[7000skeletons]

This is from earlier this year, so the debate may have progressed since then, but Sweden and Denmarks' concerns seem to stem from the way in which the EU aims to apply the tax.

>“A digital services tax deviates from fundamental principles of income taxation by applying the tax on gross income, i.e. without regard to whether the taxpayer is making a profit or not,” Swedish Finance Minister Magdalena Andersson, and her counterparts from Denmark and Finland, Kristian Jensen and Petteri Orpo, said in a joint statement on Friday.

https://www.reuters.com/article/us-eu-digital-tax/nordic-cou...

[exDM69]

I guess the reason for applying the tax this way is that tech giants (and non-tech corporations) use creative accounting tricks to avoid making a profit and thus paying taxes to the countries they operate in.

It's either disguised as loan interest repayment or licensing fees, but the goal is tax avoidance.

[mabbo]

It's an intriguing concept.

What effect would a tax purely on size (income rather than profit) have on the world economy, if everyone were to adopt such policies? It would discourage large companies and encourage small ones.

It seems like employees do better when there is a bigger and more diverse marketplace for work, ie, many smaller companies. So they would win out, hopefully.

Customers may or may not do better. It would encourage companies to keep prices low to reduce gross income, and give an advantage to incumbents in the same marketplace. But one Amazon with it's fulfillment centers, delivery networks, etc, is more efficient than two overlapping half-sized Amazons. Twice the delivery trucks means twice the delivery costs and pollution.

Overall I'd be for such a system, provided it were not too onerous and didn't target specific companies.

[stickfigure]

It would not select against size. It would select against low margins.

Google and Apple would be fine. Amazon would be toast. Your local supermarket would be toast (avg grocery store margins are 1%). Any startups that are just scraping by, no matter how small, would be toast.

You would basically crank up the difficulty level of business across the board. This would generally help successful incumbents by making life punishingly difficult for challengers, who have to climb up through a period of unprofitability.

It is a terrible idea.

[yxhuvud]

Supermarkets would just raise the prices though. It is not as if people can choose not to buy food.

[friedman23]

>What effect would a tax purely on size (income rather than profit) have on the world economy, if everyone were to adopt such policies? It would discourage large companies and encourage small ones.

How so? Your argument makes 0 sense because the tax is proportional regardless of size. What it will encourage is high margin business and it will discourage low margin business. Larger businesses are able to increase their margins because of increased efficiencies.

[mabbo]

No, taxes are based on profits. I work for Amazon, which notoriously has nearly zero profit most years. The company pours money into investments instead. That's how it's gotten so big.

What I'm saying is that if there were a small additional tax on giants based purely on their company value or gross sales, it would 'level the playing field' for incumbents who don't have the efficiencies of scale that the big companies have, which I think is beneficial to society.

[TorKlingberg]

The opposite: It would encourage larger companies, because trade between companies is taxed but not "trade" within a company.

[jopsen]

It seems more like companies would have stronger incentives to keep the profit margin high..

I would be concerned if low profit margins is a problem.. companies with a low profit margin is the reason we can afford so much stuff.

[_Codemonkeyism]

The way tech companies are reducing income to zero by shifting around IP and IP license costs it's sadly impossible to tax income. So either tax revenue (or at VAT to digital goods delivered in a country like ads) or close IP license loopholes.

[_Codemonkeyism]

"Yet the Nordic countries, which are home to several large digital companies like Sweden-based music streaming service Spotify (SPOT.N) [...]"

[ionised]

Why should we care whether they are making a profit or not?

There are so many ways a company can legally and artificially lower its profit numbers.

[EpicEng]

>Why should we care whether they are making a profit or not?

Because it is generally in everyone's best interest for companies to invest in themselves rather than increase margin at all costs. Growth is good. Many companies would simply go under if you tax them on revenue.

>There are so many ways a company can legally and artificially lower its profit numbers

Then you try to cut those off as much as possible. Like most things in the real world, there's no perfect solution, but we weigh the pros and cons and make a decision.

[ionised]

> Growth is good

Given our current economic situation and our effect on our environment I'm not convinced that it is that simple.

[EpicEng]

Well it's not of course, and you're right in a way. It's also not good for a whole host of low margin / capital heavy businesses to tank.

[friedman23]

I'm so happy the people of Sweden are sane, my biggest problem with these taxes is that they are on revenue which essentially makes all low margin internet businesses unprofitable. How does that benefit consumers?

[pjc50]

The margins of businesses like Amazon are largely a matter of fiction, since the subsidiaries can make arbitary charges among themselves: https://www.theguardian.com/technology/2012/apr/04/amazon-fu...

[friedman23]

A better solution would be to implement stricter accounting standards across the EU so that such tax dodges wouldn't be possible. This would solve the actual problem.

[richardwhiuk]

So they setup a business outside of the EU's jurisdiction and move the profit their? So all of the business in the EU is done at net no revenue (sales - costs - 'licensing fees' == 0).

What accounting standard means that business is making a profit in the EU?

