Is the proposed 3% EU tax on online ads and other online revenues reasonable?


Patslatt1

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See What the EU's new taxes on the tech giants mean - and how they would hurt Ireland

The recent UK budget included a 2% tax on these online revenues which would take effect in 2020 barring an international agreement on such taxes. The target of the tax is the big US multinationals. If it proceeds,this tax would cause trade tensions with the Trump administration.

Online ad revenues of US tech giants Facebook and Google are akin to exports from the US. The online services they provide attract large viewing audiences,generating huge ad revenues.

Similarly, US movie and TV studios export their programming products to EU cinema and television operations and get paid in cash instead of advertising. Those exports are not taxed in the EU if the seller doesn't have a physical presence in the EU. Technically, a physical presence isn't absolutely necessary but a lack of presence would hamper effective marketing. Where a physical presence exists, an EU tax on the profit from the value added by the presence is reasonable. That would be a complicated tax calculation.

An obvious multinational example of where value is created is provided by the pharmaceutical industry. Given the heavy R&D on new drugs, usually in hundreds of millions,pharma companies are justly entitled to be taxed largely in the country where the R&D occurs. An EU 3% tax on sales would be very damaging to the industry.

From a EU tax standpoint, should a distinction be made between profits from a Facebook fan using US software, a person watching a US movie in a cinema and a person on US pharma drugs?
 

Ardillaun

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The US tech giants are destroying local media, high streets and advertising revenues, and old rules are inadequate to address the extraordinary challenge they pose. In effect, they are getting a massive free ride on the tax front because legislation hasn't caught up with them yet. If EU companies were doing this in the US, can you imagine the noise Trump would be making? Countries are only sensible to look for new ways to make Facebook, Amazon et al. pay something remotely approaching their fair share.
 

Dame_Enda

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The EU is always looking for a toehold into fiscal policy and this is the latest example. I am concerned that with the UK leaving the EU, it will become a lot harder to block this. But we should use our veto if necessary. This is an attack on the tech industry and by proxy an attack on Ireland's attractiveness to it.
 

clearmurk

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The EU is always looking for a toehold into fiscal policy and this is the latest example. I am concerned that with the UK leaving the EU, it will become a lot harder to block this. But we should use our veto if necessary. This is an attack on the tech industry and by proxy an attack on Ireland's attractiveness to it.
Why should the "tech industry" be exempt from the rules that other companies have to conform to?

Are these supposed US exports subject to customs duty and/or VAT?
 

Patslatt1

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The US tech giants are destroying local media, high streets and advertising revenues, and old rules are inadequate to address the extraordinary challenge they pose. In effect, they are getting a massive free ride on the tax front because legislation hasn't caught up with them yet. If EU companies were doing this in the US, can you imagine the noise Trump would be making? Countries are only sensible to look for new ways to make Facebook, Amazon et al. pay something remotely approaching their fair share.
Facebook and Google take advertising revenues from old media within countries and have damaged the business platforms of many newspapers. That doesn't justify the proposed discriminatory 3% tax on their revenues separate from VAT, revenues earned by services provided online and transmitted with little or no physical business presence. The economic damage to old media could be seen as a cost of economic disruption and progress typical of the ongoing industrial revolution.Historically, Luddites were among the first to revolt against such disruption by destroying textile machinery.
 

Dame_Enda

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Why should the "tech industry" be exempt from the rules that other companies have to conform to?

Are these supposed US exports subject to customs duty and/or VAT?
They shouldnt be exempt but neither should they become an excuse for EU to meddle in our taxation system. Without natural resources, the only card Ireland has to play in attracting investment is our corporate tax rate and the English language (like it or not). They used to say our education system was a factor too, but that has been slipping in the global league tables.
 

Patslatt1

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This would not arise if sophisticated tax evasion schemes were not at play.

Who believes that such "products" are 99.9999% intellectual property, with close to zero associated net margin? Our taxation authorities, apparently. I wonder why.
It is very difficult to draw the line on intellectual property. A drug company's R&D is obviously that. But Starucks' charges to franchisees which are untaxable in the countries of the latter? Some portion of those charges minus modest related costs could be regarded as taxable profits.
 

Voluntary

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You guys think Ireland can veto the proposal and it will all go back to the old days? No, the alternative is introducing such taxation changes on country levels. The EU proposal is to stop some member states from introducing national solutions that could divide the single market and make it more difficult for companies in the EU.

The tax is coming either we do veto or not, but we can get EU to strongly support our Brexit agenda and offer a no-veto in return.
 

