and exploit loopholes with dozens of companies and locations to avoid paying the normal tax rate.
So the state strikes back and imposes a 5% (sorta sales) tax that cannot be circumvented. No big deal, other than for Google, FB etc companies that choose to do business in France.
I'm sure they can still keep their quintuple sandwich tax schemes
why are corporations such parasites? benefiting from the citizens in a country like France that are supported by its social services and infrastructure like roads, healthcare, a justice system that prevents the corporation's property from being stolen, but not contributing their fair share of the tax back and even arrogantly denying that they are benefiting from the infrastructure that they are taking advantage of for free?
you do know that the citizens of said country pay tax for that infrastructure right? failing governments should stop using big companies as scapegoats. the bits and bytes used by FB and other big companies aren't degrading the fibre optics like a highway...
what I find funny is that if politicians wanted to close these tax loopholes, they could, I think they'd rather keep them open for them and their friends to use. The optics are better if they point the finger at something foreign and say 'oooh they are the bad ones', even though technically they are not breaking any laws.
I say this not as a fan of Facebook or Google. But you need to be realistic about government's always wanting more money.
A corporation is a person, but it's a legal fiction. The corporation is simply a gathering of non fictitious people who come together to collaborate and earn revenue as a collective. Each of those people pays taxes from their salaries like anyone else - they pay their fair share.
So what is a tax levied on a corporation? It's simply an additional tax levied on the human people who make up the corporation. They're already paying their share, now they should be paying more?
If you're just a lowly employee with no control or insight into a corporation's finances, you might think it doesn't matter to you. Wrong. You're part of the corporation too. Money the government is taking out of the corporation is money that could potentially be added to your paycheck if the corporation prospers and you play your role.
> Money the government is taking out of the corporation is money that could potentially be added to your paycheck if the corporation prospers and you play your role.
And ultimately be taxed _anyway_, as the country needs a certain revenue. Taking a percentage out of profits that _might_ be passed down to employees, rather than from people where it definitely has, seems to make sense (especially if those profits are moving out of country so aren't providing any local benefit anyway).
Depends on the tax code. In Australia, corporate taxes are passed down as a deduction to real humans. So if I get a fully franked dividend (fully franked means the company paid the 30% company tax) of $70, I also get a tax credit for $30. If my marginal rate is > 30%, I pay the difference (e.g. 50% means I owe $20) but if it is lower I get a refund - the marginal rate is 19% up to $37K, so those people would get a refund of $11.
This seems to me a sensible law, as doesn't double dip, and foreign owners don't get the credit, so the government does get a smidge more revenue, while not F$%^ing over their citizens.
Governments and corporations are very different. A corporation needs to generate profit. If they don't profit, their shareholders don't get paid! If they continually don't profit, they go out of business and lose the investments they put into the corporation.
Government has no obligation to profit. Quite the opposite. Government enterprises simply spend (other people's) money. If government worked on a profit motive like corporations, everybody would love governments and there would be no complaints. Imagine that instead of paying taxes, you got paid a bonus when your country prospers?
You're grasping onto ideological straws. Both governments and corporations have to manage their finances, together with non-financial aspects of reality, in order to survive. Smart corporations don't only look at the bottom line on their account sheets.
They both have to manage finances, but governments are spending other people's money. A corporation is people risking their own money on profitable ventures. How you can think they are in any way similar is beyond me. Governments have little accountability because they are so large, and they can't "go out of buisiness" because they don't have competition. They merely have a quadrennial theatrical show where two "directors" appear to compete for business, but where the shareholders (the taxpayers) ability to actually influence those "business" decisions are almost zero.
If there were a free market for most of the services government takes it upon themselves to provide (by their force on monopoly), the government would be out of business in nearly every area because there would be better competitors offering better services at lower costs.
> governments are spending other people's money. A corporation is people risking their own money on profitable ventures
This is what you choose to believe, to maintain your internal consistency in your own ideology. From the point of view of the law, it is the government's money after they tax you, and the government believes that it is their money, in order to maintain their internal consistency of their ideology that justifies their legitimacy. They "risk" their money on various government / societal ventures and their "profit" is their continual acceptance by the citizens.
