Surely if, say, netflix is offered to french costumers profit is made in france?

Why should the profit be made in france if the engineering that went into delivery was made in the US, the content was made in X, the deal for the content was negotiated in Y, network source is Z (probably france, but not necessarily)

VAT in France on the subscription makes sense, but figuring out where the profit lies, is more nebulous.

It's where the profits are, not where the cost centers are. If the customers are in France, the profits are in France.

What if Netflix France has to license their content and platform from Netflix US, the the license costs are coincidentally exactly the same as the revenue made in France? Then there will be no profits in France.

Actually that's what Coca cola has been doing for years... and it's quite pissing up every european gov

Apply business purpose test to license cost calculations.

thats exactly the kind of accounting trick they are trick to get rid off.

The fact that it matches the revenue exactly shows that its not a real lisencing deal

Take the ratio of global revenue against national revenue and apply it to global expenses. Allow some leeway around any particularly unique national expenses and you've immediately put an end to the bullshit games these sociopaths play.

I strongly support immediately jailing anyone found to be playing these licensing games. They're parasites who have no place in society until they've shown reform.

In that case, they could always consider nationalizing Netflix France, and paying Netflix $0 in compensation. It is, after all, a completely profitless venture, losing it would be no big loss to Netflix.

Stupid games, stupid prizes, etc.

Are you confusing profit with revenue? The revenue is in France - easy. Profit is revenue - cost, which costs do you factor in?

At some point, I think governments are going to need to break down and start taxing revenue instead of profits.

A 3% tax on total revenue is the same as a 15% tax on the profits of a product with 20% profit margins.

This would benefit large and established companies with stable margins, while penalizing smaller businesses and startups. I don’t think this is the intended result.

It also discourages long-term investments, and further rewards short-termism (which everyone seems to dislike).

you can apply a rule only to companies with over 10 billion in revenue

And now you have companies inefficiently splitting themselves up into <$10B chunks, and paying lawyers and accountants lots of dead-weight costs to ensure their degree of coordination (think “Amazon West Virginia Ltd.”) doesn’t cross some ill-defined legislative or judicial threshold.

Taxing revenue has turned out to be a terrible idea every time it has been tried. It creates perverse incentives that encourage companies to be inefficient and wasteful.

One of the biggest policy problems with revenue taxes is that the effective tax rate is much higher on smaller companies than larger companies. A large vertically integrated company like Apple would pay a lower effective tax rate on an iPhone than any of their competitors, giving them a natural advantage. These are pretty dis-economic policy outcomes and the main reason no one seriously considers revenue taxes.

Quite the opposite. You can't fake revenue nearly as much as you can fake profits. Examples are legion - look at any company in the US that pays 0% (or negative) corporate tax rate.

You are not understanding the issue. Revenue can be trivially made to disappear, and this is what actually happens when governments tax revenue.

Revenue is recognized as the size of a sales transaction. The number of sales transactions required to build and sell a given product can vary enormously based on the structure of the business, usually as a product of optimizing for efficiency and specialization. When you tax revenue, businesses have a large incentive to restructure their business to optimize for minimizing the number of sales transactions in the course of building the product, because revenue taxes essentially compound as a function of the number of transactions which is then a cost of business. The compounding is why revenue taxes are so low, usually around 1%. Being tax efficient lowers your costs more than being business efficient, leading to bloated and non-competitive companies.

I've operated a business under one of the few revenue tax regimes. The perverse incentives to verticalize the business structure are very real. Revenue taxes add up quickly.

To make sure I understand your point, is the argument that without a revenue tax, you're incentivised to sell as much of your stuff as possible, whereas with a revenue tax you're incentivised to maximise your margin, and this makes things inefficient for everyone downstream of you?

What about only taxing B2C revenue? Then the degree of vertical integration wouldn't matter.

It’s much easier to do that with something called a sales tax!

Isn't that more a value added tax, rather than a straight sales tax? Similar, but not identical.

