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Corporate Taxes: No Safe Haven

The US has been trying to get multinationals based in the US to pay taxes on revenue generated outside of the country for years. Now Europe is going after multinationals, as well.

The New York Times reports today that several European nations, particularly France and the UK, are pushing to collect taxes from US companies such as Amazon.com and Google that conduct their business primarily on the Internet. Though the companies are in compliance with EU tax laws, governments struggling to balance their budgets are taking a second look at tax codes.

The US has been fighting a similar battle on two fronts: state taxes and corporate income taxes. Some US states have been able to collect taxes from Internet sales when a shipper (such as Amazon.com) has a physical presence in the state. Corporate tax efforts have been less successful. International companies are in full compliance with US laws when they bank their revenue in foreign countries, and companies such as Amazon, Apple, Cisco, Google, and General Electric pay virtually no US taxes on that revenue. (See: It’s Only a Holiday if You Actually Pay Taxes.)

Several remedies have been suggested by the US, including amnesty or one-time-only charges for companies that want to repatriate their cash. (See: Apple, Cisco, Google, Seek Tax Relief to Repatriate Cash.) Detractors reject the proposals, saying the revenue derived from such moves would have little or no effect on the nation's debt crisis. They are absolutely right. The US — like many other nations — is beyond a onetime fix. Closing tax loopholes has been a popular campaign promise in the US, but little progress has been made. Now it will be a race to see which government collects those international taxes first.

Clearly, the US fiscal cliff and the EU's debt crisis are fueling those efforts, and maybe it does take a global economic crisis to spur tax reform. But it shouldn't. Either the tax codes are equitable, or they're not. The furor over multinationals' revenue implies the tax laws are OK until somebody really needs the money. According to the NYT, companies like Google and Amazon.com “pay little or no taxes in Europe, despite generating billions of dollars in revenue on the Continent.”

Business models such as the Internet do change tax implications, and tax codes should be updated accordingly. The Internet is still a relatively new business model, and it's understandable that it may take a while for tax codes to catch up. However, globalization isn't new. Tax loopholes should be identified and closed when questions first arise. “While some American corporate leaders have been lobbying in Washington for another tax holiday, lawmakers in Europe are moving to collect a greater share of multinationals' taxes,” the NYT says.

Though it's tough to have a lot of sympathy for multinational corporations sitting on piles of cash, their revenue shouldn't be the spoils of an international tax war.

12 comments on “Corporate Taxes: No Safe Haven

  1. Cryptoman
    November 19, 2012

    Although it may seem unfair to chase the multinationals for paying more tax, if governments have no other option to raise the cash they need, they are going to come up with creative ways to collect money. At least the Western governments are trying to gather tax based on income. Some governments really have very unfair taxation systems. They simply increase the indirect taxes to raise more money. İ know a country where a car buyer pays the tax of a tax, which sounds ridiculous but it is still in force! The same country also applies very high import taxes on all items coming from abroad. At the end of the day, taxes are the most effective tools for a government to raise money and they will use it in every way possible if need be.

  2. R.J.Matthews
    November 19, 2012

    No representation without taxation.

    Here is an idea all those companies that do not want to pay any tax in a country, they do not get to trade anything to or in that country.

    If the these huge companies do start paying billions in tax though, get rid of all the lobbyists and give them a seat in the national parliament, senate or congress where they can influence things directly. Would cut out all the “campaign contributions” or employing politicians when they end their political careers and all the various dodges and wheezes they use to get their own way.

    Well yes I am joking but things are getting totally out hand and farcical.

    Maybe we need a new party, the coffee party to get Starbucks to pay some tax over here in the UK.

    http://www.dailymail.co.uk/news/article-2231828/Immoral-tax-avoiders-Amazon-Starbucks-Google-lashed-MPs-elaborate-schemes.html

    http://www.dailymail.co.uk/news/article-2234974/Four-bosses-unprofitable-Starbucks-50m-reward.html

    http://www.dailymail.co.uk/news/article-2232304/France-sends-Amazon-159m-unpaid-tax-clampdown-U-S-firms.html

    Year 2011 Starbucks UK turnover 398mill pounds uk corporation tax none, 2011 Google UK turnover corp tax 6 mill. Amazon 2010 uk turnover 3.3 billion corp tax none.

