back to article Hi Amazon, Google, Apple we might tax you on revenue rather than profit – love, Europe

Fed up with how Amazon, Google and other American digital giants pay tiny amounts in tax, European ministers are proposing a big change: tax based on revenues rather than profits. A joint letter – signed by the finance ministers of France, Germany, Italy and Spain, Europe's largest economies – is forthright, stating: "We …

I thought that's what VAT is for ??

4
31
Silver badge

No. VAT is chargeable, but mostly reclaimable by businesses on their purchases, which means that it is (in effect) a consumer tax. There's a few exceptions, but it was conceived as a consumer sales tax.

What's being mooted here would be charged as a proportion of revenue, but probably imposed only as a form of withholding tax. That means that anybody who pays their taxes in the proper way without magical offshore accounting would find they had no additional liability. But the tax avoiders of Google, Apple, Microsoft, and every other big US tech company would find that they could continue to avoid "normal" taxes, but they'd then be liable for the withholding tax.

Its an excellent idea, but the implementation is bound to be convoluted and risk unintended consequences. I suspect that the EU ministers hope that the mere threat will encourage the tech sector to comply and "play the game properly", and I equally suspect that they are wrong. Tax avoidance is an entire industry, and the US companies won't give this bone up without a fight.

59
0
Anonymous Coward

VAT just gets passed on downstream onto the Customers.

11
0
Silver badge

No

VAT is to move the tax burden to the end-consumer in a transparent manner. All companies in the chain reclaim VAT so they do not pay.

As a result, as long as you allow VAT to be claimed in the country of Eu where the sale is done and not the country of residence of the end-consumer it is trivial to shift "perceived business activity" to the lowest tax jurisdiction. It costs almost nothing to add one more company so that business happens elsewhere.

This is different from turnover tax which is paid at every step and not reclaimed. It works in the opposite direction by creating vertical monopolistic conglomerates which control the path of goods from ore to the product.

Neither will do anything as far as digital goods are concerned. The only way to deal with those is to move taxation to country of residence of the end-consumer and that is nearly impossible to achieve.

12
0
Silver badge

No, VAT is payed by the end consumer/user, which is you when you buy a packet of soap powder, etc. It is collected by the business that sells you stuff, since they have tax payment and accounting systems already in place which makes it easy for the goverment to use them as tax collectors.

4
0
Silver badge

VAT is chargeable, but mostly reclaimable by businesses on their purchases, which means that it is (in effect) a consumer tax.

VAT is paid on value added (the clue is in the name), which is similar to (but not the same as) gross profit - if you're not adding value, you won't stay in business very long. As a consultant, I have minimal outgoings to offset against my VATable earnings, so it certainly feels like a tax to me when I write out my cheque to HMRC every quarter.

Anyway, as Tim Worstall (late of this parish) would have pointed out, corporations (being merely a useful legal fiction) can never pay tax; it's always ultimately borne by people, whether customers, employees, suppliers or owners - there's no-one else.

18
11
Silver badge

"VAT just gets passed on downstream onto the Customers."

Don't all taxes get passed on to the customers? VAT might work better if you couldn't claim your VAT back (not thought this through - please don't flame me too hard).

7
0

It's VAT. Pure and simple.

At the end of the day, all taxes are paid by people, directly or indirectly.

So why do these governments need tax? It's simple, they are bankrupt. There debts exceed their assets and no chance of a reversal. That's bankruptcy.

In the UK for example, over 205 bn pounds a year go on the state debts.

9
27
Silver badge

so it certainly feels like a tax to me when I write out my cheque to HMRC every quarter

Except you collected that VAT from your clients, didn't you? You may have a reasonable complaint about being an unpaid tax collector, but you're not the one paying the tax.

33
3
Silver badge

I suspect that the EU ministers hope that the mere threat will encourage the tech sector to comply and "play the game properly"

They do play the game properly by the rules laid down by the EU and the various governments. When a company is multinational it's able to look on taxation as a competitive market. So we have countries not offering competitive rates relative to Luxembourg and Ireland complaining that they're not competitive in the market.

19
4
Silver badge

@Credas

You can use a very similar argument to 'prove' that you don't pay income tax.

4
5

Except you collected that VAT from your clients, didn't you? You may have a reasonable complaint about being an unpaid tax collector, but you're not the one paying the tax.

People will pay what they are willing to pay, it doesn't matter how it's sliced. So the presence of VAT does act to reduce what Chris (and competitors) can get away with charging for their consultancy skills.

As said, tax incidence always falls upon real people, it's shared between customer, worker and shareholder (capitalist). Just because VAT is paid by the customer it doesn't follow that 100% of the incidence is on the customer.

