Italy ... announced a 3 per cent "web tax" on digital advertising
Presumably there is some reason why simply slapping VAT on digital advertising doesn't work?
Over the next few weeks Facebook, Amazon and Google’s owner Alphabet report full-year results. Inevitably, this will reopen debate on whether big technology companies pay enough tax in countries outside the US bases, something that's been discussed for several years. The difference is that now politicians in several countries …
"Presumably there is some reason why simply slapping VAT on digital advertising doesn't work?"
VAT is collected by the vendor (free of charge to the tax authority) but paid by the buyer. If the buyer is a VAT collecting business they reclaim the VAT they paid by deducting it from the VAT they collected before passing that on to the tax man. Ultimately VAT is paid by the consumer.
I've no direct knowledge of VAT on digital advertising but I'd expect it to be charged already; assuming it is it will work in just the same way as VAT does elsewhere. If you buy something that's VATable and digitally advertised you'll be paying your share of the VAT on the advertising, even if you never saw the advert.
Why tax income at all? Implement a land value tax instead. It would work better than the continual cat and mouse game between governments and corporation's accountants.
"His best-known follower was Henry George, perhaps the only tax theorist in history whose beliefs have become the object of almost cult-like devotion. One of his fans invented the game now known as Monopoly, to exemplify the evils of untaxed rent. In a book called “Progress and Poverty”, published in 1879, George argued that land-value levies should replace all other taxation, leaving labour and capital to flourish freely, and thus ending unemployment, poverty, inflation and inequality."
There is one problem with implementing a LVT however:
"Rich people tend to own a lot of land, poor people very little."
Because a lot of the e-commerce value is virtual, not physical. Most of their value wouldn't be attached to land. This is why the landowner clause was amended out of the US Constitution: because industrial giants didn't need a lot of land to become real rich. Plus land value is a tricky thing to assess, given few places re-base real estate values each year (thus creating a potential tax loophole for large landowners called "buy, borrow, die").
The sad thing about tax, ANY tax, is that companies are under a fiduciary duty to minimize it, any which legal or quasi-legal way they can. Even if that means playing sovereign states against each other. The only guaranteed way to ensure a tax gets paid is a global-scope authority, and that again raises sovereignty issues.
The sad thing about tax, ANY tax, is that companies are under a fiduciary duty to minimize it
No, they aren't. The Government got so pissed off with people arguing this that any regulation that could conveivably have been argued this way was ammended in 2006 to remove any such argument.
You can say that rich company directors feel that they could ensure that as much of the companies money ends up in their pockets instead of the taxmans as possible, but it's no longer possible to argue that they have any duty to do so. Quite the opposite if you read the sections about social responsibility, and managing the firm in it's long term rather than short term interests which include duties to avoid wrecking the companies reputation for short term gain.
Yes but the people who work at e-commerce companies still have to cluster into cities to work together, and enjoy the other benefits of working and living in a city. Somehow I don't think Amazon are going to pick a remote town in Arizona for their second headquarters.
The company ends up needing to pay higher wages, so that its workers can afford to live in San Francisco, so it ends up paying the LVT indirectly.
The Economist reckons that the valuation of land is not impossible:
"A third problem is that valuation of the high-priced urban land (rarely sold as vacant plots) may be tricky—and controversial. Wealthy commercial landlords could tie the assessment process up in costly legal knots.
Some of these objections could be overcome. A land tax need not be implemented overnight. It could be phased in, which would mean market signals started working before the levies were actually paid. Hard-up owners of valuable land could be allowed to commute payment until they die. Valuation of urban land, with a bit of maths, is not insuperable."
Food costs will skyrocket, which is rather a bad thing for poor people who spend a relatively higher percentage of their income on food.
I'm sure Wall Street would love this, because they make a lot of money in a building with the footprint of a single Manhattan office block. A $50 Big Mac wouldn't be a concern for them.
