Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

EU lost up to €5.4B in tax revenues from Google, Facebook: report

reuters.com

Post reply on HN
Print view View original

111–120 of 224 posts

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#111

Post by im3w1l »

aembleton wrote: post #88
elgenie wrote: post #67

Taxing multinational corps is pretty difficult. Let's say a parent company UsTech, which makes money from ads on a ubiquitous digital platform, has an Irish subsidiary UsTechDublin,LLC and a German subsidiary UsTechBerlin,GMBH. UsTechBerlin hosts a bunch of very well paid engineers who work on app performance and backend infrastructure efficiency; UsTechDublin hosts a bunch of low paid customer service reps that prov…

Require UsTech to run their sales to their Ireland and German customers through their Ireland and German subsidiaries. Then tax them based upon the result of their (sales to Irish customers - Irish costs) and in Germany, the equavelent (sales to German customers - German costs). It's quite possible in those two places, they would pay no tax because their costs are higher, but this is also an incentive to keep employi…

> (sales to Irish customers - Irish costs) and in Germany, the equavelent (sales to German customers - German costs).

The way companies deal with this is to create artificial costs. For instance have the German part pay big patent license fees (loan interest is another option) to the Irish part. Then German sales - German costs = 0.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#112

Post by jaclaz »

ptaipale wrote: post #87
jakubp wrote: post #81

Earlier quoted context omitted.

Majority of revenue is coming from ads. If Google were taxed for each ad income based on the country of where the ad buyer is located, they couldn't manipulate it as easily. Also clients wouldn't be inclined to set up shop in tax havens, because why would they? It's not their problem. I'm not sure this is a good solution, it might also be possible to game it, but at least that would make sense from the perspective of…

What? In EU, Google is taxed for each ad income, as well as app sales, based on the country of where the sale takes place. It's called Value Added Tax. Countries can set the rate. Mostly the rates are in the order of 20 %.

VAT is a tax paid by the "last" link in the chain, the user, not by the supplier.

Quick example, you are into the business of making - say - lemonade.

Set aside the machinery involved, you buy lemons, water and sugar.

The BOM for 100 glass or lemonade is:

- 100 lemons 15 € + 0.6 € (VAT is 4 % on lemons)

- 25 liters bottled mineral water 10 € + 2.2 € (VAT is 22% on mineral water)

- 0.5 Kg sugar 0.70 € + 0.07 (VAT is 10% on sugar)

So you have spent ( given to the supplier) 15+10+0.70=25.70 € + 0.6+2.2+0.07=2.87 VAT

Then you sell the 100 glasses of lemonade and get at 1 € each 100 € (included VAT).

The rate is 22% so you are actually getting 81.97 € + 18.03 VAT.

Since you already spent 2.87 € VAT when you bought the ingredients, you owe the government 18.03-2.87=15.16 € for VAT.

The whole idea of the VAT (or Value Added Tax) is that it applies to the differential in value.

So you have 81.97 € remaining from which you subtract the 25.70 € you spent for the ingredients, and - say - 10.30 € for other (documented) expenses, electricity, depreciation of machinery, etc., local taxes for the stand, etc.

You remain with a net income of 81.97-25.70-10.30=45.97 for which you own the government income taxes at a marginal rate of (still say) 35% 16.09 €.

Now imagine that your lemon squeezing process is covered by a patent for which you have to pay a firm in Ireland (which is also yours) 0.35 € per produced glass. (to simplify, let's say that this is exempt from VAT).

Now your income is 81.97-25.70-10.30-35.00=10.97, thus you owe the government 35% of that 3.84 €.

Meanwhile in Ireland those 35 € (without expenses) are income taxed at a rate of (say) 10% so you give the Irish government 3.50 €.

