Re: Crap argument
"The system should be simple: Gross income - legitimate expenses = profit, on which the company pays tax. The problem is the Government tie themselves in knots to come up with ways to make sure their chums can use all sorts of dodgy tricks to class everything as 'legit' expenses."
If only it were that simple.
The most common avoidance tactic is to re-locate the taxable basis of a transaction and thus shift its jurisdiction. Governments make this so easy by screwing up the basics.
So, take a German national buying software on his American employer's credit card over the internet from a vendor who is a corporation incorporated in Japan. Who is entitled to tax what part of the transaction?
Under EU VAT law, the correct answer is "don't yet know".
If both Japanese and American companies are registered for VAT in the EU, then the employee should pay zero VAT because the American company should apply the "reverse charge" mechanism (it's a cross-border business-to-business supply, so therefore zero-rated). If the employee subsequently travels outside the EU - for whatever reason - and then starts to use the downloaded software, the transaction falls outside the scope of EU VAT: it doesn't even need accounting for under VAT rules. If neither company is registered for EU VAT, then the transaction is outside the scope of EU VAT.
But, if the vendor's intermediary is either Apple or Google Checkout, then both vendors will use the IP address of the employee's browser to conclude wrongly that the sale is a German sale, and thus wrongly slap on 19% VAT. For different reasons, both intermediaries assume (or cause vendors to assume) that all sales are - and can only be - business-to-consumer sales. If the intermediary is eSellerate, then there is a very good chance of the correct VAT rate being applied, but only if one or both corporations are registered for EU VAT. Oops.
The same issues arise with corporation tax (tax on corporate profits and capital gains). Germany will definitely make a big song-and-dance about, "The transaction happened on German soil, you must pay corporate income tax on your worldwide and inter-galactic income!!!" The American government will say exactly the same thing to both corporations (except for California, who will argue that the American government can wait its turn). The Japanese government has the advantage of being the same jurisdiction as the vendor's seat of incorporation, and probably has the strongest claim to income tax revenue.
And this is why "transfer pricing" rules are both so complex, and yet so missing-the-point.
Simple. Now there's a thought.