[dbdjfjrjvebd]

You could apply a tarrif on the licensing fees? This might upset the WTO.

[pjc50]

Loophole free tax law is like bug free code: much harder than it sounds. Especially since the EU countries are actually independent and can have their own tax law.

[unpopular42]

Actually, it's not that hard. It only becomes hard when you try to use taxes to induce the set of behaviours you want. And then, completely suddenly Goodhart's law kicks in.

[klez]

Honest question: why should I as a person be taxed on income (the closest I guess I can get to the concept of revenue) but a business should be taxed on profit? Can anyone explain to me the basis for such a distinction?

[CompelTechnic]

Let's say you operate a low margin business, such as a gas station. All numbers are before tax.

For the year, you spend $1,000,000 paying for fuel, convenience store supplies, electricity, wages, etc. You get $1,050,000 in revenue from your customers, for a fairly realistic margin of 5%.

Now let's say you run a software business. You pay $500,000 in electric bills, computers, wages, etc, and collect $1,000,000 in revenue for a margin of 50%.

Would you rather live in a society where the gas station pays MORE tax than the software business? This would be the case if you taxed revenue instead of profit. If the revenue-tax rate were 4%, the owner of the gas station would be left with $10,000 at the end of the year, and the owner of the software business would be left with $460,000. Bringing these numbers back into normal, profit-based terms, the gas station owner would be paying an effective tax rate of 80%, with the software business owner paying an effective tax rate of 8%.

If businesses were taxed on revenue instead of profit, low margin businesses and capital intensive businesses would be punished disproportionately. Businesses often face unplanned expenses or loss of revenue. This would have the effect of forcing businesses to raise prices to compensate for the increased risk, and would force lots out of business. This reduced economic activity would be bad for consumers, producers, the government, and society as a whole.

Individual people's income taxes cannot be treated this way, because the closest analogy to "business expenses" for a person's lifestyle is their cost of living. If cost of living were deductible it would be highly gameable and ripe for abuse by numerous parties.

[cure]

> Individual people's income taxes cannot be treated this way, because the closest analogy to "business expenses" for a person's lifestyle is their cost of living. If cost of living were deductible it would be highly gameable and ripe for abuse by numerous parties.

You are being a little bit funny here. This paragraph basically proves the OP's point.

Because companies would never abuse the taxation rules, of course. They would never cheat by shifting money around in opaque ways so as to lower the profits they have to report for taxation purposes. Clearly, that's why they can be trusted to be taxed on profits rather than revenue, but mere mortals cannot.

/sarcasm

I think in your gas station example, the net effect of a 4% tax on revenue would naturally be a 4% increase in the sales price of goods. Or, the gas station would go out of business...

I actually don't think a flat revenue tax would necessarily overall be better than the current system where taxes are based solely on profits, precisely because of examples like the one you give. It seems like some sort of combined model of a revenue tax and profit tax may be the way to go. Which is incidentally where the EU was going with this particular proposal.

[CompelTechnic]

Your argument advocating that the gas station increase its prices 4% does not fully consider the fact that businesses are risky, and it does not consider how unfair the situation remains for the owner. If this 4% increase did occur, the new revenue figure is $1,092,000. With $92,000 of profit before tax, the owner is now paying $43,680 of taxes, leaving $48,320 of profit after tax (much better than before). They are still paying 47% taxes on their profit before tax.

The degree to which businesses generate expenses is the majority of the degree to which they take on risk. It's pretty well understood that most economies are already too risk-averse. We should not further punish those willing to take risk.

The thrust of my argument is focused around the fact that low margin businesses would have an EXTREMELY high sensitivity to variable cash flows. I should have focused more on how unfair this is to small businesses, which already are a risky proposition. It is strange to me that multiple people have replied without having any acknowledgement of this.

The benefits of taxation must be balanced against the potential for abuse and the damage it does to the businesses that are taxed.

Taxing revenue would likely have less potential for abuse, but I would argue the damage it would do to the economy would be much larger than the benefit this may provide.

[rusk]

By this reasoning I should only be taxed on income once food, fuel and housing costs are taken into account, or am I missing something? I end up paying VAT on a lot of these things as well ...

I do get tax credits for some essentials but it's relatively speaking a miniscule amount.

There's an interesting formula for a progressive tax regime if anybody wants to take it up ...

[icebraining]

That's kind of the purpose of deductions; it's common for housing (particularly mortgage), education and health costs to be deductible on one's income tax, much like a business deducts its expenses to calculate profit.

Taxing only your disposable income would mean that a person living in a mansion would pay much less than someone living in a small home, which is weird; arguably, the extra niceness of the house is "profit", whereas the shareholders don't usually benefit from paying more for their inputs (some exceptions notwithstanding).

[pault]

> Taxing only your disposable income would mean that a person living in a mansion would pay much less than someone living in a small home, which is weird;

Just as weird as a corporation with billions in revenue paying a zero or negative tax rate? Or weirder?

