This isn't really as big a deal as it's been made out to be, IMO.
This is Pillar 2 of the OECDs tax reform for corporations.
Pillar 1 is much more interesting, and would require corporations to actually book profits where they are made (so not putting everything through Ireland for example). This will have a much bigger impact imo than this 15% ruling, because right now there are a bunch of tricks you can use to get round any tax rate.
For example, even though Ireland's headline tax rate is currently 12.5%, the effective rate after all the tricks for many US tech cos was <1% to the Irish state.
Is this a tax on profits? If so, I worry it will remain weak to hollywood-accounting attacks: it's easy to spend money until there are no 'profits'.
I'd really love to see progressive taxation of corporate revenue: the bigger a company is the higher the tax rate. Huge corporations benefit from economies of scale, so there is an incentive for power concentration. This power concentration is bad for society: it delivers increasing wealth disparity and allows businesses to grow "too big to fail" leading to corruption.
> it's easy to spend money until there are no 'profits'.
It depends. In some countries it is easy, it others it isn’t. Depends on what can be counted as an expense and what part of that purchase can be accounted for in a given fiscal year depending on when it was purchased…
For example. Germany. If a company buys computer equipment in December, they cannot deduct 100% of the value for the fiscal year that is about to finish because that computer equipment cannot be reasonably used for the whole fiscal year. So a company can deduct 1/12th of the value. Of course the reminder can be deducted in the following year but the profit is already affected for the previous year. And don’t get me even started on advance taxes companies have to pay.
Don't worry: All corporate taxes are rolled onto the consumers. Inflation of the monetary supply is not the only government policy artificially inflating your cost of living.
Out of curiosity, how do you define where profits are made when it comes to selling digital services? There is no physical movement of goods. Do you determine it based on where the software was originally written?
For VAT this is already defined (in the EU): wherever the purchaser is when they get their goods handed to them. If I drive over the border to Germany, I pay German taxes. If I buy online and have it shipped to the Netherlands, I pay Dutch taxes.
A digital good is handed to me wherever I am when I purchase it, so I pay taxes in that jurisdiction.
If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country.
So if a company had $100B global revenue and $10B global profit and 0% of the profit was in France while 10% of the revenue was in France, then the company should be taxed based on the $1B profit that can be attributed to France based on revenue there.
Any other scheme seems it’s prone to creative licensing schemes and similar.
Generally, for tax purposes, it's the address of the customer for cloud services. If they give you a NL address, you tax according to Dutch law. If they give you a DE address, you tax according to German laws, regardless of where services are actually provisioned.
It would not be that difficult to pay EU taxes based on % of revenue attributed to each country. I.e. if you made $1B, and 70% of your revenue came from The Netherlands, and 30% came from Germany, you'd pay Dutch taxes on $700M and German taxes on $300M.
Or licensing deals. If I license a processor and put it in my product that's designed in the US, using an ARM core licensed from the UK, manufactured in China, sold to a distributor in Switzerland, and sold to an end user in Australia.
Where were the profits from that device made? Surely not entirely in Australia (or any of the other single jurisdictions), as actual value was added in several different locations.
Depends. If it's services, I could see where the services are delivered from (e.g. location of platform or service personnel), OR where the services are destined for (client location) and commit the rev-rec there.
This will be watered down in every way imaginable, escpecially the usual suspects like Malta with a straight up fraudluently advertised 30+ % corporate tax rate ,but they "refund" you everything but 5%, making it an effective 5% tax rate.
There is no way Malta will play along, it is a small state abusing all the EU benefits for nefarious purposes and never contributing anything useful.
This is just an example, there are many, many more more sophisticated schemes like that, Malta is just doing it openly.
to put things in context, malta is an island country in Europe with a population of ~500k, and a gdp of ~$17B, truly a small state. i think it would be very hard for them to compete with a bigger, more developed country without the incentives you mention. of course taxes are just a part of the discussion, but a part nonetheless.
Meanwhile the Swedish government is giving massive incentives to Amazon, Google, Facebook and Microsoft to build data centers (and I assume other countries do too). Almost zero taxing on electricity and actual monetary payouts.
In other words, this is a bit of a headline without any actual teeth (there’s plenty of ways to compete unfairly), which is the problem when you start wanting to govern the world, you can’t cover all the bases.