9
3
Silver badge

"As a consultant, I have minimal outgoings to offset against my VATable earnings, so it certainly feels like a tax to me when I write out my cheque to HMRC every quarter."

(I used to be a consultant, just like you) You get the (dubious) benefit of holding an extra 20% for three months for pretty much zero bank interest in return for filling out the quarterly greeny. It can be useful to tide over cashflow as well if you are careful. You also get to offset expenses although not much. I doubt many F/T employees will weep for us. I am not a fan of IR35 though although I got out just before it kicked in.

Nowadays as a business owner with 20 odd employees I get to watch as Google and co. pay a pitiful amount of corporation tax whilst my lot get to pay rather more as a proportion of turnover.

21
1
Silver badge

"In the UK for example, over 205 bn pounds a year go on the state debts."

It is your state as well: *you* spend it, then you get to pay it back plus interest - that's how debt works in simple terms 8)

However that isn't really how country debt works. Countries/states are able to mint their their own money which you and I can't (without a spell at 'er Maj's pleasure). They can also fiddle with the ways they "earn" money/value and can even fiddle with how to measure and declare those. Entire economies really don't work in the same way as your personal finances and it is way more complicated than the simplistic presentations in the media. Have you ever wondered where that £205B actually goes or what happens to other countries debts to "us"?

Every day a gigantic game of brinkmanship, gambling and bullshitting goes on called economics.

23
3
Silver badge
Alert

Precisely the points I came here to make. This is online to become a Alternative Minimum Withholding Tax for firms domiciled outside the EU. Or will it also effect EU firms operating outside their home country? Probably not.

It really will get interesting if BREXIT unfolds the way as currently mooted. Dear City of London....

Icon for that last bit.

1
3
Silver badge

"VAT just gets passed on downstream onto the Customers"

As would any revenue based tax levied on the companies supplying those customers.

As I said about the Barking MP who said she was boycotting amazon there is nothing to stop you cutting out the middle man and giving HMRC money directly.

7
3
Silver badge

Except those clients reclaim the VAT

VAT is a chain of businesses that pay it then reclaim it, until it finally hits a business or charity too small to reclaim it, or a consumer who isn't able to reclaim it.

With my business hat on, I only ever really pay the ex-VAT price to a VAT-registered supplier. The only cost to my business is the time the finance people take to deal with the paperwork - which is far lower than the VAT I'd othwrwise pay.

A consultant who is VAT registered is actually cheaper than one who isn't, assuming they both pocket the same total profit from the job.

3
0
Silver badge
Headmaster

@Ledswinger "Its an excellent idea......"

Agreed. It is in my opinion the only one that stands a chance of ensuring that these companies pay tax properly. Taxation based on the profits is simply a huge invite to creative accounting and all sorts of (barely) legal shenanigans. A famous example from the film world is of course the original Alien movie. In common with the then current practice Sigourney Weaver, John Hurt, et al had signed for a percentage of the net. When 20th Century Fox's accountants had finished with the books, lo and behold, the movie had made a loss! Since that debacle actors have insisted on a percentage of the gross. That is exactly what the EU has to do here. I agree that it will present technical challenges but they will have to be met as the current situation is intolerable. The attitude of these companies that only little people like us pay tax is frankly stomach turning.

9
3
Silver badge

Re: @Ledswinger "Its an excellent idea......"

Sort of idea suggested by people who work in public sector or who have jobs unaffected by such things as profit.

My business has 2 revenue streams - software reselling and consultancy. On software, I make between 10% and 15%. Consulting is 100% (it's only my time). A turnover tax would hit the software side disproportionately - I'd just stop reselling software.

Net result - less tax for government, less profit for me, more software sales going direct, customers get poorer advice. Everyone loses.

10
9
Silver badge

Re: "My business has 2 revenue streams"

Your business is not supposed to be affected by this change. The change is being envisioned to ensure that large multinational corporations pay their dues.

Unless, of course, your company has a level of activity that is comparable to that of Google, Apple or Microsoft, in which case you are right to be concerned.

7
7

Re: @Ledswinger "Its an excellent idea......"

>My business has 2 revenue streams - software reselling and consultancy. On software, I make between 10% and 15%. Consulting is 100% (it's only my time). A turnover tax would hit the software side disproportionately - I'd just stop reselling software.

Net result - less tax for government, less profit for me, more software sales going direct, customers get poorer advice. Everyone loses.<

Not true. The customers would still need that software, so would buy it from somewhere else & the tax would still be paid. You might just find that advising people on what software to buy becomes part of your consultancy, if you're not prepared to resell it yourself.