VATs operate at every stage of the supply chain. A sales tax is only applied at the point of consumption.

That's kind of my point though - it ends up being charged on the 'value add' at each stage, so the vertical integration doesn't matter. X % of the final cost should still be VAT.

Its one of the reasons Value Added taxes are popular everywhere. (except USA)

I wouldn't say they're popular ... BA-DUM TSH!

I'm here all year, tip the waitress!

> Are you confusing profit with revenue?

Don't think so.

Profit only happens when there is revenue.

Cost is a negative influence on profit, revenue is the positive influence.

If you have zero cost, you still have profit (provided you have non-zero revenue).

If you have zero revenue, you don't have profit.

So it is obvious that the profit is where the revenue is, even though revenue ≠ profit.

If I make a physical good in the US and ship it to a buyer in France who pays above my costs, I don't owe France any income tax.

If I have a warehouse in France, some of the profit was in France and some was where it was made in the US. Same thing here where there's lots of small pieces done wherever.

True in theory (and much more so for physical goods) but in practice for services like Netflix, Google and Facebook, from the EU's point of view, who cares.

Giant tech company, pay your 15% based on local advertising revenue from local customers. We all know you'll still be making huge profits regardless of your costs. Your whole business is built on fixed costs and infinite scaling of revenue.

If you really can't afford to pay 15% then leave the market, someone will certainly take your place.

Because that is where the sale happened. You buy a lot of stuff that was made in China but pay tax in your country right? Not only was the sale in france, the goods that the customer pay for (video content) are delivered too france like normal goods and watched/consumed in france.

No, you pay VAT/sales tax for stuff made in China. The company pays taxes on profits where the company is registered. When you pay for Netflix in France, you pay VAT on the transaction too.

Is that why iPhone is design in US, Built in china but the taxes are paid in bermuda? Totally legitimate?

I'm not arguing that the setup is legitimate. I'm pointing out that the above analogy is confusing different tax types. The sales tax is not in question here. I'm all for revisiting how profits are taxed based on where they are made, but sales taxes/VAT is already collected correctly for both iphone and netflix.

If you offer a service in France, charge $10 and pay %15 on that $10... then when that money makes it into the US and Netflix has to decide what the profit is (after server fees, electricity, content fees, paying off politicians, etc)?

Not sure but I'm seeing 2 different conversations here: flat tax on what you pay at the pump... and what the company reports as profit at the end of the day.

France doesn't care if you make a profit or not on the 8.50... just like Apple doens't care when they take 30% off the top.

Am I reading it wrong? Is it 15% off the top ala Apple Store? or 15% off of profits? both of which are different conversations.

Looking at the article, it seems like a nothing burger until it's voted in officially... The Paris Accord was "passed"... and then left because it was just a verbal agreement. What's enforcing this and stopping the next POTUS from leaving it all together?

You are thinking of VAT, which in France is normally 20%.

That is not the tax that is being referred to here, which is Corporation Tax - the tax on corporate profits.

You could argue that the profit is made where the money is made.

You could argue the profit is made where the money is earned. No CDN, no streaming; No content, no streaming, etc. How much would Netflix pay a (probably US based) CDN company to do what they do inhouse... that should probably still go to the CDN team, etc.

> engineering that went into delivery was made in the US

That's a cost, not profit.

> the content was made in X

Cost, not profit.

> the deal for the content was negotiated in Y

Negotiating the deal also sounds like a cost to me.

> network source is Z

Cost.

The profit is made where you get money, not where you spend it.

If you paid an external company to make all those things for you, they'd have profit in all those places, but if you do it in house, the profit just moves to the point of sale?

Why not replace income tax with VAT/sales tax if sales is the basis of taxation anyway?

That doesn't account for infrastructure/governmental costs associated with creating the stuff that makes the profit. As a hypothetical, if a German company writes some software and US companies are the only ones that buy that software, the US harvests 100% of the taxes on profits while the German government is left holding the bill to take care of the roads that lead to the office, electricity infrastructure, employee's healthcare, etc.

