> European leaders praised the decision, with Germany's Chancellor Olaf Scholz describing it as a "project close to my heart". French President Emmanuel Macron said the country had been pushing the idea for more than four years.
Of course countries with high taxes are all for raising taxes in countries where they are lower!
Now, unfortunately the article does not mention the interesting bit, which is that EU countries with lower corporation tax will therefore have to raise their rates. I'm thinking especially about Hungary and with the current tense relations I'm surprised that they agreed... What is the deal?
It severely reduces their ability to attract future business, as well as the likelihood that companies will continue to remain headquartered there. If you go there for tax benefits and those tax benefits go away, how likely are you to continue to bother with such complex structures?
This is empirically not always true. Higher taxes can lead to lower tax revenues if it reduces the size of the pie when business go to tax friendly jurisdictions.
This can also work with income taxes. For example if you set income tax at 100%, you'd get 0 revenue probably because no one would work. This effect happens at values below 100%
At a certain point, where you have such different views in countries like Hungary (Hungary wants to placate Russia or something similar leading to not helping Ukraine, wants to block Finland and Sweden from Nato, wants to disable/reduce/destroy democracy in Hungary, wants all that stimulus money from the EU to keep coming in), we just have to say we'll go our way, you go yours. Unity required for so many decisions means the extreme minority of 1 can extract too much. Similar thing for Turkey and Nato.
Either that, or the groups (EU, NATO) will have to change their rules to allow a few no votes on things, or they'll just become broken orgs. I'm sure Russia would offer almost anything to the wanna-be dictators in Turkey and Hungary to get them to vote no on these things. These "complete agreement" democratic groups don't work when some leaders are dictators.
Ireland would prefer the jobs to the taxes. A country has to tune itself to keep people employed. Every country is different and small countries would be ruined by tax harmonisation. France et al give zero shits about Ireland, it wants the jobs Ireland has.
They can use the EU as an excuse to raise taxes without taking the blame. Most people have no idea how the EU works and don't realize that that rule would not have been put in place unless their own government had supported it. That's what unanimity means.
Also at the end of the day most EU laws are aquiescence rules: if you have a specification for cucumbers it must be like this. But if you don't have such a spec (and producers in other countries aren't prevented from doing business with you) then you don't need to put the rule into place. After all, every EU "law" is actually a description which has be be implemented in each country by its legislature.
Your wondering is justified, and (like almost every other EU issue nowadays) Hungary was a holdout opposer, and used the vote to blackmail in other areas. They struck a deal in a "package" that includes Ukrain aid as well, in return they got some of the EU funds that was held back because of corruption. What a great happy Union this is.
Also the EU repeatedly called out Hungary for corruption but now Hungary is having its moment pointing that several member of the european parliaments have been caught in a very serious corruption scandal (and these are only those who got caught).
What a great happy honorable Union full of integrity we enjoy too.
> "Today the European Union has taken a crucial step towards tax fairness and social justice," EU economy commissioner Paolo Gentiloni said.
There is a saying in Poland: "The difference between <<justice>> and <<social justice>> is the same as the difference between <<a chair>> and <<an electric chair>>.
I wish we would actually listen to the those countries, when it comes to topics like socialism and communism. Though I suspect the Western European countries need to taste that themselves first to be able to understand what that means.
IMO yes. As I see it, this is countries with high taxes being jealous of countries with lower taxes, and so instead of maybe lowering taxes to become more competitive, they - along with the bloated EU leadership - bully the countries with a logically lower tax into raising theirs, so the bullies feel better about themselves and don't lose "their" tax money.
This is the inherent problem of the EU, from both a social and economic standpoint; the member countries lose their competitive advantages over other countries because the socialistic EU bureaucrats can't handle any one country a) having any type of competitive advantage over another and b) not conforming to what they want.
In the past, before the EU single market and widespread free trade agreements, a country would simply raise a customs duty when another country would overly subsidize an industry. Or they would raise the customs duty merely to protect their domestic industry. Or because they don’t like that country for some other reason.
A large purpose of the EU is to remove those trade barriers to make the economy more efficient. Of course some countries figure out how to take advantage of the single market using regulatory arbitrage, quickly entering a race to the bottom. Thus the EU is becoming the regulator in a lot of (non-tax) areas to prevent this. This is just the next logical step in this regard.
It’s worth noting that any EU rules on taxation are decided with unanimous consensus. No country here has to do anything against their will.
The word communist has lost absolutely all meaning today. Biden is communist. Taxes are communist. Wanting universal healthcare is communist. None have anything at all to do with a classless society without private ownership of property.
A bit of both. I don't mind corps being taxed if that's what a country wants to do. I do have a problem with making this a "global government mandated" thing though. And as I mentioned in other comments, I despise the revival of the communist vocabulary ("reactionary", "bourgeois", "social justice", "equity").
Survivors of an abusive relationship might struggle with the fact that their partner told them that they ‘loved’ them, and yet that supposed love took the form of cruelty and abuse.
They might struggle to trust anybody else who talks about ‘love’.
But that doesn’t mean that other people who use the word ‘love’ are secret abusers.
That is true, but there are certain "red flags" that you will hear from most abusers. In the case of governments one of those is "we do it for social justice [not normal justice]".
A participant in an abusive relationship can move back to her parents any day, all she needs is a bus ticket. For a person born under Communism the best case is to go to the Gulag if he tries to cross the border.
It gets better, in the USSR until the early 70s the peasants were not even allowed to leave their villages. Technically, they were simply not issued passports which were required to register themselves to live in a town.
I bet nobody in your family was born within the reach of the Commies. In places such as the US the people have always been free to go if they felt marginalized. To another state or even abroad without asking the government for permission. So you fail to conceptualize what it means when the Socialists come to power.
