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 …

  1. RAMstein

    I thought that's what VAT is for ??

    1. Anonymous Coward
      Anonymous Coward

      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.

      1. Chris Miller

        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.

        1. Anonymous Coward
          Anonymous Coward

          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.

          1. Chris Miller

            @Credas

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

          2. maffski

            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.

            1. Richard 12 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.

              1. Roland6 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.

            2. ridley

              "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.

            3. LosD

              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. gerdesj 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.

        3. Anonymous Coward
          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.

        4. Anonymous Coward
          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.

      2. Nick Leaton

        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.

        1. gerdesj 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.

      3. Doctor Syntax 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.

      4. Arctic fox
        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.

        1. AMBxx 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.

          1. Pascal Monett 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.

            1. Anonymous Coward
              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.

              1. Anonymous Coward
                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?

            2. 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

            3. anothercynic Silver 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.

          2. Mark Dempster

            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.

        2. James 51 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.

        3. Anonymous Coward
          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.

          1. Naselus

            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'.

          2. Raumkraut

            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.

            1. anothercynic Silver 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.

          3. strum

            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.

          4. Anonymous Coward
            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.

        4. Anonymous Coward
          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.

        5. Roland6 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...

        6. Anonymous Coward
          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...

      5. ridley

        "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.

    2. Anonymous Coward
      Anonymous Coward

      VAT just gets passed on downstream onto the Customers.

      1. Mark 110

        "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).

      2. inmypjs 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.

        1. The First Dave Silver 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.

        2. Anonymous Coward
          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. Anonymous Coward
            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 !

      3. nijam

        > VAT just gets passed on downstream onto the Customers.

        All taxes get passed on downstream onto the Customers.

        1. strum

          >All taxes get passed on downstream onto the Customers.

          No. At least, they shouldn't.

          1. Anonymous Coward
            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".

    3. Voland's right hand 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.

    4. frank ly

      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.

  2. Voland's right hand 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.

    1. James Wilson

      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. Anonymous Coward
    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.

  4. Marketing Hack Silver badge

    Just change the current tax laws.

    If you sell advertising/software/etc. in France, that revenue accrues to the French subsidiary, and can't be funneled to Ireland/Holland/Luxembourg/the Channel Islands/(insert name of tax haven du jour here) that alledgedly holds the intellectual property.

    You don't need to create a turnover tax that will punish companies that are struggling with profitability already. Instead, make sure that the ones that are making money pay a reasonable share.

    1. Charles 9 Silver badge

      Re: Just change the current tax laws.

      And if they DON'T HAVE such a subsidiary, which is basically what they're doing with the tax dodging?

      1. maffski

        Re: Just change the current tax laws.

        'And if they DON'T HAVE such a subsidiary, which is basically what they're doing with the tax dodging?'

        And being able to sell throughout Europe from a single permanent presence in one of the member states is the very definition of the single market.

        So, they want to kill the single market, and France is trying to get rid of free movement as regards 'posted workers'.

        If we don't hurry up there will be no EU to Brexit from.

        Plus it's not tax dodging unless they are breaking the rules. And it's not tax avoidance as there is no such thing.

        1. Doctor Syntax Silver badge

          Re: Just change the current tax laws.

          "And being able to sell throughout Europe from a single permanent presence in one of the member states is the very definition of the single market."

          I'd have thought a single market would have a single tax rate.

          1. Charles 9 Silver badge

            Re: Just change the current tax laws.

            Nope, because the size of the country determines your baseline operating costs, which in turn affects the necessary tax revenues to keep running. The reason Ireland and Luxembourg can afford to charge to little tax is because they're tiny (especially Luxembourg, a tiny little speck pinched between Germany, France, and Belgium), yet they're still sovereign. Quite simply, geography is getting in the way.

          2. maffski

            Re: Just change the current tax laws.

            The member states were never going to give up their tax powers to the EU, but the idea was that a single market that allowed a company in lower tax Ireland to sell in higher tax France at those lower tax rates would lead to France lowering it's tax rate and harmonising taxes across the single market.

            1. Charles 9 Silver badge

              Re: Just change the current tax laws.

              "The member states were never going to give up their tax powers to the EU, but the idea was that a single market that allowed a company in lower tax Ireland to sell in higher tax France at those lower tax rates would lead to France lowering it's tax rate and harmonising taxes across the single market."

