G20 agrees to push ahead with digital tax(reuters.com)
reuters.com
G20 agrees to push ahead with digital tax
https://www.reuters.com/article/us-g20-japan-tax/g20-agrees-to-push-ahead-with-digital-tax-communique-idUSKCN1T903D
87 comments
Company pay taxes because societies a.k.a. countries say so. Taxes are not a business dealing in kind of you give this, they give you that. Countries do not need a rationale for taxes as long as they stay consistent in their law. Basically, France could charge a tax on Alaskian fish.
The only problem is usually: why the hack the Alaskian company should pay. But for our global companies the situation is different: when they want to charge someone in France for services, then France has a way to collect :).
The only problem is usually: why the hack the Alaskian company should pay. But for our global companies the situation is different: when they want to charge someone in France for services, then France has a way to collect :).
>Countries do not need a rationale for taxes as long as they stay consistent in their law
Legally speaking, sure.
Morally speaking, it's not so clear. Wars have been started because the rulers subscribed too heavily to your line of reasoning. Being taxed into oblivion is generally considered a damn good reason to kick out the current government, peacefully at first but violently if necessary. While I don't think Britain and France are anywhere near a breaking point with respect to taxes it's worth remembering that a breaking point exists.
Legally speaking, sure.
Morally speaking, it's not so clear. Wars have been started because the rulers subscribed too heavily to your line of reasoning. Being taxed into oblivion is generally considered a damn good reason to kick out the current government, peacefully at first but violently if necessary. While I don't think Britain and France are anywhere near a breaking point with respect to taxes it's worth remembering that a breaking point exists.
Taxing Google and Facebook is not pushing British or French population closer to that breaking point.
Costs get passed on to buyers and eventually to consumers. They might get diluted along the way but they do get passed on.
... Except you then realize that in Google and Facebook's case the end user you think of is not the customer/consumer those costs will be passed on.
EDIT: downvoting me doesn't change the fact that those 2 don't make their money by charging you and me their users, they charge advertisers who want to show us ads and get our data. If a cost needs to be passed on, it will be passed on them.
EDIT: downvoting me doesn't change the fact that those 2 don't make their money by charging you and me their users, they charge advertisers who want to show us ads and get our data. If a cost needs to be passed on, it will be passed on them.
Those advertisers will pass the cost onto their customers. This is consumer facing advertising we're talking about. The people the advertisers pass their cost on to are the consumers, the people buying their products and services.
Sorry, but reality does not work that way. The economy is not really some collection of autonomous agents trading spherical cows like macro-economists would like you to think. When you get two or three layers removed from a cost/benefit at this scale it has been reduced to noise. What will happen is that the ad vendors (Google, FB, etc) will pass some of the cost on to ad buyers but not all and the tech titan stockholders will take a small hit. The ad buyers will integrate the new costs into their ad models and so they will view it as a cost of advertising and pay it (small profit hit) or will consider alternative advertising options if the cost impacts advertising ROI. What will the consumers pay? Nothing.
This comment seems a bit speculative, do you have or is there information out there that supports this?
This is more anecdotal, but my time at a logistics company has shown the opposite to be true. Every cost increase, whether it was a tariff or increased fuel surcharge, was passed on to the next company, and to the next, down to the end consumer themselves. Every increase in vendor/supplier price was reflected almost immediately in the next invoice as our CFO instructed us to maintain our profit margins. There was even a multiplicative effect as each company applied their margins onto each price increase, such that a $100 increase in fuel costs could be double or triple that by the end.
It is possible that companies with massive margins might be willing to bite the bullet, but I doubt the advertising industry is full of companies with big margins. Perhaps the tech companies at the top, but definitely not the more numerous and smaller companies. For this reason, I find it extremely unlikely that "the end user will pay nothing". The end user will pay something, but the size of that "something" is certainly debatable.