If we're going to listen to reactionary wisdom of folk sayings, I've got a long, long list of ones that will provide us with all sorts of simple-to-grok, contradictory, and utterly pointless advice for how to steer our politics.
And this particular one works just fine if you reverse the adjectives. After all, the justice system is generally the one responsible for executing people. It does tend to apply itself in a rather... Unjust way - but that's just one of life's little ironies.
If you're asking people to listen, you're going to need to actually express your arguments, instead of vaguely gesticulating in the general direction of a 'Four legs good, two legs better' poster.
It's kind on interesting that the word "reactionary" is also really disliked in Poland too (alongside with the likes of "comrade"). Both of those (plus "social justice") have been used to silence and oppress there. It's really disheartening to see that kind of vocabulary coming back to fashion in English.
Reactionary has never left the lexicon, and is a perfect term for describing the bones of most modern conservative movements. It may become less relevant when the latter stop behaving in that manner, but you can't blame me for calling a spade a spade.
When they start talking about things like Laffer curves again, and stop trying to turn the clock back on things like marriage and contraception, then it will stop being an appropriate moniker.
Another one is "collaboration". As someone working in IT, I had a hard time getting used to it meaning "work with your peers toward the common goal". In Poland it has a completely different (negative) meaning.
The only difference is, I suppose, the fact that one comes from a people that got very close to experiencing the "social justice paradise" and the other is just a made up phrase by an internet troll. Otherwise, they are practically indistinguable.
I'm not a troll. And I don't think most people, including the majority of strident believers in social justice, would consider the 20th century Soviet Bloc to be a paradise.
Perhaps the more ideological wouldn't enjoy the Soviet union but they approve of and use their methods.
The current focus on purity of thought is remarkably like the communist struggle sessions, how they tortured people to correct their thinking not just to achieve a confession, how there was always room for more ideology and more purges as the party continually turned on its heroes.
Here's an example. At ~25s the officer talks about people who want to help (lower-case social justice) being faded out by people who know nothing of the situation and are just using it for political clout. He's black and trying to discuss the protests with black protestors and they're being interrupted by white protest leaders (upper-case social justice) who need to stoke conflict to remain in power.
Do you believe that when Paolo Gentiloni is using the words ‘social justice’, to describe a goal he is evidently in favor of accomplishing via the EU, he is saying he intends to adopt the economic and social policies of communist Poland?
Because I think that is a fairly uncharitable reading of what he likely intends.
I don't even think the communist government of Poland wanted to adopt those policies. The problem with "social justice" is not the intention behind it but the actual implementation and what it requires. For example, here we don't go from country to country asking their citizens if they agree with the tax rate, instead we create an unelected global body that decides what the rest of the world is going to do (in this example raise taxes).
I wouldn't call a 15% tax on corporations "communism". The actual policy objective is reasonable even if many can argue both sides with rational debate.
The main problem is this idea that a bunch of people on the liberal side of the Western world can create "global goals" and try to strong arm the rest of the world into following, which then leads to the inevitable outrage and disappointment when the rest of the world does not follow. And yet it never seems to happen in the other direction -- e.g. Africa deciding on global rules and then trying to force Europe to follow them, assuming they have a right to set global goals. The global goals only flow in one direction.
The idea that corporate tax policy is something that countries outside of the EU have actually thought of, and are doing their best to address in their own way, and for their own purpose, is something that never occurs to these self-described "global planners" who are in reality deeply provincial and trapped in their own micro-culture.
It is also something that people on the other side of this debate have thought of, which is one of the reasons not to tax corporations at all, but to tax those who receive the profits of corporations and that are domiciled in a particular tax jurisdiction. There is a lot of self-contradictory results when you try to tax the business separately from the owner of the business -- for example, a corporation can deduct interest payments but not dividend or share repurchases, when all three are basically the same thing, and a corporation has the option of doing all three. So this incentivizes corporations to take on debt, which then promotes financial fragility. Lots of distortions happen in a vain fight against "tax loopholes", when the real problem is that you are trying to tax the company separately from the owners.
So then you say, "I agree that trying to define 'profits' is prone to tax loopholes, so I will tax corporate revenue". Good idea! But then you will penalize business that have high expenses, e.g. a retail store that buys an item and sells it for a 20% markup would be driven out of business by a 15% tax on sales. So you say, "I will tax revenue net of input prices". And all of a sudden you have a value added tax, which is a form of sales tax, which is regressive. And then people complain about that regressivity and say "we should be taxing income instead", which was my original point!
So you keep chasing your tail because you are making decisions without really thinking things through, much like the decision for the EU to cavalierly set "global goals" even as it's relative importance is rapidly shrinking, even as Asia is pretty much ignoring all these goals because they are following their own interests and don't care about EU global goals.
It being a "global goal" is exactly what I don't like. I don't especially care if a country wants to tax their citizens whatever high. My problem is only when we reach a state of a "global government" deciding what's best for specific countries.
The continent already feels like it's trying to tax itself to death. I don't know how Europeans survive, and this was before the energy crisis. I do worry European wealth will start to evaporate and we'll see the kind of social strife that occurs when the pension funds run out and people who were promised dignity into old age find out they're not going to get it.
I used to think this until I moved to the USA. Property taxes here are insane. Add state tax, NYC city tax, Social Security etc the marginal taxes are well over 60% of income. And you still have to pay for your own healthcare after that.
You're absolutely right. When we are all fully fledged EU-colonies and the non-democratically elected Urzula has bought out all corrupt politicians to the benefit of Germany, "we" will understand what it means.
US LLCs are pass trough entities and the solution of choice for digital nomads to completely avoid paying any taxes. US is still the best tax avoidance haven for most people. EU does not care about good laws they care about good headlines for the news not matter how shitty the things they do are.
