C1C2 the Taxman and the Internet

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The Taxman and the

Internet

Level C1/C2



The Taxman and the Internet C1/C2 2

1. Warm - up

Should ecommerce be treated in a special way as far as taxation is concerned?

How is tax assessed and/or collected for online transactions? (e.g. when and where dosuch transactions “take place”?)

How to differentiate occasional sellers from people who run actual online businesses(e.g. on Allegro, eBay)?

How are international transactions taxed?

How should cross-border international giants be taxed? Are there any tax issues of special importance to ecommerce in Poland?




2. Taxmen are doing whatever they can tosqueeze more from online businesses

Jan 25th 2014 | From the print edition of The Economist

THE international framework for taxing multinationals has been tweaked and refined overseveral decades under the aegis of the OECD, a club of mostly rich countries. But it remains“a patchwork of national laws and international treaties, frayed by interna l and cross-

jurisdictional inconsistencies,” laments Ajay Gupta, editor of Tax Notes International .

Internet businesses find it especially easy to exploit the holes in the fabric to shift profits to places with lower taxes. Data on an internet user in one place can be analysed in another, thenused to sell advertising, aimed at that user, to an advertiser in a third place. Taxmen generallycannot get their teeth into a web firm’s profits unless it has a “permanent establishment”— anill-defined term — on their turf.

All this lets internet giants engage in breathtaking tax gymnastics. In 2011 Google cut its tax bill by $2 billion by routing some sales royalties through units in Ireland, the Netherlands andBermuda. The OECD aims to produce firm proposals for reform by 2015, and was due to givean update on its progress on January 23rd, after The Economist went to press. Pascal Saint-Amans, the head of its tax division, says it is proving “complex and contentious”.

The OECD’s big worry is that those European and d eveloping countries that most dislike the present set- up may lose patience and act unilaterally. This, the OECD warns, “could lead toglobal tax chaos marked by the massive re- emergence of double taxation.”

It is in France that profit-shifting raises the most hackles. In 2011 Apple, Amazon, Facebook,Google and Microsoft paid just €37.5m ($52.1m) in corporate income taxes there, rather thanthe €829m that might have been due had their activities been taxed under domestic rules,reckons Paris-based Greenwich Consulting. The French tax agency is reportedly pursuingGoogle for €1.7 billion in back taxes and penalties.

France has been buzzing with internet-tax proposals: last year there were no fewer than fourofficially commissioned reports on the subject. The first, in January, suggested taxing firmson the personal data they collect from online users. In May a former television boss’s report

proposed a 1% tax on the sale of smartphones and other devices that display content. Francealready levies a “culture tax” on cinemas, broadcasters and internet -service providers, tosubsidise the making of French films and TV shows. In September an independent committeecame out against any unilateral taxation of online activities. But in December an officialagency, the Superior Audiovisual Council, recommended extending the culture tax toentertainment sites such as YouTube and Facebook.

Egged on by France, EU leaders have blessed a decision by the European Commission toappoint a digital working group, which has until the summer to produce proposals on internettaxation. Prominent among its members is Pierre Collin, an author of the French report that

proposed a data-collection tax.




For all the sound and fury in France, Italy is the first big EU member to pass a law to curb profit-shifting by internet firms. Last month its parliament approved a bill requiring Italiancompanies to buy their internet ads from locally incorporated firms instead of the tax-havensubsidiaries that many transact with today. However, the law probably violates a central EUtenet that companies can buy and sell across national borders. So the government has delayed

its implementation until July, while it co-ordinates with other EU countries.

Elsewhere it is the tech giants’ clients that are in the taxman’s crosshairs. In Chile, forinstance, the tax authority informed hundreds of local firms last year that they were liable to

pay a 35% tax for their use of Google’s AdWords service and, worse, would have to pay itretrospectively for 2010-12. Juan Pablo Swett of the Association of Entrepreneurs of Chileestimates that about 100 firms will go out of business if forced to cough up. The companieshave sued the tax agency. They may also go after Google, whose American ad-sales operationshould not, they say, have handed over their details. Now that they have to pay more forAdWords, a lot of Chilean companies have stopped using it.

With or without such unintended consequences, the OECD could struggle to persuade thecountries that count to stick with multilateralism rather than acting alone. It will not be easy tocraft solutions that placate the Europeans while not upsetting America, which will fight any

proposals that threaten its tech giants’ competitiveness. Those firms, meanwhile , are busilylobbying ag ainst anything that would penalise “efficiency” and “innovation”.

According to the article, why are internet companies especially difficult to tax?

Do you think big internet companies should be paying more tax in developed

countries?

Do you think it is likely that an international agreement will be reached in this area?

Why/why not?

What do you think would be the best approach to this issue?




2. Tax Avoidance in the UK

http://www.youtube.com/watch?v=U2wtN0uciac

Do you agree that it is ‘immoral ’ for the companies mentioned in the video to pay

so little in taxes if this is legal?

Why is Starbucks going to revise its approach to taxation “voluntarily ”? Is it in a

different position than Google or Amazon?

How do European Union laws come into play in this issue?

3. USA to get online sales tax

http://www.youtube.com/watch?v=E6UPBBtTOa8

What is the current situation in the US with respect to the sales tax and

ecommerce?

What changes are being proposed and who supports/opposes them?

Which side is Amazon on and why?

How about eBay?







Documents

C1C2 the Taxman and the Internet