Amazon and Starbucks pay less tax than sausage stall, says Austria

http://www.bbc.co.uk/news/business-37259278

by dberhane • 10 years ago

141 82 10 years ago

bbc.co.uk

jkot• 10 years ago

Does amazon even have a presence in austria? I thought it is handled from other countries.

hackerboos• 10 years ago

Searching for Amazon Austria brings up Amazon Germany's website, that site also serves the Dutch it seems.

dwightgunning• 10 years ago

Correct. I'm in Amsterdam and bought from amazon.de last night. I'll usually compare with amazon.co.uk for price and occasionally pay more because the supplier won't ship internationally.

There are plenty of Dutch online retailers (e.g. bol.com and coolblue.nl) but their prices are significantly higher (even factoring the slight difference in VAT). Considering we're supposed to be in a "single market", I've never been able to figure out why that is.

throwaway13337• 10 years ago

Living in Austria right now, I know two Austrians out of the like five I know well that have amazon prime.

I only know about it from those people because they order so much on amazon.

They may be using amazon.de, but so are most central euro countries.

In Denmark, people generally either buy from .de or .co.uk.

Certainly people order less from amazon than in the states, but the presence is still pretty huge.

ersii• 10 years ago

I think the Original Poster that you're responding to mean presence literally, as the word is usually used. As in "Does Amazon have any facilities/staff etc in Austria?".

germanier2• 10 years ago

They don't. Orders are handed over to their couriers abroad or transported by truck from Germany to the Austrian post at Allhaming.

4ad• 10 years ago

Not true.

I live in Vienna, and I order a few orders from amazon every day. Last year I had over 600 amazon.de orders. Generally I try to order only Prime stuff.

The vast majority of orders (over 90%) come from Salzburg, Austria, although in a few occasions I even had same day shipping, those came from somewhere even closer.

hga5• 10 years ago

Part of this makes an intuitive sense, a sausage stall has one trivially accessible "throat to choke", whereas Austria's access to e.g. Jeff Bezos is much more difficult.

Starbucks, though, I'm assuming they've got retail shops in Austria? That just means they can afford better tax lawyers.

mschwaig2• 10 years ago

Being able to pay tax lawyers that are so great that you basically don't have to pay taxes kind of breaks the concept of taxation though.

daniel-levin• 10 years ago

ROI(tax lawyers) > taxes to pay without them.

hga5• 10 years ago

Or this is a establishment politician with a weak hold on power who has not necessarily got his facts right, or if he's talking about absolute numbers vs. rates is probably lying through his teeth, but knows bashing foreign companies is a crowd pleaser.

And maybe they overtax those sausage stalls, lots of/most every? country has tax regimes with lots of insanity. Apple wouldn't be playing the games it plays with the US if we didn't have the 2nd highest or so corporate tax rate in the world (e.g. see https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates when you factor in state tax rates only Cameroon is perhaps higher).

While I was doing the search for that, I noted that as a region Europe has the lowest, but that's no doubt not accounting for VATs, which the US is allergic to, at least unless one of the big other categories of taxes is totally killed off (like, with a "this time we mean it" Constitutional amendment).

Anyway, my point is that all this results in all sorts of distortions. For example, when the Reagan individual tax rate cuts kicked in, I noticed my parent's business and investing strategies change as tax avoidance became much less important. In his working lifetime, the top rates went from 91% ("We Like Ike???") to 70% (which as I recall was split between 50% or more for "earned" and 70% or more for "unearned" (investment) income), to 38.5%, to 28%, before it started going up again (even the George W Bush tax rate cuts only dropped them 4.6% to 35%).

And going back to the distortions, the family exemptions allowed a normal family prior to JFK's 1964 supply side rate cuts to survive with the lowest bracket being 20%; those weren't adjusted for inflation until Reagan's reforms, which turned them into a pretty minor thing with how inflation savaged the dollar during that long period (the CPI peaked at like 13-14% around the time Reagan entered the Oval Office).

oh_sigh2• 10 years ago

Whose fault is that?

kijeda• 10 years ago

Maybe it has changed recently, but an interesting factor is the Austrian Starbucks have been run by an Austrian master franchisor, not by the company.

Maarten88• 10 years ago

The Austrian franchiser probably pays a lot for using the Starbucks brand and franchise concept to an offshore company (not in the US) owned by Starbucks, that pays a kickback to another offshore entity owned by the franchiser.