              Except that most countries are averse to raising taxes in the first place. Most of the time, the taxes are where they are because of operating expenses. What many of the proles fail to realize is that a country is like anything else: it has operating expenses, many of which can't be trimmed much without consequences. About the only ways you can seriously reduce this necessary expense is to reduce your geography or reduce your population. That's why the likes of Ireland and Luxembourg can get away with what they're doing. They're small nations with relatively few people.

          3. Anonymous Coward
            Anonymous Coward

            Re: Just change the current tax laws.

            I'd have thought a single market would have a single tax rate.

            And a single tax-collection agency, funneling the money into a single central government. It's the Federal end-game model for the EU, but one that none of the EU members, not even France and Germany, will ever accept. Hence the current model of fudge-on-fudge-on-fudge, with an ever-growing pile of loopholes to make accountants rich.

            Maybe they should just try 99% tax on all accountants' income? The French would be willing, I'm sure...

          4. nijam

            Re: Just change the current tax laws.

            > I'd have thought a single market would have a single tax rate.

            You may have thought that. I couldn't possibly comment.

        2. Roland6 Silver badge

          Re: Just change the current tax laws.

          >If we don't hurry up there will be no EU to Brexit from.

          People didn't get it a year or so back didn't get it, when I suggested that perhaps the best way to 'leave' the EU was to 'remain' :)

          Additionally, in that scenario, the UK would have been well positioned to lead the creation of the new market...

    2. Hugh McIntyre

      Re: Just change the current tax laws.

      Re: "If you sell advertising/software/etc. in France, that revenue accrues to the French subsidiary, and can't be funneled to <somewhere else>"

      I think you meant "that profit accrues" but that's the problem - you sell some software for 100 Euros in France and the French subsidiary internally pays it's Irish subsidiary 99.99 Euros because the company says the software IP is "owned" by the Irish subsidiary. Hence only 0.01 profit in France and low French taxes on this 0.01.

      Fixing this in general requires honest intra-company pricing which is hard to enforce, although countries could prosecute some cases to encourage honesty.

      On the other hand if you really meant "that revenue accrues to the French subsidiary" then this is what happens today, so companies can choose which country shows the profit (same as today) or this becomes the turnover tax.

      Possibly the right answer is percentage profit tax, i.e. if 10% of a company's revenue is in France then they would page French tax on 10% of their global profit regardless of inter-company accounting. This may be difficult though assuming different countries have different rules on what counts as taxable profit.

      On the other hand if there's really no R&D in France then there's less added value and presumably less tax justified.

      1. John Riddoch

        Re: Just change the current tax laws.

        "I think you meant "that profit accrues" but that's the problem - you sell some software for 100 Euros in France and the French subsidiary internally pays it's Irish subsidiary 99.99 Euros because the company says the software IP is "owned" by the Irish subsidiary."

        That's basically the issue - what is the "fair" reimbursement to the "parent" company. If I, as a UK resident, invented some cool widget which I sold through my UK company and a French subsiduary, it's entirely legitimate that some of the French profits should accrue to the UK company as the owner of the IP rights. In contrast, my accountants would recommend setting up an Irish subsiduary, "sell" the IP rights to it and funnel profits via Ireland, possibly also via some Caribbean tax haven as well. It would be legal (if done right) but doesn't make any logical business sense or reflect the true flow of money or profits and it's frankly taking the piss.

        1. Doctor Syntax Silver badge

          Re: Just change the current tax laws.

          "It would be legal (if done right) but doesn't make any logical business sense"

          If it allows the business to make more profits after tax then of course it makes business sense. That's why companies do it.

          The EU is as it is and the countries' tax rates are as they are and that's exactly what happens. If a country taxes its resident businesses highly it can't expect multi-national businesses to accrue most of their profits elsewhere.

          Whilst France makes little money from the multi-nationals it makes more from its local companies than the others. It's not the French government that's being disadvantaged by this, it's French businesses and they're actually being disadvantaged by their own government, nobody else.

          1. Aitor 1 Silver badge

            Re: Just change the current tax laws.

            Race to the bottom then?

          2. strum

            Re: Just change the current tax laws.

            >The EU is as it is and the countries' tax rates are as they are

            And its tax arrangements in the future will be what they are. If corporations take the piss, don't be surprised if countries tax urine.

      2. Anonymous Coward
        Anonymous Coward

        Re: Just change the current tax laws.

        "Possibly the right answer is percentage profit tax, i.e. if 10% of a company's revenue is in France then they would page French tax on 10% of their global profit regardless of inter-company accounting. This may be difficult though assuming different countries have different rules on what counts as taxable profit."

        So 10 countries = 100% of their global profit?

        Great way to kill other global firms when google can pause transaction for a year to get 100% monopoly when all the other global firms bankrupted from the extreme tax.

