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.