One does not simply avoid paying taxes with an LLC unless your gross income is minute, tax deductible expenses are huge, or your losses are huge. IT IS NOT SOME MAGICAL LOOPHOLE. It is hard enough to stay afloat as a business without misinformation like this being spread.
If you have a US LLC without US income, you are disregarded by the IRS. The tricky thing is getting a bank account without an EIN, however. But if you can do that, you are pretty much set.
I'm struggling to understand why avoiding an EIN ever helps avoid taxation. It doesn't seem to be a relevant matter.
1. As a non resident alien, you are subject to US tax on business income if you are “engaged in a trade or business in the United States“, short “ETBUS”.
2. You are ETBUS only if two things are true: (i) You have at least one “dependent agent” in the US. Dependent agents are employees or companies that work almost exclusively for you. And (ii) that dependent agent does something substantial to further your business in the US. Purely administrative jobs are not included under this rule.
3. Finally, if you can benefit from an applicable tax treaty, then you’re only subject to US tax if (in addition to being ETBUS) you operate in the US through a “permanent establishment” (e.g. an office or other fixed place of business).
If you don’t meet those conditions, you are not (automatically) subject to US tax on your business.
Even if the LLC generates income in the US, by offering services or selling products into the US, that income is not taxed in the US.
Tax companies that are currently hiding profits in tax havens. The idea is basically that companies headquartering in tax havens will get taxed anyway, until they pay 15% total global tax on those profits. No single country can do this, but when almost all countries agree to do it then companies can no longer hide.
USA needs to tax companies that are headquartered in tax havens, to ensure that those companies can't enjoy less than 15% global taxes. I don't think that USA is doing that right now.
They already do. If you are selling from a tax haven (especially services), there is a 15-30% withholding. Of course, you might be able to recover some of that. But it's a defacto tax.
Nobody here seems to understand that this is not about taxes but rather about re-shoring trade power back to the Western world (which is why it concerns the EU the most). EU/US and other developed countries offloaded a part of their industries 20-30 years ago to under-developing countries to save up on some costs.
These countries (evil 0% tax countries) reduced taxes, wages and regulation to attract these offshores companies. Not because these countries like to play games, but because that's their only attraction point. And here we are, 30 years later or something like that, and the EU/US have lost a significant portion of their industrial base.
Now, they want it back. Either because they have a high unemployment rate (ie: France, Italy) and they have actually people who can do these jobs; or because they think the balance has swift too much in favor of these "international" companies and zero-tax countries. Some of them have become too powerful and one of them even downright dangerous to the world order.
Of course, I'm not holding my breath for the "developing" world. It still lacks lots of the infrastructure and many key industries that the EU/US can pressure with. The place to look at will be South East Asia. Europe seems to have lost here to US/Japan and China. I think Europe is going to come to a dark realization real soon. The US might emerge, again ugh, as the winner. China is hated by pretty much all its neighbors.
Why do you think Delaware is a tax haven? Many business incorporate there because they have the legal infrastructure so that you are not in court in some boondocks with poorly established corporate case law if there is a lawsuit. But you don't pay less taxes by incorporating in Delaware, you reduce legal uncertainty.
If you want an example of tax haven, Montana's a better bet.
If you do your business outside the United States, Delaware has practically no tax for you. The legal infrastructure argument is also true, but probably more important for some companies than for others.
This isn't about getting all countries to put a 15% corporate tax, that will never happen. This is about increasing taxes on corporations even when they aren't headquartered there until their effective global tax becomes 15%, making it worthless for them to try to hide in tax havens.
No because the law allow the EU country to tax the benefit made inside of their boundary if the company is not subject to the minimal 15% tax rate. So if the US don’t want to tax at 15%, EU country will tax on their side.
I can't find any evidence of this: the earliest US income tax was levied for the Civil War, and amounted to a 3% tax on anybody making around $27,000 (in 2022 dollars). That's not a particularly "rich" cutoff.
The difference in the amount of tax has a big effect on post tax money. If it's 45% (city + state + federal + social security etc.) you'd have to make x * (1 - 45%) = $80K * (1 - 3%), solving for x gives $141K which is a big difference.
> The Revenue Act of 1913 ... established a one percent tax on income above $3,000 per year; the tax affected approximately three percent of the population.
Not in absolute terms: the fact that 97% of Americans in 1913 made less than $80,000 equivalent per year is more a testament to America (and broadly the world's) staggering poverty relative to our current wealth.
Put another way: you can't tax destitute people (at least not for long, and not without losing your head), but can absolutely can tax the average American household in 2021[1].
Destitute people have always been heavily taxed, since the beginning of civilization. It's called interest on farm loans, rent, work duty, soldier duty, etc.
True, but for everyone except the richest, a tax that’s originally targeting the rich that ends up scope-creeping to include the common man down the line is still better than a tax that targets the common man right from the beginning.
No, it just acclimates people to their government lying to them.
When (or if) they protest new measures, they're gaslit as if their concerns are hyperbolic and that scope creep isn't a thing that happens.
Fauci and others admitted to intentionally misleading people. In particular, I'm thinking of when they were trotting out the % of the population that would need to be vaccinated, which crept up from 60% to over 85, before they stopped talking numbers altogether.[0]
Now, you've got people who were already predisposed to mistrust authority who will flat-out disbelieve anything that comes out of the CDC, even if the CDC told them the sky was blue.
Who decides what's bigger? Those taxes are going to make almost zero changes since customers and workers are going to pay for it, same ol' story about the triangle company-worker-customer.
This isn't really as big a deal as it's been made out to be, IMO.
This is Pillar 2 of the OECDs tax reform for corporations.
Pillar 1 is much more interesting, and would require corporations to actually book profits where they are made (so not putting everything through Ireland for example). This will have a much bigger impact imo than this 15% ruling, because right now there are a bunch of tricks you can use to get round any tax rate.