Now all the profit is offshore. Everybody happy, except the Austrian government (who don't get corporate tax because the franchise hardly makes any profit in Austria) and sausage stands (who wonder if they could make more money if they join the Starbucks franchise)

tedmiston3• 10 years ago

This is interesting because Starbucks doesnt franchise in the US [0]. They do have one alternative that's what you see in most airports and in coffee shops with the sign "proudly serving Starbucks coffee", for example Barnes & Noble cafes are this style. These third party stores, for instance, cannot accept payment from the Starbucks mobile app and offer only a subset of drinks. I'm not sure what the term for this is but it is some kind of licensing deal.

[0] http://investor.starbucks.com/phoenix.zhtml?c=99518&p=irol-f...

manmal• 10 years ago

No need for tax lawyers. Money is just drawn out via franchise fees etc to be taxed elsewhere.

heisenbit• 10 years ago

Tax heavens like law breakers may have critical roles in a stable system allowing it to adapt. But one can not let them run the show as a whole.

International trade is not a new problem. Car manufacturing has been internationally for a while. Rules for transfer pricing have been established. The challenge is with this construct of intellectual property where arbitrary valuations disconnected from any underlying real trade are easier to get away with.

It used to matter less. It matters more now and tax innovations are getting more scrutinized.

j_m_b• 10 years ago

Why do we even tax corporations instead of just the income that its owners receive from the corporation?

dogma1138• 10 years ago

Never understood that either, it always seemed to be a double taxation scheme to me.

A corporation has effectively only a few things to do with their revenue which are or can be directly taxed more effectively.

It can hire more people, or pay it's employees more, which means that money is taxed as income.

It can invest the money directly which means that return on that investment can be taxed as capital gains.

It can pay out dividends to it's shareholders which means that this money can again be taxed directly as capital gains.

It can invest that money internally to expand which again can be taxed at various levels, sales tax, income tax, property tax etc.

rayiner4• 10 years ago

Never understood that either, it always seemed to be a double taxation scheme to me.

Corporations are legal persons, and income accruing to distinct legal persons is subject to tax. E.g. I get paid by my employer, and then pay tax on that. Then I pay my nanny with post-tax dollars, and she pays tax on that. That's not "double taxation"--just the nature of an income tax.

Imagine that instead of forming a corporation, a bunch of investors nominated Bob to be the legal entity in charge of the whole business. Bob held all the bank accounts, directly employed everyone, and booked all revenue minus his expenses as his income. A series of contractual arrangements required Bob to pay out the profits to the investors. Under that circumstance, there would be no doubt that profits would be taxed when they initially accrued to Bob, then again when he paid the investors.

It should be noted that nothing precludes companies from organizing as something other than a corporation. Partnership income, for example, is only taxed when it is received by a partner.

kartan• 10 years ago

That will mean that the money Facebook makes around the world is just taxed at whatever country Mark Zuckerberg lives. It doesn't look like it can work in such a globalized world.

grahamburger• 10 years ago

Well, not really ... Also any country with Facebook employees, or with Facebook investors, or with companies deriving value from Facebook's platform.

mrweasel3• 10 years ago

One solution I've heard proposed is taxing revenue. If a business, like Apple, Starbucks or Amazon sells something in a country, they pay a percentage of the revenue, not the profit.

It would be a very drastic change, and may items would need to have their prices adjusted, as low profit items could be a problem.

The clever bit is that tax heavens are not longer possible, because it's not important where you move your profit to.

pipio21• 10 years ago

This is not a solution, and it is not clever but stupid.

If someone in power is so stupid to do it, companies will stop operating on their country but the world will continue going around and tax heavens will continue existing.

Governments are bankrupt totally now, expending way more that what they earn, with 5% deficits or more and want to raise more and more money in taxes, but there is a limit on what they could extract, as people can stop working if they become slaves.

PieterH• 10 years ago

This is what a sales tax, like VAT, is.

axlee2• 10 years ago

Because corporations thrive purely on the society they are making money from. No company lives in a vacuum.

However great and driven Elon Musk might be, he would never have made a single cent if he had started Paypal in Somalia. And what differentiates a market in Somalia from another market like, let's say, France?

Let's take this further. Zuckerberg makes a lot of money in France solely thanks to the technological infrastructure built by the society living there. Why would the French public let Facebook exploit this environment for his personal profit, while not paying its fair share to maintain the very same socio-economic environment that allows it to make money in the first place (and that everybody else is contributing towards)? Anyone would describe this behavior as parasitism.