In Poland, there's plenty of "special economic zones" and the companies which establish there are off the hook for corporate income taxes for the next 30 years (IIRC). Other EU countries probably also have similar things?
I don't really like this kind of idea because it really goes against a kind of fundemental freedom. "If you don't like it, you can leave".
Instead, laws around making sure that the profits generated from a countries citizens are taxed by that country make more sense to me. A lot of laws around that already exist, and I suppose a lot of people would say that they have not been effective.
A lot of it comes down to the treatment of Intelectual Property. A lot of the tax games that companies play relate to licencing their IP around between different countries. I wonder what would happen if a country tried banning licencing of IP between related parties internationally?
I assume you refer to people who can't reasonably leave for whatever reason.
But even if you can't leave, seeing the results of another country that does something a different way is a valuable comparison point that can drive a change of policy where you are.
> and I suppose a lot of people would say that they have not been effective.
They really aren't. Q8, the gas stations, have been in Denmark for 30 year, if not more, they've apparently never been profitable, certainly not enough to pay taxes. The same goes for Coca Cola, which may have start to pay taxes.
The only solution I've seen propose is a revenue tax. Similar to a VAT it would be added at the point of sale, making it impossible to avoid for companies. In return corporation would pay tax on profits. It has it own set of problem though.
> profits generated from a countries citizens are taxed by that country
What about people who migrate somewhere else? What about dual+ citizenships? It makes little sense for me to pay taxes in a country I haven't lived in for 20 years.
I wholeheartedly agree with this, and I think the idea "If you don't like it, you can leave" is one of the most important, if not THE most important freedom a person should have. It's the reason why former communist countries took passports away from their citizens.
It's the idea that we know what's best for you and you better adapt because there is no escaping. It's the fundamental idea of many social justice movements that require totalitarian methods to get what they want.
This is why self-determination is such important concept, something that the global utopians can never really grasp.
You can leave, but corporate profits can't leave, that is the idea. I don't see why corporate profits leaving the country they were generated in is necessary for freedom.
> European leaders praised the decision, with Germany's Chancellor Olaf Scholz describing it as a "project close to my heart". French President Emmanuel Macron said the country had been pushing the idea for more than four years.
Of course countries with high taxes are all for raising taxes in countries where they are lower!
Now, unfortunately the article does not mention the interesting bit, which is that EU countries with lower corporation tax will therefore have to raise their rates. I'm thinking especially about Hungary and with the current tense relations I'm surprised that they agreed... What is the deal?
Your wondering is justified, and (like almost every other EU issue nowadays) Hungary was a holdout opposer, and used the vote to blackmail in other areas. They struck a deal in a "package" that includes Ukrain aid as well, in return they got some of the EU funds that was held back because of corruption. What a great happy Union this is.
Also the EU repeatedly called out Hungary for corruption but now Hungary is having its moment pointing that several member of the european parliaments have been caught in a very serious corruption scandal (and these are only those who got caught).
What a great happy honorable Union full of integrity we enjoy too.
They can use the EU as an excuse to raise taxes without taking the blame. Most people have no idea how the EU works and don't realize that that rule would not have been put in place unless their own government had supported it. That's what unanimity means.
Also at the end of the day most EU laws are aquiescence rules: if you have a specification for cucumbers it must be like this. But if you don't have such a spec (and producers in other countries aren't prevented from doing business with you) then you don't need to put the rule into place. After all, every EU "law" is actually a description which has be be implemented in each country by its legislature.
Ireland would prefer the jobs to the taxes. A country has to tune itself to keep people employed. Every country is different and small countries would be ruined by tax harmonisation. France et al give zero shits about Ireland, it wants the jobs Ireland has.
It severely reduces their ability to attract future business, as well as the likelihood that companies will continue to remain headquartered there. If you go there for tax benefits and those tax benefits go away, how likely are you to continue to bother with such complex structures?
At a certain point, where you have such different views in countries like Hungary (Hungary wants to placate Russia or something similar leading to not helping Ukraine, wants to block Finland and Sweden from Nato, wants to disable/reduce/destroy democracy in Hungary, wants all that stimulus money from the EU to keep coming in), we just have to say we'll go our way, you go yours. Unity required for so many decisions means the extreme minority of 1 can extract too much. Similar thing for Turkey and Nato.