For example, even though Ireland's headline tax rate is currently 12.5%, the effective rate after all the tricks for many US tech cos was <1% to the Irish state.
Out of curiosity, how do you define where profits are made when it comes to selling digital services? There is no physical movement of goods. Do you determine it based on where the software was originally written?
Why should the profit be made in france if the engineering that went into delivery was made in the US, the content was made in X, the deal for the content was negotiated in Y, network source is Z (probably france, but not necessarily)
VAT in France on the subscription makes sense, but figuring out where the profit lies, is more nebulous.
This would benefit large and established companies with stable margins, while penalizing smaller businesses and startups. I don’t think this is the intended result.
It also discourages long-term investments, and further rewards short-termism (which everyone seems to dislike).
And now you have companies inefficiently splitting themselves up into <$10B chunks, and paying lawyers and accountants lots of dead-weight costs to ensure their degree of coordination (think “Amazon West Virginia Ltd.”) doesn’t cross some ill-defined legislative or judicial threshold.
Taxing revenue has turned out to be a terrible idea every time it has been tried. It creates perverse incentives that encourage companies to be inefficient and wasteful.
One of the biggest policy problems with revenue taxes is that the effective tax rate is much higher on smaller companies than larger companies. A large vertically integrated company like Apple would pay a lower effective tax rate on an iPhone than any of their competitors, giving them a natural advantage. These are pretty dis-economic policy outcomes and the main reason no one seriously considers revenue taxes.
Quite the opposite. You can't fake revenue nearly as much as you can fake profits. Examples are legion - look at any company in the US that pays 0% (or negative) corporate tax rate.
You are not understanding the issue. Revenue can be trivially made to disappear, and this is what actually happens when governments tax revenue.
Revenue is recognized as the size of a sales transaction. The number of sales transactions required to build and sell a given product can vary enormously based on the structure of the business, usually as a product of optimizing for efficiency and specialization. When you tax revenue, businesses have a large incentive to restructure their business to optimize for minimizing the number of sales transactions in the course of building the product, because revenue taxes essentially compound as a function of the number of transactions which is then a cost of business. The compounding is why revenue taxes are so low, usually around 1%. Being tax efficient lowers your costs more than being business efficient, leading to bloated and non-competitive companies.
I've operated a business under one of the few revenue tax regimes. The perverse incentives to verticalize the business structure are very real. Revenue taxes add up quickly.
To make sure I understand your point, is the argument that without a revenue tax, you're incentivised to sell as much of your stuff as possible, whereas with a revenue tax you're incentivised to maximise your margin, and this makes things inefficient for everyone downstream of you?
That's kind of my point though - it ends up being charged on the 'value add' at each stage, so the vertical integration doesn't matter. X % of the final cost should still be VAT.
What if Netflix France has to license their content and platform from Netflix US, the the license costs are coincidentally exactly the same as the revenue made in France? Then there will be no profits in France.
Take the ratio of global revenue against national revenue and apply it to global expenses. Allow some leeway around any particularly unique national expenses and you've immediately put an end to the bullshit games these sociopaths play.
I strongly support immediately jailing anyone found to be playing these licensing games. They're parasites who have no place in society until they've shown reform.
In that case, they could always consider nationalizing Netflix France, and paying Netflix $0 in compensation. It is, after all, a completely profitless venture, losing it would be no big loss to Netflix.
If I make a physical good in the US and ship it to a buyer in France who pays above my costs, I don't owe France any income tax.
If I have a warehouse in France, some of the profit was in France and some was where it was made in the US. Same thing here where there's lots of small pieces done wherever.
If you offer a service in France, charge $10 and pay %15 on that $10... then when that money makes it into the US and Netflix has to decide what the profit is (after server fees, electricity, content fees, paying off politicians, etc)?
Not sure but I'm seeing 2 different conversations here: flat tax on what you pay at the pump... and what the company reports as profit at the end of the day.
France doesn't care if you make a profit or not on the 8.50... just like Apple doens't care when they take 30% off the top.
Am I reading it wrong? Is it 15% off the top ala Apple Store? or 15% off of profits? both of which are different conversations.
Looking at the article, it seems like a nothing burger until it's voted in officially... The Paris Accord was "passed"... and then left because it was just a verbal agreement. What's enforcing this and stopping the next POTUS from leaving it all together?
Because that is where the sale happened. You buy a lot of stuff that was made in China but pay tax in your country right? Not only was the sale in france, the goods that the customer pay for (video content) are delivered too france like normal goods and watched/consumed in france.
No, you pay VAT/sales tax for stuff made in China. The company pays taxes on profits where the company is registered. When you pay for Netflix in France, you pay VAT on the transaction too.
I'm not arguing that the setup is legitimate. I'm pointing out that the above analogy is confusing different tax types. The sales tax is not in question here. I'm all for revisiting how profits are taxed based on where they are made, but sales taxes/VAT is already collected correctly for both iphone and netflix.
True in theory (and much more so for physical goods) but in practice for services like Netflix, Google and Facebook, from the EU's point of view, who cares.
Giant tech company, pay your 15% based on local advertising revenue from local customers. We all know you'll still be making huge profits regardless of your costs. Your whole business is built on fixed costs and infinite scaling of revenue.
If you really can't afford to pay 15% then leave the market, someone will certainly take your place.
You could argue the profit is made where the money is earned. No CDN, no streaming; No content, no streaming, etc. How much would Netflix pay a (probably US based) CDN company to do what they do inhouse... that should probably still go to the CDN team, etc.
If you paid an external company to make all those things for you, they'd have profit in all those places, but if you do it in house, the profit just moves to the point of sale?
Why not replace income tax with VAT/sales tax if sales is the basis of taxation anyway?
