You have to love politicians ability to dissemble and appeal to emotion rather than just fix the problem.
1) Taxes: This tax structure is legal, and used by the majority of large international companies operating in the EU. The EU has the power to change it, if it wants to, rather than just bitch about it. The US will also get its chance to tax this money, if Google/Amazon ever bring it back into the US (the US, unlike the rest of the planet, loves to tax companies for money made elsewhere).
2) Data: Data retention and anonymity is actually fairly regulated by the EU and the US (sometimes conflictingly). It is again within the power of the EU to change their regulations, which they have done in the past, instead of just bitching about it.
3) Antitrust: I like how they play up the search result "alleged" anti-trust angle. There are anti-trust laws on the books in all of these countries, and there were even congressional hearings in the US about this topic (which found nothing). Unless they are implying that the legal system in the EU is broken, I don't get why the politician is banging the drum on this one.
You need to realize that the EU is not federal in the sense like the USA - the EU and its member states have a much more complicated relationship. The EU is a supranational entity and the EU Commission is the executive body of the EU alone. EU institutions like the EU Commission, the European Court of Justice etc. can sometimes have agendas that are NOT part of the agendas of the EU's member states.
So Point 1): Clear NO. The EU does not have the power to change tax laws, that is in the domain of the national EU member states. That is actually what the whole article is about - that the EU commission is using the trick of declaring tax advantages as a form of "state aid", because then it falls under EU competition law, for which the EU commission's DG Competition does have a competence. For the same reason the LIBOR price fixing that is investigated in the USA by the SEC was dealt with by the EU's DG Competition under antitrust law - because otherwise the EU probably wouldn't have been able to act.
Point 2): No it is not easily in the power of the EU to change the data protection regulations - there is actually a huge fight going on at the moment about the new EU data protection regulation, mainly because Germany is blocking it.
Point 3): The USA and the EU are two different organizations with different legal systems. Because something does not violate US antitrust law doesn't mean it is ok under European antitrust law - Microsoft has already paid billions of fines under EU competition law for offenses that were dropped under US law. Moreover there is the famous Honeywell merger, that went through in the US and then got blocked in the EU.
Some corporations really stretch the boundaries of legality. See, for example, Starbucks. Starbucks (the beanroasters) sell very expensive beans to Starbucks (the coffee shops). This weird set-up means that Starbucks (the coffee shop) in the UK makes no profit and thus pays very little tax.
While the company is not evading tax, and will have legal advice telling them their systems are legal, we don't really know for some of the schemes until they're tested in court. And it's expensive to take all these very rich multinational tax-avoiders to court, so we end up with deals being done. (See Vodafone paying a very small amount of the avoided tax after their scheme was shut down.)
In any quality legal system there's no such thing as "stretching the boundaries of legality". It's either allowed, or it's not. Once you get into the realm of random bureaucrats issuing opinions that define law you enter a whole world of pain (see: EU right to be forgotten, FTC child protection regulations, US SDN list).
Tax law, being very old and quite well worked out, is pretty specific. Starbucks is not breaking tax law by doing this unless governments give into temptation and try to retroactively change the rules.
The core problem is that attempting to slice up the profits of a fundamentally international business is a losing proposition that can ONLY end in bitter arguments. It's not surprising there are a billion loopholes; it can never be any different. Who is to say what Starbucks beans are worth? If you go in and say, well that's obviously "tax avoidance", you'll immediately hit lots of other much less clear cut cases. But once you abandoned the rules there won't be any way to decide on those less clear cut cases and it'll just turn into chaos.
> In any quality legal system there's no such thing as "stretching the boundaries of legality".
Of course there is. Law is what's on the statute books and also how the courts interpret that. Some tax schemes seem to follow the letter of the law, but not the system, and the courts may well rule against them.
> Who is to say what Starbucks beans are worth?
