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

For small companies, the cost of having to declare income in multiple jurisdictions is a nightmare. For big ones, it's a rounding error. Why not declare that the single market rule of paying tax in a single country does not apply to global corporations controlling subsidiaries in most countries? Seems to me simpler than inventing a tax on turnover.

If it makes it more difficult for mega corporations to compete with local businesses: well, that's just icing on the cake.

There's precedent for this

Well landlords are now being taxed on revenue (anyone out there with a buy to let property not yet heard of the new Section 24 tax?) so there's precedent for this now.

Interestingly there's potential opportunity here post Brexit for the UK to be more tax-avoiding-megacorp-friendly, and hoover up some of the benefits (in terms of employment) from Ireland when they lose out.

Alternative calculation?

As noted above, turnover tax just results in increasing sales price, profits stay the same.

How about working out a way to define what is a 'single' multinational company (based on percentage holdings, commercial relationships etc). Then look at the global turnover and profits - If they globally have a turnover of x billion, of which 20% is in country A, then they pay tax on 20% of their global profits to country A, at whatever tax rate they charge.

Details could be messy, based on definitions of 'profit' etc, but it might work.

Good Idea

Tax-avoidance by big Internet companies creates distortion of competition: local resellers are clearly disadvantaged.

Related entities

These little tax scams are all organised so that the end owner ends up paying no tax. Almost always is that company A buys from Company B and somewhere amount a convoluted chain is that both are owned by Company C. Often there are directors and executives in common. Additionally, there is more than a hint of transfer pricing involved too (eg, Inflated prices for the use of intellectual property such as trademarks and patents).

All it needs is for a revision of the tax code. If the two parties are related to "X" degree, then certain charges and expenses are not recognised for tax purposes. And you can make companies register with your tax authorities ... just don't permit deduction against unregistered foreign domiciled entities.

Books might show a small loss for profit, but tax authorities will see a much different, taxable, picture.

Quite apart from the reporter's inability to tell the difference between Europe and the EU (I think he missed out one of "Europe's largest economies", even if he did mean the EU he's a year or two too early), this is really just extortion with threats to cover up EU and nation state incompetence.

Google, Apple etc are simply obeying the laws as drafted. If the EU, or its individual member states, want to levy more tax then draft better laws.

AFAIK finance issues require unanimity from EU member states, can't imagine the Republic of Ireland would be too happy with this proposal. This is just pointless EU grandstanding.

Use tariffs on IP

The way to do it with minimal other effect such as effects on normal small businesses trading across borders, but not playing tax games, is to put a tariff on imports of IP (licensing on patents, trademarks, brands etc) at least equivalent to the corporation tax rate.

Currently, a tax-sharp company ensures places ownership of IP in a low tax country. The local subsidiary, actually doing the selling or work, is cross-charged a licence for that IP (ie imports it). So $1,000 of sales. $500 of normal costs. And then they create a licence fee for the brand or patent rights of $500. That's then $1000 of cost, and so $0 of profit in the subsidiary. $500 of profit moved out to the low tax country as licence fees.

A tariff on the IP fees heading out of the country would effectively tax the funnel so that business can't use this to maximise costs in order to avoid tax, so say 20% tariff on the IP which means 20% of $500 collected - exactly equivalent to as if the IP had been held locally.

And thus it has come to pass...

... The old tit for tat fun game will start soon then as US tech giants complain to the US government, the US government takes it to the WTO tribunals, and the merrygoround leads the US to implement same on the non-US tech giants paying a pittance to the US government purely because 'they use the USD, so it's *our* business'...

So, if you have income of 100m and spend 99m on paying your staff, you will now need to pay a percentage of the 100m in turnover tax out of that remaining 1m on top of the 45m of that 99m which has already been paid in various payroll taxes?