This is more anecdotal, but my time at a logistics company has shown the opposite to be true. Every cost increase, whether it was a tariff or increased fuel surcharge, was passed on to the next company, and to the next, down to the end consumer themselves. Every increase in vendor/supplier price was reflected almost immediately in the next invoice as our CFO instructed us to maintain our profit margins. There was even a multiplicative effect as each company applied their margins onto each price increase, such that a $100 increase in fuel costs could be double or triple that by the end.
It is possible that companies with massive margins might be willing to bite the bullet, but I doubt the advertising industry is full of companies with big margins. Perhaps the tech companies at the top, but definitely not the more numerous and smaller companies. For this reason, I find it extremely unlikely that "the end user will pay nothing". The end user will pay something, but the size of that "something" is certainly debatable.
No, but not only a displeased population can cause trouble to a state.
The resources these technology firms are exploiting in, e.g. Belgium, include user data and network infrastructure - the latter in particular is often very highly publicly subsidised so if a company is seen as benefitting from it disproportionately then it's unsurprising that people think they should be taxed for taking advantage of it.
> Companies pay taxes because they use resources and services provided in a given country (roads and other infrastructure, police protection, courts, etc.).
That's one view. Another is that they pay taxes simply because they have resources that society needs. If Facebook is trading in the UK (benefitting from access to the UK market, then I think it is reasonable that they pay tax in the UK).
That's one view. Another is that they pay taxes simply because they have resources that society needs. If Facebook is trading in the UK (benefitting from access to the UK market, then I think it is reasonable that they pay tax in the UK).
What about David Cameron, Beckham ...
Every rich person in the UK is incorporated in British overseas territory. Shouldn't they be the first to be taxed ?
Every rich person in the UK is incorporated in British overseas territory. Shouldn't they be the first to be taxed ?
David and Victoria Beckham paid £12.7m tax in the last year. Facebook, which collected £1.3bn in UK sales, paid £15m...
arcbyte(4)
I think the problem is that sometimes the seller and buyer are both from country A but the sales is registred under company X in country B. Company X is normally not Facebook, but they are trying really hard to change that.
Examples of X: MrJet and Trivago.
Examples of X: MrJet and Trivago.
I think the commonly held doxa is that company should pay (some of their) taxes where they make profit.
In the case of sales this would be more clear cut. But Facebook profits from user in a country through ads, which do not necessarily need to be purchased in that country. It's just that these things antecedes the internet and the omnipresence of digital goods and services.
In the case of sales this would be more clear cut. But Facebook profits from user in a country through ads, which do not necessarily need to be purchased in that country. It's just that these things antecedes the internet and the omnipresence of digital goods and services.
>*
If a company located in US, like Facebook, avoids paying taxes there (strange that someone who pretends to be rather left leaning person like FB owner escapes taxes, but that's a different story) it is the US problem, not a global problem and they should sort this out somehow - for instance make FB to pay directly for services/resources provided by the state, maybe in the global economy corporate tax does not make much sense any more?*
Doesn't have to use services/resources. It can just pay a tax for the privilege of operating in the country.
Doesn't have to use services/resources. It can just pay a tax for the privilege of operating in the country.
"The U.S. government has voiced concern in the past that the European campaign for a “digital tax” unfairly targets U.S. tech giants."
How about admitting that the U.S. tech giants unfairly use their monopolistic powers because the Internet has become a winner-takes-it-all economy.
How about admitting that the U.S. tech giants unfairly use their monopolistic powers because the Internet has become a winner-takes-it-all economy.
The issue isn’t so much any anti-competitive misbehavior. Even though there are some specific practices that have landed FAANG in hot waters, those aren’t really different from any other companies’ of similar size.
Monopolization just happens to be the natural state of any system that has network effects and where all costs are front-loaded (I. e. write the code once, scale to billions of users at, if you squint, zero marginal costs).
But neither of these issues are the motivation for calls for a “digital tax”. Nor is economic nationalism. There have always been industries that were dominated by one or just a few countries: the US has media/entertainment, consumer goods manufacturing has almost entirely moved to Asia, etc.
