Often it seems tech/IT is simpler. A software engineering team in California write the code, then it's clear that nearly all of the value was created in California. It's fairly easy to price the cost of foreign datacenters for cloud hosting.
BUT - and this isn’t irrelevant - even though IKEA might not pay much taxes on corporate profits in (say) Sweden, Selling physical goods in physical stores still produces value. They manufacture in Sweden about as much as they sell in Sweden. So overall, it’s much easier to accept the near zero tax.
The corporations whose large profits and zero taxes annoy people are the online giants.
well SAP is probably one of them, but I never heard that somebody is annoyed by their tax policy. I never heard anything said against them and I'm pretty sure that they follow the same scheme than Apple, Google, Facebook, etc.
(P.S. I'm german)
https://www.sap.com/integrated-reports/2017/en/primary-conso...
The iPhone App Store is a completely different animal from SAP's consulting-heavy sales model, and it seems understandable that the EU commission is interested only in the former.
I don't follow. Just because the software was written in California doesn't mean they don't have customers and derive profit from other regions. Likewise, sales tax on physical goods is applied at the point of sale, not manufacturing.
But actually my point was really to try to refute the intuitively attractive idea that intangibles are more difficult to tax than physical goods within this framework. Taxing consumer goods is extremely complex these days because of global supply chains and vertical integration. On the other hand in many cases, services like legal work, consulting, etc. are simple to tax under this system despite the fact that intangibles are being traded.
Let's take the facebook news feed as an example. Loading just the page might cause requests from CDNs in three different countries. Then the frontend might have been written in the UK and the backend in the US. The ads manager for the ad you just clicked worked in Germany. I doubt any modern IT company can track expenses on that level of detail. And associating costs with revenues is non-trivial either: Did the front end contribute to the revenue generated with the ad click? Did the backend or just the work of the ads manager in Germany? There's so much leeway for companies right now.
IT companies like Google and Facebook have one single product (ads) that generates most of their revenues. The country where the revenue occurred can be easily established (eg. an ad sold to a German company). But the costs to create this product (the whole platform) have been accrued all over the world. Without intimate knowledge of the corporate structure and the technical setup companies can basically tell you any story about where these costs were incurred.
Code by itself is valueless. If the code is to show an ad then the value is created when and where is ad is viewed.
Also I’m the very opposite of a tax lawyer but my understanding is that the salesman’s added value is determined by transfer pricing rules. It works as if he bought the good or service from the Californian developers at a certain price. The profit is then calculated in each country deducting local costs and taxed accordingly in each country.
The tricky bit is in agreeing the transfer price but there are decades of complex internationally agreed rules to determine a price if the transfer isn’t at “arms length” - for example between related subsidiaries.
The picture is muddied by the weird US tax rule that allows companies to defer paying their US split of the corporation tax by keeping the cash out of the US. But the tax is due - this is why the US authorities were aghast at the EU’s Apple ruling. It was viewed as a European raid on money that was theirs (the US government’s) to tax.