There are a bunch of methods. You could use naive measures such as cost of beans + cost of roasting + transport and labour costs + X%; or you could compare market costs of other roasted beans; but it's probably a good idea to have a look at the effect of the expense of those beans on the company that they are sold to. And the beans are so expensive that the company make no profit, and thus avoids tax.
So I set X% to be whatever I need to minimise profit at my subsidiaries. Who are you to say X% is wrong? Did you build a successful coffee company?
Law is interpreted by the courts according to what it says, not according to what would be convenient at the time. This is why you hear about people getting off on a technicality. At least that's how it's supposed to work.
If you look at the right to be forgotten, the problem there is that the underlying law is so vague that basically anything can be read into it. So then judges end up legislating from the bench, which they aren't meant to do, that's why we have separation of powers.
How fondly I remember these types of discussions at the HFT company I worked for.
"We're not doing anything illegal.", they'd say. "The law allows for this."
I've learned that as soon as a company says something like that, they're doing something ethically shady.
Like applying for government funding when replacing whole datacenters full of slow, old, energy-slurping HP servers. How old? 6 months old.
"But these new machines are much more eco-friendly than the ones we're currently running. So we're entitled to government funding for replacing all those bad bad units with more eco-friendly units!"
After replacing those machines with more energy-efficient (and faster!) machines, we'd make more money in a day than most of us will make in a lifetime.
The 6 month old machines got scrap-heaped. With money that the Government was supposed to have spend on ecologically sound business cases.
We weren't doing anything illegal. But it sure felt like it.
The law does say that manipulating transfer pricing is illegal. However it is hard to prosecute where the thing being transferred is non tradeable (eg IP is sold to local subsidiaries in many od these cases not just coffee).
Starbucks also makes very little net margin the US, and as an entity pays very little in taxes directly, but that does not mean that the US does not make a lot of tax revenue from Starbucks.
After cost of goods, the gross margin is spent on operations like payroll, marketing, logistics, etc. Each entity in the line pays some form of tax (e.g. VAT in the UK, sales in the US), not to mention the billions in payroll taxes.
It is also surprising that litigation would be seen as so cost-ineffective. Google gets sued 100s of times per year, and I suspect the UK government would have a lot more to gain than the typical claimant.
But the laws as enacted said they would pay much more tax than that. In the UK people complaining are domestic coffee shops that dont have the advantage of expensive tax lawyers and use of tax havens. Marketing and logistics are not VATable. Starbucks pay minimum wage pretty much, which means there are few payroll taxes, indeed their employees may well also be getting state benefits because they have low income. So pointing at some amount of tax they do pay is not very helpful. Their claim that the UK is simply an unprofitable market is also odd, why have they expanded so much if it is unprofitable, why don't they fire management for failing to make any money?
Hang on: In England sales tax - VAT - is a tax paid by the customer (although collected by the business). That is not Starbucks paying the tax, that's me as a customer paying the tax.
Similarly for income taxes - I pay those as an employee although it is collected by the company.
The company makes use of the UK infrastructure (roads; policing; education; etc) so they should consider paying a bit more tax.
It's worse where a company charges the customer full UK VAT at 20% but pays a lower rate to some other country. (Not sure if this does actually happen, but I've heard it does. And I'm not sure if it's an intended part of the laws or a loophole.)
At the end of the day, it doesn't matter if you or Starbucks wrote the UK government the tax check. None of Starbucks' money started with them, it all starts with the UK consumer. Without Starbucks the entity, £0 gets paid to the UK government for both VAT and payroll tax. With Starbucks the entity, a lot of money gets paid to the UK government. As a result, Starbucks generates a lot of tax revenue within the UK, regardless of whose name is on the check.
But the sad thing is that the european alternatives to the sectors they mention like gmail is either bad or expensive euro hosted american software (hosted exchange) which is not priced to reach the average customer. I would prefer a EU alternative to gmail but none exist (by gmail I think of the whole suite with email, contact and calendar that all have a good webinterface and at the same time provide good sync to mobile devices).