What’s different about “digital” is that requires essentially zero presence or taxable activity at the consumers’ location. Nobody felt the need to tax Hollywood’s movies because a ticket to ‘Titanic’ in Austria may have meant 2€ leaving the country, but the bulk of it actually stayed in the local economy, as (taxed) revenue of the theatre, local distributors, corn growers, and breweries.
For physical products, this is even more obvious. French champagne served in a Billings, Montana restaurant is about 50% margin for the venue, 30% for the US-based distribution chain, and only 20% goes to funny mustaches people in striped shirts.
Monopolization just happens to be the natural state of any system that has network effects and where all costs are front-loaded (I. e. write the code once, scale to billions of users at, if you squint, zero marginal costs).
But neither of these issues are the motivation for calls for a “digital tax”. Nor is economic nationalism. There have always been industries that were dominated by one or just a few countries: the US has media/entertainment, consumer goods manufacturing has almost entirely moved to Asia, etc.
What’s different about “digital” is that requires essentially zero presence or taxable activity at the consumers’ location. Nobody felt the need to tax Hollywood’s movies because a ticket to ‘Titanic’ in Austria may have meant 2€ leaving the country, but the bulk of it actually stayed in the local economy, as (taxed) revenue of the theatre, local distributors, corn growers, and breweries.
For physical products, this is even more obvious. French champagne served in a Billings, Montana restaurant is about 50% margin for the venue, 30% for the US-based distribution chain, and only 20% goes to funny mustaches people in striped shirts.
A digital tax is basically an equivalent to custom tax. Goods like German cars have to pay custom taxes during importing them to the US. A Netflix stream from the US to Germany not. And that is getting fixed.
But it is fair to say: this is not only about taxes. This is also about countries gain control over global economy.
But it is fair to say: this is not only about taxes. This is also about countries gain control over global economy.
Just because it happens for historical reasons doesn't mean it was a good idea. Not to mention those are physical things that require tangible resources to reproduce.
There's so many things I have to pay 20-30% more for in Canada (for ex: $150 for shoes that are $100 in the US) for ridiculous protective import policies for old non-core industries that do little to help the economy.
There's so many things I have to pay 20-30% more for in Canada (for ex: $150 for shoes that are $100 in the US) for ridiculous protective import policies for old non-core industries that do little to help the economy.
I think you're misunderstanding the flow of money here. No one is opposing sale of goods and services in another country. They're opposing booking the profits in a third, unrelated, low-tax country.
It's like the French vineyard sold all their wine at cost to an Irish holding firm, which then sold it at a markup around the world and booked all the profits. Except the vineyard also owns the holding company.
Neither the Montana buyer nor the French manufacturer are in Ireland, but that's where the money winds up and taxes paid.
It's like the French vineyard sold all their wine at cost to an Irish holding firm, which then sold it at a markup around the world and booked all the profits. Except the vineyard also owns the holding company.
Neither the Montana buyer nor the French manufacturer are in Ireland, but that's where the money winds up and taxes paid.
Can you provide some examples there support this claim of a "winner-takes-it-all economy"?
Facebook, Apple, Amazon, Netflix and Google should suffice.
Facebook has a plenty of competition in the social media space, Apple certainly isn't the only hardware manufacturer, Amazon has competition everywhere and so does Netflix. Google hardly runs the only ad network.
None of these companies are taking it all.
None of these companies are taking it all.
Facebook controls 70% of social media
Amazon has 50% of all e-commerce spend in the US.
Netflix put Blockbuster and every other movie rental store out of business. It currently has 50% of all video streaming traffic in the US.
Google has 80% of the search market.
I'm not so sure about what Apple monopolizes, but they do have a duopoly in the app store space with Google.
Amazon has 50% of all e-commerce spend in the US.
Netflix put Blockbuster and every other movie rental store out of business. It currently has 50% of all video streaming traffic in the US.
Google has 80% of the search market.
