global_tech_tax.md

Global tech tax

In reply to https://twitter.com/nico_lrx/status/910818326179323904

The problem

Many countries are annoyed that big tech companies like Google or Amazon make lot of profit in those countries' markets without paying taxes there.

Their idea: taxing those companies based on the revenue they generate on their market.

This solution creates two more problems:

1. while it's something Google and Amazon are able to do, there's no reason to think it will stop there once it becomes a law (I'm aware current propositions are about GAFA, but that probably will just be in a first time, because... it makes sense to apply it to all companies). And it's a way bigger problem for startups. The issue isn't even paying taxes, it is to have to figure out the tax process of possibly hundredth of countries. The most probable outcome will be that startups will block users from a country until they think their market is worth investing in figuring their tax process out, which would be a massive drawback to the global enabling of internet.

2. while thinking you have to pay taxes for 30% of your revenue if 30% of it is made on a specific country market is perfectly fine, it only works if the initial country where you're paying taxes in doesn't tax you on 100% of this revenue. Or else, you'll soon double your taxes, which is again prohibitive for startups. Basically, it's a problem of countries getting taxes owed to other countries, not a problem a companies not paying taxes (except for what different tax rates account for, obviously).

A possible solution

I floated the idea of having a global tax before, like an UN tax. But this institution already has a lot to deal with, and it's not its mission.

But actually, it's perfectly fine to create a new actor specifically designed to fix this problem. A NGO, a private company, an administrative initiative from a given country, nevermind. Here is how it could work:

1. countries who wish to collect global tech tax adheres to this entity
2. this entity collects global tax at a rate agreed upon at its creation
3. companies who wish to sell on adherents markets pay taxes to this entity
4. the collected taxes are distributed to countries based on their market share in the revenue
5. if company HQ is in one of those countries, the host country allows to deduce the global tax from company taxes in that country

This both allows to be fair in tax repartition and to avoid just doubling taxes.

This has an other side-effect : companies are incentived to move their HQ in one of the adhering countries, so that they can leverage the tax deduction.

Possible problems

The main problem I can see is the risk of segmenting. If several concurrent entities with different groups of countries are made, we're back to the duplicate taxes problem, at least in some part of the world. This entity must be inclusive regarding other countries and allow easy registration for them, so that they're not tempted to build their own entity. Or, if several entities are made for obscure administrative reasons, they have to strike deal so that tax distribution and tax deduction works transparently between them.

An other problem: how to enforce this? What if a company says: "oh really, I can't sell on your market? Well, I'm doing it, what will you do about it?". The obvious solution that will come to regulators' mind is to block those services in their network, which, as usual, is the worst possible solution because it creates more problems than it fixes. A better solution: make banks reject payment to those companies. It's all about payment after all, we don't want to prevent citizen to access free services (and quite often, paid for services have a free offer). Sure, there will be workarounds, but it's inconvenient enough so that companies don't want to ask their customers to set up a bitcoin wallet or something to use their service.

Finally, what if a country doesn't adhere to the entity and one of its companies find prohibitive to relocate in an other country? Maybe we can think of a temporary agreement so that they're not punished because of the unwillingness of their country. Something like: they can sell on our markets for a given amount of time if they can demonstrate they're actively lobying their country to get into the entity (the more such companies in a joint effort, the better).