7
0
Anonymous Coward

Re: "My business has 2 revenue streams"

As far as history and current laws has shown, no, other businesses / people do get affected by these types of change just like any laws.

These types of changes cause businesses / people to have unintended punishment while the actual target business still finds loopholes to avoid them.

For example, a large trading company has a large revenue but low profit will now be affected while google and the likes just need to prove their revenue transaction was done with outside of EU. Then EU may tried to put new laws on banning metadata outside of EU and google prove metadata is in EU but the server is outside. Meanwhile startups that can't prove a local metadata for business are bankrupted.

These types of changes is can of worms and everyone else not initially affect can be affected.

4
0
Anonymous Coward

> it certainly feels like a tax to me when I write out my cheque to HMRC every quarter

Nope. You invoice your clients an amount plus VAT, the client pays the VAT, and you pass the VAT onto HMRC. The money is just "resting in your account" as Father Ted would say.

Example: you invoice £1000+VAT, client pays £200, you pocket £1000 and pay £200 to HMRC. If your customer is a consumer, that's the end of it.

If your customer is a business, they happily pay the VAT because they can claim it back.

Let's say your customer resells your product for £1500+VAT. Their customer pays £1800, they pocket £1500 (of course less the £1000 they paid you), and they pay VAT of £300 less the £200 they paid you = £100.

So the consumer has paid £300 VAT, which HRMC received in two separate payments of £100 and £200 from two businesses. It's a bit of a money-go-round, but the consumer paid the entire amount of VAT, and the businesses paid none.

Wouldn't it be more efficient to just have a 20% consumer sales tax, collect the £300 at point of sale and pay it to HMRC then? Sure, that's how they do it in the US and Canada. The trouble is it's very open to abuse: there are many people who have businesses but wave their sales-tax-exemption cards whenever they make a personal purchase.

To avoid this sort of abuse of sales tax, you really want to force each business-to-business transaction to appear in the accounts of both the selling business and the buying business.

And that's the beauty of VAT: in order to reclaim the VAT, the purchase must appear in your (VAT-registered) business accounts. Also, lots of small VAT payments are a less attractive target than one big sales tax payment.

Brief note about turnover taxes: they have been tried several times, and failed every time. There are many legitimate high-turnover, low-margin businesses (think: import/export) which these taxes can't accommodate, but which our economy depends on.

A specific sales tax on digital services or advertising is more likely to succeed, in the same ways as Insurance Premium Tax.

11
1
Silver badge

Re: @Ledswinger "Its an excellent idea......"

@A Fox, same thing happened with David Prowse who was going to be paid out of the net. Alec Guiness being an old hand (and much more famous) got a percentage of the gross. He made a lot of money from Star Wars but apparently didn't think that much of it.

1
0
EBG

except

It starts with the big boys, but will then trickle down. Some of the rule is Greece as the result of their financial crisis - applying to personal spend as well as small business are mind-blowing

0
0
Anonymous Coward

Re: @Ledswinger "Its an excellent idea......"

The attitude of these companies that only little people like us pay tax is frankly stomach turning.

You're missing the point that no matter how it is collected, it is always the "people like us" who pay the tax in the end, because we're the ones with the money. Taxing Amazon on its revenue will increase its costs, so Amazon will increase its prices to compensate, and hey presto, we (the end users) pay that tax, indirectly.

Governments paint it as "corporations avoiding tax", but at the end of the day it just means that when the economy is successful they want a bigger grab at our money.

7
1
Silver badge

Re: @Ledswinger "Its an excellent idea......"

"You're missing the point that no matter how it is collected, it is always the "people like us" who pay the tax in the end, because we're the ones with the money."

No, I think you're missing the point. The tax isn't the relevant bit, the avoiding tax is.

Amazon, for example, gets a huge advantage over competitors by dodging taxes. They competitors who pay their fair share can't compete and therefore go bankrupt, and Amazon thus collects a huge pile of barely-taxed cash to leave offshore waiting for a tax holiday in the US.

The taxes need to be paid. Yes, it might mean we have to pay higher prices for things. We probably SHOULD be paying higher prices, though. Hospitals need to be finded. Infrastructure needs to be repaired. These things need to be paid for, and the money has to come from somewhere; it's derailed by the fact that tax-avoiding corporations are out-competing compliant ones through offering prices that are effectively impossibly low. This in turn permits wage repression which otherwise wouldn't be tolerated, leading to a low-productivity, low-wage, low-price economy - i.e., a third world one.

That's the issue really, not 'who ends up paying the tax in the end'.