Let's imagine you spend ten years building a shoe factory. After ten years, a stranger comes in and starts to use your factory at night to make shoes and sell them for his profit. Are you going to let him use your factory for free?

Even if your answer to this is "Well maybe there shouldn't be any public infrastructure in the first place", it simply shifts the problem somewhere else: if a private company would be managing the infrastructure, rest assured they would also ask for usage costs...which is precisely like a tax. A feodal tax.

oh_sigh2• 10 years ago

Is your argument that owners would just not take any money out of the company so as to not pay the taxes? In OPs example the company would still be taxed but just at different times

jfoster• 10 years ago

Even if your answer to this is "Well maybe there shouldn't be any public infrastructure in the first place", it simply shifts the problem somewhere else: if a private company would be managing the infrastructure, rest assured they would also ask for usage costs..

I wouldn't say there shouldn't be public infrastructure. For the last part, though, mightn't Facebook consider charging the company managing infrastructure for the ability of their customers to access Facebook? I think people would be a lot less likely to subscribe to an ISP that didn't facilitate access to Facebook.

edko• 10 years ago

That is what Estonia does. Corporate income tax is 0%. They tax companies, on a flat rate, on the dividends paid out. This encourages reinvestment and growth.

yardie• 10 years ago

And that is how it should be. But the US and EU tax codes are such a bodge. F500 CEOs are taking $1 salaries because why pay 55% on a $20mm salary when you can pay 15% on preferred stock dividends.

skafjvhs3• 10 years ago

Something about this story seems off to me.

Mr Kern, who heads Austria's Social Democrats and the country's coalition government, also said Facebook and Google had sales of more than 100m euros each in Austria.

I'm not an expert on Austria but this suggests to me that this person can propose and possibly pass laws in Austria. He is not just an activist who only has the power to give interviews to BBC. If he thinks that Amazon and Starbucks are not paying enough tax to Austria, why doesn't he change Austrian law to charge them more tax? Don't give me some bullshit about how corporate lawyers will find loopholes - you run the government! Do your job! Change the law! Or at least make a show of trying.

peletiah2• 10 years ago

Kern only came into power in May, the social-democrats (SPÖ) have been in a "great coalition" with christian-democrats (ÖVP) since 2007. This coalition has been on rickety legs for many years now and there's not much the two parties agree on. There have been no noteworthy reforms for a decade.

There's also the threat of the populist far-right FPÖ, which has been gaining power again after two failed coalitions with the ÖVP 15 years ago (The FPÖ have been polling at ~30% for several months now, which is the largest approval of all parties).

Several members of the ÖVP-government and regional bodies are actively working against the great coalition and undermining the head of the ÖVP, sympathising with going back in a coalition with the fascists.

For all these reasons, Bundeskanzler Kern is not as powerful in legislature as would be desireable. Also I understand his remark as suggestion for a discussion and possibly a proposal for an EU-wide discussion on unifying tax laws. And he's probably fishing for votes with public statements on popular topics.

Personally I think he's the most promising Bundeskanzler we had in a long time, as he's an intellectual and is charismatic enough to potentially neutralize the threat of a far-right government.

skafjvhs3• 10 years ago

Thanks for the context, it's very useful.

From a US perspective, it's common for our top politicians, when talking about a problem, to present a specific proposal for legislation they would use to fix the problem. It makes their words more credible to me. It is easy to complain that things are bad, harder to describe in detail how things could be better. To be cynical, these plans are written by staffers and the politician may just memorize the key points. But it at least demonstrates there is some commitment to the issue.

exDM69• 10 years ago

If he thinks that Amazon and Starbucks are not paying enough tax to Austria, why doesn't he change Austrian law to charge them more tax?

Because Austria is a member of the EU and businesses in the EU but outside of Austria can operate there while paying taxes from their profits to their "home" country (VAT must be paid in Austria).

Now this is all good if the system wasn't so easy to exploit. Typical arrangements (like "double irish" or "dutch sandwich") have four, five or more subsidiaries in different legislations, each with their own locally negotiated tax breaks, doing complicated loan arrangements and IP licensing schemes that result in effectively zero tax (or a flat fee) and all the profits esacpe to Bermuda and Caymans.

There seems to be an Europe-wide crackdown on practices like this, and the Apple decision from earlier this week is just the beginning.