Either that, or the groups (EU, NATO) will have to change their rules to allow a few no votes on things, or they'll just become broken orgs. I'm sure Russia would offer almost anything to the wanna-be dictators in Turkey and Hungary to get them to vote no on these things. These "complete agreement" democratic groups don't work when some leaders are dictators.
This is empirically not always true. Higher taxes can lead to lower tax revenues if it reduces the size of the pie when business go to tax friendly jurisdictions.
This can also work with income taxes. For example if you set income tax at 100%, you'd get 0 revenue probably because no one would work. This effect happens at values below 100%
There are a whole host of corporate entities which allow for pass-through taxation: LLC, S-Corp, sole proprietorships, and the like. I'd be surprised if European countries didn't have similar mechanisms.
That's how taxes work generally though. I already paid income taxes on my salary, but when I spend it on something I have to pay taxes again, and then the retailer has to count it as taxable income as well. Anytime money changes hands the government gets its vig. I don't see how the corporate tax is so egregiously different.
Then where do we get the money to pay for things like the justice system, law enforcement, national infrastructure, unemployment benefits, healthcare, pensions, customs, diplomats,...? Switch to a system where the government owns everything and gives people what they need if they work properly?
Tax companies that are currently hiding profits in tax havens. The idea is basically that companies headquartering in tax havens will get taxed anyway, until they pay 15% total global tax on those profits. No single country can do this, but when almost all countries agree to do it then companies can no longer hide.
US LLCs are pass trough entities and the solution of choice for digital nomads to completely avoid paying any taxes. US is still the best tax avoidance haven for most people. EU does not care about good laws they care about good headlines for the news not matter how shitty the things they do are.
One does not simply avoid paying taxes with an LLC unless your gross income is minute, tax deductible expenses are huge, or your losses are huge. IT IS NOT SOME MAGICAL LOOPHOLE. It is hard enough to stay afloat as a business without misinformation like this being spread.
No because the law allow the EU country to tax the benefit made inside of their boundary if the company is not subject to the minimal 15% tax rate. So if the US don’t want to tax at 15%, EU country will tax on their side.
This isn't about getting all countries to put a 15% corporate tax, that will never happen. This is about increasing taxes on corporations even when they aren't headquartered there until their effective global tax becomes 15%, making it worthless for them to try to hide in tax havens.
Readit News
This is Pillar 2 of the OECDs tax reform for corporations.
Pillar 1 is much more interesting, and would require corporations to actually book profits where they are made (so not putting everything through Ireland for example). This will have a much bigger impact imo than this 15% ruling, because right now there are a bunch of tricks you can use to get round any tax rate.
For example, even though Ireland's headline tax rate is currently 12.5%, the effective rate after all the tricks for many US tech cos was <1% to the Irish state.
I'd really love to see progressive taxation of corporate revenue: the bigger a company is the higher the tax rate. Huge corporations benefit from economies of scale, so there is an incentive for power concentration. This power concentration is bad for society: it delivers increasing wealth disparity and allows businesses to grow "too big to fail" leading to corruption.
If they have to spend the money in the same country as they gained the profits, that might work as intended.
Will we ever live in a society where you aren't allowed to "write off" R&D/depreciation/the typical things companies use to avoid profits?
We want companies to reinvest their profits into growth to hire more employees, right?
Where do we draw the line to make it harder for them to do so?
It depends. In some countries it is easy, it others it isn’t. Depends on what can be counted as an expense and what part of that purchase can be accounted for in a given fiscal year depending on when it was purchased…
For example. Germany. If a company buys computer equipment in December, they cannot deduct 100% of the value for the fiscal year that is about to finish because that computer equipment cannot be reasonably used for the whole fiscal year. So a company can deduct 1/12th of the value. Of course the reminder can be deducted in the following year but the profit is already affected for the previous year. And don’t get me even started on advance taxes companies have to pay.
A digital good is handed to me wherever I am when I purchase it, so I pay taxes in that jurisdiction.
So if a company had $100B global revenue and $10B global profit and 0% of the profit was in France while 10% of the revenue was in France, then the company should be taxed based on the $1B profit that can be attributed to France based on revenue there.
Any other scheme seems it’s prone to creative licensing schemes and similar.
