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Comment by tomp | Hacker News Reader

Where is the money made?

Take Apple selling phones in the UK. Is the money made in the UK, where the phones are sold? Maybe part of it (selling phones), but Apple enjoys a large premium over Android, and that's more debatable. Was the money made in Taiwan, where iPhones are made? Or in California, where iPhone was invented? Personally, I don't really see why UK would tax Apple more than Android makers, simply because Apple (from California) was more inventive... while the profits were realized in the UK, they weren't created in the UK.

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It’s where they’re sold.

If I buy online and have it shipped to the UK, is it sold in the UK, in another countries warehouse or wherever they have a web sever?

This has already been settled in the EU - from a tax perspective, the sale is happening where the customer placing the order lives, which typically coincides with an address in the same country.

Now something like this is bound to come, from the new treaty, to all G7 countries, which hopefully means it will trickle down to the G20 at the least.

The main issue is not rules on sales though - it's cracking down on profit-shifting masqueraded as IP transfers and licensing. Hopefully that too is being cracked down on.

First, this is not a treaty, it is an annoucement. To make the announcement a "real thing", each country needs to go back to their own legislatures and pass laws, and in those countries that are federal, they need to somehow get their states to pass laws. That then needs to trickle down into account changes, jurisdictional changes, etc. None of that has happened. What has happened is that leaders got together in a conference and issued a joint press release of an intention to address a certain problem within a framework of certain types of solutions. Think of it like the Kyoto agreement -- there is a big difference between popping some champagne corks and actually getting stuff done.

Maybe they should do a sales tax then.

The UK already has an 18% GST rate, which is equivalent to an 18% tax on revenues. In 2020, Apple had revenues of $274B and pre-tax net income of $67B. On which, they paid $10B in income tax (a 15% rate).

Apple revenues in the UK was about $2B. Which means Apple is already paying $360mil in GST tax to the UK gov. Apple also paid some amount of wage, income, real-estate and other taxes.

Let's imagine companies had to pay income tax on a pro-rated, point-of-sales basis. Thus, apple's pre-tax income for the UK would be 2/274 * 67 = $500M. At a 20% income tax rate, this would net the UK gov an additional $100M.

This is why they want this sort of thing. It has nothing to do with fairness. The US gov is generally opposed to pro-rating profits based on location of sales. Because the US tax code allows companies to effectively deduct foreign taxes from net income, income taxes paid overseas has the effect of reducing income tax paid to the US gov.

> The UK already has an 18% GST rate, which is equivalent to an 18% tax on revenues.

No, GST is a VAT (in fact, the UK’s is called a VAT, not a GST), which is not the same as a revenue tax.

The majority of Apple's sales is to consumers, so it's equivalent for the sake of argument.

Its not equivalent to a revenue tax, because a VAT excludes purchase price and revenue doesn’t.

I'm not sure what you mean. If you assume all sales were to consumers it's true that the government receives ~~18% of Apple's revenue compared to if Apple sold nothing. Or are you just referring to the small difference between counting "revenue" as inclusive of VAT or exclusive of VAT?

VAT excludes the VAT paid when the company purchased the raw materials, i.e. it's paid net.

The end result is, the consumer pays VAT which is 20% of the price (i.e. 20% of the revenue), and the tax is spread out evenly across the whole production supply chain, weighted by the amount of added value by each company in the chain.

Bingo. The reason that non-US governments (like the UK) want to get a share of the tax on profits is because they lack domestic innovative high-profit companies. They want to take a share of the added value created / subsidised by another government (US in this case). It's bad incentives all around.

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