I'm not so sure about what Apple monopolizes, but they do have a duopoly in the app store space with Google.
> Google has 80% of the search market. Facebook controls 70% of social media.
Wrong way to think about this. If you talk about advertising monopoly, sure. But you'd be hard-pressed to make an argument on a monopoly of free products.
> Netflix put Blockbuster and every other movie rental store out of business.
That's because Blockbuster was, quite frankly, shit. They failed to adapt to the internet. So what? Times move on. Netflix is far far better for consumers.
Something isn't a monopoly just because it's popular.
Wrong way to think about this. If you talk about advertising monopoly, sure. But you'd be hard-pressed to make an argument on a monopoly of free products.
> Netflix put Blockbuster and every other movie rental store out of business.
That's because Blockbuster was, quite frankly, shit. They failed to adapt to the internet. So what? Times move on. Netflix is far far better for consumers.
Something isn't a monopoly just because it's popular.
>Something isn't a monopoly just because it's popular.
If you're a state missing out on tax because the options that provide it to you are unpopular it sure is.
This isn't a discussion about consumers.
If you're a state missing out on tax because the options that provide it to you are unpopular it sure is.
This isn't a discussion about consumers.
> Amazon has 50% of all e-commerce spend in the US.
So 50% == all?
So 50% == all?
> Facebook has a plenty of competition in the social media space
Please give some examples.
Please give some examples.
WeChat, QQ, Snapchat, Twitter, TikTok, Discord, VK, Telegram, Reddit and presumably many more I'm forgetting.
Google + FB + Amazon will own 70%+ of digital advertising this year.
top three winners take 70%. That sounds like most industries nowadays. More healthy than telecom or film I'd guess.
Well, that sounds like the exact opposite of winner-takes-it-all.
Thankfully, the EU disagrees with you as do a growing number of people around the world.
> Thankfully, the EU disagrees with you
The EU doesn't disagree with me. Some people involved may be asking questions, but that doesn't mean that the EU disagrees with me.
If the EU disagreed with me we'd know, as they'd be taking action against these companies.
The EU doesn't disagree with me. Some people involved may be asking questions, but that doesn't mean that the EU disagrees with me.
If the EU disagreed with me we'd know, as they'd be taking action against these companies.
Netflix? Its entire business is basically the equivalent of one of Amazon's side experiments!
All of them complete between themselves, that's a bad example.
I wasn't aware Facebook has its own hardware ecosystem or music delivery store, Google does grocery deliveries, and Apple runs its own open import and reseller market.
The "competition" is pretty nominal at this point. The areas of competitive overlap are much smaller than the areas of monopolistic market dominance.
The "competition" is pretty nominal at this point. The areas of competitive overlap are much smaller than the areas of monopolistic market dominance.
They compete between themselves and also has several external competitors?
I think it's notable that none of the "winners" are European tech startups. They're all from the US. One could argue that because the US focuses on innovation and Europe seems to be focusing on legislation that the latter will always be chasing the former.
If instead of making it more difficult to build technology products, Europe focused on making it easier maybe the would be able to provide some much needed competition to the US tech scene. They seem more determined to tear down value than create it though. In the end, it will be their own citizens suffering though lack of tech jobs available in their market (c.f. the going rate for a full time engineer in the US vs Europe), lack of innovative tech that caters to local needs and ultimately lack of tax revenue from local companies.
If instead of making it more difficult to build technology products, Europe focused on making it easier maybe the would be able to provide some much needed competition to the US tech scene. They seem more determined to tear down value than create it though. In the end, it will be their own citizens suffering though lack of tech jobs available in their market (c.f. the going rate for a full time engineer in the US vs Europe), lack of innovative tech that caters to local needs and ultimately lack of tax revenue from local companies.