        Think about this for once, if you are working in one job and you provided free services one time for a trip in another country. BAM +10% of your global profit for tax. And no, any 'exceptions' you make from here is additional loopholes google and the likes can abuse when other global firms suffer.

        1. Naselus

          Re: Just change the current tax laws.

          "So 10 countries = 100% of their global profit?"

          He said tax on 10% of their global profit, not tax OF 10% of their global profit.

    3. Nick Leaton

      Re: Just change the current tax laws.

      So if you use someone else's hardware, or software, where do those costs go?

    4. Anonymous Coward
      Anonymous Coward

      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.

    5. Anonymous Coward
      Anonymous Coward

      Re: Just change the current tax laws.

      EU law, any company from any part of the EU can operate and sell in any other part of the EU, and doesn't have to have a local subsidiary.

  5. Len
    Mushroom

    Europe's largest economies?

    "...France, Germany, Italy and Spain, Europe's largest economies..."

    I know the UK hasn't been doing to well lately due to The Event but the UK would still classify as one of Europe's largest economies. Perhaps this should say "Some of Europe's largest economies"?

    1. Paul Crawford Silver badge

      Re: Europe's largest economies?

      You mean the economy formally known as the UK in Europe?

      I doubt they consider the UK much now, given the whole Brexit cluster-fsck and appearance of our impending total exit.

    2. Anonymous Coward
      Anonymous Coward

      Re: Europe's largest economies?

      I think what is meant by

      "...France, Germany, Italy and Spain, Europe's largest economies..." is actually

      "...France, Germany, Italy and Spain, predicted to be the EU's largest economies by the time the proposed new rules come into force [sure to be some time after Brexit]..."

      - it's the use of "Europe" as a misleading synonym for "the EU" which is the main problem here, I suspect.

    3. Anonymous Coward
      Anonymous Coward

      Re: Europe's largest economies?

      the UK would still classify as one of Europe's largest economies

      In GDP terms, yes, #2 behind Germany. Then come France, Italy and Spain (EU figures for 2016)

  6. Anonymous Coward
    Anonymous Coward

    sadly

    it will take 5 years to toss about the parlimentary chambers (that's what EMPs are paid for, no?), another 5 to agree on, 5 more to implement, by which time the offenders business model will have evolved to such a degree that the legal measures are "not applicable". Although, should it be still applicable, their legal teams will have been well prepared with their countermeasures (200% legal of course!)

  7. Nunyabiznes Silver badge

    equal taxation

    It seems the easiest (not easy of course but simply easier) way to handle this would be for the various EU member nations to agree on a tax scheme unilaterally. No matter where your "profit" is made it is taxed at x%. This would equalize the playing field and each country would have to find some other way of attracting business by adding value.

    Of course Ireland and Luxembourg might not agree. Or France.

    It seems silly to me to complain about companies minimizing tax payments when they are using your rules against you. If you get beat on home court you should be looking internally for the answer, not for some boogeyman.

    1. Lars Silver badge
      Happy

      Re: equal taxation

      "you should be looking internally for the answer". I would claim that's exactly what they aim to do,

      1. nijam

        Re: equal taxation

        > I would claim that's exactly what they aim to do.

        however, all they will end up doing is finding a new problem.

    2. Martin Summers Silver badge

      Re: equal taxation

      I agree. A percentage is a percentage and a flat rate still means those that earn more pay more. I think that should be the case for personal taxation too and I've never understood why just because you earn more you have to give up 45% of your earnings in tax (and I'm a basic rate tax payer so no bitterness here), that must sting so much seeing that much of your earnings disappear like that. It's no wonder companies and indeed wealthier individuals than I get up to the legal loophole tricks they do. Make it a level playing field and everyone wins.

      1. Richard 12 Silver badge

        Re: equal taxation

        Flat rate taxation is highly regressive - it costs the poor far more.

        Thought experiment:

        Tax is a flat 20%

        A earns £10 a week and pays £2 tax. £8 to live on.

        B earns £20 a week and pays £4 tax. £16 to live on.

        £6 revenue. Cost of living is 9/week so A dies, now £4 revenue.

        Change the boundaries and rates such that A pays 20p while B pays £5.80.

        Now both can afford to live and to save for the future, so the state now has a stable £6 revenue.

        1. Anonymous Coward
          Anonymous Coward

          Re: equal taxation

          "Flat rate taxation is highly regressive - it costs the poor far more."

          Yes, but it removes all loopholes from regulation. It might be easier to give the poor subsided food stamps and services then to add more regulation, which in turn adds more loopholes for the rich to abuse.

