An italian subsidiary would have to pay its mother company for the services it provides (which is everything, since no user would be serviced from Italy). So the Italian company could easily make 0 (or very few) profit.
So despite being a law, it's (probably) not legal. I find it very hard to believe that there is anyone in the Italian parliament, which is filled with lawyers, that doesn't know this. They are merely voting in this law to appease constituents, and of course the targets of this law (not just Google, but any internet seller. It's just as much apple or microsoft or kickstarter.com) have zero incentives to point this out : they simply don't pay, knowing full well they can't be sued for this.
So constituents are "happy", lawyers get re-elected and nothing changes. There are no implications, everything will simply remain status-quo.
Google employs lots of local people in many different countries to sell ads, etc.
In order to do so it has national companies that are owned by Google US, but are separate legal entities.
But what's happening is the national sales people are closing deals but then book those ads through a different legal entity in Ireland, even though the sale happened with a local sales person, in a local company. This is with the express purpose of avoiding tax and claiming it was 'only following the law', when it is clearly deliberately avoiding tax.
That is why it started getting into serious trouble in the UK when it became clear that it was the Google UK sales people who were closing the deals but then the deals would magically appear on Google Ireland's books.
As far as I understand it, it then uses the double dutch loophole to avoid paying even Ireland's corporation tax.
Google US does not employ the Italian or the French or the UK sales people.
So what you said, as far as I understand it, makes no sense. Google are based in Italy.
http://www.google.co.uk/about/company/facts/locations/
Notice how a lot of the locations have localised version of the US's 'Inc' like 'Ltd', 'GmbH', 'n.v.'. They're all owned by Google Plc (US).
There is a small Google there, but they are satellite, not headquarters. (I assume. Perhaps Italy is in the top couple percent and actually does significant things other than sales, then substitute another country here.)
>But what's happening is the national sales people are closing deals but then book those ads through a different legal entity in Ireland, even though the sale happened with a local sales person, in a local company. This is with the express purpose of avoiding tax and claiming it was 'only following the law', when it is clearly deliberately avoiding tax.
Are you arguing that there is something unethical/immoral/unfair about a big company paying a small local one to sell ads on behalf of the big company? I guess I'll just have to disagree if so. I see no reason the price of the ads should be counted as revenue for the local company.
Right now Google is funneling all the money through one country because it has the lowest taxes. Even if they stopped using loopholes, I don't see why they would stop selling from the country with the best tax rates. So Google Italy, Google France, etc. would not still book the ads.
It's not that they're selling American ads.
They're selling essentially nation-less 'let's not pay any tax to anyone at all' ads.
They're not paying any tax on this stuff. They're not paying EU tax, they're not paying US tax, they're taking advantage of all the local infrastructures, the laws, the protections from harm, all of which cost the nations a shit load of money to maintain, and not paying a penny.
Just to be clear. On Italian sales, they aren't paying Italy taxes. They're not paying Ireland taxes where they claim the sales are to do a Double Irish. They're not paying Holland taxes where they route the money through to do the Dutch Sandwich. They're not paying the US taxes, they park the money in an offshore account and lobby congress to grant a tax asylum.
They are simply not paying taxes.
This is happening in all the EU countries.
And then every now and then they lobby the US congress for a massive tax holiday to bring the money back to America tax free.
And what really confuses me is that they then often have the cheek to claim that they are contributing to the countries they're scamming because they employ people and those people pay tax, which is disgusting as it's actually the tax of their employees that they're merrily claiming is their contribution!
This is as far as I understand the issue. I think in some places you should probably replace 'not paying' with 'paying a ridiculously small amount'.
I know that, and that is a problem. But even if they stopped doing that, Italy could easily see none of the taxes on profit. Italy's new law doesn't actually fix the underlying problem. Instead it's a tariff that somewhat works around the problem but also bans an entire category of inter-country trade, which is quite problematic.
Maybe I wasn't clear enough when I used a hypothetical situation to illustrate why Italy's law is attacking the wrong thing.
Italy's law blocks a German corporation from selling German-served ads on German servers to Italian customers. That's a problem.
Italy's law doesn't block a German corporation from using tax loopholes to never pay anything. Therefore those loopholes shouldn't be mentioned as a justification.
Yes, you don't seem to be in disagreement with me. It doesn't block German companies from serving ads off of German servers, featuring Italian businesses. But they can only do so for free. They cannot be paid by the Italian businesses. I find this to be a rather ridiculous restriction on the purchase of services.
Especially if there is no exception allowing Italian companies to use German-served ads to target Germans.
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.
Google's tax-avoidance has nothing to do with this new law. It's true that Google shifts profits around to avoid paying taxes where they do their actual labor. But changing that wouldn't change the fact that Google isn't based in Italy. For the sake of simplicity let's say that Google stayed in Ireland when they stopped abusing the system. They would sell all their European ads from Ireland, and pay a hefty tax with no loopholes. And their tax payments in Italy... would not change.
This law is strictly anti-outsourcing. It does nothing to stop Google's tax avoidance, and would still be just as 'needed' even if Google didn't avoid taxes. Bringing it up muddies the water and serves no purpose other than making Google look like a bad guy.