It puts the government in a weird spot where they really don't want any businesses that primarily sell to foreign countries since they don't get tax revenue to fund public services for that company.

Digital services are taxed where the services are rendered. In other words, the location of the user.

VAT taxed in this case, sure. Those are taxes on consumers. Article is bout corporate profit taxes.

Likewise corporate tax should be in the jurisdiction where services are rendered. You sell something digitally in a market then you are locating yourself in that market and that’s where you should pay tax on profit for goods sold there.

It's not that trivial to track down.

Say a US company's French subsidiary sold something for $10 in France. If the software is developed in the US, then the US company will say it cost them $9 to develop in the US, so then they only have pay profits on $1 in France. Then in the US, they will say they paid $3 in costs and sold the software to their French counterpart for $9, booking $6 of profits in the US at a lower rate.

The person buying is usually on planet earth and inside a country. This country is where the profit was made.

Welcome to my factory on a boat and also my remote controlled factory on a satellite.

Or licensing deals. If I license a processor and put it in my product that's designed in the US, using an ARM core licensed from the UK, manufactured in China, sold to a distributor in Switzerland, and sold to an end user in Australia.

Where were the profits from that device made? Surely not entirely in Australia (or any of the other single jurisdictions), as actual value was added in several different locations.

billing zip code seems to be the standard in the united states.

For VAT this is already defined (in the EU): wherever the purchaser is when they get their goods handed to them. If I drive over the border to Germany, I pay German taxes. If I buy online and have it shipped to the Netherlands, I pay Dutch taxes.

A digital good is handed to me wherever I am when I purchase it, so I pay taxes in that jurisdiction.

That's not a good analogy - VAT is simply added to base price at the time of purchase. Profits are entirely different - how would you account expenses for example. Not to mention various tax benefits that differ from country to county.

If you sell concert tickets, would this mean that you need to book the profits in the respective countries of anyone anywhere in the world?

In case of services it’s in the country where the service is provided - thus in the location of the concert. Now, online streaming again is provided is provided in the location of the viewer, that’s a bit of a mess (used to be involved in running conferences, same thing there)

A concert ticket is not a digital good. The service is given to you at the concert itself, therefore the country in which the concert is, is the country where you will pay taxes.

If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country.

So if a company had $100B global revenue and $10B global profit and 0% of the profit was in France while 10% of the revenue was in France, then the company should be taxed based on the $1B profit that can be attributed to France based on revenue there.

Any other scheme seems it’s prone to creative licensing schemes and similar.

> If I was trying to invent some “fair taxation scheme” I’d tax the profit based on the revenue in that country.

Why is that fair? In your example, if UK provided 100% of the labor shouldn’t UK get 100% of the tax to support social programs for that 100% labor?

Labor seems a better way to distribute and incentivize employment.

It’s “fair” only in that it’s understandable and somewhat enforcacble (and not possible to avoid with loopholes).

It’s not fair in the sense that the right countries necessarily get the tax money - but it’s certainly more likely than it is today.

It’s not fair in that it guarantees businesses aren’t taxed too much or too little, but it does guarantee that the profits are taxed somewhere which ends the incentive to shift the profits around.

Perhaps “fair” is the wrong word. I mean “fair” as in hard to evade overall, not fair distribution.

> if UK provided 100% of the labor shouldn’t UK get 100% of the tax to support social programs for that 100% labor?

The UK gets 100% already from the income tax for their workers.

This seems to just scream "outsource to low or no tax developing nation".

Not really because its extremely exploitable. Revenue is not - it DOES come from someone somewhere - its traceable.

Work effort could be distorted in whatever fashion the country wants. They could declare all their work is done in some off shore 0% tax nation and pay nothing.

That would have different tax results depending on whether or not it was operating under a reseller model, where the reseller is the one importing the item.