5
6

Re: @Ledswinger "Its an excellent idea......"

Taxing Amazon on its revenue will increase its costs, so Amazon will increase its prices to compensate, and hey presto...

...local companies, which aren't set up to implement the massive international tax "avoidance" schemes that Amazon & co use, can now more realistically compete with Amazon's prices. This helps drive native businesses, keeps more money circulating in the local economy, and thereby makes these countries more prosperous.

3
6

"That means that anybody who pays their taxes in the proper way without magical offshore accounting would find they had no additional liability. But the tax avoiders of Google, Apple, Microsoft, and every other big US tech company would find that they could continue to avoid "normal" taxes, but they'd then be liable for the withholding tax."

Here is the problem, just how do you decide when a company is "paying in the proper way" or not other than going to court?

This would be a minefield and the lawyers would be very happy.

4
0

"People will pay what they are willing to pay, it doesn't matter how it's sliced. So the presence of VAT does act to reduce what Chris (and competitors) can get away with charging for their consultancy skills."

Except that those he is providing consulting services to are almost certainly VAT registered and so can claim the VAT back from his invoice. So the fact that he is charging VAT has no bearing on his customer's ability to pay.

1
0

Except that 99% of all consultants works for businesses... Which either does not pay VAT, or get it back. It has absolutely zero effect on their willingness to pay for his services.

2
0
Silver badge

Re: Except those clients reclaim the VAT

>I only ever really pay the ex-VAT price to a VAT-registered supplier. The only cost to my business is the time the finance people take to deal with the paperwork - which is far lower than the VAT I'd othwrwise pay.

The issue or benefit is that practically everyone perceives VAT as being a tax they don't pay, until you get to the end customer who has to choose between paying £100 or £120 for exactly the same product/service.

Chris Miller is right! Like several of my customers, I treat my VAT accounts as seriously as my after VAT accounts - remember the customer is actually paying me £120, not £100 thus it is in my business'es interest to maximise the after tax revenue it can derive from this payment. By doing this I can charge £100+VAT instead of £103+VAT.

1
0
Bronze badge

While in theory, the Tax Man would be happy to take all your money, in reality if you try and give him more money than he asked for, it will be very difficult.

1
1
Silver badge

> VAT just gets passed on downstream onto the Customers.

All taxes get passed on downstream onto the Customers.

3
0
Bronze badge

>All taxes get passed on downstream onto the Customers.

No. At least, they shouldn't.

1
2
Bronze badge

Re: "My business has 2 revenue streams"

@Pascal Monett, the operative being here "Not supposed to". But, given how vague tax laws tend to be, you *do* end up being caught in the net, and the fun about how small businesses are squeezed will happen again.

Tax law is *never* as easy or straightforward as it ever seems to be.

0
0
Bronze badge

Re: @Ledswinger "Its an excellent idea......"

...local companies, which aren't set up to implement the massive international tax "avoidance" schemes that Amazon & co use, can now more realistically compete with Amazon's prices.
ROTFLPM! Keep dreaming... keep dreaming.

1
0
Bronze badge

Re: @Ledswinger "Its an excellent idea......"

>You're missing the point that no matter how it is collected, it is always the "people like us" who pay the tax in the end, because we're the ones with the money.

No it isn't 'always'. If the company in question is in a competitive market (not always true*), it can't easily raise its prices. Instead, it will have to shave a fraction of a penny off the dividends (or reduce C-level pay). I know these options seem very unlikely, but that's because govts have been retreating from their responsibilities towards their citizens for so long, that corps feel that the freedom to exploit is some sort of inalienable right.

*And this is one of the reasons regulators need to be tough on anti-trust.

2
0
Anonymous Coward

... and who are the paying customers?

"As would any revenue based tax levied on the companies supplying those customers."

If they are paying customers. But who are the paying customers for Google?

Those people who use the search engine or gmail aren't paying anything taxable.

On the other hand every normal bookshop has to pay taxes which Amazon avoids just by being big, making competing with it very hard.

1
0
Anonymous Coward

Re: @Ledswinger "Its an excellent idea......"

"Taxation based on the profits is simply a huge invite to creative accounting and all sorts of (barely) legal shenanigans."

Yes. And that has been painfully obvious since that tax model was invented. But big corporations basically bought it and no-one have had guts to change it.

1
0
Anonymous Coward

Re: "My business has 2 revenue streams"

"These types of changes is can of worms and everyone else not initially affect can be affected."

While true that's only the other half: The other half is that these companies are wiping their asses with taxation and basically aren't paying any taxes at all.

Either you change that or you don't and be happy with current situation.

