US slaps tariffs on countries that hit Big Tech with digital services taxes ... then pauses them immediately Countries whose digital services taxes disproportionately affect the US tech industry have been slapped with 25 per cent tariffs on up to US$2bn of their goods by the Office of the US Trade Representative (USTR). The office announced the tariffs and a 180-day suspension of them in the same breath, with the suspension designed …
G7 Finance ministers are meeting this week in London and are expected to support US President Biden’s call for a new minimum tax to curtail clever corporate tax dodging.
If Company G generates revenue in country X, then it should pay tax where it's generated, not 'offshored' to tax haven Y. It's not being disproportionate against US tech companies when it's those companies doing what their creative accountants are telling them to do, ie: tax dodging..
If Company G generates revenue in country X
If it generates profit in country X, it should pay tax in country X. Paying tax on revenue does not make sense, it's a bodge to get around the fact that tax codes are stupidly complex. The fix is to simplify them, not to add yet more bodges on top of bodges. That just creates even more loopholes for tax lawyers to exploit.
"If it generates profit in country X, it should pay tax in country X"
Generates profit or declares profit? There's the rub. International companies have been running rings around the taxman long before the internet existed. The classic was the cost of spare parts sold across borders within the same company. Called transfer pricing IIRC.
Another classic is when companies are acquired and the price of the Goodwill element, followed by tax writedowns on virtual losses by overpaying for it.
The taxman isn't an engineer, an IT expert or an economist. I don't know what the answer is but maybe taxation on corporations should reflect a proportion of 'value extracted' with a sort of economic judiciary to decide how much that is.
Have to consider the fact that part of the issue is that corporations like customers in rich well educated populaces with good infrastructure and healthcare, while wanting to pay for cheap labour and low corporation tax in countries where less of those things exist. A bit more lateral thinking is needed if were going to get away from the 'Double Dutch'.
"We need to move to a tax on revenue, not just for digital services but for everything."
ROFL. So all low-margin business should be abolished? Luxury goods only? Return to truly medieval inequality? Or alternatively negligible taxes on things only the rich buy? You're a nice chap.
I never said that small businesses need to pay the same rates as large ones.
The Guardian today reported that Microsoft's Irish subsidiary paid zero taxes on £220bn profit. I doubt that means that smaller Irish companies don't have to pay taxes either.
It's not just Microsoft, it's all multinationals and most big corporations. And it's not just Ireland, that's just who popped up on my newsfeed.
Tax lawyers are paid to game the system in every country that their corporation operates in and every country has its own tax code with its own definition of profit.
I'm puzzled. I operate a one-person consultancy firm. I am largely retired, and my firm now has only one remaining client: the Australian subsidiary of a US firm. All of the value is provided in the US, all of the revenue is billed and paid from Australia, and all of the cost is incurred in my country.
So perhaps you could explain to me, is my firm's profit earned in my country, in Australia, or in the US?
Since this appears to be much clearer to several commentators than it is to me, perhaps someone could explain how the tax laws need to be "fixed" so that my firm pays its taxes in the correct country.
To my way of thinking, the firm makes a profit, but it does not make the profit in any particular country, and there is no "correct" country that should levy the tax. What we see is a tax grab by countries that feel they are missing out, and would like a piece of the action.
Well I can't speak for your firm, but there are plenty of companies that have a subsidiary in the UK that serve millions of customers, yet apparently make no profit at all. It kind of makes you wonder why they bother to maintain a subsidiary here when it apparently generates zero profit, doesn't it?
"there are plenty of companies that have a subsidiary in the UK that serve millions of customers, yet apparently make no profit at all. It kind of makes you wonder why they bother to maintain a subsidiary here when it apparently generates zero profit, doesn't it?"
This is mostly because the tax system is deliberately designed to encourage reinvestment for growth, because it's better to take less tax now and more in future. For years Amazon were reinvesting all their profits, and now they're huge and are starting to pay enormous amounts of tax.
There are also companies like Starbucks, where they've just got it wrong. Starbucks didn't pay profit tax because they were paying too much in rent in the UK. They established a big market presence here, are very prominent, but haven't actually made any money.
>Starbucks didn't pay profit tax because they were paying too much in rent in the UK
Starbucks didn't pay profit tax because they were losing money on every cup having to buy $$$$ coffee beans from their Swiss subsidiary and pay Starbucks Brand Services (Bermuda) $$$$ for the rights to use the logo.
All perfectly reasonable
"Starbucks didn't pay profit tax because they were losing money on every cup having to buy $$$$ coffee beans from their Swiss subsidiary and pay Starbucks Brand Services (Bermuda) $$$$ for the rights to use the logo."
Conspiracy theory time again, huh?