     

  3. Barbara Jorgensen
    November 20, 2012

    Cryptoman: Overall, I agree with you, corporations should pay their fair share (whatever that is). Unfortunately, the real reason for debt is spending, and if I truly believed our tax revenue was being spent prudently, I'd rally to chase multinationals. In fact, a few years ago I did. But rather than getting creative with tax collection, governments should get creative with their spending and investment — just like the rest of us. I know it is a complex task and in the US it divides the politicians sharply. But there have been so many instances where  money is being wasted — I'm talking billions — that a massive tax overhaul is needed, not just offshore loopholes.

  4. Barbara Jorgensen
    November 20, 2012

    @RJ: First, do not tax my coffee! Good point about lobbyists. It makes me crazy to see politicians “in the back pocket” of the big spenders. In many cases we see policians voting in favor of things they opposed during campaigns. We accept this as a matter of course, but we shouldn't.

  5. Cryptoman
    November 20, 2012

    You are absolutely right Barbara.

    I did not mention the spending perspective in my previous message but that is an important item to bring into the equation. If the government is not using the money wisely end efficiently, that is also very unfair to the general public. That would be like saying: “You pay me more so that I can waste it as I like”, which is absolutely unacceptable.

  6. R.J.Matthews
    November 20, 2012

    Well do not think Barbara, that Starbucks will be trembling in their boots yet as the response so far is a bit of huffing and puffing and threats to boycott them and appeals that they could fund our library system.

    As for a mass movement for people to boycott Amazon with Christmas coming up think that could be the most broken boycott in history Lol.

    Things will build up to a head though, as as you point out national governments are desperate for more funds and it seems these companies are the only ones who have any!

    http://www.independent.co.uk/arts-entertainment/books/news/jeanette-winterson-calls-on-google-starbucks-and-amazon-to-fund-britains-libraries-8335663.html

    http://www.huffingtonpost.com/2012/11/19/amazon-boycott-uk_n_2160946.html

    http://www.guardian.co.uk/commentisfree/2012/nov/17/should-boycott-google-starbucks-amazon

    This article was amended on 19 November 2012 to reinstate the fact that Jeff Jarvis is a shareholder in one or more of the companies mentioned.

    http://en.wikipedia.org/wiki/Boycott

    http://www.phrases.org.uk/meanings/death-and-taxes.html

    http://www.ask.com/answers/248961861/how-do-you-make-the-starbucks-vanilla-bean-frappuccino-at-home?qsrc=14106

     

  7. dalexander
    November 20, 2012

    @Barbara, you and I both know that if we close the corporate tax loopholes, the corporations will find some way to make-up for the lost revenues via passing the cost to the consumer. Oil and gas companies play with the prices at the pump no matter their real-time working expenditures. All we have to hear is that a refinery exploded and we know that within days or hours, the price at the pump will go up. That drives me nuts. Someone is calling the shots based upon knee jerk reactions with no actual cost analysis based upon actual, remedial action requirements. 

  8. Barbara Jorgensen
    November 20, 2012

    Douglas: Funny you should mention it–I was thinking the same thing about gas and oil. Unrest in the Middle East sent oil price up, and I'm trying to think of another industry where bad news is good news for the market. I suppose a bad flu season can send pharm stocks up…but it is all so counter-intuitive. In these cases, hurting the consumer helps investors. Really!?

    And I agree, there will be more loopholes as soon as we close the existing ones and/or costs will go up.

  9. Barbara Jorgensen
    November 20, 2012

    Starbucks will no doubt survive…but coffee is being attacked on a different front: local governments. A town in Massachusetts has banned styrofoam. Starbucks has the paper cups, but its competitors and Chinese take-out places don't…it is wreaking much havoc in the on-the-go industry. Thank goodness I am a home office worker since I can't legally drive before I have my coffee.

  10. dalexander
    November 20, 2012

    @Barbara, I hear Starbucks is running out of expansion territory so they are opening up new Starbucks stores inside their Starbucks restrooms.

  11. CBurkeBtB
    November 23, 2012

    Thank God we don't get all the government we pay for… : <

  12. Mr. Roques
    November 25, 2012

    Has they proposed a federa linternet tax? I'm no expert in tax law, btw. I believe that, even if I'm benefiting from it, we should probably pay some taxes.

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