That doesn't account for infrastructure/governmental costs associated with creating the stuff that makes the profit. As a hypothetical, if a German company writes some software and US companies are the only ones that buy that software, the US harvests 100% of the taxes on profits while the German government is left holding the bill to take care of the roads that lead to the office, electricity infrastructure, employee's healthcare, etc.
It puts the government in a weird spot where they really don't want any businesses that primarily sell to foreign countries since they don't get tax revenue to fund public services for that company.
Likewise corporate tax should be in the jurisdiction where services are rendered. You sell something digitally in a market then you are locating yourself in that market and that’s where you should pay tax on profit for goods sold there.
Say a US company's French subsidiary sold something for $10 in France. If the software is developed in the US, then the US company will sell it to the French subsidiary for $9, so then they only have pay profits on $1 in France. Then in the US, they will say they paid $3 in costs and sold the software to their French counterpart for $9, booking $6 of profits in the US at a lower rate.
Or licensing deals. If I license a processor and put it in my product that's designed in the US, using an ARM core licensed from the UK, manufactured in China, sold to a distributor in Switzerland, and sold to an end user in Australia.
Where were the profits from that device made? Surely not entirely in Australia (or any of the other single jurisdictions), as actual value was added in several different locations.
For VAT this is already defined (in the EU): wherever the purchaser is when they get their goods handed to them. If I drive over the border to Germany, I pay German taxes. If I buy online and have it shipped to the Netherlands, I pay Dutch taxes.
A digital good is handed to me wherever I am when I purchase it, so I pay taxes in that jurisdiction.
That's not a good analogy - VAT is simply added to base price at the time of purchase. Profits are entirely different - how would you account expenses for example. Not to mention various tax benefits that differ from country to county.
In case of services it’s in the country where the service is provided - thus in the location of the concert. Now, online streaming again is provided is provided in the location of the viewer, that’s a bit of a mess (used to be involved in running conferences, same thing there)
A concert ticket is not a digital good. The service is given to you at the concert itself, therefore the country in which the concert is, is the country where you will pay taxes.
If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country.
So if a company had $100B global revenue and $10B global profit and 0% of the profit was in France while 10% of the revenue was in France, then the company should be taxed based on the $1B profit that can be attributed to France based on revenue there.
Any other scheme seems it’s prone to creative licensing schemes and similar.
Not really because its extremely exploitable. Revenue is not - it DOES come from someone somewhere - its traceable.
Work effort could be distorted in whatever fashion the country wants. They could declare all their work is done in some off shore 0% tax nation and pay nothing.
It’s “fair” only in that it’s understandable and somewhat enforcacble (and not possible to avoid with loopholes).
It’s not fair in the sense that the right countries necessarily get the tax money - but it’s certainly more likely than it is today.
It’s not fair in that it guarantees businesses aren’t taxed too much or too little, but it does guarantee that the profits are taxed somewhere which ends the incentive to shift the profits around.
Perhaps “fair” is the wrong word. I mean “fair” as in hard to evade overall, not fair distribution.
That would have different tax results depending on whether or not it was operating under a reseller model, where the reseller is the one importing the item.
Then there is little or no revenue local to France.
What if France has complex rules and extra regulations that bring the profit from the country to just 1 percent, compared to ~10% on global operations. With your logic you will tax the subsidiary way more than 100%.
If you're trying to do fair taxation do away with "profit" taxes entirely. Not like any of us plebs get to dodge taxes by spending our income. Subtract what the company spends on salaries from its total revenue and then charge them 20-30 percent of the remainder just like the rest of us pay. "Corporations are people" after all. Toss in a seven percent sales tax on all stock purchases.
True. Proposal of parent could be made more realistic by making sure only few things like bill of materials, resale items and personnel costs can be deducted. Companies already keep track of all these things.
You will have to go after financialization tricks, where healthy companies get loaded with debt, weird tricks with assets and all the stuff the finance industry comes up with that has nothing to do with core function of the company.
Now imagine the powerful lobby you have to work against.
Yup, gets pretty complicated. Seems like it'd be easier to forget about corporate tax, and charge income tax on every dollar going from the company to an individual.
Apparently some lobby found my little comment too. :)
Food for thought: in a distribution chain you will find lots of small value adds. Take sea ports, there are loads of companies that handle import of materials or products. The price they charge for their goods/services are dominated by their import costs.
I would personally be in favor of a ~5% flat tax on corporate revenue across the board if it meant replacing the convoluted profit-based tax schemes that currently exist. The costs of compliance and "tax minimization" are already a couple percent of revenue for many companies, so replacing that cost seems very reasonable.
That would adversely affect new businesses and discourage competition for well-entrenched businesses. The net results is that it would handicap growth.
If anything bigger buisnesses have more ressources to avoid taxes. - Thus having everyone pay the same would lead to large companies paying more than they do now and small companies would be barely affected.
corporations aren't people, and I think you know this. "corporate personhood" means that a corporation has some (not all) of the rights held by individual people. it certainly does not mean that it makes sense to tax corporations as if they were humans that filed a W-2 each year.
what do you think would be solved by jacking up the corporate tax rate specifically? or put differently, whose pocket do you imagine this money comes out of?
the owners are already taxed on any income or capital gains they derive from ownership, employee pay is taxed on both sides, and retail customers pay sales tax. none of those taxes are necessarily optimal, but their impact is at least better understood than corporate tax.
Maybe this is obvious to people that do accounting for multinationals, but it's not clear to me how you even establish that 10% of the revenue was in France.
If a global company like Google pays a global company like Apple $K billion to be the default search engine on iphones, should Apple consider that revenue to be all in the US because Google is headquartered in the US even though it's purchasing something that will apply to people in lots of countries? Does it matter if Google uses local corporations in a number of companies to each pay Apple? If Google pays through its subsidiary in the jurisdiction with the highest corporate taxes, can it force Apple to realize revenue there?
a "simple" solution would be requiring companies to set up legal entities/subsidiaries into the countries they make above xx millions of revenue, getting taxed at the local level, keeping simultaneously things simple for small companies which may sell across borders.