        2. Anonymous Coward
          Anonymous Coward

          Re: equal taxation

          Now both can afford to live and to save for the future, so the state now has a stable £6 revenue.

          That ignores the effect of indirect taxation.

          Make the flat rate 10%, with 25% sales tax on luxuries. Cost of living is still £9/week.

          A earns £10 a week and pays £1 tax. £9 to live on. Can't afford luxuries, but doesn't die, has incentive to earn more since even £1 extra will mean 90p to spend.

          B earns £20 a week and pays £2 tax. £18 to live on. Spends £9 on essentials, chooses to spend £9 on "nice stuff". State gets 25% of that £9, £2.25. B also has incentive to work more, since they'll only 'lose' 10% of the extra.

          Total state revenue is a stable £5.25. Even if B saves/invests some of their surplus any gains will be taxed, and it will be spent eventually.

          1. phuzz Silver badge

            Re: equal taxation

            "Even if B saves/invests some of their surplus any gains will be taxed"

            Right up until they're earning enough to pay an accountant to move their earnings to a company based in a friendly tax haven, so they can stop paying taxes altogether.

            Taxation is only a level playing field for the non-rich.

      2. David T-Rex

        Re: equal taxation

        You don't give up 45% of your earnings in tax. It's banded. You get your allowance taken off then you pay some at 20% then some at 40%. It's only once you hit 150k (after allowance has been deducted) that you pay 45% on earnings above 150k

        1. Martin Summers Silver badge

          Re: equal taxation

          I know about the personal allowance I was being simplistic for brevity. It's still a large chunk.

    3. Anonymous Coward
      Anonymous Coward

      Re: equal taxation

      "It seems the easiest (not easy of course but simply easier) way to handle this would be for the various EU member nations to agree on a tax scheme unilaterally. No matter where your "profit" is made it is taxed at x%. This would equalize the playing field and each country would have to find some other way of attracting business by adding value."

      Great way to get China companies profit, right? Just when the new tourists came from the boundary, you can demand x% tax from their "profit" 'no matter where it is made'.

      I hope you meant countries inside EU because I doubt business Russia, China, US, Canada and other countries outside would agree to join the madness.

      1. Anonymous Coward
        Anonymous Coward

        Re: equal taxation

        It seems the easiest ... way to handle this would be for the various EU member nations to agree on a tax scheme unilaterally.

        ROTFLMAO

        It would be easier to get Donald Trump elected as EU president.

  8. John H Woods

    even simpler

    Corporation tax should be 0%

    Tax the employees and the owners/shareholders when they take money out.

    1. Mark 110

      Re: even simpler

      That was Worstalls argument and its a good one from a number of perspectives.

      However. As companies are things and get value from the legal, economic and political framework in the countries which they operate it makes sense for them to pay towards the upkeep of that framework. They should pay their share of the costs but not be seen as a cash cow by the workers (because as you rightly point out that's really really stupid).

      Taxing the shareholders only works if they are within your jurisdiction. If they aren't then you are fucked.

      1. a_yank_lurker Silver badge

        Re: even simpler

        @Mark 110 - The problem with corporate taxes is they get buried in the cost of goods and thus ultimately paid by the consumer as part of the price. It is possibly more transparent to just have a sales/VAT at the point of sale to the consumer and no corporate taxes; I am paying them any way.

    2. Anonymous Coward
      Anonymous Coward

      Re: even simpler

      Tax the employees and the owners/shareholders when they take money out.

      So what happens when a corporation takes a French-made profit, and moves it across one or more borders to a place that has really low personal tax rates, where the beneficial human owners take the money out?

      1. Roland6 Silver badge

        Re: even simpler

        >So what happens when a corporation takes a French-made profit...

        Well as we're talking about France, perhaps the better way of implementing this is to require the employment of x french non-executive workers, where x is a number derived from revenue and living wage.

        Which in some ways is what China is demanding when it requires foreign companies wanting to do business in China, to establish businesses in China.

      2. anothercynic Silver badge

        Re: even simpler

        Given that most countries work on the basis of residence, *all* your beneficial humans would actually have to move to this country with really low personal tax rates... Find me any country that doesn't tax the living daylights out of its citizens and tax residents. Any. Please. Monaco? Excuse me while I laugh.

  9. Dazed and Confused

    Witholding tax

    When I do business in, say, India. I have to pay Indian tax on my fees, I then get a certificate from the Indian tax man to effect that I've paid this much tax which I can then in effect pass on to the UK taxman so I don't get taxed twice. But it does mean that I pay tax at the higher of the 2 rates rather than the lower of the 2.