I completely agree, but the answer as to why not is in the question. People simply won't pay for it, especially given Gmail etc. is "good enough" and "free". People here would (understandably) probably not trust anything which isn't completely open source. Thus the incentives to do it just aren't there.
I've wondered if there is a case that Silicon Valley is guilty of product dumping when giving services away. Euphemistically this is moat building, but the reality looks very similar.
This is all why we need an easy to use in the cloud OS that end users can deploy services on. Detach the app development organisation from the hosting again. While that link remains the whole thing will remain a mess.
I would pay for a non-american webmail, provided the UI is merely as good as Gmail, which we're too dumb to create.
I would think it's perfectly legitimate if government administrations refused to communicate sensitive personal information on american email addresses.
If you absolutely cannot find what you're looking for then nothing stops you from just firing up your own email server and putting whatever UI you like on it.
That's what I did a while ago and I haven't looked back, using Gmail/Yahoo/whatever is a miserable experience in comparison.
But this (the article) is not necessarily about spying. It's about (1) large US companies gaining too much power over crucial infrastructure used by EU citizens; and (2) tax evasion schemes.
The EU wants to regulate the tech sector more, treating companies that provide critical infrastructure as utility companies. Given that internet has become as important in many companies (and even households) as electricity and water, something's to be said for that.
IMO it would for example be better if lock-in was reduced through requiring that large tech companies adhere to standards. Choice is good, and it would be awful if you couldn't move e-mail from Google Mail to another service because Google removed IMAP support (which is a future possibility).
Well the EU do not consider for example creating the GSM standard to be "protectionist" but a great success in setting standards that created a reasonably non fragmented industry that was world class.
GSM was not created by European governments though. It was created by ETSI which is independent. And newer standards are international collaborations: as is so often the case as technology gets more complicated, it ends up being a creation of humanity rather than one geographical region vs another.
Internet providers in Europe often also provide webmail. Zarafa, MyColab,and OpenXChange are European providers of large deployment webmail software. Sadly there is a lot of GMail and Microsoft exchange in use even in local and national governments.
It's about time that something is done about taxation. It can't be that US companies earn billions of dollars in EU nations but pay almost no tax (either in the EU or the US).
As a simple employee I cannot evade taxes (and might have to pay double taxes in the EU and US if I am a US citizen/perm resident working in the EU), yet large corporations can.
See how easily the politicos make it about you against me, when we should be working together. Dude, if you are European, and you make good software, I'll use it.
In fact, I use a ton of software made by people who, by chance, were born in Europe. But the moment you start to rail against 'US companies' (I work in a US company) I begin to think, waitaminuite, that guy is against me - he wants to hurt me, maybe I shouldn't use his stuff either ...
I don't think it is about asking to "not use something". It is about asking to pay taxes where you gain money. To have a equal system any vendor should pay in a specific state the part of taxes related to what he sold in that specific state.
It is really incredible that if I sell the 99.99% of my product out of Luxembourg I pay all taxes only in Luxembourg, for example. (edit obviously using the various holes in the EU law system)
No. You read about money sitting in the Caribbean because the US tax system is broken and tries to tax money made anywhere in the world (this makes no sense, and no other country does this).
BUT .... that doesn't mean they avoid the US taxes! For Google the money ends up sitting in Bermuda: not a place noted for its abundance of cheap colo space or computer scientists. Obviously it isn't going to stay there because there's nothing to spend it on. Instead the money sits offshore until something more useful is found.
What US companies want to happen is that the US Govt puts in place a "tax holiday" in which they temporarily stop being idiots and use the same tax rules as the rest of the world, thus allowing those companies to move the money earned abroad back into the USA without it being taxed twice (once by the country where it was earned and once by Uncle Sam). This has happened before so they think maybe it'll happen again. Then they can spend it on building fancy offices and hiring splurges, all of which yields taxable income inside the USA.