It would not be that difficult to pay EU taxes based on % of revenue attributed to each country. I.e. if you made $1B, and 70% of your revenue came from The Netherlands, and 30% came from Germany, you'd pay Dutch taxes on $700M and German taxes on $300M.
Where were the profits from that device made? Surely not entirely in Australia (or any of the other single jurisdictions), as actual value was added in several different locations.
> It was praised by US Treasury Secretary Janet Yellen as "an historic agreement which helps even the playing field".
This is a global goal, not just an EU Law.
> The US has not taken steps to adopt the rules so far, despite Ms Yellen's championship of the plan.
Dead Comment
There is no way Malta will play along, it is a small state abusing all the EU benefits for nefarious purposes and never contributing anything useful.
This is just an example, there are many, many more more sophisticated schemes like that, Malta is just doing it openly.
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In other words, this is a bit of a headline without any actual teeth (there’s plenty of ways to compete unfairly), which is the problem when you start wanting to govern the world, you can’t cover all the bases.
Deleted Comment
Instead, laws around making sure that the profits generated from a countries citizens are taxed by that country make more sense to me. A lot of laws around that already exist, and I suppose a lot of people would say that they have not been effective.
A lot of it comes down to the treatment of Intelectual Property. A lot of the tax games that companies play relate to licencing their IP around between different countries. I wonder what would happen if a country tried banning licencing of IP between related parties internationally?
That's not fundamental freedom, that's a variation on Hobson's choice.
But even if you can't leave, seeing the results of another country that does something a different way is a valuable comparison point that can drive a change of policy where you are.
They really aren't. Q8, the gas stations, have been in Denmark for 30 year, if not more, they've apparently never been profitable, certainly not enough to pay taxes. The same goes for Coca Cola, which may have start to pay taxes.
The only solution I've seen propose is a revenue tax. Similar to a VAT it would be added at the point of sale, making it impossible to avoid for companies. In return corporation would pay tax on profits. It has it own set of problem though.
What about people who migrate somewhere else? What about dual+ citizenships? It makes little sense for me to pay taxes in a country I haven't lived in for 20 years.
I'm not sure it's a fundamental freedom, but it is important.
If a law exists over the whole world, there's no competition and no alternative to compare against.
It's the idea that we know what's best for you and you better adapt because there is no escaping. It's the fundamental idea of many social justice movements that require totalitarian methods to get what they want.
This is why self-determination is such important concept, something that the global utopians can never really grasp.
s/leave/rent a new PO Box over here and change some DNS records/
Of course countries with high taxes are all for raising taxes in countries where they are lower!
Now, unfortunately the article does not mention the interesting bit, which is that EU countries with lower corporation tax will therefore have to raise their rates. I'm thinking especially about Hungary and with the current tense relations I'm surprised that they agreed... What is the deal?
https://www.politico.eu/article/eu-deal-hungary-drop-vetoe-r...
Also the EU repeatedly called out Hungary for corruption but now Hungary is having its moment pointing that several member of the european parliaments have been caught in a very serious corruption scandal (and these are only those who got caught).
What a great happy honorable Union full of integrity we enjoy too.
Also at the end of the day most EU laws are aquiescence rules: if you have a specification for cucumbers it must be like this. But if you don't have such a spec (and producers in other countries aren't prevented from doing business with you) then you don't need to put the rule into place. After all, every EU "law" is actually a description which has be be implemented in each country by its legislature.
Either that, or the groups (EU, NATO) will have to change their rules to allow a few no votes on things, or they'll just become broken orgs. I'm sure Russia would offer almost anything to the wanna-be dictators in Turkey and Hungary to get them to vote no on these things. These "complete agreement" democratic groups don't work when some leaders are dictators.
This can also work with income taxes. For example if you set income tax at 100%, you'd get 0 revenue probably because no one would work. This effect happens at values below 100%
For many small/remote countries, lower corporation tax is a way to attract companies that would never have come if the tax rate was higher.
In effect any corporation tax is a double tax.
There are a whole host of corporate entities which allow for pass-through taxation: LLC, S-Corp, sole proprietorships, and the like. I'd be surprised if European countries didn't have similar mechanisms.
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Lol, obviously. Cheering them on as they shoot themselves in the foot
What political system could not be accused of this? Heck my small town is like that.