In both cases, forgetting about the ideology, what happens in reality is a transfer of wealth. I have to pay a government in order to live on land that they have physical control of, I have to pay a corporation in order to eat food that they have physical control of, or obtain other essential life resources from them.
Some governments and corporations are so large they can't "go out of business" because they don't have competition indeed. Some are smaller and they have to cater to individual customer / citizen demands more readily.
> This is what you choose to believe, to maintain your internal consistency in your own ideology.
Dude, they're completely different. A corporation has to provide services people want to use of their own volition. A government takes money off people without asking. They are completely unalike and it shows in how the operate. Risking other people's money is something anyone can do. Risking your own money means you need to make smart decisions. The government are inherently less smart than corporations because they lack the business sense that entrepreneurs have.
Politicians are paid generous salaries, but they're hardly fitting of such salaries for their abysmal performance in their management. If managers in any corporation were like politicians, they'd be sacked! Politicians are unlike such managers because they get to decide their own salaries too. Directors can chose their own salaries because it is their own money they're risking. Politicians are not taking any personal risk beyond their career aspects. They have no skin in the game. (In fact, their incentives are to enrich themselves whilst in office, even at the cost of the taxpayer they purport to represent).
> I have to pay a government in order to live on land that they have physical control of
I noticed you originally put owned, by were right to edit. Most land is privately owned, not by governments. Even most of the publicly accessible land is privately owned easements.
Although government doesn't own all of the land, they are effectively part possessors because they have some rights to it (at the cost of the owner's rights). This is simply more evidence that governments overstep their reach and encroach on people's lives. Ultimately, they rely on that monopoly of force, because given the choice in a free market, those land owners might chose somebody else to be the stewards of their land.
You have to ask, if governments should be the sole providers of stewardship of easements in a geographical area, why shouldn't they be the sole providers of food too? You say that you need to pay a corporation to eat, but shouldn't that service also be subsumed by government? Why even stop there. Let's have full on communism!
Well, that has been tried multiple times and it failed miserably every time. On the other hand, free markets have been tried and they were hugely successful in drastically improving the standard of living for millions of people. The evidence is clear. Corporations generate wealth and then the governments spend it. Anti-capitalists would have you believe the opposite is true.
> A corporation has to provide services people want to use of their own volition. A government takes money off people without asking. [..] Ultimately, they rely on that monopoly of force [..]
Distinguishing having a de-jure monopoly on force vs a de-facto monopoly on something else is not a useful practical difference to make. Other quantitative aspects of the relationship are more important to the analysis, and you pointed out some of them yourself.
This artificial elevation of this "monopoly on force" pollutes other aspects of your analysis of reality, leading you to say things like "If you're just a lowly employee [..] you might think it doesn't matter to you" apparently without irony.
In some sense, a government does take money from me without asking. In some other sense, this relationship is consensual - individuals with more resources/power are free to move to the jurisdiction of a different government. Similarly, the degree to which some corporations "take" money from people depends on the circumstances. People have to live somewhere, eat something, etc, and this has a big influence on the corporations they must give their wealth to. So distinguishing governments from corporations is not particularly meaningful or interesting, and leads you to artificially exonerate some bad activities of corporations whilst incriminating some good activities of governments.
edit:
> Most land is privately owned, not by governments.
I changed to "physical control" because it was more relevant. Even "ownership" is a (very convincing) "legal fiction" whose power derives from the government's control over that land. If it were not able to maintain this control, another country could invade it. If you were able to actually control the land that you "own", then sure I might have to pay you taxes in order to live on it (or move somewhere else with better tax conditions).
> Distinguishing having a de-jure monopoly on force vs a de-facto monopoly on something else is not a useful practical difference to make.
It depends how the monopoly comes about. Many de-facto monopolies arise as a result of government intervention in the market. Some of it accidental (unintended consequences of other policies), and some of it intentional (enticed by lobbying money).
Natural monopolies which arise are not necessarily bad, but can be if they are essential and they're engaged in underhanded behavior like price fixing. In these cases, it is right that we have a legal system which can deal with such problems as they arise, but IMO, it's a mistake to try establish broad frameworks which try to deal the wrong causes of the problem (one of the causes of the unintended consequences mentioned above).