Instead of the 16.09 € in taxes, you paid 3.84+3.50=7.84 €.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#113

Post by elgenie »

zerebubuth wrote: post #104
elgenie wrote: post #67

Taxing multinational corps is pretty difficult. Let's say a parent company UsTech, which makes money from ads on a ubiquitous digital platform, has an Irish subsidiary UsTechDublin,LLC and a German subsidiary UsTechBerlin,GMBH. UsTechBerlin hosts a bunch of very well paid engineers who work on app performance and backend infrastructure efficiency; UsTechDublin hosts a bunch of low paid customer service reps that prov…

I thought that a necessary part of the "Double Irish with a Dutch Sandwich" was that a company in a tax haven can license IP to its subsidiary at an arbitrary price. Therefore, that company can offset any profit its own subsidiary might make. To do this requires two things: 1. That the license arrangement with the subsidiary is unique to that subsidiary. 2. That the license fee can be set to any value at any time. Fo…

The Double Irish + Dutch is merely the most extreme example of the transfer pricing morass (and will go away in a few years). There are a bunch of other funky methods described in the wikipedia article I posted on the topic; defining and proving in court that a particular method of determining "market rate" was unreasonably chosen and incorrect enough to be worth the trouble is quite involved and, in normative terms, a big waste of economic potential (brain power on both sides is devoted to … that, rather than something useful).

As for "taxing IP licenses at the corporate tax rate", that seems nonsensical given that it's profit (aka value added) that is subject to tax, not revenue.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#114

Post by alkonaut »

elgenie wrote: post #109
alkonaut wrote: post #79

Earlier quoted context omitted.

What you are describing is exactly the issue with the current system, correct? That is, taxation based on physical presence only, and the arbitrary ways corporationsn can do intra-subsidiary transfers. A tax for megacorps based on revenue seems a lot simpler.

Taxing on revenue is simpler but utterly non-sensical. If selling a phone that cost $800 to make for $805 incurs an 80x tax liability compared to selling hammer that cost $5 to make for $10, then the modern economy of long supply chains and specialization grinds to a halt. Another way to think about it: a single year in which the tax on revenue is higher than profit would require the business to be go into debt or be…

Perhaps I was unclear: The suggestion is not to tax the revenue, but to tax based on revenue - that is: the tax would still be on $5 profit but where that tax is extracted is decided by where the company was doing business, rather than where it is incorporated.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#115

Post by SilentCrossing »

jmfayard wrote: post #34
SilentCrossing wrote: post #27

So I want to implement Common Consolidated Corporate Tax Base CCCTB across Europe, which means I want to have the power to determine the rules for the whole EU. I then create a report projecting that we could increase our tax revenue if we pass the law to give me more power. I have some thoughts. 1) The projected windfall from this CCCTB will not materialize... if we take history as a indicator. When ever does compan…

> Competition, including taxes, is great for Europeans. If we study history we see that competition is one of the components that resulted in the dominance of the west. (see Civilization: Is the West History? I don't know. Competition for making the best science, technology, music, literature, food, ... seems different to me than just giving big corporations clever ways to avoid paying taxes for funding education, so…

I agree, that having companies compete on bringing out the best products or services is different from having countries compete on taxes. Just to clarify, countries do not give big corporates clever ways to avoid paying taxes totally, but do give them ways to pay less taxes in order to make themselves more attractive. There are various reason they do this, but they only do it if they as a location is not attractive compared to other locations.

The issue is more complex if you dig deeper and start comparing the US and EU. As a general rule western Europe has lower corporate tax and higher income tax than the USA. If you dig deeper you can also see that certain business cluster do not need to give any tax breaks to attract and keep companies, because they have a thriving business cluster. Think of the wine-growing industry in California and the flower-growing business in the Netherlands.

My main issue with centralizing the tax rules is that it will hurt the less attractive regions of Europe.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#116

Post by sddfd »

lin_lin wrote: post #86
sddfd wrote: post #36

Earlier quoted context omitted.

Not really. Ireland has some deals going with several digital multinationals. The guardian writes: "Google pays €47m in tax in Ireland on €22bn sales revenue" https://www.theguardian.com/business/2016/nov/04/google-pays...

Nice selective headlining from the Guardian. Usually txes are paid on profits. Wouldn't drive the clicks though.

