It kind of is, though, isn't it? The online ad market is theoretically super efficient - if the market clearing price for an ad is $1, and then you add a 10% sales tax, it no longer makes sense to bid / pay $1 for that ad, knowing that you will be out of pocket $1.10. Instead you would bid about 90-91 cents, knowing that it would get marked up to $1 with tax. Net effect is that Google only makes 90 cents on that ad instead of a dollar, even though they aren't directly paying the tax.
Not if you have to bid against people in other jurisdictions for the same ad spaces. Then the people in the taxing jurisdiction have to bid the market price or lose the auction to someone in another place that doesn't impose the tax. In theory this could have a negative impact on ad prices, but it isn't going to be anything like the entire amount of the tax.
I'm pretty sure you pay the entity in the country that you are located in, so the Montana rancher is paying Google USA. Basically, you need a corporate presence in most places in order to _sell_ to people in those places. People in Spain pay Google Spain to place ads _as far as I understand it_—I'm not an expert on EU tax regulations.
The actual value of Google is in its business concept, IPR and brand name, none of which are substantially developed in Europe.
I was arguing about the scheme that AnthonyMouse discussed. Also they can't recover all the other taxes "owed" to Spain by means of VAT.
AnthonyMouse > So now there is an independent contractor in Spain that pays Google Ireland for ad space and resells it for just enough money to pay its own bills and makes no profits.
If the VAT rate in Spain were higher than in Ireland the difference would stay in Spain. In that case marginal increse in the VAT rate would increase tax revenues, whereas and increase in income tax would not.
But right now VAT is higher in Ireland(23%) than in Spain(21%) and increasing the VAT rate can have sideffects on the economy as a whole.
I'm not sure how it would work. Corporate income taxes don't make much sense in itself of course. The profits could be taxed as cap gains and everyone would be happy - so long as companies weren't multinational.
The problem here is that a company may be making a huge profit in some country by using resources paid for by tax money in that country (such as roads, in the case of Uber) but due to licensing and the ownership structure, the company does little income in the country and no cap gains either because the owners are elsewhere.
The only solution to this problem if you do have corporate income tax is to establish how much profits Uber actually made in each country, and have the profits taxed correspondingly.
The problem is that's not how profit works. There is no "in each country" to calculate. They paid $15B to employees in 20 countries and then made $20B in revenue from 20 countries. There is then $5B of international profit, but how much of the profit belongs in each country is completely arbitrary. There is no objective reason that it should be where the software was developed vs. where the software is used vs. where the owner of the company lives etc.
The standard they try to use for these things is what would be negotiated in arms length transactions, i.e. as if each of the subsidiaries had separate ownership. So one entity pays $1000 to develop software, another can make $1200 in revenue if they buy the software, what price do they negotiate? It's ostensibly going to be something between $1000 and $1200, but whether it's $1020 or $1180 is down to the negotiating skill of the parties. Both numbers are completely reasonable and might be seen in actual transactions. But the difference determines where 90% of the total profits go! It's clearly then going to be quite plausible to arrange for the profits to end up where you want them, which is what happens.
Maybe what it all comes down to is that it makes more sense to tax transactions and charge corporations for services (e.g use of roads) that are tax funded.
To avoid doubly charging companies that do pay taxes for profits one could charge fees for use of infrastructure and count taxes collected against those fees.
Companies like Google and Uber that use public infrastructure could be charged for it, and unless they paid enough taxes they'd owe the difference.
How much of the internet infrastructure Google should finance, or how much the cost of Ubers road use is will be somewhat arbitrary of course, just like the current situation - which is the lesser evil comes down to whether one is more comfortable leaving arbitrary decisions for tax authority bureaucrats or enterprises.
The whole problem with taxes is that you want tax revenue but you don't actually want to tax anything because taxing things causes people to avoid doing them. That's why everybody wants corporate income tax -- who cares if we discourage "corporate profits"? The problem is what you really end up doing is discouraging corporate profits in your country, so the profits end up somewhere else instead.
The best possible tax seems to be to impose VAT on everything, so that the rate stays low because there is a broad tax base and you're not discouraging anything in particular very much.
Fees for infrastructure are the opposite of that. A 20% VAT makes the thing 20% more expensive, which isn't that bad. An infrastructure fee for what would otherwise have been zero cost makes the thing infinity percent more expensive. It's basically the worst case scenario.
So for example a high tax on network usage is basically going to kill YouTube (and every other streaming video service) because the amount of bandwidth it uses for the amount of revenue it generates would no longer be worth it. Then your total network usage has been cut by 80% which means you need to quintuple the fee to make the amount of revenue you were expecting and it quickly snowballs from there.
Tax ownership of assets.
It's rather difficult to hide that /someone/ owns a phone, a car, a house, some land. Tax the ownership of value, not it's transfer.
Globally you would see the impact of sales increase taxes most where the profit actually accumulates; assuming that those types of values are taxed properly. In practice I would imagine that this would be increasing taxes on ownership of 'financial instruments'.
I'm making this example up but it's the general process of Transfer Pricing. Tax authorities now make you justify the prices which is why Google negotiated a settlement with UK Chancellor George Osborne, his superbowl seats and job for his son were just coincidences.
How would that even work? The costs are actually costs.
Imagine it was actually a dozen different companies. One of them is in California and it develops software on contract, one is in Germany and it develops hardware on contract, one is in China and it manufactures hardware on contract, one is in Ireland and it has the original capital which it pays to the first three in exchange for copyrights, hardware designs and hardware, one is in Spain and it buys product/services from the Irish company and sells local advertising, etc.
It turns out the company with that owns the copyrights makes the most money. That's how it honestly works whether the companies are separate or not. If you made the Spanish company liable for taxes on the profits of the whole supply chain, every company in Spain that uses Google ads would owe taxes on the money paid to Google (and the same for anything they buy from anyone). In other words you would have enacted a sales tax. Which is fine, but isn't an income tax and isn't a tax on Google.
What you seem to want to do is to identify that the companies are actually owned by the same party and do something different in that case. But five seconds after you require that, they would separate. Specifically the company that exists in a jurisdiction that cares about that would become independent. You don't need to own the stock of a company to capture all of its profits when you're its only viable supplier. So now there is an independent contractor in Spain that pays Google Ireland for ad space and resells it for just enough money to pay its own bills and makes no profits.
The problem is fundamentally that income tax makes no sense across borders. People will move whatever it is you're taxing into the country with the lowest taxes if the cost of moving that thing is less than the cost of the taxes. The cost of moving profits is very small. You have to tax something which is harder to move, which is then no longer an income tax.