I'm really glad that this exploitative practice is (hopefully) coming to an end and the multinationals start paying their fair share.

skafjvhs3• 10 years ago

So the EU will not allow Austria to pass, for example, a tax on internet advertising in Austria (in the article the Chancellor complains that Facebook and Google don't pay advertising duty in Austria)?

davidf184• 10 years ago

Amazon and Starbucks spend a lot of money to hire highly competent tax attorneys and other staff to minimize their payment of taxes. Instead of complaining, countries need to pay more money to hire even brighter people to write better tax laws. Citizens of these countries need to elect officials who will do the hiring and not have obstructive laws that prohibits the payment of the large salaries and fees necessary to hire these competent people.

greyman• 10 years ago

But what can you do if countries like Ireland or Malta just allows tax evasion?

gozur882• 10 years ago

This was always the Achilles heel of the EU. In the end it can't work unless tax policies are harmonized.

davidf184• 10 years ago

Well, you can threaten to throw them out of the EU if they don't fix their unfair (to other member countries) laws.

The EU should have more statutory authority for laws like this just as in the case of the US Federal Government over State governments.

At any rate, don't blame Amazon, Starbucks, but rather blame wealthy governments that refuse to spend the money for talent that can fix the laws (or iteratively "refix" them).

rayiner4• 10 years ago

The tax attorney thing is a red herring. Wal-Mart averaged a 29% tax rate from 2008 to 2012--higher than your average American and much higher than companies like Apple and Google. You think Wal-Mart can't afford good tax lawyers? Or to lobby aggressively for tax breaks?

No, the problem both Wal-Mart and the local sausage cart have is they're "meat space" businesses. They can't shift profits to low-tax jurisdictions by parking key IP there. Their ability to arbitrage otherwise reasonable tax laws is limited by the physical nature of their businesses.

rando444• 10 years ago

There are many more ways to skirt tax laws.

Look at IKEA. They operate as a non-profit, but transfer money to a holding company which licenses the IKEA brand to the non-profit.

davidf184• 10 years ago

The countries simply need to hire higher competent people to construct their laws including addressing those newer types of firms such as Apple and Google. Since Wal-Mart and Starbucks are both "brick and mortar" it seems strange that Starbucks can have favorable taxes but not Wal-Mart.

Countries simply need to hire very competent people to construct the laws. Their problems with taxes is one of market competition for intelligent people to write the laws with Amazon and Google who hire people to "legally" skirt the laws, often acting in "grey" areas and loopholes.

gutnor• 10 years ago

Apple and Google don't really compete with Walmart, so that's acceptable ( but not good ! )

What is really not acceptable is that a small company will pay 1 or 2 order of magnitude more tax than the giant they directly compete against.

SixSigma2• 10 years ago

Having corrupt sweetheart deals with Luxembourg helps too.

readittwice• 10 years ago

Hi, I am Austrian and I read the original interview in an austrian newspaper. It was very unspectacular and I am quite amused that it got international attention.

Our prime minister is wrong or at least slightly populist here. Yeah, Facebook/Google are not paying advertising duty. But no one does, at least in the internet. You only have to pay this duty if you advertise in TV, Radio, newspaper, etc. but it does NOT apply for the internet! See for yourself on the homepage of the austrian finance ministry (unfortunately in german): https://www.bmf.gv.at/steuern/a-z/Werbeabgabe.html. The law is from 2000, so probably before advertising in the internet became big.

Even if they change this law to include the internet, the Austrian companies that want to advertise would have to pay this tax (5% btw) since Google/Facebook do not have any offices in Austria (see chapter "Abgabenschuldner" in the link above). Google/Facebook don't even need to care about this law! (apart from that extending the law could make advertising in the internet more unattractive).

Why should they even pay corporate taxes in Austria? As already said they don't have any offices here.

zaidf• 10 years ago

The smaller you are as a business, the closer you are to being an individual and less of a business. Of course, as an individual, basically any money you earn is taxed. You don't get to not pay tax on the $1,500/mo rent for your apartment where as as a business, you can deduct your offic rent.

SixSigma2• 10 years ago

You need to ask EU president Junkers about that, though he has the corrupt politician's memory lapse in the face of evidence.

http://www.telegraph.co.uk/news/worldnews/europe/eu/11902939...

Amazon and Starbucks pay less tax than sausage stall, says Austria

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