Italy Approves ‘Google Tax’ on Internet Companies

http://www.bloomberg.com/news/2013-12-23/italy-approves-google-tax-on-internet-companies.html?

by snowbunny • 13 years ago

39 60 13 years ago

bloomberg.com

davidgerard• 13 years ago

The EU objection is pretty solid, sadly.

aristidb• 13 years ago

Why sadly?

alemhnan2• 13 years ago

The objection reported in the article seems to me quite usual political boilerplate without real substance. One of the comments says something interesting: "Europe will have to address the fiscal treatment of multinationals, and by its nature, this is not a task to be faced on a piecemeal basis."

That sounds more the real issue of the problem to me.

toyg2• 13 years ago

Italy: always at the forefront of legislative innovation to kill the internet. Piratebay blocks? Check. Fighting encryption and anonimity? Check. Taxing the crap out of anything that moves? Check. Cutting investments in r&d and universities across thr board? Check.

And then they wonder why their economy sucks.

tluyben22• 13 years ago

They are doing that in most EU countries, not only Italy or the PIGS. I would say the PIGS have a lot of reasons besides maybe this why they are going badly; simple things like being anti-client-friendly as much as possible and finding that normal.

_delirium• 13 years ago

I have a little experience in several EU countries, and if there's any correlation, it's generally in the other direction, with the higher-tax ones generally being better places to do business (I doubt this is a causal relationship, though). The issue with southern Europe is that the government is corrupt, slow, and non-transparent, and regulations are unpredictable and inconsistently enforced.

For example, Denmark's taxes are about 1.5x Greece's (50% of GDP versus 35% of GDP, overall). But Denmark is generally a nicer and easier place to do business. The bureaucracy is large and expensive, but in return for all the money it costs, you get quick, non-corrupt, predictable service. You can register a company in literally hours (online!), for example, while it takes weeks in lower-tax Greece.

mino2• 13 years ago

Regarding "piratebay blocks" and, more generically, DNS censorship: recently, RIPE published [1] usage estimations of 8.8.8.8 by country. It is estimated that 12% of Italian internet users has configured 8.8.8.8 on their machine, which I believe is an astonishing high number!

I work at an Italian ISP and we ran some statistics ourselves and found that percentage to be around 5%, which is lower but still massive. If you consider that the average Internet user doesn't even know what "DNS" is... that means a considerable part of tech-savy users are not using their ISP's DNS (which breaks down many kind of things, among which CDNs).

That's a direct consequence of Government-issued DNS censorship, which all Italian ISP need to obey.

[1] https://labs.ripe.net/Members/gih/measuring-googles-public-d...

belorn2• 13 years ago

that means a considerable part of tech-savy users are not using their ISP's DNS (which breaks down many kind of things, among which CDNs).

Is every CDN's depended on privileged position inside ISP's? DNS by design is on the edge of the network, and works perfectly fine regardless of who ask the server for a lookup. If the DNS server want to do geo-depended service, they only have to use geo-ip to figure out where a request is coming from and sending the closest geo-located server as answer. You can even do it with http server and redirects.

ISP based dns resolver existed because early networks took time and money to send a single package back and forth from the client to the server. Those economics should not be considered in 2013. Having a third-party doing your dns resolving is like calling the local police office for directions when driving. Antiquated, unnecessary, and not very safe any more for privacy reasons.

jessedhillon• 13 years ago

This is a far too simplistic analysis of a multifaceted issue with no single answer. It's the kind of thing I'd expect to hear on Fox.

olefoo• 13 years ago

Yes. I believe it's an artefact of the popularity of the site that that type of comment is becoming more common. We've seen a noticeable increase in trolling and simplistic bias-driven comments over the past year (i.e. comments that suggest that the commenter cannot even conceive why someone might not share their viewpoint).

toyg2• 13 years ago

It's not an analysis, it's a rant, sure. BUT as an Italian, I've seen this over and over and it sickens me.

Italy is one of those very few countries where for years you couldn't legally run an open wifi spot - you had to file ID cards of each and every user, and send them to the police on request. Where the early cypherpunk scene was criminalised and associated with terrorism - the police would just sequester entire servers on a whim, just to collect SSH keys and mailing lists of activists. Where authorities cracked down hard on P2P while at the same time supporting a copyright regime that is much worse than the equivalent US one (the association of publishers and music labels is legally tasked of collecting royalties and copyright-related taxes, with no oversight whatsoever on where the money actually ends up). Where law-mandated DNS blocks were pioneered.