That simply isn't true. Starbucks' in the UK was not profitable aside from licensing fees and international taxes. The coffee beans were literally bought at an open market price, in that many other companies bought from the same supplier. Licensing fees for the branding are a proportion of profits.
How about, companies don't pay tax, people do? Corporation tax used to be a convenient way of collecting tax from shareholders, back in the days of paper and adding machines. It isn't convenient any longer, so why bother?
If the shareholders are in your country, you can tax their income. If they aren't, then their investment is 'foreign direct investment', which is something we want as much of as possible, and therefore shouldn't be taxed.
But to people of a conspiratorial mindset, it's all a conspiracy by whoever they've picked as a proxy for 'the Jews'.
Because those shareholders will magically turn out to be residents of the British Virgin Islands, or some other tax haven, as far as tax purposes go. Did you really think that through?
And as for "it's all a conspiracy by whoever they've picked as a proxy for 'the Jews' ", that seems like a pretty desperate attempt to tarnish anyone who you happen to disagree with.
turn out to be residents of the British Virgin Islands
So you want the right to determine the tax rates of other countries, which have many legitimate residents? Isn't that what pisses off people about the US, they try to dictate that everyone should be taxed as they want, worldwide? Or do you just resent the ones who lave lower tax rates?
Out of curiosity, do you pay your pension contributions after tax? Do you insist that everything in your pension fund should be invested in high-tax jurisdictions? Or are you happy to avoid (note, not 'evade') tax when it benefits you?
> Out of curiosity, do you pay your pension contributions after tax?
You do know that pensions are taxed when you draw them?
If you pay your pension contribution after being taxed, then your provider claims basic rate relief for you and adds that into the pot. If you pay via salary sacrifice, then it goes in before tax.
Either way, when you come to draw down your pension, it'll be taxed as income.
It's a complete tangent, but either you don't understand pensions, or it's not clear what point you were trying to make here?
> So you want the right to determine the tax rates of other countries, which have many legitimate residents?
I'm not sure that's what his complaint was. I think it was more a comment on the habit of people turning out to be a tax non-dom if called upon to pay - i.e. the original suggestion of just taxing shareholders and getting rid of corporation tax wouldn't be any better than the system we have now
You can tax shareholders only when the company pay dividends. The company may not pay them. What to do? A property tax on shares then? Probably it's better and simpler to tax company profits?
And why in such situation a foreign shareholder should not pay nothing (which would become immediately a huge loophole) if the company operates in your country and does take advantage of local state spending and investments?
There are countries in Europe where companies do not need to pay for medical insurance because there is a National Health Service. Why they should not pay their share of it too?
" A property tax on shares then?"
No, a capital gains tax. Something we already have.
"why in such situation a foreign shareholder should not pay nothing"
Because foreign people investing in our economy benefits us. We don't want to get less of it, we want to get more of it.
Foreign investment should not be taxed. This is absolutely standard orthodoxy in almost any type of economics - even the Marxist-pseudoeconomics babble agrees with this one.
"Why they should not pay their share of it too?"
Because there is no such thing as 'their share'. Either the shareholders are residents, and you can tax them on their earnings as you wish, or they aren't, and as we've established shouldn't be taxed.
People sending money to your country don't 'owe' you anything.
CGT only triggers when you liquidate assets, so you can't use that instead.
LDS seems to be suggesting something more akin to Council Tax than Stamp Duty - i.e. you've got 1000 shares worth £1m, so you need to pay £10k/yr tax on those shares for as long as you hold them. I'm not sure it's a serious suggestion.
> Because foreign people investing in our economy benefits us.
It's not nearly that simple.
It can be beneficial, but isn't automatically so - especially if that "investment" is of a form that means an increasing proportion of "our" funds are funnelled offshore. Trade complicates things significantly. Foreign investment into stuff we can export benefits us (as it effectively moves money into the country, despite some them moving out). Foreign investment that drives up imports though, isn't nearly as clear cut.
> People sending money to your country don't 'owe' you anything.
As above, it's not nearly that simple.
You're a US company, and you've recently set up a warehouse in the UK, and are making a mint shipping widgets around the country, and into the EU (or wherever).
Your business is benefiting from a whole bunch of publicly funded assets:
- Parts coming in are using publicly funded roads, railways etc
- Your lorries are going over publicly funded roads, railways
- Your exports are transiting publicly subsidised ports
- Your workers are being kept healthy/available for work by a publicly funded healthcare system (yes, even in the US)
- Your skilled workers are skilled because of publicly funded education
Your *future* business may also be impacted by how well funded those are - failure to maintain the roads leads to shrinkage because widgets break en-route due to a rough ridge, hiring suitable staff becomes harder because the education system was underfunded, or you can't hire anyone who doesn't break because we've all got scurvy*
*or something
"CGT only triggers when you liquidate assets, so you can't use that instead."