Depends. If it's services, I could see where the services are delivered from (e.g. location of platform or service personnel), OR where the services are destined for (client location) and commit the rev-rec there.
Generally, for tax purposes, it's the address of the customer for cloud services. If they give you a NL address, you tax according to Dutch law. If they give you a DE address, you tax according to German laws, regardless of where services are actually provisioned.
It would not be that difficult to pay EU taxes based on % of revenue attributed to each country. I.e. if you made $1B, and 70% of your revenue came from The Netherlands, and 30% came from Germany, you'd pay Dutch taxes on $700M and German taxes on $300M.
Is this a tax on profits? If so, I worry it will remain weak to hollywood-accounting attacks: it's easy to spend money until there are no 'profits'.
I'd really love to see progressive taxation of corporate revenue: the bigger a company is the higher the tax rate. Huge corporations benefit from economies of scale, so there is an incentive for power concentration. This power concentration is bad for society: it delivers increasing wealth disparity and allows businesses to grow "too big to fail" leading to corruption.
Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product.
To solve this, in most countries, companies are taxed VAT instead, so intead of taxing the total value of product at every step, you are only taxing the value the company adds in the process.
Effectively the government is taxing the total value of the product at a fixed rate once but that tax is being split among the companies which helped supply that product proportionally to the value added by each company.
direct taxes are paid by recipient themselves. (income tax is an example. a person/corp pays a tax on "net income after deductions" at whatever percentage)
indirect taxes are "collected" by the taxpayer but the person who ultimately buys a product pays it as the cost of product is inclusive of this indirect tax.
VAT or GST or whatever. a business who is registered for indirect tax collects it from the customer and pays it to government. this indirect tax is not shown in their profit and loss account because for a business, they are just an intermediary.
direct tax OTOH, is shown in p&l because it there is PBT>tax>PAT.
> Not really. If you imagine a supply chain with raw materials at one end and finished products at the other, if every step along the chain is taxed even a small amount on their total revenue, the cumulative effect would completely dwarf the value of the final product.
Yes, and that’s why it’s weird that the most important resource for most big corporations is taxed like that. All the human labor gets taxed based on revenue and not profit, unlike all the other raw materials.
Individuals (in the US) have standard deduction, which approximates the minimum value to sustain one's person. It's a bad approximation, but it is what it is.
It's assumed that corporations spend as little as possible on operations. Individuals obviously don't. Whereas a corporation wouldn't rent employees 500 sqft / person, individuals regularly rent/purchase that density for themselves. Similarly, while a corporation might buy a Camry and run in into the ground, some individuals will buy a new BMW every 3 years.
Corporations also don't have a motive to exist beyond profits. If you tax revenue and make profits untenable, then corporations simply will not exist. Individuals on the other hand try not to die.
With progressive taxation of corporations, we could disincentivize the existence of trillion dollar corporations, opening up the market for thousands more million to billion dollar businesses to exist. Regulatory capture would be much harder to coordinate which would lead to much less corruption. Greater marketplace competition would lead to better quality services and products for consumers.
The curve used to shape the tax rate as company size grows could be tuned to mitigate many of the potential negative side effects of this.
> With progressive taxation of corporations, we could disincentivize the existence of trillion dollar corporations
In my misspent youth, I worked on a 10% project that helped consolidate and free-up racks of servers so that they could be physically forklifted between space leased/owned by different subsidiaries of one of the world's 5 largest corporations (by market cap). I heard through the grapevine that the main reason for this arrangement was so that these subsidiaries qualified for small business discounts on electricity, and they wanted to keep physical separation in different parts of the datacenters to bolster the case that the various subsidiaries were in fact separate entities.
When you adjust taxes and rates based on company size (or things correlated with company size), you need to be careful about subsidiary loopholes.
It costs multiple billions to make a fabrication plant. Considerable amounts of research and GPUs to train a machine learning model. That electric vehicle? Good luck developing it without a big bankroll, subsised by investors because they think it could 1000x.
An easier way to do this is just to break up these companies directly. Monopolies or duoplies or x-opolies should be broken up, just like AT&T and Standard Oil.
Having these monopolies (defining loosely - whether one company or a 2 or 3 or 4) is the main deficiency of capitalism.
Unfortunately, breaking up monopolies or increases taxes is exceedingly difficult to do as large companies and their lobbying congress prevents it in most cases.
Only half-ironic though. There is a problem with industries that are viable and important in the longer term, but are at risk of being shut down in shorter terms due to market fluctuation. Subsidies help them off the ground on one hand, but ossify their structure and skew the incentives (by definition) on the other hand.
> Steel just barely makes the list of top 100 US companies by revenue at #100.
What does your imagined tax bracket structure look like if the top 100 companies aren't at the highest, most painful bracket? "Barely being in the top 100" means you're enormous.
> Would steel consumers be better off if the largest steel companies were broken in to smaller pieces?
Well pretty much everything in the economy runs on steel, and you're proposing removing their economies of scale and taxing them on revenue. Do you think they're going to be better off?
Let's imagine it's a true perfect competition world. Steel producers make basically 0 profit on average (this is not the case). Next year supply crunch. Costs go up 10%. Steel producers need to raise prices by 10% to stay profitable. But wait, now their taxes are based on their revenues, so if they raise their prices by 10%, they take on at least 10% more taxes, so now they're losing money. They'll need to raise their prices high enough to earn enough revenue to offset the increased taxes. But wait, turns out other countries make steel too, and these companies are realistic enough to tax on profits only. So now American steel is too expensive to compete.