    It surely can't be beyond the whit of the taxation departments of the national governments to come up with a scheme like this which applies more generally to businesses. This way if an international company has sales of say 1Billion in Hightax Land and then says, well yes we sold a Billion, but that's not profit because we have to pay 99.99% of that to our head office in Lowtax Land, then they'd be able to take their tax certificate from Lowtax land, which says we've paid 3p and they'd be able to deduct the 3p from the normal 20ish% of 1Billion. OK, I know that's ridiculously simplistic, you'd need to be able to chase the costs right the way through, but the assumption would that you can deduct cost but only if you could prove where they come from and prove that someone paid some tax on them somewhere. And that within your group you'd pay tax at the higher of the rates between where you sold it and where you normally do you accounting.

    1. Charles 9 Silver badge

      Re: Witholding tax

      You forget that not everyone wants to play ball. Ireland and Luxembourg are tiny countries with small populations and low operating expenses. They WANT to cheat, can AFFORD to do so due to their low operating expenses, AND since they're sovereign, they can block any attempt to be forced to play fair.

      1. Dazed and Confused

        Re: Witholding tax

        > They WANT to cheat, can AFFORD to do so

        That's the whole idea, the tax certificate you could obtain from them would be low, so you'd only be able to write off a low amount in a higher tax location.

        Only if you could provide evidence that you'd somehow run up huge expenses in a "cheating" country would you be able to avoid the tax in the higher one.

        I guess it would depend on just how a company would be expected to prove it's costs.

        1. Charles 9 Silver badge

          Re: Witholding tax

          Runs the other way, too. How does one prove a cost really is a cost, especially in a vertically-integrated firm where many things are essentially internal and free? That's why auditing assets at rest is so difficult; value is relative, and the only time its value has any concrete value is when it's actually traded.

  10. Anonymous Coward
    Anonymous Coward

    About bloody time they were made to pay up. The sooner the better.

    1. Charles 9 Silver badge

      Bet you they just declare themselves sovereign first, like in the Sprawl.

      1. Anonymous Coward
        Anonymous Coward

        That's what I'm waiting to see. Our elites here in the US seem to be pushing that ball ever so slowly towards that end goal while keeping it imperceptible to most. [How to boil a frog.] After all, they have free speech. What other rights can they accrue?

  11. Mark 85 Silver badge

    For years, US tech companies have used creative accounting and tax incentives offered by Ireland to pay tiny amounts of tax across Europe,

    They also do that here in the States... Let's also add "hide the money" so it can't be taxed. Example is Apple and all the cash In so called offshore accounts. Until they move the money, no one taxes it.

    1. The Nazz Silver badge

      re Mark 85 and Apple

      I had this strange thought over the last few days.

      Wouldn't it have been wonderful if Hurricane Irma, passing through the Caribbean had liberated all of Apples $200bn+ stash, carrying it away on the winds and re-distributing it all over the US?

      Sadly not.

  12. David Roberts
    Coat

    Mmmmmmm....Apple Turnover Tax

    Mmmmmm......Apple turnover......

    Sorry, what was the question?

    I'm just off to get an apple turnover.

  13. ratfox Silver badge

    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.

  14. Anonymous Coward
    Anonymous Coward

    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.

    1. J.G.Harston Silver badge

      Re: 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?)"

      No they're not, they're still being taxed on profits, just the profit calculation is different.

      Before, profit = income - outgoings

      Now, profit = income - Class A outgoings - 20%*Class B outgoings

      Tax is still rate * profit

  15. Pen-y-gors Silver badge

    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.

    1. Charles 9 Silver badge

      Re: Alternative calculation?

      Trouble is you run into problems of sovereignty. All the global companies have to do is find ONE country not willing to go along with it and they'll just pull up stakes and move there, where sovereignty means they can't be forced to play.

  16. Potemkine! Silver badge

    Good Idea

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

  17. FreddusDaggus01

    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.

    1. Charles 9 Silver badge

      Re: Related entities

      Then they'll just conceal their relationships or use shills as go-betweens, employing foreign sovereignty if necessary to Blick legal action. It would end up similar to money laundering with plausible deniability.

  18. Will Sheward

    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.

    1. Eguro
      Paris Hilton

      "want to levy more tax then draft better laws."

      Isn't that what they're proposing?

  19. Saul Dobney

    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.

  20. anothercynic Silver badge

    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'...

  21. J.G.Harston Silver badge

    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?

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