> I agree that it's messed up that Facebook and Apple make all their profits on tax havens, but I'm concerned that we are a bit too narcissistic by believing we can create a complex tax system that will solve this.
The fundamental problem is assigning a jurisdiction to the "profit" from a supply chain that snakes through twelve different countries.
When you pay $50 for a widget, 100% of that is somebody's profit. The retailer sells for $50 and buys for $40. The wholesaler sells for $40 and buys for $30. The manufacturer sells for $30 and pays $20 in salaries and other expenses. The factory employees are paid $20 but pay $15 for rent and food. The landlord and the farmer are paid $10 and $5 and either keep it as profit or have their own expenses that somebody else profits from.
There was originally $50 and, at the end, there is still $50. Somebody has it. It's somebody's profit.
But when the same entity has operations in multiple countries, the "profit" doesn't have a specific country. A US-based company pays $20 to manufacture something in China and sells it for $50 to a customer in Austria. Their total profit was $30, but did they make $10 in each country, or $20 in China and $5 in each of the others, or $25 in the US, $5 in China and nothing in Austria? The assignment is almost totally arbitrary. And when it's completely normal for many types of operations to have single-digit profit margins, that much difference in the arbitrarily assigned price can easily wipe out all the "profit" in any given country.
The answer is to forget about "profit" -- it's all profit. You need to tax the thing that actually happens in your country. If the product is sold there, that's sales tax (or VAT). If the company has a facility there, property tax. If the company employs workers there, payroll taxes. Companies can't avoid this and still do that thing in your country. You can't assign "sales to customers in Austria" to Luxembourg the same way you can assign profits.
Naturally everybody hates this, because countries want companies to sell products and build facilities and hire workers in their country, and don't really want to discourage it (or raise costs / lower wages for their citizens). But you can't tax a company that has no interaction with your country at all. All you can do is tax the interactions it actually has.
Trying to abstract those interactions into "corporate profit" only serves to give the companies an excuse to shuffle the "profit" into a jurisdiction with lower taxes.
The fundamental problem is assigning a jurisdiction to the "profit" from a supply chain that snakes through twelve different countries.
When you pay $50 for a widget, 100% of that is somebody's profit. The retailer sells for $50 and buys for $40. The wholesaler sells for $40 and buys for $30. The manufacturer sells for $30 and pays $20 in salaries and other expenses. The factory employees are paid $20 but pay $15 for rent and food. The landlord and the farmer are paid $10 and $5 and either keep it as profit or have their own expenses that somebody else profits from.
There was originally $50 and, at the end, there is still $50. Somebody has it. It's somebody's profit.
But when the same entity has operations in multiple countries, the "profit" doesn't have a specific country. A US-based company pays $20 to manufacture something in China and sells it for $50 to a customer in Austria. Their total profit was $30, but did they make $10 in each country, or $20 in China and $5 in each of the others, or $25 in the US, $5 in China and nothing in Austria? The assignment is almost totally arbitrary. And when it's completely normal for many types of operations to have single-digit profit margins, that much difference in the arbitrarily assigned price can easily wipe out all the "profit" in any given country.
The answer is to forget about "profit" -- it's all profit. You need to tax the thing that actually happens in your country. If the product is sold there, that's sales tax (or VAT). If the company has a facility there, property tax. If the company employs workers there, payroll taxes. Companies can't avoid this and still do that thing in your country. You can't assign "sales to customers in Austria" to Luxembourg the same way you can assign profits.
Naturally everybody hates this, because countries want companies to sell products and build facilities and hire workers in their country, and don't really want to discourage it (or raise costs / lower wages for their citizens). But you can't tax a company that has no interaction with your country at all. All you can do is tax the interactions it actually has.
Trying to abstract those interactions into "corporate profit" only serves to give the companies an excuse to shuffle the "profit" into a jurisdiction with lower taxes.