[walki]

I am a Luxembourger and I fully agree that the EU must close these kinds of tax loop holes. In the past my country made a little money out of these tax loop holes, this was immoral money that my country did not even need. Doing this, other European countries lost a lot of tax income. The only ones winning big time in scheme were the international companies abusing the EU and its people.

[pzh]

Just out of curiosity, why would tax competition be considered bad? It is generally accepted that monopolies and cartels are bad for the free market, but when it comes to governments and the services they provide, we're completely OK with tax cartels. These EU and OECD tax agreements basically amount to a tax cartel, where governments agree they'll fix their tax rate regardless of the infrastructure and level of services they provide...

[exDM69]

> Just out of curiosity, why would tax competition be considered bad?

In the European union, where funds are easily transferred between subsidiaries in different countries, tax competition by individual member states can have particularly harmful effects on the public economy as a whole.

In a typical multinational corp tax avoidance scheme, a coproration has a subsidiary A in e.g. Ireland and has a very small corporate tax rate on profits. Then another country, e.g. Netherlands gives subsidiary B a tax break on some commodity, typically an IP licensing scheme of some kind.

Subsidiary A licenses some IP from B, and the licensing fees are conveninently 100% of the profits of A, so they're not making a profit in Ireland and don't have to pay tax there. Subsidiary B gets all their profits from IP licensing that pays hardly any tax in the Netherlands.

Add a few subsiriaries and loan arrangements between them (free movement of capital in Europe is one of the fundamental pillars of the EU), and no taxes get paid and all of the profits get funneled into a tax haven such as Bahamas or Caymans.

So while you'd think that tax competition would just be a fair competition when talking about individual countries, at EU scale it ends up being a race to the bottom where a few select countries (Ireland, Netherlands, Luxemburg) get a nominal fee from the multinationals but all European states end up losing billions in tax revenue.

And then there's also the corruption aspect. These tax deals aren't a gesture of goodwill.

[walki]

> Just out of curiosity, why would tax competition be considered bad?

This is not about tax competition, this is about abusing tax loop holes and trying to avoid paying any tax at all. E.g. before 2015 Amazon declared their entire European income in Luxembourg and payed about 1 percent of tax on that money. This way other (much bigger) European countries like Germany and France lost billions.

[pjc50]

You can't have tax competition and freedom of movement of companies, goods and capital. It's the tradeoff in the EU for removing all protective internal tariffs.

(The US avoids much inter-state tax competition through federal taxes)

[Amezarak]

The US has tons of inter-state tax competition; federal taxes just comprise the base rate, not the total taxation rate. State governments fall all over themselves to offer special incentives for companies to come in. Or stay, in some cases - a local employer has been here almost 80 years, yet the state and local governments still feel they need a massive multimillion dollar tax break or they'll pick up and leave.

[xgbi]

It is bad because it decorrelates the country you make a profit out of from the country you pay taxes on this profit.

The people paying for your product are able to buy it because they live in a country that provides for them, through added value, jobs, health care, infrastructure and so on. If you want to profit from these people's buying power, then you have to conform to that country's rules of business, that's all.

Apple is very happy to make huge sells of iPhones thoughout France, Germany, Italy and such countries, siphoning money from their people to Ireland, without ever contributing as much into the local economy. They employ a few hundred people in Apple stores and hotlines, but compared to their profit it is just ridiculous.

[pzh]

Is that really the case? Apple operates in Ireland and it pays taxes there based on a certain competitive rate it has. If Apple sells phones in certain countries, it has a network of suppliers there and it pays taxes on their business operations there. It seems that you're making the argument that the phones have to be produced in every country where they're sold in order to eliminate trade deficits (the so-called decorrelation of profits and taxes that would result from the importing of a product). But the only way for the other countries to get that tax revenue would be to be competitive enough (through competitive tax rates, availability of talent, infrastructure, legal system, etc.), so that Apple would be incentivized to open offices and move their R&D and pay taxes there. It seems you're arguing that these other countries shouldn't have to compete on these criteria, but should somehow be entitled to that tax revenue or at least to protectionist measures that would make sure that Apple has no incentive to go anywhere else, purely based on the fact that willing buyers purchase Apple's products there. I'm not sure that's a very strong argument because it basically amounts to saying that if you don't force Apple to give some form of a discount to these buyers, they won't be able to buy the product in the future...

[pjc50]

The thing about transfer pricing is that it makes the "location where value is created" completely arbitary. It's not where the R&D is done, it's where the shell company that holds the patents is registered.

Apple subsidiaries in random countries selling phones don't pay taxes because they don't make any profit. They don't make any profit because they're "charged" an amount for the phones (and IP, branding etc) that exactly equals the sales.

[weddpros]

"decorrelates the country you make a profit out of from the country you pay taxes on this profit": taxes are due where value creation took place. That's called a rule. The EU decided the rule should be changed after the fact, retroactively.

"people paying for your product are able to buy it because they live in a country that provides for them": wow... really? I know governments love considering people's money as theirs, people's lives as theirs, but that's a bit far stretched maybe? I'm not any country's liability. I'm a free man in a free society. Aren't you?