There's some first mover advantage and some country/language limitations that can bring up costs, but the main reason is actually the easy availability of cash in the US. Successful European companies, especially startups, are bought by US players. Think Skype or Minecraff: successful European startups bought by a US giant (Microsoft). More poignantly, the VC money allows companies to exist that really shouldn't, and they in turn crowd out smaller less-funded competitors that stem from other markets. Think Uber and Lyft - two giant unprofitable startups that exist because of VC investment to burn. Or Bird. Or ..
Funny enough, that's the two strategies that US companies/gov complain the Chinese are doing.
That said, there are a few big European players, such as on mobile games (king digital), network infrastructure (Nokia), etc. Just not as significant name brand value in the anglophone world.
Funny enough, that's the two strategies that US companies/gov complain the Chinese are doing.
That said, there are a few big European players, such as on mobile games (king digital), network infrastructure (Nokia), etc. Just not as significant name brand value in the anglophone world.
norswap(1)
The best traditional HN bad car analogy I can provide is Illinois State DOR is angry the new car factories are relocated in the rural south where the property taxes are low and what tax they do pay goes to the locals and not Illinois DOR, and they're selling those "foreign" cars in Illinois, so Illinois is going to add a special registration tax for cars registered but not manufactured in Illinois.
This is kinda a bad example because Illinois still has a handful of plants left, although they're doing everything they can to push them out of the state as fast as possible, I selected them more as an example of a very high tax state than as a non-mfgr state.
This is kinda a bad example because Illinois still has a handful of plants left, although they're doing everything they can to push them out of the state as fast as possible, I selected them more as an example of a very high tax state than as a non-mfgr state.
Nah, I would use the ZEV system. Where if you don't produce it how we like it you pay a penalty; a tax. (Zero Emissions Vehicle) credits.
The no physical existence loop hole is one worth closing, if you sell goods or services it should be taxed within the authority the sale occurs. That is common sense. However the second issue, what is digital and what isn't and how it can be taxed outside of the same point is a bit worrying, it basically sounds like, if we don't think you pay enough even following the rules you will pay this too.
just watch for the exceptions to pile on because you can guarantee members of the G20 will put them in there, similar to how states and cities whack large chains by looking at their full sales corporate wide instead of local sales.
The no physical existence loop hole is one worth closing, if you sell goods or services it should be taxed within the authority the sale occurs. That is common sense. However the second issue, what is digital and what isn't and how it can be taxed outside of the same point is a bit worrying, it basically sounds like, if we don't think you pay enough even following the rules you will pay this too.
just watch for the exceptions to pile on because you can guarantee members of the G20 will put them in there, similar to how states and cities whack large chains by looking at their full sales corporate wide instead of local sales.
It would also never survive Constitutional scrutiny, as it’s a blatant violation of the Commerce Clause. States can’t impose import duties, however disguised.
I wonder how this is going to affect small businesses selling digital services to different countries within the EU while only having one office/country of incorporation.
"The first pillar is dividing up the rights to tax a company where its goods or services are sold even if it does not have a physical presence in that country."
"The first pillar is dividing up the rights to tax a company where its goods or services are sold even if it does not have a physical presence in that country."
I guess the same way as VAT: below a threshold (35k or 100k EUR of distance sales/year, set by the destination country), the seller's country VAT applies.
https://ec.europa.eu/taxation_customs/individuals/buying-goo...
https://ec.europa.eu/taxation_customs/individuals/buying-goo...
> to different countries within the EU while only having one office/country of incorporation
I think this system already applies to paying VAT for digital purchases in the EU.
I think this system already applies to paying VAT for digital purchases in the EU.
That’s an unehlpful principle, imho. It might be more practical to “tax up”, which is the traditional approach we have followed throughout the ages. We could build a g20 organism that accumulates revenue from all global companies and redistributes it on projects that make a difference on an equivalent scale, in things like energy, transportation, health, environment preservation, space exploration and so on. Obviously there would be issues of governance to sort out, as it’s always the case, but we’d be inching forward towards global cooperation on “humanity scale” - something that we will need, eventually, if we really want global peace under democratic rule.
