Edited to add...
The article states: "the rules will aim to make companies pay more tax in the countries where they are selling their products or services, rather than wherever they end up declaring their profits."
The following scenario is unclear to me: A software company based in a European country sell their SaaS product to primarily US customers. The majority of their profits are made with US customers, but the company has no office presence in the US. Does that mean the profit from US sales is subject to the rules of this new tax law? (I assume not, but I could be mistaken.) I assume this law only applies if the company has a physical presence in the US. (But now wondering if my interpretation is correct!)
I see two things come out of this:
1. Companies selling their B2C services digitally will be paying both their sales (or VAT) AND their corporate income tax in countries where their customers are. This will be a benefit for countries with large markets and leave smaller countries where the companies are headquartered wondering what the value of these companies to their economies is.
2. A major problem for digital businesses will be the fixed costs of compliance. I suspect that a lot of side-projects and lifestyle businesses won't see the light of day on account of how expensive it will be to keep them running for years while they build up revenue.
My hope is that these rules will only apply to large multinationals but somehow I doubt it - governments are unlikely to leave money on the table and will likely use this opportunity to expand the scope to include smaller businesses as well.
Tracking country of origin for every online purchase and grouping them in order to pay international taxes would be an absolutely ludicrous requirement. No matter how low your opinion of the G7 is, they're not that dumb.
It might be a bad idea but it's not beyond the realms of possibility.
Enforcing fair taxation is not a bad idea, making it awkward is.
It's extremely common even for small software companies to have offices across the world
Potential for having to pay income tax in countries you have customers in, sometime in the future, is > 0%.
Uh, no, this will bring required tax profits for rich governments from these predatory countries that will finally fix their budget deficits and insure equality between its citizens.
/just kidding, this will break small companies and make it almost impossible to sell/export to richer countries for small new comers. The big companies will find new loopholes while facing less competition. The EU governments will then just increase the VAT to 35% to fix their deficits. Everything is fine.
Is Texas also predatory for having no income tax versus CA, NY etc 10%+ income tax?
What government in their right mind fights taxes they would receive? They want to keep Apple (and others) happy so they don’t take their income elsewhere.
So I‘d say this smells of predatory pricing.
If you are a simple, single entity, your income tax is calculated there. It's hard to say what if anything will actually come of this. Tax legislation has a tendency to hide the main point. But currently, small businesses disadvantaged by the things this legislation ostensibly wants to curb. Multinationals have the resources and complexity to avoid tax entirely. It's usually just sole traders that pay full income tax.
It sounds like the primary purpose here is residency definitions, which could mean that the US would be obligated or entitled to consider the Bermuda company american for tax purposes.
IRL, that Bermuda company is likely to be a shell company, receiving payment from a single client (EG msft) so that the parent company can book it as an expense.
That said, it's pretty much impossible to say anything at all before details go live, and accountants have had time to chew on it. Tax rules are all detail. Headlines really do mean nothing. "Where they do business" could mean a lot of things. Sales. employees, manufacturing, financing/listing.
Corporate income tax is applied to the net of revenues and expenses.
Some of the language in other statements seems to suggest there will be some sort of a quota system. MSFT will be defined as x% american, y% Bermudan, etc. This is pure speculation though.
"Also, Bermuda is unlikely to agree to this."
Stripe is ONLY a payment gateway, 'Stripe handling taxes' is a complete myth that is always brought up by uninformed US Stripe customers only to hype Stripe up.
Stripe customers in the EU have to deal with this VAT tax pain already which is why they either don't use Stripe and use Paddle instead.
There is another type of service becoming increasingly prominent, which is a "merchant of record". In effect, the service becomes a reseller for your product or service, and since they are then the vendor for legal purposes, they also become responsible for all the end customer taxation issues. You in turn typically deal with them as a much simpler B2B relationship between just two entities.
It is just a terrible idea on so many levels. It is like something Jay Gould would come up with once already at the top.
I suspect this is just some kind of scam in good cosmetics (as with other globalism policies)
It's always about protecting the bread of the powerful.
The side effects, such as what you raise are just collateral damage.
No. Because, they have a single physical nexus and can't pick and pick and choose where to declare their profits, after of course reaching a sweat-heart deal.
If a small business doesn't pay a tax the IRS thinks it owes, the IRS sends armed agents to serve process. They have no leeway compared to the large multinationals that pay nothing.
The proposed tax does nothing you think it does, as the article explains. Pillar one does not apply small companies.
Small companies pay just corporate tax as they did before, as the article explains. Nothing changes in that front. Pillar two.
Paying taxes differently for each country of the customer you sell to is a ridiculous hardship.
It only benefits the large multinationals to reduce their competition. These sorts of rules centralize markets to fewer and fewer companies able to spend the resources to fulfill more and more complex rules.
The end result is higher prices and lower innovation for consumers. While employment gets centralized to slow-moving, inefficient, but compliant companies.
It's a real shame that legislation is actively trying to make it harder to do business as a small entity. Functioning governments should have it very high on their list of priorities to do the opposite.