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Italy Approves 'Google Tax' On Internet Companies
recoiledsnake sends this news from Bloomberg:
"Italy's Parliament today passed a new measure on web advertising, the so-called 'Google tax,' which will require Italian companies to purchase their Internet ads from locally registered companies, instead of from units based in havens such as Ireland, Luxembourg and Bermuda. Google, for example, says that it sells nearly all its advertising in Europe from an Irish unit, leaving little taxable profits in the countries where its customers are based. That unit in turn pays royalties to a second Irish subsidiary, which says its headquarters are in Bermuda. Google last year moved nearly $12 billion to the Bermuda unit, the majority of its worldwide income, cutting more than $2 billion off its global income tax bill. Google's Italian unit last year reported total income taxes of just 1.8 million euros, corporate filings show."
Sounds to me like closing a loophole more than instituting a new tax. I realize that is a matter of interpretation, but the idea that google, apple, etc are "really" in Bermuda etc. is such a hoax in the first place.
Given the global fiscal debacle, I wonder what took so long. Countries simply cannot afford to leave that kind of money on the table when they have massive debt and double-digit unemployment.
Pain is merely failure leaving the body
When Google sells some ads to an Italian company, it is not really a Bermuda company conducting business. Deeming the transactions to take place in the location of the customer isn't the only possible rule you could come up with, but it's a vaguely sensible one, and at least more sensible than the status quo.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
I expect sociopathic behavior out of corporations, who seek to optimize their income in a shallow way (building up the countries they're in will increase income too, but corporate monetary thinking is very short-sighted) and take advantage of any system that they're in. So governments need to pass laws to prevent that kind of behavior.
My only concern is that when the laws get too complex, endless loopholes will be found. They need to have a very streamlined definition of corporate income that doesn't leave much room for the kind of semantic wiggling that Google and others are using in these situations.
So what prevents Google for closing their Italian office altogether? Simple tell Italian companies, he is a webpage to buy services and an account in Ireland to pay. If you need help, here is a support number in India or some other location. Somehow I doubt Italy can enforce a rule that says companies can't buy an online service from Ireland.
The nifty thing with the internet is that you can work remotely. Or am I somehow missing the point?
Perhaps companies that want to do business in country X end up paying taxes in country X instead of trying to scam their way out of it? Government is not free, and nor is it superfluous.
You were so busy stuffing words in that guys mouth I wonder where you got the spare time to build a strawman.
If taxes were zero, many corps would still look to see who will give them the largest corporate welfare package.
Really this is a global problem, where an entity can set up an extraterritorial operation and avoid taxation.
Amazon does it to avoid sales taxes and so forth in the United States. Google and Apple do it to avoid taxes in particular countries.
Simply these shenanigans will cause states and countries to extend their cooperation across these boundaries. Eventually there will be a national sales tax system, and an international sales tax.
Except that the corporations haven't chosen to go where taxes are LOW; they've chosen the places where taxes are ZERO.
Pain is merely failure leaving the body
A better solution would be for Italy to simply lower their taxes until it did NOT make business sense to go through such contortions to avoid them anymore.
Because the race to the bottom has been demonstrated to be such a great idea in all other areas, yes? Healthcare, social security, heck anything with humans in it.
No, states should not have to compete. When you make business in a country you ought to pay its taxes, period. Tax evasion like this should be illegal, and if Google or anyone else doesn't like it - well, nobody forces them to sell ads in Italy.
Assorted stuff I do sometimes: Lemuria.org
So PepsiCo sets up an Irish office to pay Google for ads worldwide (including in Italy). Local Italian companies are too small to do the same. And Italy is punishing its own companies. Bad solution, I think. I don't know what a good solution is, mind you, but that's not one.
Anything that discourages internet advertising is a step in the right direction.
You are welcome on my lawn.
If Italian products are being advertised to Italians, then the service tax on the adds should be paid to the Italian government.