Even the EU does not have the power to tax. It’s practically impossible that a rather informal forum like the G20 would be granted such authority.
The EU can’t tax directly... yet. It’s inching closer, though, with each subsequent “sovereign crisis” and the looming inevitability of easier mechanisms for fiscal transfers.
I agree that it’s unlikely the g20 could or would do this tomorrow; I just think it’s what we should eventually aim for, and establishing principles against this so early-on is, imho, a mistake. But I guess I shouldn’t complain about what is, overall, positive news.
I agree that it’s unlikely the g20 could or would do this tomorrow; I just think it’s what we should eventually aim for, and establishing principles against this so early-on is, imho, a mistake. But I guess I shouldn’t complain about what is, overall, positive news.
I would assume there would be a threshold of some kind
I still don't get global taxes. In real life, how can digital startups keep track of global taxes? They simply ignore it, comply with them partially (hoping that Tuvalu doesn't sue them) or what? I understand that Google or Amazon can hire lawyers all around the world, but for a tiny self funded startup? it seems like a minefield.
You outsource the service to a payments provider that does that for you.
The _same_ way global corporations have accounting offices in every country they operate in, or the same way you buy standardized industrial components that comply with existing regulations.
It is not ideal, but getting paid overseas is far from the largest barrier startups have to face.
The _same_ way global corporations have accounting offices in every country they operate in, or the same way you buy standardized industrial components that comply with existing regulations.
It is not ideal, but getting paid overseas is far from the largest barrier startups have to face.
Related to a comment I made on another thread about identity, FANG companies have two leverage points in this discussion. One is they can adjust their features to the countries in question, as few democratically elected governments could win an election if their population couldn't have iphones, amazon delivery, or netflix.
The second is that without the US, sanctions against these companies are unenforceable, these companies own the digital identities of those populations, so those countries can only enforce data laws at the discretion of US authorities. They are increasingly an arm of US policy.
The bargaining chips now are between the US wanting to regulate them domestically, and foreign countries wanting control and taxation. IMO, the deal proposed by US legislators will be, "deal with us, or them," where the US can offer protection and moderate taxation in exchange for more direct surveillance and policy levers.
The real danger is new foreign tax obligations will likely be leveraged to break up the founder dictatorship equity model and create a scramble for their data assets.
The second is that without the US, sanctions against these companies are unenforceable, these companies own the digital identities of those populations, so those countries can only enforce data laws at the discretion of US authorities. They are increasingly an arm of US policy.
The bargaining chips now are between the US wanting to regulate them domestically, and foreign countries wanting control and taxation. IMO, the deal proposed by US legislators will be, "deal with us, or them," where the US can offer protection and moderate taxation in exchange for more direct surveillance and policy levers.
The real danger is new foreign tax obligations will likely be leveraged to break up the founder dictatorship equity model and create a scramble for their data assets.
tongue firmly in cheek: people may actually be motivated to elect officials that cause them to scale back operations in their countries
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This is kind of surprising in case of Britain. As long as I remember both Cayman islands and City of London, two of the best known tax havens, are British territories so Britain could prevent tax evasion easily.
When it comes to "taxing" those pesky Facebooks and Netflix globally, I am not sure I understand justification for this.
Companies pay taxes because they use resources and services provided in a given country (roads and other infrastructure, police protection, courts, etc.). Facebook does not use any resources in, say, Belgium, so why it should be taxed there?
If a company located in US, like Facebook, avoids paying taxes there (strange that someone who pretends to be rather left leaning person like FB owner escapes taxes, but that's a different story) it is the US problem, not a global problem and they should sort this out somehow - for instance make FB to pay directly for services/resources provided by the state, maybe in the global economy corporate tax does not make much sense any more? I can imagine that Facebook has some fake office on Caymans, but I hardly believe they would relocate there data centers and employees to avoid taxes, so making tax proportional to number of employees in the given jurisdiction, size of the office, used electricity, etc. might make sense.