The plan was always to reach a more comprehensive arrangement in the near future, according to France (they stated it was a temporary measure until OECD members could come to a solution). The US has repeatedly said it was willing to work with OECD members to come up with a digital tax solution. The US position for example has never been blanket against implementing an OECD-agreed digital tax. So there is likely room to find a compromise. Kicking the can down the road until that can be accomplished, is probably the best outcome here.
I wouldn't be surprised if new taxes are all based on revenue in the concerning region and not on profits. Taxes should just be part of the cost of doing business.
In this case it was the US breaking a multilateral contract they negotiated themselves and pretty much all European nations tried (and are still trying) to save the deal.
It's because the internet giants always declare zero profit, because they pay their own subsidiary in a tax haven a high "license fee". France tries to close that loophole.
Is that correct? Note that the US does no longer allow deferred taxation of foreign income (which was what was happening before 2017).
(Even at the time, money stashed overseas was still subject to US taxation, though it could be deferred until repatriation, so calling it untaxed was somewhat misleading)
Yes, it is correct and has nothing to do with deferred US taxes. They avoid paying taxes in France, Germany, etc. by transfering the profit to (for example) Ireland where they are taxed at extremely low rates. This is not about US taxation.
In the end the remaining profit is declared and taxed in the US, right? I agree many countries would like a bigger share, but it does not seem obvious why France or Germany deserve a bigger share, when the product is developed elsewhere.
Historically product development is where the value is created (so mostly US). With digital services, the EU feels like it's missing out on tax revenue and to that purpose argues that the consumer creates value instead.
I understand what you're saying, but lots of things harm other EU members while benefiting some. That's why many countries joined the EU in the first place.
This is not correct and it has everything to do with US corporate tax deferral. The accounts for Apple in Ireland only includes profits created by the value added in Ireland (relatively small) and profits on sales in Ireland (ditto). All the rest accrues to the US parent company. This is a matter of record.
France does absolutely not care whether the money is taxed in the US or not. They want to tax the money internet giants make in France. All the money these companies make is shifted (by "license agreements") into tax havens, thus they don't see a penny. Apple Ireland did definetly not only include profits made in Ireland (only after shifting them to Ireland, which kind-of made them Ireland profit but ripped off everyone else).
edit: For reference - Apple booked $120bn revenue[1] in Ireland in 2017, which amounts to $18,461 per inhabitant.
Where a company books revenue has pretty much nothing to do with corporation tax which is based on _profit_.
This discussion has no chance of being productive if the distinction between profit and revenue is constantly blurred. It wouldn't matter if Apple had booked $120bn revenue in France as it's only the _PROFIT_ booked in France which is taxable.
What France wants to do has to be compatible with the decades of building international consensus and rules on taxing supply chains that span the globe. Unless they want to see their car, aviation, food, etc. exports subjected to revenue based taxation in international markets.
Taxing revenues of imports is a called a "duty" nothing to do with corporation tax.
I gave you the revenue number so that you understand that Apple has been shifting their European business through Ireland to avoid paying taxes elsewhere.
Okay, let's talk about profit. $34bn in 2014, so not even at the peak. Apple made $34bn profit in Ireland and pretty much none elsewhere in the EU?
> Unless they want to see their car, aviation, food, etc. exports subjected to revenue based taxation in international markets.
Surprise surprise, European countries have to pay profit taxes in the US. Those profits cannot be shifted as easily as digital profits.
The revenue number is irrelevant when it comes to corporation tax, don't you agree? If you do agree, why mention it? The discussion is complex enough without introducing unrelated numbers.
The figures I've seen published suggest that Apple declares 3 or 4bn _PROFIT_ a year on their Irish operations. This is about 3 or 4% of the REVENUE which passed through the Irish operations which does not seem unreasonable for a logistics operation. Apple makes 35% or 40% margin on sales which means that the VAST amount of profit is booked in the US.
> European countries have to pay profit taxes in the US
This is simply not true. I've been involved in selling stuff to the US from Europe and we did NOT have to pay "profit taxes" on our sales.