All this in a country with corruption and organised crime at levels unseen elsewhere in Europe, an economy that's been stalling for almost 20 years now, a huge anti-business bureaucracy, and gigantic public debt. It's like, "don't you have anything more urgent to worry about, rather than bothering our Net with laws so inane, even the EU will likely strike them down?"

If this sounds like something out of Fox, I invite you to watch any political talk-show on Italian TV. You think Fox is bad? HA!

The problem at hand is not complicated, but it's something that 1) must be solved at the European level (otherwise, why did we create a unified market?), 2) does not touch real revenues being siphoned to tax havens, which are the real problem -- does Apple sell ads or internet services? not really, but they're THE prime example of this problem, and still won't be touched by this law. It's the usual buffoonery devised by one of the worst political and economic elites in the developed world.

Dylan168075• 13 years ago

Google, Starbucks Corp. (SBUX) and Amazon.com Inc. have been criticized for strategies that shift billions of dollars of profits offshore.[...]

Google last year moved nearly $12 billion to the Bermuda unit, the majority of its worldwide income, cutting more than $2 billion off its global income tax bill. Google’s Italian unit last year reported total income taxes of just 1.8 million euros, corporate filings show.

Google's tax-avoidance has nothing to do with this new law. It's true that Google shifts profits around to avoid paying taxes where they do their actual labor. But changing that wouldn't change the fact that Google isn't based in Italy. For the sake of simplicity let's say that Google stayed in Ireland when they stopped abusing the system. They would sell all their European ads from Ireland, and pay a hefty tax with no loopholes. And their tax payments in Italy... would not change.

This law is strictly anti-outsourcing. It does nothing to stop Google's tax avoidance, and would still be just as 'needed' even if Google didn't avoid taxes. Bringing it up muddies the water and serves no purpose other than making Google look like a bad guy.

alemhnan2• 13 years ago

Maybe I'm wrong, but with this law Google is not able to sell ads in Italy. So if they still want to do that they need to open an Italian company and therefore pay taxes in Italy. So, for Italy at least, things would change.

Dylan168075• 13 years ago

Right, but blocking sales to another country has absolutely nothing to do with how an entity in another country pays their taxes. Italy is objecting only to the fact that the ad-selling-Google is in another country, and trying to make them build a local version.

tonfa• 13 years ago

Depends, what is taxed in Italy: profit or revenue?

An italian subsidiary would have to pay its mother company for the services it provides (which is everything, since no user would be serviced from Italy). So the Italian company could easily make 0 (or very few) profit.

mattmanser2• 13 years ago

I think you're misunderstanding what's going on.

Google employs lots of local people in many different countries to sell ads, etc.

In order to do so it has national companies that are owned by Google US, but are separate legal entities.

But what's happening is the national sales people are closing deals but then book those ads through a different legal entity in Ireland, even though the sale happened with a local sales person, in a local company. This is with the express purpose of avoiding tax and claiming it was 'only following the law', when it is clearly deliberately avoiding tax.

That is why it started getting into serious trouble in the UK when it became clear that it was the Google UK sales people who were closing the deals but then the deals would magically appear on Google Ireland's books.

As far as I understand it, it then uses the double dutch loophole to avoid paying even Ireland's corporation tax.

Google US does not employ the Italian or the French or the UK sales people.

So what you said, as far as I understand it, makes no sense. Google are based in Italy.

http://www.google.co.uk/about/company/facts/locations/

Notice how a lot of the locations have localised version of the US's 'Inc' like 'Ltd', 'GmbH', 'n.v.'. They're all owned by Google Plc (US).

Dylan168075• 13 years ago

So what you said, as far as I understand it, makes no sense. Google are based in Italy.

There is a small Google there, but they are satellite, not headquarters. (I assume. Perhaps Italy is in the top couple percent and actually does significant things other than sales, then substitute another country here.)

But what's happening is the national sales people are closing deals but then book those ads through a different legal entity in Ireland, even though the sale happened with a local sales person, in a local company. This is with the express purpose of avoiding tax and claiming it was 'only following the law', when it is clearly deliberately avoiding tax.

Are you arguing that there is something unethical/immoral/unfair about a big company paying a small local one to sell ads on behalf of the big company? I guess I'll just have to disagree if so. I see no reason the price of the ads should be counted as revenue for the local company.