When you have high fixed costs and low variable costs, a revenue tax is brutal because you need high revenues to even begin to break a profit.
Would steel consumers be better off if the largest steel companies were broken in to smaller pieces?
This would destroy economies of scale and cause the price of steel to skyrocket. It would send the entire economy into a tailspin.
Low margin, large scale businesses are highly efficient from an economic standpoint. Doing anything to hurt these businesses would be disastrous to the economy. We want to encourage efficiency, not punish it.
Those things are fine, but many companies will e.g. register a separate company in a tax haven, give that company a piece of IP, and then have that company charge the original company for all of their profits. That way, the company has no profits to report, but the money wasn't reinvested in any way, just routed around profits taxes.
Don't worry: All corporate taxes are rolled onto the consumers. Inflation of the monetary supply is not the only government policy artificially inflating your cost of living.
> it's easy to spend money until there are no 'profits'.
It depends. In some countries it is easy, it others it isn’t. Depends on what can be counted as an expense and what part of that purchase can be accounted for in a given fiscal year depending on when it was purchased…
For example. Germany. If a company buys computer equipment in December, they cannot deduct 100% of the value for the fiscal year that is about to finish because that computer equipment cannot be reasonably used for the whole fiscal year. So a company can deduct 1/12th of the value. Of course the reminder can be deducted in the following year but the profit is already affected for the previous year. And don’t get me even started on advance taxes companies have to pay.
I don't really like this kind of idea because it really goes against a kind of fundemental freedom. "If you don't like it, you can leave".
Instead, laws around making sure that the profits generated from a countries citizens are taxed by that country make more sense to me. A lot of laws around that already exist, and I suppose a lot of people would say that they have not been effective.
A lot of it comes down to the treatment of Intelectual Property. A lot of the tax games that companies play relate to licencing their IP around between different countries. I wonder what would happen if a country tried banning licencing of IP between related parties internationally?
> and I suppose a lot of people would say that they have not been effective.
They really aren't. Q8, the gas stations, have been in Denmark for 30 year, if not more, they've apparently never been profitable, certainly not enough to pay taxes. The same goes for Coca Cola, which may have start to pay taxes.
The only solution I've seen propose is a revenue tax. Similar to a VAT it would be added at the point of sale, making it impossible to avoid for companies. In return corporation would pay tax on profits. It has it own set of problem though.
> profits generated from a countries citizens are taxed by that country
What about people who migrate somewhere else? What about dual+ citizenships? It makes little sense for me to pay taxes in a country I haven't lived in for 20 years.
Many countries don't allow for double citizenship, but sometimes they have to make exceptions because some countries don't allow you to renounce to your nationality
You can't get rid of a greek citizenship,its impossible. I think thats how it should be.
The games with revoking citizenship of Snowden, etc. ate absurd and should not be allowed. Even if the person is a criminal, he must server punishment defined in law. He is still 'your' American/greek/ whatever criminal
That would be just shitty for kids. Your parents are from A and B, but live in C. A and B are hard to enter without citizenship and impossible to live/work in long term without it. If you limit multiple citizenships, you basically kick the child and limit their family access without any reason in that situation.
In your scenario, a C-only citizenship child with an A parent and a B parent is no worse off than say his peers who have C-only citizenship, and whose parents have C-only citizenship, too.
It's not like any of those C-only peers could easily visit or move to A or B, either, based on how you've described their policies.
If anyone is worse off in that scenario, it would be the C-only children with C-only parents. Those families are pretty much stuck dealing only with country C, no matter what. The multi-citizenship family, on the other hand, could potentially benefit from the ability of a parent returning to A or B for a period of time, for example.
You seem to be mistakenly portraying the family with more options and flexibility as "victims", when in practice they're actually much better off than others are.
It depends how you look at it. Sure, policies would be the same. But if you think about people, those kids may have minimal chances of seeing their extended family for years.
I wholeheartedly agree with this, and I think the idea "If you don't like it, you can leave" is one of the most important, if not THE most important freedom a person should have. It's the reason why former communist countries took passports away from their citizens.
It's the idea that we know what's best for you and you better adapt because there is no escaping. It's the fundamental idea of many social justice movements that require totalitarian methods to get what they want.
This is why self-determination is such important concept, something that the global utopians can never really grasp.
You can leave, but corporate profits can't leave, that is the idea. I don't see why corporate profits leaving the country they were generated in is necessary for freedom.
I assume you refer to people who can't reasonably leave for whatever reason.
But even if you can't leave, seeing the results of another country that does something a different way is a valuable comparison point that can drive a change of policy where you are.
> But even if you can't leave, seeing the results of another country that does something a different way is a valuable comparison point that can drive a change of policy where you are.
True, one could argue that seeing the results in other countries that do things a different way was indeed valuable and the lesson was to adopt a global minimum 15% tax on big business.
There are a whole host of corporate entities which allow for pass-through taxation: LLC, S-Corp, sole proprietorships, and the like. I'd be surprised if European countries didn't have similar mechanisms.
Believe it or not, they mostly don’t. It tends to be fairly binary. Corporations have legal personality, including separate tax identity, so no pass-through taxation. Sole proprietorships have pass-through taxation, but no legal personality (incl. no limit to liability).
Intermediate entities like LLCs are a relatively recent Americanism that’s unusual in the rest of the world.
sole proprietorships are taxed at personal income level but pay pension contributions and/others at a % level, the game became unwhorthy at six figures levels. the way out are paying the lifestyle like SUVs with company funds (deductibles) and if worthy setting paper boxes to pay lower taxes. Example: San Marino offeres Trust funds that are easily taxed at 1.7% on income (can take money out after 2 accounting years). quite handy to build family/long term wealth
That's how taxes work generally though. I already paid income taxes on my salary, but when I spend it on something I have to pay taxes again, and then the retailer has to count it as taxable income as well. Anytime money changes hands the government gets its vig. I don't see how the corporate tax is so egregiously different.