What actually tends to happen is that politicians, even the ones that acknowledge the sense of this, don't like being seen to give big companies a tax break. So they prevaricate and eventually the money gets spent abroad in places like Europe or Asia, where double taxation treaties work properly. At that point the money gets taxed via payroll taxes, employee income taxes, VAT etc. Own goal for America.
Still ... the money doesn't sit there because they want to avoid US taxes. They generally want to avoid double taxation, and then spend the money saved inside the USA.
It's not a low rate. It's an accounting trick, which moves almost all the taxable profits to a fiscal haven, and this is possible exactly because there is NO double taxation.
That is pretty standard already. You usually get tax credits for foreign paid tax.
The key is do they have the jurisdiction to tax you in the first place? If you only have a factory & employees in Luxemburg and just exported your product to the rest of the EU, is it really fair to tax you at Scandinavian tax rates for example?
Personally I would see the company you describe as being a Luxemburg company, and subject to their tax rates.
But when you have English customers buying product in English shops from your English staff in your English branches - well, that sounds like an English business. To then have a Luxemburg company that sells very expensive coffee beans to those English coffee shops, thus making those shops operate at a loss but making the coffee roasting Luxemburg business very wealthy - that's just a scam and it needs to be shut down. How to shut it down when you're coordinating the tax raising laws of many different countries is going to take some time.
If the Luxembourg company opens up a sales office in Sweden, but it has only 4 employees and there are 500 in Luxembourg, does that suddenly mean all those companies sales to Sweden get taxed twice? If so why would they ever open up an office there? Why not just insist customers fly to Luxembourg and visit their office instead?
Governments are whipping up a mob over this issue and aren't thinking it through. Does Google really need an office in London? No. One exists there because, in the absence of other factors, it makes sense to hire internationally so you can access good employees who might not want to live in America (or vice versa). But if the first Google employee who started work in the UK suddenly meant ALL money coming from UK based customers got taxed twice, that first employee would never make financial sense. Companies just wouldn't do it. They'd insist the employees moved to them instead of them moving to the employees.
This outcome makes no sense, but in their desperate quest to squeeze ever more blood out of the stone, maybe that's where governments are going to take us ...
If I'm an English business buying ads from an English sales team in an English office and there's an artificial final step in that process (someone in an Irish office stamps a form) then that feels like tax avoidance.
No one is asking for companies to be taxed twice.
But there is a strong concept in England of "not taking the piss" - people don't mind reducing your tax burden. That's expected behaviour. Reducing your burden from 50% to 38% is probably fine with most people. Reducing your burden from 40% to 3% is not fine with most people.
> but in their desperate quest to squeeze ever more blood out of the stone,
These are huge, very profitable, businesses that avoid tax in most jurisdictions. Governments are not squeezing blood from stones; they just want a few drips of blood from the very juicy blood-soaked sponge.
How is your English business buying ads from an English sales team in an English office any different from my Luxembourg/Sweden example? It seems identical to me.
I'm from south of Manchester, for what it's worth. And I think British politicians need to drop this issue as it's way beyond taking the piss by now. Tax avoidance isn't even a thing. It means whatever the speaker wants it to mean. Tax evasion is a thing, that's pretty well spelled out by law, but avoidance just means someone legally paying less tax than the speaker would like them to. Your assertion that 50% to 38% is "probably fine with most people" is in the same area: it's an entirely arbitrary set of numbers. I'm sure there are plenty of people who wouldn't think that's fine, however, it doesn't matter because there's no moral obligation to pay more tax than necessary. Governments are not charities, the British government especially so!
Many of these tax behaviours are almost certainly illegal. Some are currently being investigated, like Apple's "sweetheart" deal with the Irish government. The Google closing deals in Ireland deal is probably illegal too. The EU has opened a new investigation[1], and there may well be prosecutions. This is not just some "its obviously legal to pay no tax" kind of arrangement.