Right now Google is funneling all the money through one country because it has the lowest taxes. Even if they stopped using loopholes, I don't see why they would stop selling from the country with the best tax rates. So Google Italy, Google France, etc. would not still book the ads.

anoncow• 13 years ago

I don't understand. If I want to use AdWords and if Google is still selling from Ireland,what do I do? Buying ads from Italianads.com is not going to make my ads appear on Google.

carlob2• 13 years ago

The biggest problem with this law is not its effect on google: the way it's written now forbids any Italian internet user from visualizing ads that were not purchased from an Italian company, and this applies to all websites.

So while Google might be forced to comply, most international websites won't, rendering them automatically illegal in Italy, which is probably unenforceable. While I agree with the spirit of making these large multinational companies pay their fair share of taxes I think this is a rather ham fisted attempt.

gioi3• 13 years ago

Have you read the law? Do it. Rendering is not illegal, but if you're an Italian company you can buy online ads only from another Italian company.

jamesaguilar2• 13 years ago

It puts Italian companies at a significant disadvantage in online advertising, which is fascinating. I wonder how many marginal companies will be incorporated outside Italy's borders because of this law. It will be fascinating to see the analysis come down in ten or fifteen years (assuming the law lasts that long).

carlob2• 13 years ago

Pardon the italian

17-bis. Al decreto del Presidente della Repubblica 26 ottobre 1972, n. 633, dopo l'articolo 17 è inserito il seguente: «Art. 17-bis – 1. I soggetti passivi che intendano acquistare servizi on line sia mediante operazioni di commercio elettronico sia diretto che indiretto, anche attraverso centri media e operatori terzi, sono obbligati ad acquistarli da soggetti titolari di una partita IVA rilasciata dall'amministrazione finanziaria italiana. 2. Gli spazi pubblicitari on line e i link sponsorizzati che appaiono nelle pagine dei risultati dei motori di ricerca (servizi di search advertising), visualizzabili sul territorio italiano durante la visita di un sito internet o la fruizione di un servizio on line attraverso rete fissa o rete e dispositivi mobili, devono essere acquistati esclusivamente attraverso soggetti, quali editori, concessionarie pubblicitarie, motori di ricerca o altro operatore pubblicitario, titolari di partita IVA rilasciata dall'amministrazione finanziaria italiana. La presente disposizione si applica anche nel caso in cui l'operazione di compravendita sia stata effettuata mediante centri media, operatori terzi e soggetti inserzionisti.

Says here that the law applies to results visible on Italian territory.

walshemj2• 13 years ago

Highly illegal there is meant to be free trade throughout the EU banning a company in another eu jurisdiction form selling ion your country is in theory banned.

gioi3• 13 years ago

I'm Italian. Here tax burden for artisans, small business, big companies is over 50%. What if we could shift part of the taxation from artisans to big multinationals? What's wrong with this idea?

Heliosmaster• 13 years ago

That it does not lower at all taxes on common people and normal jobs. Large corporations who have interests (and money to enforce it) will always find a way (at least political).

This is the usual attempt from our politicians, who have no idea how a computer is turned on (no wait.. they play poker on their ipad while discussing laws), to regulat something they do not understand.

gioi3• 13 years ago

I asked what's wrong with the idea, not with the implementation. I completely agree with the fact that this law should have been discussed at international level (at least EU+USA). I can realize from your words all your discouragement for the global ethical crisis. I really hope that future generations will be able to enforce this kind of measures. (BTW, may I ask you where are you from?)

yetanotherphd2• 13 years ago

The problem is that you are erecting trade barriers in order to do this, by forcing ads to be sold in Italy. And the deeper problem is that every country would like to shift its tax burdens to "big multinationals" but there are tax and trade agreements to impose some fairness and order.

If an advertising company really were running some of their operation from Italy, they should certainly pay tax there (and not, say, in Ireland). But you can't expect to tax all ads that are purchased by Italians that really are sold from overseas.

vkou• 13 years ago

Said tax and trade agreements don't impose fairness and order, as much as they tie every participating nation down in a race to the bottom. Any board of directors would be considered to be out of their minds if for the sake of a single, non-critical contract, they signed agreements that completely tied their hands in how their firm should run. On the other hand, when governments do it, they are heroes.

Disclaimer: I'm a Canadian working for Google. And I have no opinion on this particular piece of legislature.

DannyBee2• 13 years ago

"And the deeper problem is that every country would like to shift its tax burdens to "big multinationals""

This is of course, 100% the problem. None of these countries seem to believe they can support themselves long term on the tax revenues earned by just their local people and businesses.

