There are clearly internal incentives to not pay taxes in local jurisdictions. Till there are penalties or clawbacks for employees or tax advisors this will go on all the time. Obviously small countries are routinely ignored and their only choice with tax evaders is to ban them outright.
I disagree because its deeper than that, there are also external incentives and they are the laws of the local jurisdiction.
One thing that might not be obvious if you haven't employed CPA and lawyers and really read the supporting regulations for their decisions is that... the government doesn't know what your legal rationale is.
Read that again, the government does not know your legal position, they don't know if they are more correct or you are more correct. When you have privileged communications and multiple business entities, the government doesn't even have a way to know. (If they were "parallel constructing" then the case would get dropped because they know what you did was legal.)
All they know is that whatever you did wasn't common and that they didn't get paid.
Your legal position can be very accurate. It can be a matter for the legislature to change it if they really don't like it. But that has nothing to do with you.
And this isn't just fishing for loopholes. There are many outcomes where the government finds that velocity in the economy is more important than their own revenue collection. They wind up incentivizing certain kinds of transactions and heavily taxing the rest of the transactions. Governments worldwide do this.
We'll see how it pans out for Facebook, but there is almost no world where I would immediately lean towards the prosecutor's opinion just because a mega corporation or billionaire is involved.
This is about free accounts. There are 38 million facebook users in Italy now and 27 million at the time. They value each signup user is worth $104-146 in revenue to facebook over that time period which seems reasonable but high.
I have a company in a neighbouring country of slovenia...
If I don't declare VAT, I get around ~30 days of leeway between the remiders to fines from our tax authority. If I didn't pay them for a year, they'd close my company for good.
How the hell are they "probing" for stuff that happened 7 years ago? What were they doing in the last 6.5 years? Does an italian mom and pop pasta restaurant get the same 7 year time period before they get probed for not paying VAT?
Some backscratching was done to make someone look the other way. Now a new government wants to shake Meta to fill the treasury. Just one possible explanation.
Problem for the Italian pasta restaurant is that they don't have dozens of offices and subsidiaries across the world made with intention to make it more confusing for tax authorities to understand what's going on and decide what fraction of their business and income belongs to Italy.
Efficiency is not a known concept here in Italy. There are people/companies who get fined for paying taxes, and other people/companies who don't get fined for not paying them. There is no presumption of innocence when dealing with italian tax authority. And things are super slow.
Yeah the state of the country is just sad. And obviously like in every disfunctional company there are the usual gaslighting liars who insist it's just normal and it's like this everywhere.
Pet theory: it's because not enough Italians speak English and Italy is the only place where Italian is a majority language. You end up with a culturally backwards country.
It seems that the whole stuff is "debatable" (i.e. it is not a "plain" case of not having paid VAT), the input is seemingly coming from an EU organism, the Eppo:
The theory (simplified) is the following (from what I can understand, most related news miss details):
1) each user when signing on the platform receives access in exchange for providing something (personal data) which Facebook/Instagram/Meta can later monetize (i.e. these data represent some value)
2) this is a form of barter and as such it is subject to VAT
What has been done is (seemingly) that of calculating (somehow) this value in Euro and consider it as a tax base for applying VAT.
No, I don't think that this has anything to do with GDPR or data protection, this is merely an interpretation of the Tax code.
It is well established that a commercial transaction made through a barter bears no difference against the same transaction made through exchange of money.
The barter may be through exchange of goods or services.
There is a by now historical sentence here in Italy about the organizers of a contest and a local newspaper[0].
Basically the newspaper published about the contest (not as a news article but rather as an ad, including the rules, forms and what not) and the contest organizers had on all their printed material (forms to sign in, posters, etc.) a note like "in cooperation with newspaper name".
The Tax office considered this "exchange" as if it was two operations, one in which the newspaper sold publicity, and one in which they bought publicity on the contest material and it went through all the various courts until the Cassazione confirmed this approach.
That was a case between two entities subject to VAT, in the case of citizens (not subject to VAT) and an entity subject to VAT (Meta in this case) the part subject to VAT should (in theory) emit an "auto-invoice" and declare the VAT on the value. (or at least this is how I understand the matter, probably there will be more details in the news in the next few days/weeks).
Wow, that's one wild legal theory, especially given Italy is (IIUC) already taxing the ads that actually produce the revenue via the Digital Services Tax.
Why stop at user registration? The service can collect user data for anonymous users just the same. And why stop at collection of user data being the quid pro quo in the exchange? If a site is letting people use it for free, the site must be getting something of value from that user no matter how undefinable, and that value can be taxed.
