For those who live under a rock (or in West Virginia), it will come as a great surprise that many governments are out of money. They have promised WAY MORE in benefits than they could ever afford and they put those promises on the old credit card. Now the bill is due and they are struggling to find someone to stick with the tab.
This has resulted in things like the French jacking up their upper income tax bracket. Britain is now planning to impose a massive property tax on expensive homes. The EU tried to milk foreign airlines by imposing a carbon tax that applied for the entire flight, not just the portion spent over EU airspace. Obama and the airlines told the EU no, and Europe surrendered. But they haven’t given up. Fees, surcharges, tax rates. . . they’ve all gone up. And yet, revenues keep falling because of the double-dip recovery Europe is going through. So what is a tiny failing country on a tired continent to do? How about taxing multinational companies?
Good luck with that folks. . . you are out of your league.
France fired its first shot by hitting Amazon with a massive $252 million tax bill claiming that Amazon is shipping into France from Luxemburg to avoid French tax. Sacre bleu! Britain is now doing the same thing. The British government also hauled in Starbucks executives to explain how a company that sold around $5 billion in the UK in the past thirteen years could declare that it only made a profit once and paid a grand total of about $10 million in tax. Starbucks blames high rent. Google earned $4 billion in the UK last year alone and has a 33% profit margin, but managed to report a loss in the UK in 2010 and 2011. What a shame. Google apparently routes their profits. . . er, inventories through Bermuda. France hit Google with a one million Euro tax bill. None of these companies intend to pay.
Britain and France are determined to squeeze money out of these companies, but I don’t think they have the brains to do it frankly. Indeed, as outraged as these countries are, what Google and Amazon have done is legal under UK and French law. That’s the funny part. And the only way to change that would be to change their tax laws to prevent it. But the same fools who created the current system will be charged with fixing this loophole so I doubt they have a chance. Not to mention, a change like this would make local businesses unhappy too and that’s bad for votes.
Moreover, if they do make a real change, then this becomes a question of strength and Britain and France need big old Google and powerful Amazon much more than Google and Amazon need tiny Britain or stagnant France.
My guess is there will be some legal changes that amount to nothing. The locals will be placated by the thought they slayed the dragon, and Google and Amazon will pay some token tax. . . which they will promptly get refunded the following year. Alternatively, Google and Amazon will agree to pay more and will impose massive surcharges so they end up making more by imposing the tax than they will lose paying it. Starbucks, which has physical locations, will just jack up their expenses again.
So act as outraged as you like good people of Europe, these companies aren’t paying another cent.
Germany is doing this too, only they decided to toss a little protectionism into the mix. They just passed a bill which will force Google to pay German newspapers every time their search engine links to one of these articles. In other words, if you run a search for “naked Fritz” and you find an article in The Daily Fuhrer about a group of Germans running naked through the streets toward Poland, Germany now wants Google to cough up some payolla to The Daily Fuhrer. Yeah, that’s gonna work.
Let me spin the likely scenario on this one: Germany passes law. Google makes Germany vanish from internet. For all practical purposes, Germany ceases to matter to the rest of the world. Sales of German goods collapse. Germany begs Google for forgiveness. . . but Google doesn’t forgive, nor does it forget. Polish Army caught unaware by invasion of naked Germans.
The moral to the story is that right now, only two countries are truly capable of standing up to multinational companies: the United States and China. Our markets are so large that these companies need us. Everyone else can pretty much go f* themselves, they are little more than an irritant beneath Goliath’s imported sneakers.
Is this a good thing? No. But it is the reality. . . and something seems wrong with that.