[webXL]

"Without the Glorious State, you wouldn't have had any consumers to make you wealthy!"

Here's a business producing commerce-enabling technology in an extremely valuable manner, hence the profit. Consumers exchanged their earned, post-tax savings for those things and paid additional tax along the way. To act like governments were short-changed is preposterous. It's "you didn't build that" taken to the extreme, and borderline extortion.

[intended]

Because cartels means something specific to a group of market players and tax means something specific to a nation state.

The two are vastly different, and the first is tolerated only by the latter because it's the best way we know to bring order and organization to trade.

[jomamaxx]

"In the past"

In the past?

This is ongoing - enabled by Junker himself ...

[walki]

> This is ongoing - enabled by Junker himself ...

No, it is not. Before 2015 many companies (one prominent example being Amazon) declared their entire European income in Luxembourg and payed about 1 percent tax on that money. This tax loop hole has since been closed by the EU, Luxembourg lost about 10 percent of its budget because of this. Today when somebody from e.g. Germany buys a product from Amazon.de, Amazon pays tax in Germany for this product.

[dogma1138]

This isn't only ongoing, this is by design, and being actively pushed further, because in the EU if you are by definition an equal opportunity tax haven like Luxemburg you are golden.

Luxembourg is like the delaware of Europe, it's a banking and financial institution state and both its own laws and the EU laws and policies it lobbies (and when you effectively are not only Delaware but also the DC of the EU it kinda helps) for ensure that it would continue to operate as one.

The bad thing that Ireland and is a big no-no in the EU is to go to the likes of apple and say:

Hai Apple I really want you inside of me! I know I'm small, and I don't have a huge workforce and internal market, I'm not like Germany. I also don't have a huge economic and financial infrastructure like Luxembourg, Switzerland or UK (London) but I'm a really hard worker! Tell me what skills you need, and I'll educate my people, I'll give you low interest loans to build your shiny offices and I will give you tax deduction if you employ my peeps. I would do all that I can to make sure it will be easy for you to operate here because I really don't have much to offer and I need to compete with the bigger countries since the euro is expensive and the price stability is managed by the ECB and my people need to eat and loans I've been taking on are becoming harder and harder to pay.

Now this is the only way that Ireland can really attract large corporations and make it more lucrative to invest in its industry, this is what effectively every country on the planet does when it wants to grow. And since Ireland can't control it's own monetary policy and currency it also can't just be a cheap place to be, while there is some local variation because of the mandate of the ECB to control the price stability within the Eurozone the prices of many goods and services are quite similar (Ireland is actually more expensive than Germany because it's an island which increases the costs of logistics and it has lower production which means more imports which add costs even if they import within the EU) it needs boost its economy in order to match the salary level of the other Eurozone states and to do it it needs to offer something to corporations.

It can't offer them a huge workforce because it doesn't have one, It can't offer them access to financial and banking infrastructure because it doesn't have that either, what it can offer is English, fund both academic and vocational education and training based on the skills those companies need and give them tax incentives to come and employ Irish people. Ireland isn't Luxembourg Apple didn't set up effectively a "shell" there that's pretty much there for easy tax loopholes and actually employes no one, Apple employees directly over 6000 people in Ireland and indirectly 4-5K more, same goes for Microsoft, Google, Facebook, Amazon and the likes. This isn't some tax break Island that those companies incorporate in by name only and don't actually have staff, companies have "real" employees in Ireland because the Irish "incentives" are tied to direct employment. Ireland isn't trying to create tax loopholes to make a quick buck to split it between a few 100's residents, it tries to keep it's 5M people employed, forcing them to play by the "same rules" as 4 of the world's 10 largest economies is asinine.

[jomamaxx]

"Luxembourg is like the delaware of Europe,"

But most taxes in the US are Federal.

In Europe they are effectively 'state level' - making the problem worse for Europe than for state-by-state tax competition in the US.

Re: your Ireland comment - yes - I see your point, but the issue here is not Ireland having a 'lower tax rate' of 12.5% - rather than they allowed Apple to have 'special privileges' thereby paying next to nothing, right?

[Amezarak]

> But most taxes in the US are Federal.

Are you sure about that?

It's going to depend very much on where you are, how you're organized, what tax breaks you get, and how much money you make, but states generally have both a) many different kinds of tax: income tax, property tax, sales tax and b) a cumulative higher tax rate. A much higher proportion of my money personally goes to the state than it does to the feds.

[jomamaxx]

In Europe, there are no 'Federal' taxes i.e. at the European level. All taxes are to the 'State'. So it doesn't matter if my analogy is a little bit off.

[Amezarak]

I am not sure I understand why it makes a difference. If the baseline (federal taxes) are the same everywhere, it's just the same as if there were no federal taxes. States compete and offer special tax breaks on a state level; that's the same situation we had here in Europe, except that the federal government, unlike the EU, doesn't seem to care if states offer a company crazy tax breaks, subsidies, or loans, even if said breaks are a special deal for that company alone.

[dogma1138]

It was more of a humorous remark, Delaware is more about the laws and courts that govern corporations rather than a simple tax break.

http://www.newsworks.org/index.php/local/brandywine-to-broad...