"If you tax land
Food costs will skyrocket, which is rather a bad thing for poor people who spend a relatively higher percentage of their income on food."
Where on earth did you get this notion from?
The idea promoted by The Economist and others is to tax land *value*. Farmland is inherently low value, as almost no one wants to live there.
I think you might have got the idea that a land value tax is a flat rate tax per square kilometer of land, regardless of value. This isn't actually the case with Henry George's proposal.
In fact, land value taxes have the unique advantage of being one of the only taxes that doesn't distort economic activity. As landlords cannot reduce the supply of land in response to a tax (there is no deadweight loss).
One trope I keep hearing form those of a more Randian persuaion when the proles complain of how little tax big multinationals pay is: "Well, it's avoidance not evasion, and it's legal". Putting to a side for a moment the fact that thanks to extensive lobbying an supporting pet politicians, these corportions have a huge influence on tax laws that are written to their advantage.... I think it's extremely pertinent that whenever they were audited, it turns out they had to pay more tax. So, a couple of points...
- If they had to pay more following an audit, does that not count as evasion?
- If an ordinary citizen is audited and found to have underpaid, as far as I know they have to pay not only the unpaid tax but also a fine. Was any fine paid in this case? And why is the fine not x% of hteir turnovre rather than a slap on the wrist? I mean, they have helped to write the system themselves to their own maximum advantage, and they are STILL gaming it??
Traditionally* the distinction between avoidance and evasion was that the former involved embracing the law in all its glory in order to find a legitimate path through the tax maze which didn't involve parting with cash, while the latter was about sidestepping the maze altogether and just not letting the authorities know about your income/profits.
So an avoidance scheme would involve declaring all your income, transactions etc, then explaining in painful detail why the law as written didn't tax it. Evasion would involve hiding income or transactions by booking them into secret accounts or not declaring cash takings. Also the former tends to be a civil offence, the latter criminal - so, corporations can afford the former in both financial (they can pay for the advice) and reputational (well, civil is better than criminal at least) terms. Evasion is cheaper provided you don't get caught and there's a mass of academic literature on why people think they won't get caught.
So, if following an audit the courts ruled/taxpayer and authority agreed that the law fell in the authorities' favour it wouldn't be evasion if the company had been up front about why it thought the income wasn't taxable. And if the "interpretation" had been made carelessly, negligently or fraudulently then yes, there'd be a penalty on top of the interest due, whoever the taxpayer is. (I think the UK is up to about 22,000 pages of tax law this year; plenty of room for ambiguity in there)
*Politicians tend to conflate avoidance and evasion, which muddies the waters. It doesn't help that the terms don't translate out of English either; conversations in Brussels have to be handled carefully. From a tax policy perspective though, it's very unhelpful - the tools you need to tackle avoidance are completely different from those needed to tackle evasion; one is about drafting your laws so there aren't loopholes, the other is about getting taxpayers to engage with the law in the first place.
Businesses pay taxes on profits*, not revenues. So saying "XYZ Corp paid only 0.1% of their revenues in tax" is completely meaningless. Even self-appointed tax scourge Margaret 'Enver' Hodge's own family business paid tiny amounts of tax on £10 billion of worldwide revenue, for the simple and obvious reason that they made a loss.
* And the tax is due where the profit is generated - it's very difficult to argue other than that Apple, Google etc generate most of their profits in the US.
The new tax law requires companies with overseas cash they never repatriated to pay taxes on it, which is due over a period of eight years. I assume Apple will be paying that $38 billion over eight years, unless there is some advantage to them of paying it all up front (i.e. maybe the IRS is charging interest if you pay over time which you can avoid if you pay up front)
"Leave the cash overseas and continue to indefinitely delay paying taxes on it" which had been their strategy since the Bush repatriation holiday in 2004 is no longer option for any company. But they don't have to worry about it in the future, as overseas income will no longer be subject to US taxes.
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