> [..] selective headlining [..] Wouldn't drive the clicks though.

I disagree. The profits are not essential here, because the issue is that the profits are quite small because a tax accounting trick called "double irish" was used (which is explained in the article).

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#117

Post by ptaipale »

jaclaz wrote: post #112
ptaipale wrote: post #87

Earlier quoted context omitted.

What? In EU, Google is taxed for each ad income, as well as app sales, based on the country of where the sale takes place. It's called Value Added Tax. Countries can set the rate. Mostly the rates are in the order of 20 %.

VAT is a tax paid by the "last" link in the chain, the user, not by the supplier. Quick example, you are into the business of making - say - lemonade. Set aside the machinery involved, you buy lemons, water and sugar. The BOM for 100 glass or lemonade is: - 100 lemons 15 € + 0.6 € (VAT is 4 % on lemons) - 25 liters bottled mineral water 10 € + 2.2 € (VAT is 22% on mineral water) - 0.5 Kg sugar 0.70 € + 0.07 (VAT is 1…

> VAT is a tax paid by the "last" link in the chain, the user, not by the supplier.

Not quite. As Wikipedia puts it, VAT is collected incrementally, based on the surplus value, added to the price on the work at each stage of production.

That is the actual tax incidence. That the tax payment is channeled via the last link in chain is just a technicality relevant for the most efficient implementation of this incremental scheme.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#118

Post by dangsmum »

latch wrote: post #72
dangsmum wrote: post #41

Earlier quoted context omitted.

"they have a legal option not todo do business in europe" Do you see any way to do that other than to prevent eu businesses buying ads from google? Because i think that might have a few severe unintented consequences for businesses in the eu, and have exactly zero impact on google.

Not sure I understand. You're saying EU business' not allowed to buy ads on Google would have "exactly zero impact on google" ??

google would still charge the same to display an ad exactly the same number of people will see google ads exactly the same number of people will click on an ad

The only thing that would change is companies outside of the eu will burn through their ad budgets faster.

plus a whole (not quite so new) industry would emerge outside the eu bypassing the regulations. such as happened in China.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#119

Post by heavenlyblue »

microcolonel wrote: post #92
l5870uoo9y wrote: post #89

Earlier quoted context omitted.

The underlying problem is that companies take advantage of "globalization". Companies can legally move not only their production abroad but also the profit. So companies naturally — with the blessing of American business inteligensia — avoid taxes. I think national control of the economy is eminent and is the only way forward if you want to realize and spread some of the tremendous opportunities and benefits that aut…

Fundamentally the "problem" lies in the fact that the nominal tax rate they can expect to pay in the United States is the highest among all the developed nations. Ireland is prudent and wise enough to be the better home for their revenues. Globalization means that nations, provinces, and municipalities compete for the patronage of businesses. If you want a global economy, but you also want to be the legal home of Goo…

Fundamently the problem lies in the fact that civilised countries forget how much more social security a corporation gets from operating a business in there: no hostile takeovers, police coming in time, medical insurance for their employees, functional legal systems.

Take all of this away and a corporation is going to be killed instantly (you're a victim of fraud on a massive scale? you haven't payed your taxes this year, so no retribution for you).

So no, I don't think the fundamental issue is just the ROI.

Re: EU lost up to €5.4B in tax revenues from Google, Facebook: report

#120

Post by danmaz74 »

microcolonel wrote: post #90
staticelf wrote: post #56

I really hope a new tax bill comes through, I am tired of US companies (and others) that can simply avoid paying tax while small shops pay a lot of taxes in the EU. They use our well developed infrastructure for their own benefit and does not pay anything back. I hope they get a fat bill.

They pay for your infrastructure already (aside from last-mile stuff, which you pay for [partially] whether or not it's a local company). If you tax it, the prices just go up, nothing really changes.

> They pay for your infrastructure already

Lol, what? The whole point is that WE pay for the infrastructure with our taxes, and those companies use the infrastructure without paying for it.

Post reply on HN