No, if we are talking about VAT then companies have to make the following sum
€800 VAT the company charged to clients
€500 VAT the company paid to suppliers
===== -
€300 VAT the company has to pay to authorities
This system makes sure that VAT over any good will only be charged once. VAT usually rolls over from one company to the next till it reaches its destination, the consumer.
ULTIMATELY, the consumer pays the VAT. The consumer cannot deduct VAT.
I doubt anyone makes this mental calculation when they’re considering buying something at a store.
Sure, big ticket items people might shop around for a lower tax but will they not buy something based on minimizing the amount they pay to the government?
No one is saying it's egregiously different. The question was why corporate taxes are lower than personal income taxes, the answer is that there is no logical reason why they should be equal or higher. No one complains that their sales tax rate is lower than their income tax rate.
Then where do we get the money to pay for things like the justice system, law enforcement, national infrastructure, unemployment benefits, healthcare, pensions, customs, diplomats,...? Switch to a system where the government owns everything and gives people what they need if they work properly?
The MMT argument for taxation is that it's necessary to encourage demand for a currency, thus making it more valuable. But there's no fundamental reason that a government which controls its own currency must collect taxes to pay for various services.
Congress could pay state and local governments directly each year.
If you're willing to throw away some property rights, then state and local governments could theoretically lease land as a means of raising revenue without direct taxation. (this is a terrible idea)
My favorite MMT detail is the currency lock up accounts to reduce inflation. Basically they prevent people from spending money until inflation decreases. They claim it's not confiscatory as people will get their money back eventually and not taxation because it's the same amount of money. Despite their claims it is indeed both of those things as the real value of the money has decreased.
Predictable large inflation each year with no taxes may make theoretical sense in some models. But it seems like it would not be compatible with human psychology.
> If you're willing to throw away some property rights, then state and local governments could theoretically lease land as a means of raising revenue without direct taxation. (this is a terrible idea)
The government's fiat currency would be worthless without a complicated system of taxation in order to create demand for it. No private individual or business would be interested in selling their goods or labour to state and local governments in exchange for fiat, unless they are forced to have that fiat in order to pay taxes - and here is included mortgages to the banks, since it is 100% a tax as well.
This is what people forget about (especially tech minded people), when they think up new systems of taxation that would be more fair and effective: Any fair and effective tax would destroy the currency, since people and businesses could easily pay their share and then instantly convert their remaining wealth into non-fiat assets, or even safer fiat assets. In order to prop up the value of the fiat currency, the tax system needs to be extremely bureaucratic and reach into every and any kind of economic activity imaginable. That way there is a constant need for businesses to keep that fiat on hand and do their accounting with that fiat.
I think OP means that there should be one or the other, not both. Just increase the rate of one if you need more money instead of inventing a new one to double-tax the same income stream
Meanwhile the Swedish government is giving massive incentives to Amazon, Google, Facebook and Microsoft to build data centers (and I assume other countries do too). Almost zero taxing on electricity and actual monetary payouts.
In other words, this is a bit of a headline without any actual teeth (there’s plenty of ways to compete unfairly), which is the problem when you start wanting to govern the world, you can’t cover all the bases.
In Poland, there's plenty of "special economic zones" and the companies which establish there are off the hook for corporate income taxes for the next 30 years (IIRC). Other EU countries probably also have similar things?
This will be watered down in every way imaginable, escpecially the usual suspects like Malta with a straight up fraudluently advertised 30+ % corporate tax rate ,but they "refund" you everything but 5%, making it an effective 5% tax rate.
There is no way Malta will play along, it is a small state abusing all the EU benefits for nefarious purposes and never contributing anything useful.
This is just an example, there are many, many more more sophisticated schemes like that, Malta is just doing it openly.
to put things in context, malta is an island country in Europe with a population of ~500k, and a gdp of ~$17B, truly a small state. i think it would be very hard for them to compete with a bigger, more developed country without the incentives you mention. of course taxes are just a part of the discussion, but a part nonetheless.
I’m not an Economist, but doesn’t such a tax lower a firm’s ability to pay its employees (by hiring more or increasing wages) or decrease the firm’s ability to pay dividends to shareholders or force the firm to raise prices.
Generally, it seems like a way to collect more revenue from the population while hiding it as an indirect tax. And it seems a bit like a regressive tax that hits everyone. The fact that they want it to be global makes me feel that they don’t want to compete with other countries that may have “better” economic policies -— whatever that would mean.
Useful to know! That's why I prefer setup business in free zones where I do'n need to pay taxes. It's quite profitable for business. I found info about free zones that are completely exempt from taxation here https://yourtaxadvice.com/ . There are so many benefits for business: no corporate tax; quick company registration; possibility to create substance in the country of registration; no requirement to prove the payment of authorized capital to register a company. You can consut with Business Consultants to find out all the details. They also can help with company registration, including licence and rent of shared desk office.
Taxes on corporations to me always seemed rather silly.
If there was a tax hike on my business, I'd automatically hike prices by 15%. This is what businesses are supposed to do. You buy shoes for your shoe store, you mark up the price, you can't sell them for what you bought them for. You hire an extra person, you raise the price of your goods or services. Oil prices go up? Gas stations raise the price of a gallon of gasoline. You have to pay extra taxes, you raise the price of your goods or services. It's always the customer who pays that extra 15% tax. It has to be that way, how else could it be?
Of course countries with high taxes are all for raising taxes in countries where they are lower!
Now, unfortunately the article does not mention the interesting bit, which is that EU countries with lower corporation tax will therefore have to raise their rates. I'm thinking especially about Hungary and with the current tense relations I'm surprised that they agreed... What is the deal?
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