This isn't true - public corporations are obliged to publish accurate accounts which include the profits of their subsidiaries. Even an very basic overview like https://www.apple.com/newsroom/2019/04/apple-reports-second-... includes "international" profits.
The confusion here is cause by the (internationally unique as far as I know) American tax rule that allowed US corporations to defer paying their US corporate tax bill. The tax liability still exists. Effectively the rule gave US corporations with large amounts of international profit an indefinite interest free loan.
I'm guessing that the rule was introduced (or at least not suspended earlier) because it acted as a sort of subsidy for US corporations to grow international markets for their products. While the form of this subsidy is unique, many countries indirectly subsidize overseas expansion for companies founded in their jurisdiction, for example by funding export insurance schemes and the like.
> public corporations are obliged to publish accurate accounts
Those aren't for taxation, though. It's "our global company made profits in country X". The taxation is interested in the actual taxable profits in country X, and those are close to zero, because of said tactic (license fees, consulting fees etc). It's really well documented, and there's little incentive to change the whole tax system to account for tax-evasion strategies.
Those are US corporate accounts and absolutely are used as the basis for US taxation. The fact that a corporation can make billions of dollars of profit but not have to immediately pay corporation tax on the profit was a quirk of US corporate tax law. Those tax liabilities really do exist. Just because you don't pay tax immediately (say on your salary) doesn't mean you are paying zero tax.
> Those are US corporate accounts and absolutely are used as the basis for US taxation.
And this is about France. Not the US. US taxation doesn't matter to France. It's not their jurisdiction, they don't get a share of it, they cannot influence it. France. not US. France.
I'm getting downvoted for responding to the claim "internet giants always declare zero profit" - which can be trivially refuted by cursory search. Alphabet declared a profit of about 7 billion dollars for Q1, 2019 - which is not zero. Apple declared around 11 billion for the same period - also non-zero. Facebook declared 3.5 billion, etc. etc.
So no, internet giants do NOT declare zero profit.
Could you tell me their profits in France, Germany, Spain, Italy and then compare it to their profit in Ireland? The point here is not that they make no profit. It's that the Irish subsidiary charges the French, German, Spanish and Italian subsidiaries a "license" fee equal to the profit that each of them makes. So all of these subsidiaries make 0 profit, the Irish subsidiary makes a fat profit. But the kicker is that in Ireland their effective tax rate is nearly 0. So they pay no tax on all their European profits.
If you're interested, you can estimate the profit on revenue in all countries relatively easily by multiplying the country revenue by the overall margin.
These numbers tell you how much profit _Apple USA_ made in those countries.
Say Apple USA typically makes $300 on an $800 iphone sold in Germany. Where should this $300 be taxed?
To me, it seems perfectly reasonable that most of it is taxed in the US, since the iPhone was invented, developed, engineered in the US and ultimately the business and product was created in the US.
And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains.
If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany, then you are claiming that the innovation, engineering and design that occurred in the US contributed ZERO value to the iPhone.
And even if you did that, it would not change Apple's tax liability (much) as it would just mean shifting corporation tax rights from the US to Germany.
It's not strange that all the European calls for shifting the right to tax corporates from the countries where they do the most work/create the value to other countries only seem to apply to "internet giants" but not "car giants" or "aviation giants" or "food giants" which whould result in European countries having to give up large amounts of corporation tax income to other countries.
> If you demanded that Apple pay full German corporation on ALL of the profits made by Apple in Germany
That's just complying with the law. The rest of your comment is irrelevant and is not how taxation works.
This is solely an issue of accounting and tax rules that allow an international company to effectively be taxed wherever this suits it best, i.e. where the rate is lowest, be reporting no or very low profits in countries with higher rates because 'profit' depends on many parameters which an international company can tweak.
This is very difficult to prevent legally because the rules companies use are reasonable when running a business and thus cannot realistically be removed.
The only solution left is therefore to tax what cannot be tweaked: revenue.