Why not? That is how we deal with growth rather than dividends. It's worked for many decades.
"LDS seems to be suggesting..."
A wealth tax, yes. As usual, it's a ridiculously terrible idea. We tax flows, not stocks in very nearly every case. (Let's ignore council tax bands. It's just a weird, weird system compared to everything else we do. Not terribly important in terms of taxing people with money, though.)
>> Because foreign people investing in our economy benefits us.
>It's not nearly that simple.
Yes, it's just that simple. Foreign direct investment raises average wages and low end wages. It is an increase in investment in productivity, and one that doesn't cost the recipient country anything. It is wholly good; end of story. (Obviously competition for investment opportunities isn't good for domestic investors' investments. But it's good for the economy as a whole. In other words, it increases the return to labour rather than capital. Was that what you intended to disparage?)
"It can be beneficial, but isn't automatically so - especially if that "investment" is of a form that means an increasing proportion of "our" funds are funnelled offshore. Trade complicates things significantly. Foreign investment into stuff we can export benefits us (as it effectively moves money into the country, despite some them moving out). Foreign investment that drives up imports though, isn't nearly as clear cut."
I'll give you the benefit of the doubt and assume there's some meaning you didn't manage to put into words. I have literally no idea what you were trying to say there. I assume it's wrong, given how you started, but really I can't tell. I'm somewhat amused by the concept that people sending you money means 'your' funds being offshored. It's the exact opposite, obviously.
You appear to be labouring under the misapprehension that exports are good. They aren't. The benefits of trade are imports, not exports. This has been well-known for over three centuries.
Please, if we're going to try and talk economics, can't you at least learn the basics? It's like discussing maths with someone who argues about whether addition is commutative.
"You're a US company, and you've recently set up a warehouse in the UK, and are making a mint shipping widgets around the country, and into the EU (or wherever)."
Yes, and you're paying property taxes, transport taxes, fuel taxes, and employment taxes. You want to argue for an increase in those, that's defensible - I have no opinion on the subject in general; a justifiable rate is, by definition, reasonable. But we're here discussing corporation tax because _it doesn't work_. So why bother? Tax business activities, but not business profits until they turn into income for someone.
Ultimately, I think you're basing your ideas on the notion that the tax system is supposed to be fair in some way or other. Lovely concept, but in fact taxes are raised wherever there is the least political problem in doing so, and the budget is based on what can be raised, rather than what needs to be raised.
> A wealth tax, yes. As usual, it's a ridiculously terrible idea. We tax flows, not stocks in very nearly every case.
That's the point you seem to have missed in his reply though.
He was suggesting a means (good or otherwise) by which you could change that approach. Your reply was "but we have capital gains", which is completely ineffective at changing the approach because it taxes flows.
Why does LDS want to change approach? Because further up the chain you're replying to, it was discussed how certain shareholders "always" find away to avoid taxable flows - the example here being sitting on (and presumably leveraging) shares rather than liquidating them.
Your replies could be much shorter if you just wrote "that's not how it is now", which'd still miss the point he's talking about a change from the status quo.
> It is an increase in investment in productivity, and one that doesn't cost the recipient country anything.
No, you're taking an extremely blinkered view.
- UK Company B sells widgets to UK customers, and pays $x corporation tax
- US Company A acquires Company B
- US Company A licenses Company B it's original IP from it's Virgin Islands subsidiary
- UK Company B pays licensing fee to Virgin Islands sub and makes no profit in the UK
Company B is employing exactly the same number of people as before that "investment", the customers served are in the same location, but the UK taxpayer is now seeing less revenue.
I'll accept that that involves an acquisition though, so lets go for a simpler example with a real foreign investment
- US company A buckstars opens branches over here selling hot beverages
- As a result, creates 10,000 jobs (Woot!)
- UK subsiduary licenses the logo from US company (or one of it's subsiduaries)
- UK sub has low profits
Now, at step 2 we've had your investment, we've added jobs to the economy, which is good. But the money that UK consumers are spending is mostly going offshore rather than recirculating into the economy (via treasury, or employee's wages) - the company, after all, takes more than they pay their employees otherwise the business won't be viable.
> It is wholly good; end of story
You _should_ be hearing warning bells - you're talking in absolutes, which almost certainly means you're wrong.
> I'll give you the benefit of the doubt and assume there's some meaning you didn't manage to put into words. I have literally no idea what you were trying to say there. I assume it's wrong, given how you started, but really I can't tell. I'm somewhat amused by the concept that people sending you money means 'your' funds being offshored. It's the exact opposite, obviously.
I've read it again, and can only conclude that the issue is with either your comprehension or your ability to look at anything but a narrow scope.
A foreign company does not operate over here in order to send money here - there's an expectation that (at some point) returns will be larger than investment. When those returns materialise, that's money being taken out of the national economy and sent off-shore.