I'm not happy with it at all, I pay revenue tax from my work, called "income tax". It's not low either.

Yes, I'd be happy to have "revenue tax" of 5%, any moment. Where do I apply?

0
0
Anonymous Coward

Re: @Ledswinger "Its an excellent idea......"

"Taxing Amazon on its revenue will increase its costs, so Amazon will increase its prices to compensate, and hey presto, we (the end users) pay that tax, indirectly."

Only if you still use Amazon, but that's totally up to you.

We can buy from companies who compete with Amazon and still pay their taxes as their expenses aren't rising at all.

1
0
Silver badge

Re: @Ledswinger "Its an excellent idea......"

@Artic Fox Re: "Agreed. It is in my opinion the only one that stands a chance of ensuring that these companies pay tax properly."

I disagree! because the proposed tax doesn't actually change the fundamentals.

Remember fundamentally the problem has arisen because of the ways in which these companies are able to use offshore schemes to legally move monies between tax jurisdictions. I suspect a tax on revenue will be subject to all the problems of the current system: is revenue derived from a product sold from a company registered in Ireland to someone in France, attributable and thus subject to French taxation or Irish taxation?

I think we need to proceed with some caution, particularly as the Irish government took steps in 2015 that will effectively end the use of the Double Irish with a Dutch Sandwich scheme in 2020.

Also, based on our experience with other taxation, it is clear this revenue tax would need to be consistent ie. the same rate, across the EU. Which given what we know, makes me wonder if it isn't an attempt at an EU levied tax and thus the beginnings of an EU Revenue & Customs department and Treasury...

0
0
Anonymous Coward

Re: @Ledswinger "Its an excellent idea......"

You just don't get it, those companies don't pay any tax. You the consumer, pay almost all of it, with some contribution from employees of that company, the owners of that company, and sometimes wider "stakeholders" like local government.

And don't mention film accounting in the same breath, that field is notoriously corrupt along with the money "invested". I once worked for a company that designed and wrote a very nice specialized film accounting application. It worked just as it theoretically should and was a complete flop in the market as they found out that the LAST thing any of the film producers actually wanted was software that made it clear where in fact all the money really was going. Far too many legal issues...

1
0
Anonymous Coward

Well, unless you want to impose massive governemnt controls on all prices so that capital doesn't make a return or can't be shifted around, they will be. And the downsides of doing that are far larger.

Simplest solution, make all company taxes paid (at whatever rate they pay) fully deductible as a tax imputation credit in the hands of shareholders who receive dividends. Then it doesn't matter if the "company" as such pays almost no taxes, any dividends are then taxed at the marginal rate for the shareholder in their hands (where the tax burden such as it falls on owners should lie); so it no longer matters much what rate a company nominally pays. Pay a lot of tax, your dividends are tax free or close to it; pay very little and your dividends are taxed. With provisions to prevent the conversion of income to capital gains and a with-holding tax on foreign owners a goodly chunk of this issue disappears - except for the know-nothing demagogues who want to play to the ignorant and claim that tax is somehow being "evaded".

0
0
Anonymous Coward

Re: ... and who are the paying customers?

With google, and for that matter Facebook; those searching or using gmail aren't the customers - they're the product !

0
0
Silver badge

Back to the USSR

I remember, how once upon a time we pointed fingers at the Soviet Block and how backward and retarded they are to have a turnover tax instead of value added tax.

The argument by Eastern Block economists was exactly that - that VAT creates endless chains of unproductive companies leading to shifting profits out of jurisdiction.

So come 30 years and we do what? Borrow the idea. How what goes around comes around.

If we put the ideological paint aside, maybe they had a point. Having a mix of both is actually not such a bad idea. In addition to clamping down on tax avoidance, it is also good for the environment. The only people it is bad for are the gazillion of lorry haulers which carry one bumper 5 times from one end of Europe to the other until it is put into a car.

22
6

Re: Back to the USSR

How well did that work out for the Soviet block? I know if I had to go back then and choose one model to go with it would be an easy decision.

3
1
Anonymous Coward

oh fun

maybe now google will stop pushing it's globalist idiocy through it's top news site. perhaps the states can finally get google on board to kick the UN out and let the EU flounder on it's own.

7
34
Silver badge

Re: oh fun

Later night?

Pop to bed, you've got a whole day of school to get through. Hopefully a double English will be on the timetable today, as even my five year old knows a capital letter follows a full stop.

8
1

Page:

POST COMMENT House rules

Not a member of The Register? Create a new account here.

  • Enter your comment

  • Add an icon

Anonymous cowards cannot choose their icon

Forums

Biting the hand that feeds IT © 1998–2017