No it's not complying with any law. For example, Germany car exporters do not pay corporation tax on the _whole_ supply chain profit in the countries where sales are ultimately made.
Of that example $800 retail price, the cost break down (I'm making up these figures) might look something like: $80 German sales tax, $50 for the German retail outlet, $30 Germany logistics and distribution, $50 Ireland internationalization and packaging, $70 Chinese manufacturing, $250 USA engineering and development.
I don't see why you feel the correct thing would be for Germany to tax all of the $300 profit, given Ireland, China and particularly the US contributed far more to the value of the finished product.
This idea - when a product or service involves international supply chains - that the profit is taxable based on where the value was created has been the basis of interational trade. And there are huge bodies of work and accounting rules on how corporations are allowed to split that $800 up among all the countries involved in the supply chain.
You mentioned profits in Germany, now you're talking about the whole supply chain's profit or cost... It's difficult to follow your argument.
The issue, which I explained, is that they can set prices along the supply chain to arbitrarily end up with 0 profit in Germany (following your example) and all the profit with a notional trading or licensing subsidiary located where tax is lowest.
If it's difficult to follow my argument that's my fault.
I should have been more clear about the distinction between "profits on sales in Germany" and "profits made by the German operation".
The $300 is the (global) profit on the sale in Germany.
The profit made by the German operation would be relatively small in this case - assuming for example that the Germany operation is purely involved in logistics and retail. These type of operations are quite low margin.
It is simply not the case that corporations can arbitrarily set the prices along the supply chain for accounting purposes. There are decades of international tax case law to determine where profits can be assigned in a global supply chain. Transfer pricing is governed very strictly.
Clearly, in this example, the German logistics and retail can only claim a very small proportion of the value - given that typically their profits are single digit percentages. The US can claim nearly all of it since it's US engineering which adds the most value (like German engineering adds the most value to a car sold in the US).
Logistics and distribution are low margin operations and so make small profits and so pay small amounts of corporation tax.
If the operations of Apple, say, in those countries are mostly logistics and distribution, then the profits of those subsidiaries will be low. By international tax law your German subsidiary cannot charge $200 per iPhone to bring it from a port warehouse to a retail outlet. It can only book a "reasonable" or arms-length profit for it's part of getting an iPhone into the hands of a consumer.
Re. clutching at straws - it doesn't contribute much to offer guesses about how confident I am with my arguments. If I were not happy with my case, I would not be putting it into writing.
Logistics and distribution in Germany is irrelevant. What happens is that the product is re-sold from one subsidiary to the next in a way that allows to effectively locate profits arbitrarily.
It is avoiding to look at reality to claim that it must be that these companies report no profits in the countries I mentioned. The reality is that this is done on purpose by clever schemes.
> To me, it seems perfectly reasonable that most of it is taxed in the US
It doesn't matter what you consider reasonable. If you want to access the European market, you better pay the taxes that are demanded.
> And indeed this is how international corporation tax works by decades of rules on transfer pricing and how corporations are allowed to assign expenses and value along international supply chains.
We are talking about tax loop-holes. This is about closing such a loop-hole.
In Apple's case it seems even worse, because Ireland gave them a special tax deal, lowering their tax rate below Irelands normal rate, which is illegal under EU law.
> And even if you did that, it would not change Apple's tax liability
The point here is that those sales in any country benefit also from the public infrastructures: even where there is the least use of the public money, those infrastructures play a big role in allowing any company, national or foreign, to exercise their activity and make profits. Most of the countries in the world have their internet/telecom networks setup by private companies, but they are helped a lot by the public sector. Those investments help the internet giants to operate and again, to make profits, so my view is that they should be taxed just the same as the local companies. Even in the US, the public sector is mandatory when there are big infrastructures to be put in place. Which is for example a reason why the foreign automakers can be taxed in the USA, because they benefit from this.
