EU lost up to €5.4B in tax revenues from Google, Facebook: report
Taxing multinational corps is pretty difficult.<p>Let&#x27;s say a parent company UsTech, which makes money from ads on a ubiquitous digital platform, has an Irish subsidiary UsTechDublin,LLC and a German subsidiary UsTechBerlin,GMBH. UsTechBerlin hosts a bunch of very well paid engineers who work on app performance and backend infrastructure efficiency; UsTechDublin hosts a bunch of low paid customer service reps that provide support to end users. Both offices clearly provide <i>something</i> of value that helps the parent company UsTech make money, but nobody has paid a (euro)cent to purchase ads from either the Irish or German offices while those offices have paid a bunch of money in salary and benefits. So, how much should they owe the tax man in each country?<p>That&#x27;s up to UsTech. The &quot;revenue&quot; &quot;earned&quot; by UsTechDublin is an accounting-only transfer from UsTech for providing customer service. The &quot;revenue&quot; &quot;earned&quot; by UsTechBerlin is an accounting-only transfer from UsTech for performance improvements and infrastructure designs. If corporate tax rates in Germany and Ireland are higher than those in the US and UsTech accountants aren&#x27;t total morons, the transfer payment to each subsidiary will be exactly enough to ensure that revenue matches expenses and there&#x27;s no profit to be taxed on the books of either UsTechDublin or UsTechBerlin. If, on the other hand, the corporate tax rate in Ireland is lower than in the US and the corporate tax rate in Germany is higher then magically services of the customer service reps of UsTechDublin may be &quot;sold&quot; to UsTech at usurious rates while those of the software engineers of UsTechBerlin are &quot;sold&quot; for a pittance.<p>The &quot;lost&quot; tax revenue being claimed here is essentially saying that multinationals chose their transfer payments in such a way as to not have their profits appear in high-tax EU nations. Well … duh.<p>The problem is that it&#x27;s hard to envision a governmental bureaucracy capable of challenging and very accurately assessing the true rates on intra-subsidiary transfers without it being breathtakingly large in scope and stifling to the functioning of the economy in question. Current rules for it [1] leave plenty of wiggle room.<p>[1] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Transfer_pricing" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Transfer_pricing</a>