Such a system is unworkable. Where are the profits "made" exactly? You can have sales tax, but governments already do that and they aren't satisfied.
The reason taxing a person's income is (relatively) easy is because you can't split a person up. Just count the number of days they spend in a country, if it goes over a certain level then they are resident for tax purposes and away you go. America ignores this of course with citizen based taxation a.k.a. modern slavery but in all the other civilised countries that's how it works.
Now consider Google. A German user goes to YouTube and sees an advert. Is this money made in Germany? Or was it made in America, where the software was developed? Or in America and Switzerland because there's a YouTube team in Switzerland too? Or was it made in Finland where the request was actually processed? Or was it made in Canada because that's where the advertiser is? Or was it made in Ireland because the advertisers contract was with Google Ireland Ltd?
Pretty quickly you realise this is a fools errand. There's no way to say where the money was made in such an international operation. Any definition you come up with will be fought over by governments endlessly because they all want to buy votes by taxing foreign companies which smells to them a lot like free money (and thus free voters).
So we end up with the simplest definition possible - the money is made where the company is headquartered. The headquarters can be anywhere. This solution was arrived at in both America and Europe. It sorta worked for a while because most companies were already established and new companies were small and poor so nobody cared about them much. Now we have the phenomenon of new companies that are extremely profitable, do all their business on the internet and therefore could pick a country to headquarter in purely for tax reasons. Cue moaning and wailing from stupid politicians who ran up enormous debts and now want a bigger slice of the pie.
But attempting to change this simple definition will just reopen pandora's box.
The best solution would be to just finish off the race to the bottom entirely and push corporate tax rates to zero everywhere. This would yield an approximately 25% hole in for example the UK budget. However the money can be made up elsewhere, such as by increasing VAT or personal income taxes. Of course that is politically difficult - people like corporation taxes because they don't like corporations, and taxing them feels like free money too.
Thats not going to happen. We are going to tax these companies. Sales in the EU can and are regulated and taxed, the problem is some issues like varying tax rates (Luxembourg) and various issues like the double Irish Dutch sandwich (that Apple invented) which was based on differences between tax definitions between countries. These can and will be fixed. Just because you, personally, hate government spending, does not mean we are going to remove corporation tax. Putting all taxes directly on a few prices, like increasing VAT (retail sales) or income tax (cost of hiring labour) is far more distortionary than spreading taxes between more prices (like returns on capital, as roughly corporation taxes are).
I don't hate government spending, what makes you think that? What I hate (perhaps hate is a strong word) is arbitrary and vague systems of laws. Corporation tax is riddled with these and it just undermines confidence in all government. You say yourself these "loopholes" are nothing more than disagreements between governments about how tax works. Thus the "solution", if you want to call it that, is that countries have to stop competing on tax rates. If Greece wants to charge corporation tax of 80% then everyone else has to as well otherwise they're enabling avoidance? That makes no sense and is fundamentally against national sovereignty. Low corporation taxes are quite popular amongst the Irish because they correctly perceive that it leads to lots of jobs. Who are we to say that they got it wrong?
We can see how arbitrary this all is with the fact that these companies, which have done business this way for years in full view of national governments, are only now getting investigated once government spending cuts start making politicians unpopular. If these arrangements actually were illegal under clearly defined law they would have been investigated and tried a long time ago.
IIRC the OECD thinks corporation tax has much higher deadweight costs than other forms of tax. I read this in an interesting article on the subject here:
The problem abot making a precise tax system is that then getting round it is easy. Simplicity is clearly a key point, but somehow our political processes are not very good at that alas. Corporation tax also has huge subsidies, eg allowing interest on debt as an expense should go, which would allow the rate to be cut. No deductions should be allowed on any tax...
In Google's case (as in your example) it's incredibly easy: money is generated where a human being (a user) clicks on an add and thus generates ad dollars. If a German user clicks on it, money is generated in Germany.