If you think that all exports to any country should be taxed only in the country of origin, no foreign company would be be taxed in the USA anymore for any of their export there, and going back to my example, no german automaker should be taxed for their cars (invented, developped and engineered in Germany) in the USA. Given that they benefit from the public spending on the roads and so on, that wouldn't be fair also.
So in a way, this french digital tax is just the same as the USA not allowing the deferred taxation of foreign income, albeit about a single sector. Therefore, I don't quite see why the USA are seeing it as unfair, given they are doing the same thing.
Actually, what all countries should do is to have the exact same law as the USA, to be able to tax all companies (internet giants included) for the real profits they make locally, by removing intra-corporation licenses or fees that allow for the tax evasion to work. But obviously, those companies would probably find another scheme to do that, so I am really wondering whether taxing the income and not the profits is such a bad idea. It would have to be offset by a mechanism on the real expenses excluding intra-corp ones.
I agree with a lot of what you say here. Corporations benefit greatly from public infrastructure and they should pay taxes for the benefits they derive from it. A sales tax or VAT achieves these goals.
But you misunderstand my argument - I have never claimed that Apple only pay corporation tax in the US. My arguement is that Apple should (and do) pay taxes based on where the work/value was done.
In a post above I suggest that an $800 iPhone could consist of something like: $50 for the French shop selling it, $80 French sales tax, $30 French logistics and distribution, $40 Irish localization, $40 Chinese manufacturing, $300 US engineering and and management. Leaving $300 or so profit.
International tax law says that each of the countries involved in this supply chain: USA, China, Ireland and France only get to tax the value added in that country. This is why nearly all the profit is taxable in the US and very little is taxable in in France (and Ireland for that matter) as logistics does not hadd a huge amount of value.
And I disagree with you that all the $300 profit in this example should be taxable in France just because the sale occurred in France.
> But you misunderstand my argument - I have never claimed that Apple only pay corporation tax in the US. My arguement is that Apple should (and do) pay taxes based on where the work/value was done.
But the mechanism we use to determine value is markets. Unless apple allows me to buy the same phone hardware without logo and slap my own initials on it, we can never know the value generated by this step. As such, we have to treat everything done internally / without markets as a single black box and tax it accordingly. The problem is this black box spanning across tax jurisdictions with no good way to determine where what share lies. The easy fix would be require all transactions between countries to be between independent companies on a market. I don't ever see this happening (for good reason), so different countries will have to work together to find ways everyone gets a fair share.
So Ireland added $35+bn worth of PROFIT/year through its irish subsidy? And the rest of the EU basically nothing? Ireland‘s illegal Apple tax deal was ok?
France says internet giants circumvent their tax system (and it‘s obvious they do). It‘s France right to try to stop that.
No - it's about $4bn by my calculation. See https://www.irishtimes.com/business/technology/apple-records... on Apple's Irish tax bill. This is probably a reasonable margin given that the vast bulk of the revenue accrues from low margin logistics and packaging.
France can tax whatever it wants. But it should later complain if this provokes a tit-for-tat reaction from the US or other trading partners if they decide to tax French imports.
I know it's not a popular argument here but I genuinely fear a future world with escalating tarrifs and trade barriers and I think there is a huge amount of FUD spread about how international trade works.
>Commissioner Margrethe Vestager, in charge of competition policy, said: "Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014."
You're quoting a number from the Vestager ruling as if it were generally accepted but it has been contested and currently up to the European Court of Justice to decide whether she was correct in her interpretation.
France tried something similar against Google and it was thrown out twice by French courts - https://www.reuters.com/article/us-france-google-tax/google-... - because the attempt to tax Google for value generated in the US does not comply with international transfer pricing rules.
So if company Y created a genetic variant of a vegetable in Country X, and if this vegetable is shipped and sold in supermarkets around the world, the profit made from sales of that vegetable should only be charged in Country X, and not in the country that made the sale to the end consumer?
To be straight here, yes that's pretty much how it's supposed to work. There would have to be sales, logistics and back office functions in the consuming country and those operations would be taxable. There would like to also be general sales tax in the consuming country but these would apply to all sales, not just the sales of "foreign" goods.