There are countless cases of government intervention in markets which ends up favoring big corporations and harming smaller businesses. I'm 100% in agreement that we should do what we can to prevent this kind of government-big-corp collusion. Reducing red tape for startups and ending government sanctioned monopolies (including a drastic restructuring of the patent system) are some examples. Another step towards this would be to greatly reduce the size of government, since the less they're responsible for, the less they can screw up.
> leading you to say things like "If you're just a lowly employee [..] you might think it doesn't matter to you" apparently without irony.
I use those words deliberately and with intentional irony. Employees simply see themselves that way because they feel in a position of powerlessness, even in some top jobs. For example, there are recent stories of game developers wanting to unionize. They apparently consider themselves to be "lowly" employees, if they can't take it upon themselves to demand better working conditions or salaries for skills which are in demand. What hope do we have if some the best paying jobs want to unionize? (Make no mistake, this will start with gaming, but spread to many areas of programming).
Unions have many problems and cause unintended consequences. They create red tape which leads to barriers of entry into the industry, and price fixing ends up becoming accidentally implicit in the market because of the union's interference. If game developers think their working conditions are going to improve under a union, they're terribly mistaken. What will really happen is a good portion of them will simply lose their jobs, most of them will have wage stagnation, and only the most specialized and skilled workers will be able to demand higher compensation.
> Similarly, the degree to which some corporations "take" money from people depends on the circumstances. People have to live somewhere, eat something, etc, and this has a big influence on the corporations they must give their wealth to. So distinguishing governments from corporations is not particularly meaningful or interesting, and leads you to artificially exonerate some bad activities of corporations whilst incriminating some good activities of governments.
Corporations are by no means perfect and bad behavior can't simply be excused. I also don't doubt that government does some "good activities". My complaints are more about the efficiency of how they do so. I believe more competition would lead to better services than government (and corporations) offers in almost all areas. (To be clear, I'm not an anarchist, but the smaller the government, the better).
We also need to look at consumer responsibility though. If consumers are outraged by the behavior of some corporations they do have skin in the game, and can protest the behavior by refusing to pay for their services. As much as I'm not a fan of things like big tech companies engaged in censorship, they're not essential services and if people are outraged enough they'll stop using them. On the other hand, the banking services which are unpersoning people for political views are different story: One, because they are essential, but two, because it is government red tape which prevents competitors from replacing them.
The biggest problem of government is that it simply wants to do more and more. Socialism gradually creeps in a step at a time, mostly unnoticed because each step is small and seems harmless. A few decades later and almost all personal liberties are under assault and top down control has become the norm, instead of bottom up market forces. The constitutional limitations of the US government are invaluable and the attacks on them are a disaster for the whole of humanity.
> individuals with more resources/power are free to move to the jurisdiction of a different government.
There some merit in this, but some governments will also still try to tax you even for earnings you make outside of their jurisdiction. Aside from that, corporations can locate to different jurisdictions, and will locate if taxation is more favorable to them elsewhere. A government therefore, needs to create an environment which is friendly to businesses, else their economy will go sour. The recent democrat fuckup of the NY Amazon deal is a good example of what bad government policy looks like. Yes, Amazon make enough money that they don't need tax breaks, but what favors have the Dems for New Yorkers? Anti-business policies damage the local economy for everyone, not just the greedy corporations.
At least in US Amazon already adds tax in purchase price. Similarly when you buy copy of software, tax is already added. For ad bills to publishers, I would think it’s the same. So what does this “digital tax” is about?
The big issue here is that eventually all taxes will be transferred to end customers. The profits for businesses don’t get lowered because of more taxes (unless demand drops). So people in every country should be worried when government eyes for more taxes.
To portray taxes as only being paid by the end customers is a massive oversimplification, if businesses could charge the amount extra the tax supposedly increased prices by and retain optimal profitability, they already would.
Taxes hit profit margins first, possibly pushing companies into non viability (unlikely to be much of a concern in this arena).
Remember that businesses don't just operate based on the cost of their inputs, they operate based on the price customers are willing to pay for their outputs aswell, which is often divorced entirely from the cost of inputs, especially in markets dominated by a few companies.
We need market de-regulation. End of government-sponsored monopolies. Accountability on budget spending. Enablement of profit-oriented policies that generate surpluses. Equal and fair taxation. Enabling equal opportunities to people of all social classes, and performance reviews to keep everybody accountable.
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