Ardillaun

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Facebook and Google take advertising revenues from old media within countries and have damaged the business platforms of many newspapers. That doesn't justify the proposed discriminatory 3% tax on their revenues separate from VAT, revenues earned by services provided online and transmitted with little or no physical business presence. The economic damage to old media could be seen as a cost of economic disruption and progress typical of the ongoing industrial revolution.Historically, Luddites were among the first to revolt against such disruption by destroying textile machinery.
Fine, then suggest a better system. The basic principle is this: letting a tiny group of foreign companies pay no tax on unprecedented revenues is simply not acceptable.
 

Patslatt1

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They shouldnt be exempt but neither should they become an excuse for EU to meddle in our taxation system. Without natural resources, the only card Ireland has to play in attracting investment is our corporate tax rate and the English language (like it or not). They used to say our education system was a factor too, but that has been slipping in the global league tables.
'Tis a great little country for education, 'tis boy, 'tis!
 

wombat

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Fine, then suggest a better system. The basic principle is this: letting a tiny group of foreign companies pay no tax on unprecedented revenues is simply not acceptable.
They should collect the same rate of VAT as other media in the country where the ad is placed, why should they be treated differently?
 

Patslatt1

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Fine, then suggest a better system. The basic principle is this: letting a tiny group of foreign companies pay no tax on unprecedented revenues is simply not acceptable.
They pay tax in the USA on USA profits. The last US budget under Trump set an arbitrary limit on the intellectual property revenues and costs that could be attributed to tax havens. This was an indirect invitation to the EU to do the same. It will be interesting to see the resulting tax take increases.

It is perfectly acceptable for huge profits to be earned without much tax in the countries where pharma drugs are sold. If a US company invented a cure for Alzeimers, it could profit in billions from export sales. The importing countries would benefit from huge medical cost savings from the cure.
 
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sic transit

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You guys think Ireland can veto the proposal and it will all go back to the old days? No, the alternative is introducing such taxation changes on country levels. The EU proposal is to stop some member states from introducing national solutions that could divide the single market and make it more difficult for companies in the EU.

The tax is coming either we do veto or not, but we can get EU to strongly support our Brexit agenda and offer a no-veto in return.
The tech giants are starting to adjust anyway with their tax accounting regimes. There is merit in arguing against the unfairness of such a tax as just favouring countries on the basis of population only and there are a lot of much smaller countries who could probably be persuaded to oppose it. What's to stop the usual suspects from creating smaller regional entities to avoid such taxes?
 

sic transit

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Fine, then suggest a better system. The basic principle is this: letting a tiny group of foreign companies pay no tax on unprecedented revenues is simply not acceptable.
Nobody imagined that a very small group of companies could end up having the buying power of a medium sized country. The solution is at global level where many countries are all too happy to welcome such enormous sums into their banks at next to no charge.
 

Patslatt1

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They should collect the same rate of VAT as other media in the country where the ad is placed, why should they be treated differently?
VAT doesn't apply to exports in the exporting country. Since the importer pays no VAT, it has no VAT to claim back on its sales,unlike the VAT claimed back on domestic purchases. This levels the playing field between imports and domestic products. With digital advertising paid by EU companies to digital social media outside the EU, similarly there is no VAT.
 

Patslatt1

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You guys think Ireland can veto the proposal and it will all go back to the old days? No, the alternative is introducing such taxation changes on country levels. The EU proposal is to stop some member states from introducing national solutions that could divide the single market and make it more difficult for companies in the EU.

The tax is coming either we do veto or not, but we can get EU to strongly support our Brexit agenda and offer a no-veto in return.
A Trump tariff on German premium car imports and French wines might make EU governments think twice about revenue taxes.
 

Patslatt1

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The tech giants are starting to adjust anyway with their tax accounting regimes. There is merit in arguing against the unfairness of such a tax as just favouring countries on the basis of population only and there are a lot of much smaller countries who could probably be persuaded to oppose it. What's to stop the usual suspects from creating smaller regional entities to avoid such taxes?
The UK tax takes consolidated accounts of subsidiaries into consideration, setting a bar of sales and earnings before the tax applies.
 

Catalpast

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The EU is always looking for a toehold into fiscal policy and this is the latest example. I am concerned that with the UK leaving the EU, it will become a lot harder to block this. But we should use our veto if necessary. This is an attack on the tech industry and by proxy an attack on Ireland's attractiveness to it.
We have never used our Veto on anything

- our 'Leaders' always Bottle Out....:redface:
 
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