Why is that so, if all of the equipment the ads are served from is not in Italy?
Are you saying (and you are) that someone in Italy who wanted to advertise on a popular blog hosted in the U.S., should not be able to do so? Or that the blog owner should be required to pay taxes in Italy even though all costs are incurred in the U.S.?
It's not like the person in Italy it not already paying taxes on his internet connection. It's not like they would not pay taxes if they bought something from the ad. It's not like the company who bought the ad is not paying Italy corporate income tax anyway.
It makes no sense that someone operating in a totally different state should have to pay any taxes at all based only on where someone is browsing from, or who buys services from them.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
A better solution would be for Italy to simply lower their taxes until it did NOT make business sense to go through such contortions to avoid them anymore.
Yes, because tragedy of the commons is the best solution!
Who logs in to gdm? Not I, said the duck.
Are you trying to say Google is the result of low US taxes? That is such a load. Californian taxes are HIGH. If next you come back telling me "but Bermuda..." I'll have to point to what you said and ask how Bermuda tax rates have anything to do with the tax policy of the country the company is in?
Next go and watch this video about the history of the Silicon Valley and go away with your propaganda: http://www.youtube.com/watch?v=ZTC_RxWN_xo
Isn't it against European Union laws on freedom of cross-border trade or what's it called properly?
Careful with your words... as you are accusing the lot of them of crimes.
Tax evasion is illegal in most locals... tax avoidance is not.
There is a difference, look it up.
This law simply makes tax avoidance a little harder for some in certain circumstances.
Help Brendan pay off his student loans
Free movement of goods and services?
Donte Alistair Anderson Roberts - hi son!
Karma: Chameleon
Someday people are going to finish school with a basic understanding of math and logic.
It is logically impossible for a corporation to pay taxes.
Let's make up an imaginary company that makes cars which have the following costs.
$1000 for materials
$1000 for employee wages/benefits
$1000 for facilities
$1000 for developement
and since they are evil
$0 for taxes
So that car costs $4000 to build and the company wants $1000 for profits so the car ends up going for $5000
Now the gov't closes all the loopholes they were using not to pay taxes and charges $1000 per car in tax
So yay the evil corporation is now paying $1000 in tax and not making evil profits. A company that makes no money does not stay in business very long, so they look to slash costs as fast as they can else people will sell their stock and the value of the company will tank.
So first thing out of the gate they slash payroll. Sorry guys everything else is in on contract or is not liquid like buildings and spare parts. Next the company implements a few efficiency programs and drives down the materials costs and sells off a few buildings. The budget for product development is chopped and finally they raise the price of the car by $100 because the market won't tollerate a $1000 jump.
$975 materials
$750 employee pay/benefits
$975 facilities
$750 development
$1000 taxes yay!!!
$100 price increase
Total $4550 with the new car price now $5100
$550 Profits - wait a second?! We wanted to tax them a $1000 per car that's not right they should have at most $100 in profits.
Hold on it get's better. The next year the company closes 1-2 of the factories and ships them overseas and automates a third along with another $100 bump in price.
$850 materials - less environmental rules to follow overseas, no import tax
$500 employee pay/benefits - overseas labor=cheaper - more machines = few people
$1100 facilities - new buildings cost money
$750 development
$1000 taxes
$100 price increase $5200 car now
$900 profit
Year 3 they just coast with a $100 price bump they are back to the $1000 profit margin per car. So who actually paid the tax? Did the corporation? Sort of for about 3 years. Did the laid off employees pay for it? No but they lost their jobs, but that would have happened anyway with innovation. Did the consumer who wanted the car essentially eat the entire tax. Yep. But wait the price for the consumer only went up $300 for the car, how did he end up paying the entire $1000? Because the government stole $1000 worth of innovation from the company which eventually would have been passed on to the consumer due to competition. Sure the company would have pocketed the bonus profits at first, as they should have for coming up with a better way of doing things, but eventually they would have had to lower their prices to compete in the market. So in the end what should have happened is the price of the car should have dropped to around $4300, but instead it rose to $5300. With inflation that number would be more like $5450 which is a whole another ball of wax of government theft.