> You appear to be labouring under the misapprehension that exports are good. They aren't. The benefits of trade are imports, not exports. This has been well-known for over three centuries.
It depends on your business (or more precisely the size of the business). Imports enable you to acquire materials more cheaply, increasing profit margins etc. That, of course, is only advantageous to us if taxes are then paid here.
Exports, however, bring money in from other countries, so they shouldn't be overlooked.
I'm writing this from the UK, which is primarily a service economy: it's all about exports, so yeah, you'll forgive me if I'm focusing on the bit that actually makes us money (or did, pre B word).
> Please, if we're going to try and talk economics, can't you at least learn the basics? It's like discussing maths with someone who argues about whether addition is commutative.
There's no need to be a prick just because you disagree - your misplaced sense of superiority says far more about you than it does me
> Ultimately, I think you're basing your ideas on the notion that the tax system is supposed to be fair in some way or other.
Actually, that's your misapprehension.
I entered the thread to point out that you were wrong for suggesting CGT achieved what LDS was aiming for, and to point out that your statements in general were fallacious.
At no point have I argued in favour of any of the changes, I've simply pointed out that what you are saying is *wrong*.
>Because foreign people investing in our economy benefits us. We don't want to get less of it, we want to get more of it.
What about a store on a British high St, benefiting from British infrastructure but somehow all the products they sell out of that store are actually sold in Narnia and so the store needs to pay no tax, while their British rival next door is taxed to pay for it all ?
"What about a store on a British high St, benefiting from British infrastructure but somehow all the products they sell out of that store are actually sold in Narnia and so the store needs to pay no tax, while their British rival next door is taxed to pay for it all ?"
Another straight-up conspiracy theory.
So the Uncle Sam approves of Silicon Valley "disrupters" screwing local industries and then objects when the communities seek to recover some of the value being ripped out of the local economies.
If DSTs adversely affect US companies, it is a sign of how well US companies are doing in those places. Get over it.
If the US companies generating profit in country X pay their taxes in country X, then Uncle Sam cannot tax them again in the US. This is reducing the taxes the US Government is getting from US companies operating elsewhere. Threatening us with tariffs is Protection Racket tactics but they have to realise that the gravy train days are over.
It does, but not on earnings that have already been taxed to the same level or greater than the US would. This is why, Bojo was on the hook for paying US taxes when he sold his house a few years back. The UK doesn't charge capital gains on primary residence sales, while the US does, therefore it was untaxed as far as they were concerned. At the same time his income is already taxed in the UK so they don't go after that.
No, it's the other way round - they believe that successful companies are endowed by their creator not to pay taxes, while less successful ones, or simply local ones, have to sustain all the tax burden.
Yet, nobody asks the to pay "more" taxes - only the same taxes other less successful ones pay. Being successful the simple amount will be higher.
Here the problem becomes who taxes - US doesn't want US companies European operations to pay taxes in Europe and hope to tax them in US - but European nations can't just look at huge US companies funnel huge amount money outside Europe doing nothing (and other countries as well) and paying peanuts locally. US in the same situation would act the same way.
If Biden believes European and other countries will subsidize his spending plan is utterly wrong and makes he look just as stupid as Trump - simply the money don't exist. For example EU has its spending plan for pandemic recovery as well - and because taxation in most countries is already high enough - more money has to come from those who dodged taxes till now.
It is true that EU has to tackle some internal dodging as well - for example that allowed by Luxembourg and Netherlands (plus others), but two wrongs never make something good.
Pricing is never so free like sellers would like. Apply the full amount and you can lose sales to competitors, or pay part of the fees to avoid losing market share but reduce profits...
Moreover tariffs are not applied on services only - they are applied to products - just like Trump did. It's how to win allies to front China...
Really? So why exporters are so worried about tariffs? How could tariffs affect importers and not exporters - which are tightly coupled?
Tariffs do affect exporters as well importers - they could sell less because of higher prices, or have to accept to offset some of the tariffs with reduced profits to keep market share. Who have to sustain the major burden depend on who the exporter and importer are and their relative strength in settings buy and sale prices - and often it could be simply the exporter local branch.
If it affected only the importer - who would care if Trump or Biden sets a 1000% tariff on foreign goods or services? They would be the perfect tax, exporter would keep on making money and local buyers will happily pay the tax while buying as much as before... in which universe that happens?
This lack of economics basics do well explain why some ideas are acceptable to some voters.
There is a risk that governments decide it is easier to tax what companies do, rather than more easily adjusted financial numbers - i.e. a similar approach to the tourist/bed tax being suggested to catch airbnb-style operations. I can see reasons why Facebook et al would (unofficially) welcome being required to charge their users a "subscriber" tax - they can pass the blame while putting payments systems in place that would make it much easier to further monetise their products^W users.
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