True, in that it would better to fix the underlying problems that allow companies to pretend they have no profit. In practice though, it’s not likely to be a problem.
How far can the EU push before these companies decide it is not worth having actual businesses there?
Very, very far. They’re not being pushed much at the moment.
Profit is a complex calculation when talking about cross-borders. If you company spends $20B in country A, $0 in country B, has revenue of $10B in country A and $10B in country B, how much profit did it generate in country B?
Just because information services have a near-zero marginal cost, it doesn't mean they have zero cost.
I totally agree, but equally we know that the company makes profit in both countries, regardless of how the figure is juggled. That leaves regulators with the puzzle of figuring out how to fairly tax them; a levy on revenue isn't an awful idea if it's correctly applied, but there might be better solutions.
It is a terrible idea, because it tends to favor companies that have their cost base in the country. In other words, local companies.
This is a trade war move.
Which is just the opposite of the current situation where the non-EU/offshore company has an advantage. My UK based company pays taxes in the UK on its profits, but a US company could come in and undercut us with the mechanisms already discussed.
Why shouldn’t the EU have the unfairness stacked against the non-EU organisations? It seems that’s what they should be doing.
If there’s a way to make the situation into a level playing field then that’s even better.
But you can’t play the ‘trade war’ argument when it’s already being abused to the detriment of EU companies and tax payers.
That's why this is a trade war between countries with different tax rates. And they don't even need to have different tax rates. This also isn't any different from sending production to cheaper countries.
Not only that, but this is a basic condition for global trade and globalization.
Countries will compete, and that's good for the world.
> But you can’t play the ‘trade war’ argument when it’s already being abused to the detriment of EU companies and tax payers.
I'll translate that as "less efficient countries refuse to reform and increase efficiency to compete in global markets, so decides to close borders to global markets".
That has had a positive outcome in exactly zero percent of the times it was tried.
Sounds like opinion rather than fact. It’ll just be a race to the bottom of countries cutting corporation tax, etc. Which means less revenue for the governments and therefore less societal services for the residents of those countries.
Society is predicated on the notion that if we all chip in a percentage of our gains from work performed then the really difficult stuff (that corporations won’t and individuals can’t achieve) can be done by a central authority - it minimises risk and provides stability. If external corporations syphon off 100% of that value then society suffers.
Why should countries compete? What’s the point? What benefits does it bring to their residents? Countries are not corporations trying to vie for a place in some Global Index, they’re places with people in who want a certain level of service for the work that they do.
Local tax rates are what they are because the people living in those regions think it’s an acceptable level. What rights does an external corporation have to just ignore their wishes?
You don’t have to be a socialist to understand this concept. We all need governments for the tough stuff.
The current system can’t continue because it’s anti-competitive and anti-society. Those corporations need to pay their fair share toward the societies that they’re profitting from.
I don’t blame them for gaming the rules: the rules must change to stop this from happening.
> You don’t have to be a socialist to understand this concept. We all need governments for the tough stuff.
I'll answer. The benefit is that it allows for freedom of choice for residents. If some people like certain qualities of a given country, they can move there. If they like other qualities of a different country, they can move there instead.
Different people want different things in their society, and thats OK. We do not need a one size first all world government that forces the minority to accept the opinions of the majority.
We do indeed need government for many things, but different people disagree about those things, and how much the government should be involved and thats ok! Everyone can better get what they want if they are given the choice to move around between countries.
There are, of course, barriers to entry as not everyone can move to a new country at the drop of a hat, but it is still not as difficult as it might seem. I've lived in a dozen different states in the US, for example (yes, states are not equal to counties, but they really are quite different, and have many different laws).
With freedom of movement in the EU, at least, it is particularly easy for residents to move around.
I'm not completely sure why that would be the case – wouldn't it result in a relatively level playing field?
This is the core problem, but it's also very difficult to solve.
Google makes money in Europe by selling advertising to European customers. It moves money out tax-free by claiming that much of its income is used to pay for the worldwide tech infrastructure and brand usage to its parent company.
But this is not entirely fictional. To run its business in EU, the local branches do need the infrastructure and Google brand, and paying for it is a valid business expense. The problem is calculating a realistic price for it. How much does Google UK benefit from the "dinosaur game" in Chrome, or how much should the Google Germany share of its development cost be?
Coming up with a fair and loophole-free formula seems impossible. It might be easier to just put a lower tax on revenue than a higher tax on profit.