Countries have tried heavily taxing revenues of "foreign" imports - they're called tarrifs or import duties - and generally the result has been to make everyone poorer.
But it's a populist meme at the moment - both on the left and on the right - Trump's misguided/dangerous trade policies for example - that international trade is impoverishing or a zero-sum game.
You are downvoted because you are ignoring the context. This is not about declaring zero profit in the US but in many EU countries - i.e. France. Now these countries fight back.
> So no, internet giants do NOT declare zero profit.
Right, but this is about France, where they didn't declare a profit of 7 billion dollars. Let's refrain from trying to be technically correct by not looking at the context of comments and then arguing against a straw man.
Complying with the tax laws is now a leftist agenda? Calling out Apple getting an illegal tax deal in Ireland (below normal tax rate, against EU law) is leftist agenda? I think complying with rules is a very conservative thing to do.
Complying with tax laws is exactly what apple and other big companies are doing right now. Leftist and Communist countries invent new taxes everyday (france have a 75% revenue tax, this is the closest thing to communism in the world)
Only reason to support this stupid move by the french president is leftist agenda.
Hopefully president trump have defeated this stupid move with retaliation taxes on france if they insist on this path... And they backed off :)
Fake news??? What are you talking about? Please take few minutes to search on google before saying it's fake news... My message clearly said there is a 75% revenue tax in france and it's true. Why are you talking about corporate tax when i explicitly mentioned the 75% revenue tax?
https://en.m.wikipedia.org/wiki/Taxation_in_France
2) The 75% is not a "revenue" tax. You don't even know what revenue is.
>The tax introduced by Francois Hollande as the 75% tax is in fact an additional employer contribution of 50% which when existing social security charges are added reaches 75%. The proposed tax was subsequently modified after being rejected by the Council of State[7] and was implemented in 2014 in its current form and will be discontinued as of January 2015
The discontinued 75% "tax" also included pension and health insurance.
If this not existing tax is not what you were referring to, what is this "revenue tax" you are talking about.
To be honest I left france several years ago and I was not aware about that tax was transformed to "only" 50% of tax instead of 75%.
Anyways that doesn't change the fact that france is still a fiscal hell and that most rich peoples left the country already after this stupid tax was voted. The same year I left there was also thousands of other people's who left france. I heard the peak was in 2015 with more than 10k millionaires who left france that year alone. Stupid taxes and fiscal instability are 2 majors reasons why france is slowly dying.
This type of tax is gonna happen all around eu. The reason being - big digital services pay almost zero taxes by doing clever tax tactics and moving all their revenues to tax havens.
It should be said that the US have the same problem (these companies pay little tax there as well). The difference is that they do not see that as a problem.
There's an argument to be made that they also don't use anything in that country because they're digital services. And, supposedly, taxes are to pay for infrastructure? Although these days the view seems to be, let's just take as much money as possible, even if nothing / very little is provided in return.
Here's an example: A German company pays to advertise to a German consumer. It used to be that the money spent on that advertisement went to a German advertisement company, so that money would stay in the German economy, and the system would be sustainable, with money flowing around the system but not escaping. Now the ad money ends up in the Cayman Islands via Ireland and none of it is retained in Germany because the multinational advertising company has no/very few employees in Germany (no salaries/income tax) there's no VAT (because the ad sale is a B2B transaction) and there's no corporate taxes (because the ad company uses transfer pricing - e.g. licensing of IP that they can price arbitrarily - to shift all their profits to Ireland where they make them disappear in a puff of smoke). The end result is that money is being siphoned out of the German economy and into tax havens (so there's no return flow like there'd be if this was just normal trade with other active economies) making it harder and harder to sustain the German economy. There's a leak in the system when selling to consumers, and if it's left unchecked it'll slowly collapse the middle class and consumerism as we know it. I'm not sure if revenue tax is the best solution, but we need A solution. (or you know, we could just blame the foreigners and let the weakest parts of society fight over the jobs and shreds of wellfare state that are left, which seems to be the preferred solution these days). Mind you I'm not arguing against international trade (which increases competition and drives down prices) but against the unfair competitive advantage that multinational companies, especially digital ones, have over local companies by not needing to pay taxes at all. We need an even playing field, tax-wise, that's all.