Then there is little or no revenue local to France.

What if France has complex rules and extra regulations that bring the profit from the country to just 1 percent, compared to ~10% on global operations. With your logic you will tax the subsidiary way more than 100%.

If you're trying to do fair taxation do away with "profit" taxes entirely. Not like any of us plebs get to dodge taxes by spending our income. Subtract what the company spends on salaries from its total revenue and then charge them 20-30 percent of the remainder just like the rest of us pay. "Corporations are people" after all. Toss in a seven percent sales tax on all stock purchases.

That would instantly bankrupt every single company in the many industries with single-digit profit margins.

I would personally be in favor of a ~5% flat tax on corporate revenue across the board if it meant replacing the convoluted profit-based tax schemes that currently exist. The costs of compliance and "tax minimization" are already a couple percent of revenue for many companies, so replacing that cost seems very reasonable.

That were adversely affect new businesses and discourage competition for well-entrenched businesses. The net results is that it would handicap growth.

Consequently, it’s a terrible idea.

Why do you think that?

If anything bigger buisnesses have more ressources to avoid taxes. - Thus having everyone pay the same would lead to large companies paying more than they do now and small companies would be barely affected.

True. Proposal of parent could be made more realistic by making sure only few things like bill of materials, resale items and personnel costs can be deducted. Companies already keep track of all these things.

You will have to go after financialization tricks, where healthy companies get loaded with debt, weird tricks with assets and all the stuff the finance industry comes up with that has nothing to do with core function of the company. Now imagine the powerful lobby you have to work against.

Yup, gets pretty complicated. Seems like it'd be easier to forget about corporate tax, and charge income tax on every dollar going from the company to an individual.

Apparently some lobby found my little comment too. :)

Food for thought: in a distribution chain you will find lots of small value adds. Take sea ports, there are loads of companies that handle import of materials or products. The price they charge for their goods/services are dominated by their import costs.

> "Corporations are people" after all.

corporations aren't people, and I think you know this. "corporate personhood" means that a corporation has some (not all) of the rights held by individual people. it certainly does not mean that it makes sense to tax corporations as if they were humans that filed a W-2 each year.

what do you think would be solved by jacking up the corporate tax rate specifically? or put differently, whose pocket do you imagine this money comes out of?

the owners are already taxed on any income or capital gains they derive from ownership, employee pay is taxed on both sides, and retail customers pay sales tax. none of those taxes are necessarily optimal, but their impact is at least better understood than corporate tax.

I think op might be talking about Mitt Romney saying corporations are people.

Get rid of income taxation altogether and replace it with land value taxes.

Maybe this is obvious to people that do accounting for multinationals, but it's not clear to me how you even establish that 10% of the revenue was in France.

If a global company like Google pays a global company like Apple $K billion to be the default search engine on iphones, should Apple consider that revenue to be all in the US because Google is headquartered in the US even though it's purchasing something that will apply to people in lots of countries? Does it matter if Google uses local corporations in a number of companies to each pay Apple? If Google pays through its subsidiary in the jurisdiction with the highest corporate taxes, can it force Apple to realize revenue there?

a "simple" solution would be requiring companies to set up legal entities/subsidiaries into the countries they make above xx millions of revenue, getting taxed at the local level, keeping simultaneously things simple for small companies which may sell across borders.

Depends. If it's services, I could see where the services are delivered from (e.g. location of platform or service personnel), OR where the services are destined for (client location) and commit the rev-rec there.

Generally, for tax purposes, it's the address of the customer for cloud services. If they give you a NL address, you tax according to Dutch law. If they give you a DE address, you tax according to German laws, regardless of where services are actually provisioned.

It would not be that difficult to pay EU taxes based on % of revenue attributed to each country. I.e. if you made $1B, and 70% of your revenue came from The Netherlands, and 30% came from Germany, you'd pay Dutch taxes on $700M and German taxes on $300M.