It's the same with physical sales. If a customer buys something (from say a Chinese company) in France, then money is generated in France.
The one thing Google has that so far I have not seen seriously challenged is search.
Sure there are other search engines but none really compare in my experience when it gets down to it.
If you hobble your citizens from performing the best possible searches you are putting your society at a long term disadvantage in my opinion. Search really is that important in this day and age.
The answer isn't regulation. The answer is to build a better search engine.
Some people are finding Google's increased fuzziness very frustrating to use.
The lack of ability to specify what should be searched for hinders some searches.
So, there are some spaces for search:
1) better site specific searching. Searching Wikipedia for misspellings (in order to fix them) is frustrating. Searching Amazon is bafflingly awful - I honestly do not understand how Amazon search can stay so so terrible.
2) boolean style operators and stemming choices.
3) I dislike being kept in an English language bubble.
And how do you beat google on search when google is the one with a tracker on almost every important website out there? The search engine which gets the most traffic and can analyze and optimize it? Not to mention the cost to crawl the web 24/7/365 which is the same no matter how many people use your search engine.
That becomes tricky when you acknowledge that the primary reason Google search is fantastic is because they have zero respect for your privacy. You absolutely have a search profile formed with your browsing history which has a massive impact on the results you see when searching whatever query.
Hardly. Many people use Google search without being logged in at all. Chrome pioneered the Incognito mode. You can disable web search history (and I have). There's plenty of respect for your privacy there, you just have to indicate your preference.
Anyway. Personalisation improves search results somewhat. It does not improve them as much as, say, a good spelling corrector.
On the other hand, the EU has finally brought telco to their knees. We had the situation where as e.g. a T-Mobile Germany customer, you'd pay exorbitant roaming fees to use mobile internet or to call on the T-Mobile Netherlands network. It's still expensive, but getting better by the year, thanks to the EU intervening in such cases.
But telephony was invented over 100 years ago - and given the USA completey screwed up telecoms deregulation its a case in the kingdom of the blind the one eyed man is king.
You had to do far more than just change your privacy policy and this was for more than some trivial site with 200 pages or so.
Try implementing it across a global 500 publisher with maybe 60+ major internet property's many of which are built from 3 or 4 CMS's over a decade and it quickly adds up.
Just finding all the pages on a large site to apply the changes to is a non trivial problem.
It's part of a growing movement to reject feudal and surveillance based business models.
Those business models are largely an artifact of the dot.com bust and the need to find some way to make "free" pay... they're a recent development, probably not a permanent one, and are not synonymous with Silicon Valley.
For most of it modern incarnation -- say 1970 to present -- Silicon Valley was all about personal computing and democratizing technology. Hopefully it can return to its roots.
OT but I was watching a docu- on Goldman Sachs and found interesting parallels between the rise of the "surveillance" model in the tech sector and the financial sector. They both succeed based upon the successful monetization of customer data. That may be the content of your emails searches in Google's case or a client's trading position in Goldman's but the goal is the same.
That is actual an understatement, information has and always will be powerful. Do you wonder why the US, China and Russia invest so much in spying on each other and everyone else?
1) Taxes: This tax structure is legal, and used by the majority of large international companies operating in the EU. The EU has the power to change it, if it wants to, rather than just bitch about it. The US will also get its chance to tax this money, if Google/Amazon ever bring it back into the US (the US, unlike the rest of the planet, loves to tax companies for money made elsewhere).
2) Data: Data retention and anonymity is actually fairly regulated by the EU and the US (sometimes conflictingly). It is again within the power of the EU to change their regulations, which they have done in the past, instead of just bitching about it.
3) Antitrust: I like how they play up the search result "alleged" anti-trust angle. There are anti-trust laws on the books in all of these countries, and there were even congressional hearings in the US about this topic (which found nothing). Unless they are implying that the legal system in the EU is broken, I don't get why the politician is banging the drum on this one.