[smallbigfish]

>it's common for housing (particularly mortgage), education and health costs to be deductible on one's income tax

Oh! What's the name of this country?

In my country all taxes are applied before you get to see the actual money.

[rusk]

Tax credits == Deductions

[patd]

I think his argument was that, as you said, it would be highly gameable. But it's also the case for companies and they're (ab)using it to the point of paying little to no taxes in some countries.

[Skrillex]

>Individual people's income taxes cannot be treated this way, because the closest analogy to "business expenses" for a person's lifestyle is their cost of living. If cost of living were deductible it would be highly gameable and ripe for abuse by numerous parties.

That is the thing. Maybe a person could do that if the rules let them, but businesses are already doing it, at scale. I think that either businesses should not be able to do it, or normal people should be able to do it. As for the "low margin business" example, I see no reason for the government to support any particular kind of business over another under a capitalist system.

[nradov]

Net income is the same thing as profit. The parent comment confused income with revenue. Taxing revenue is obviously a terrible idea because it would have a disproportionate impact on low-margin business.

As an individual taxpayer you can deduct certain expenses from your revenue when calculating your taxable income, just like a business. But businesses do generally have a broader set of deductible expenses.

[0xffff2]

(The following based on US income taxes)

You as a person don't have a clear "profit" to tax. I would argue that the system of deductions is the nearest equivalent to taxing your individual income on your profits.

[clairity]

because in the age of paper receipts, it was an undue burden on taxpayers to impose the detailed accounting needed to figure out your legitimate cost of living as an individual or family.

with our lives now largely tracked electronically, that’s becoming less true (but is still at least an undue burden for the ~40% of the population who are poor or near poor).

[xoa]

>the closest I guess I can get to the concept of revenue

I don't think that is actually the closest you could get, even ignoring that you're asserting two wildly different things should necessary be equivalent. But even so: Do you literally never take any deductions at all? Never expense anything? No mortgage or whatever? Have zero capital gains income of any kind an in turn never have any losses of any kind there? You just add up all income sources and simply pay the top rate off the sticker price and ignore all the rest? I mean, it's not impossible or illegal to do such a thing and pay more if you want to, but I think you'd be somewhat in the minority there. Even personal income taxes at least haltingly, imperfectly and politically try to take somewhat into account that there are certain expenses necessary for humans to live or that further societal goals and that if after paying those someone has little left over then the tax system should take that into account.

>why should I as a person be taxed...[differently from business]

Humans and businesses aren't the same thing, businesses (like government) are a tool composed of and serving humans. It is a structure for dealing with and directing flows of capital towards human decided ends, and all money that goes through it ultimately ends up in the hands of humans as income upon which it is taxed there too anyway. A "business" has direct societal costs in terms of corporate law and such, but it does not need to ever use an ambulance or get housing or food support or whatever. Taxes on business, separate from the humans that compose said business, should be for dealing with business specific requirements, cost internalization, and so on. It makes absolutely no sense to simply tax a business the same as a human, not even if you are simultaneously proposing not taxing any of the humans involved. If it's done be prepared for perverse consequences. If a business has high revenue with genuinely 3% margins that still represents a huge amount of money flowing from and too various humans (including all the employees, all suppliers and contractors, their employees, and on), "revenue" is still taxed somewhere. But if you then simply slap a tax on the revenue again and make the margin go negative now the business dies, simple as that, and all the flows cease. Is that actually your intention? Why not just seize it then and take it all for the government directly?

If you want to argue that the income flows going to humans are themselves ultimately not taxed fairly, that is not merely doable but I think fairly widely agreed at this point. And if you want to argue that specifically and properly assessed business income taxes should not be possible to evade as so many do sure, that too happily seems to be inching forward. But you seem to be going a lot more radical and just throwing out everything.

[klez]

> Do you literally never take any deductions at all? Never expense anything? No mortgage or whatever? Have zero capital gains income of any kind an in turn never have any losses of any kind there?

Well, welcome to a part of the world were software development doesn't necessarily mean big money. I don't own a house (I share a room with my SO in an apartment with other two people and a dog), and I don't have anything invested because I don't have money to invest, so no capital gains of any kind. The only expenses I could deduct are for prescriptions and my glasses, which I don't do because the burden is too high for the kind of money I would get (think <100€ per year) and I don't buy drugs often anyway.

> if you then simply slap a tax on the revenue again and make the margin go negative now the business dies, simple as that, and all the flows cease. Is that actually your intention?

No, I was just asking why am I not taxed based on what I earn minus rent, food and transportation.

> Why not just seize it then and take it all for the government directly?

Why not, indeed? I mean, I get that a lot of people in here are libertarian, but that doesn't mean it's the only way. I'm not actually advocating for State ownership, I'm just saying it's not necessarily impossible to have such a system.

[friedman23]

Income taxes are a badly implemented tax so you wont get an argument from me there. We shouldn't be extending bad policy.

[Ragnarork]

Facebook, Amazon and co. are "low margin internet businesses"?

[friedman23]

Facebook no, Amazon started as one yes.