If that's really the case, they are doomed, long term, without changes.

DominikR• 13 years ago

There will never be a shifting of taxation from X to Y!

You have such a high tax because of your governments incompetence.

That being said - I'm no fan of that kind of tax avoidance, they should definitely pay their taxes.

But what will happen until the EU has ruled on this (which can take many years), is that Italy will further reduce its competitive advantage because suddenly Italian corporations will be unable to buy Adwords, Facebook Ads and so on which should make them invisible to international customers.

Good luck competing with a startup/small business that cannot buy any ads.

csomar• 13 years ago

It'll be great if someone can pay my bill. Unfortunately, in real world this won't happen. Big Corps. have ways to get around taxation. And if the tax burden is big, it's probably of gov. incompetence.

jamesaguilar2• 13 years ago

There's a good chance that artisans, small businesses, and big companies will pay most of this additional tax, since it adds a percentage to all online advertising purchases in the country. It's not like internet advertising companies are just going to hold their prices constant and pay an additional portion of them in taxes. The local Italian companies created by this law will sell the ads at a markup which is nearly the same as the tax plus the new overhead of administering the Italian companies.

DannyBee2• 13 years ago

Tying your country's future ability to support its population in any large part to the whims of companies that are non-local sees like a self-evidently bad idea for any number of reasons.

For starters, they have no skin in the game. Unlike local businesses, they don't care what happens, at all. At least the mildly local large companies have some cares about what happens to the country (because they own land, have in-country employees). But the large multinationals basically don't. The number of in-country employees is usually very small.

Second, you have no control over their performance or policy decisions. They can do things that are completely and totally devastating to you (like close down the local branch and stop paying taxes), and you can do nothing, since you have no physical control over anything. Plus, you know, you will now be dependent on their performance globally (this is likely to happen to any sufficiently large company anyway, but ...)

As a result, as you become more dependent on them for tax revenue, government will have to do more and more to appease them to keep that revenue flowing. You have to be very careful, because other than X amount of revenue, you literally have nothing they need. In a country like Italy, the amount of money is not large, so you can't just play hardball with them, because they'll just take their ball and go elsewhere, and you will be left high and dry. If a few multinationals do it, Italy may very well have to run and appease a number of other companies to keep their revenue in Italy.

These are just some of the simple reasons. The short answer is: If you do this, you may as well just hand them your government (or prepare for long term economic hardship).

jotm2• 13 years ago

How about making the country a better place to start a company instead? You know, so you can attract foreign capital and entrepreneurs, and also reduce the local brain drain.

No wonder Italians run to Germany, UK and Ireland to start their companies.

Also, good luck enforcing that law.

mortyseinfeld• 13 years ago

Because that takes too much strategic thinking for these spastic, greedy bureaucrats.

raverbashing3• 13 years ago

You'll be surprised about the hassles to open an (Internet) company in Germany.

They get the business mostly because they are cheap (and educated workforce, of course)

jotm2• 13 years ago

I don't know from first hand experience, but I've been told that it's relatively easy to open a UG (their version to an LLC/UK LTD) company and start working right away. Hiring and managing employees seems to be the hardest part.

znowi• 13 years ago

Google became too greedy and this is the result of it. I, for one, in support of this law. You can't harvest billions of profit worldwide, then sneak it all through tax heavens and expect it to continue indefinitely. Someone will get weary of this practice.

As a thought experiment, imagine the US reaction if Google was an Italian company - making loads of money in the US and paying 0 taxes :)

was_hellbanned2• 13 years ago

The point becomes moot if you eliminate corporate income tax. You want companies to pay salaries, not taxes.

ansgri• 13 years ago

Good point. Could you please remind us why this hasn't been done yet? Or where done?

omonra2• 13 years ago

How would this help Italian government? All income would flow up to the US and get eventually taxed there.

ekianjo• 13 years ago

these tax heavens you mention are totally legal in EU law, and not using them as a company would be seriously stupid. By the way its what the politicians you elect use for their own earnings, to avoid paying taxes as well.

shmerl• 13 years ago

Looks like they hate free trade.

walshemj2• 13 years ago

No just discriminate against non Italians as expats who work in the Italian Universities will testify.

belorn2• 13 years ago

Whats the difference between their goal, and simply adding an duty tax on imported services?

Italy Approves ‘Google Tax’ on Internet Companies

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