Sure the government can go in and fool with regulations and taxes to put more burdens on the company, but eventually they'll figure out a way around them and again the consumer is left holding the bag, with the gov't stealling the profits that should have gone to the consumer in the form of price reductions. If a company can't then they lose money and eventually go under, or in the case with many "crucial" industries end up getting bailed out making the problem worse.
Corporate taxes are the worst kind of low brow, stupid, shoot yourself in your own foot while trying to dump the bill on someone else form of wish full thinking politicians use to pander to a willfully ignorant public who think they are getting something for nothing.
This is a non authoritative translation of a part of the law that I believe TFA missed, legal-Italian to plain-Italian to plain-English (as good as I can get it). Italics are mine.
Think about the implications of the part in italics. Your US company buys an ad in English from Google aimed to the US market. Unfortunately I end up seeing it from my computer located in Italy. Ops, somebody is in trouble now, either you, Google, me or a combination of those three parties. There is nothing in the law about what happens in case of violations and to whom it happens.
Furthermore TFA missed that the law binds companies like Google to register a VAT account in Italy, not to pay taxes there. They'll end up paying just VAT there, which by the way comes from Italians, not from Google. The law aims at quantifying the turnover of those companies in Italy, which can only be estimated now. Unfortunately the way it's worded makes it difficult to enforce.
Luckily a motion (in Italian, Google translation to English here) has already been filed to suspend it. For another take on it you can read this Google translated post from wired.it.
PS: odd thing to do for me on Christmas morning :-)
Taxing just the profits doesn't change a thing. Do the math.
If the gov't charge 10% tax on "profits" and the company wanted $1000 per car profit, how much more profit would they need to make to get the $1000 after the 10% tax. The answer is $1,111.11. (Most people can't solve these simple word problems, which is sad.)
The gov't gets their 10% 111.11 and the company bags $1000. So who paid the tax? The customer did because either he had to pay $111.11 more or lost out on getting the car for $111.11 less.
Yes the company could have just kept that $111.11 for themselves, but then they could have used for investments (better facilities = cheaper products), research (better, faster, more fuel efficient cars), or profits for the owners (pension payouts and other stock investors).
Your initial statement was a bit more important than you may have thought. At a 0% profit rate, ANY business would have to do something or face being driven out of business. And at a 100% tax rate, well, it would be close to impossible to run a modern business, so the point is moot.
You argue that any tax increase on profits will be sent directly to the consumer. This, however, carries a number of implicit assumptions:
1) Increasing the price will not impact sales: Increasing the price by x% may make fewer consumers buy the product, decreasing the sales by y%. This could easily lead to lower total profits for the corporation.
2) No competition: Competing companies may opt not to increase prices and be able to undercut prices. This allows them to build a larger market share by attracting the customers of those corporations that increased prices.
Regarding your arguments on cutting cost, this will happen regardless of taxation. Any corporation in a Capitalist economy will look for ways to minimize costs in order to become more competitive and drive out competition.
The truth may be out there, but lies are inside your head
Careful with your words... as you are accusing the lot of them of crimes.
To hell with your technicalities - We are accusing the lot of them with crimes. Perhaps not crimes anyone thought to formalize yet, but crimes, none-the-less. If I do business in location-X, I have to pay taxes there. The fact that companies like Apple and Google can afford to export all their profits to places with so little government oversight as to evade taxes outright, doesn't make it just peachy.
That said, I have to wonder how this rule will play out with Italy's membership in the EEA - This move looks suspiciously like a discriminatory restriction of free transfer of services and capital between itself and another member state, Ireland, a big no-no, especially if they hope to get their German bailout in their next few years.
Tax evasion is illegal in most locals... tax avoidance is not.
"Turn the world to sand, and still commit no crime".