> It used to be that the money spent on that advertisement went to a German advertisement company
It sounds to me like the problem is that the German economy failed to produce a Google competitor or, at least, a decent local German online advertising network that the German consumer would want to use. So, now they have a problem that they're trying to solve with taxation instead of innovation. This won't work, it just creates barriers to international trade in global world. It is 19th century economics.
> have over local companies by not needing to pay taxes at all
That is incorrect. They pay their taxes in their home countries. Why should they be penalized extra over local to Germany companies by having to pay double tax: once at home and once in that country?
You don't seem to understand how transfer pricing and tax havens work. These companies are not paying taxes on profits from most of their foreign sales in their home countries - the home corporation pays taxes on their domestic profits, and profits from those international subsidiaries that can't be channeled to tax havens (e.g. not from Europe) while all those profits that can make their way to tax havens do. Here's an article explaining how Apple does it: https://www.irishtimes.com/business/apple-s-cash-mountain-ho...
What that article doesn't make it clear is that the overseas cash was still subject to US taxation.
A few years ago, that taxation could be indefinitely deferred, but that's no longer the case. So calling it a tax haven is somewhat misleading if we're talking about US companies.
> Are you seriously suggesting consumers of Google Ads (entities, worth on average, a few thousand euros) will go to court against Google (an 800bn dollar company)?
No, Google will sue them if they don't pay and the amount is large enough. That's a fairly trivial process in most legal systems. If you do use the legal system, that is. If you don't, you need to pray that your contractual partner keeps their end of the bargain because you cannot enforce the contract.
> Consumer contracts are enforceable due to reputational concerns and goodwill, not the legal system.
That's wrong. It's easy to enforce a contract, it happens all the time.
They still have offices in those countries, use infrastructure, benefit from education, especially higher education as well as the access to a fair and regulated market.
> use infrastructure, benefit from education, especially higher education
We established the infrastructure bit to not be true (how many times do you have to pay for the same thing?). Education: so why are students then paying tuition fees? Average UK student graduates with $45,000 debt... I am sure for 3% of revenue, Google can send their entire staff for 4 years of Ivy League college and have money leftover.
> a fair and regulated market
LOL. The EU is a fair market about as much as China.
UK ain't all of Europe! Mainland European countries heavily subsidies infrastructure such as Internet, Electricity, etc. They even invest billions in the construction of new power lines, and fibre-optic lines. For the latter Germany alone is spending 100 Billion Euros.
And what about giants such as Amazon that use the roads as well and don't pay any taxes?
And most European countries hardly have any tuition fees that could cover the costs of the University. Belgium tuition is ~1k per year, Netherlands its ~2k per year, Germany 0$, Austria 0$, Swiss ~1-2k, Spain <1k, Portugal <1k, Denmark,Sweden,Finland,Norway <1k. The UK is an outlier that tries to follow the american model of not investing into the future generations of a country. And thereby crippling a nation in the long run.
Finally, for a fair and sustainable market all businesses must abide by the same rules. Why do European companies pay taxes throughout europe on the profit they make in each countries to the respective country, but big American companies don't even pay 1%.....?
It's a ringing admission that the EU is entirely broken, they can't control their own tax havens in any manner. Since they can't manage that, they've begun implementing arbitrary tax schemes against revenue.
The extremely obvious, proper solution is to curtail the tax havens within the EU.
It would be "obvious" if taxation was not one of the topics where the EU is specifically structured to not have much power, and leave it to sovereign states.
So it would be a matter of making Ireland raise it's taxation rates.
I suspect a number of companies, some of which have a fruit as a logo placated on their headquarters far across a certain ocean, would object to that.
