Italy Approves 'Google Tax' On Internet Companies 236
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."
Loophole closed (Score:5, Interesting)
states dont want to compete. (Score:1, Interesting)
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.
But states really do not like the idea of having to compete, so I expect them to try crap like this instead. It wont work well, there will be unintended side effects that are harmful, and ultimately little, if any, more taxes will be collected anyway.
Re:Loophole closed (Score:3, Interesting)
It's going to get thrown out in a year anyway. Both Italy and Ireland are part of the EU, and membership of the EU requires the free movement of capital, people, goods and services between members states. Because the new law prevents Italians from buying a service from other EU member states, it's illegal under treaty - you can guarantee it will be challenged and overturned.
A good first step (Score:5, Interesting)
Anything that discourages internet advertising is a step in the right direction.
Re:From Italy, yes, otherwise... (Score:5, Interesting)
The equipment isn't in Bermuda or Ireland either.
It makes no sense that a Californian company is paying tax in Bermuda when it does nearly no actual business there.
Re:Internet megacorps not on level playing field (Score:4, Interesting)
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.
Re:From Italy, yes, otherwise... (Score:2, Interesting)
Gah. Why do so many people not understand the difference between avoidance and evasion? Evasion is what happens when there's a rule, and you break it. Avoidance is what happens when politicians wish there was a rule someone was breaking, but there isn't, and as such tax avoidance is barely a well defined term at all. None of these companies are being accused of tax evasion. That would require someone demonstrate a rule that they were breaking. They are being accused of, well, it's hard to know what they're being accused of exactly .... basically they're being accused of being rich and not giving profligate and indebted governments free money.