In some jurisdictions, contracts require a quid pro quo in order to be valid. I don't know whether Italy is one of them – but don't big tech people keep talking about how their services are a fair exchange for your data?[0]
Your "anonymous users" point seems reasonable. Your second does not: blatantly assuming that all free services are extracting a profit is foolish, and not something I've seen officials actually do.
This is a fascinating legal theory. We've know for years that "you are paying for it with your data"; if governments can collect VAT on this transaction, it changes the economics of so many businesses.
People have been providing free services in exchange for advertising revenue since the invention of the newspaper. And they’ve only just come up with this argument now? Something smells.
>How the hell are they "probing" for stuff that happened 7 years ago?
Even if it's your neighbor, it's still Italy!!
Something like that would never happen in another neighbor like Switzerland....no wait let me make another example...i meant Austria...oh wait...damn i stop here.
EU countries bicker about VAT like schoolchildren. When Italy says VAT is due it might mean FB has been negligent, but it probably means FB made a deal with another EU country (Ireland perhaps) and paid a lower amount of VAT over there.
No, the EU has astonishingly childish VAT rules that specify which country is owed VAT at which rate for all sorts of edge cases, like an online purchase made from a train heading across a border. The vendor, the customer, and the train can represent up to four different countries, each of which can argue they are owed VAT.
Large companies indeed usually don't get in trouble for tax evasion, but they are certainly the ones more often committing it. They don't call it "evasion", of course, but more like "tax minimization", or "using every legal loophole possible known to our army of lawyers".
The only thing Meta messed up is maybe not being up-to-date with some obscure legal gotcha in Italy, and even so, the fine will just be the cost of doing business.
> The only thing Meta messed up is maybe not being up-to-date with some obscure legal gotcha in Italy
Or there's some intentional vague wording so that some politician can get "a big win" and their polls up by going after an unpopular "evil foreign tech giant".
That's not at all the same thing. Banks loan you money with the expectation of return (interest). Governments build a country that is conducive to economic activity and take some of that economic activity in taxes to fund its activities.
In one situation a party has taken on risk for the expectation of future profit for itself. In the other a party has invested to stimulate activity beneficial to a larger group.
They might seem superficially similar but I don't think you can compare them that easily.
36 comments
[ 3.4 ms ] story [ 94.8 ms ] threadOne thing that might not be obvious if you haven't employed CPA and lawyers and really read the supporting regulations for their decisions is that... the government doesn't know what your legal rationale is.
Read that again, the government does not know your legal position, they don't know if they are more correct or you are more correct. When you have privileged communications and multiple business entities, the government doesn't even have a way to know. (If they were "parallel constructing" then the case would get dropped because they know what you did was legal.)
All they know is that whatever you did wasn't common and that they didn't get paid.
Your legal position can be very accurate. It can be a matter for the legislature to change it if they really don't like it. But that has nothing to do with you.
And this isn't just fishing for loopholes. There are many outcomes where the government finds that velocity in the economy is more important than their own revenue collection. They wind up incentivizing certain kinds of transactions and heavily taxing the rest of the transactions. Governments worldwide do this.
We'll see how it pans out for Facebook, but there is almost no world where I would immediately lean towards the prosecutor's opinion just because a mega corporation or billionaire is involved.
If I don't declare VAT, I get around ~30 days of leeway between the remiders to fines from our tax authority. If I didn't pay them for a year, they'd close my company for good.
How the hell are they "probing" for stuff that happened 7 years ago? What were they doing in the last 6.5 years? Does an italian mom and pop pasta restaurant get the same 7 year time period before they get probed for not paying VAT?
Bureaucracy in Italy can be very slow indeed. Not sure about this case in particular, but sometimes things take years to happen.
Pet theory: it's because not enough Italians speak English and Italy is the only place where Italian is a majority language. You end up with a culturally backwards country.
https://www.eppo.europa.eu/it
The theory (simplified) is the following (from what I can understand, most related news miss details):
1) each user when signing on the platform receives access in exchange for providing something (personal data) which Facebook/Instagram/Meta can later monetize (i.e. these data represent some value)
2) this is a form of barter and as such it is subject to VAT
What has been done is (seemingly) that of calculating (somehow) this value in Euro and consider it as a tax base for applying VAT.
It is well established that a commercial transaction made through a barter bears no difference against the same transaction made through exchange of money.
The barter may be through exchange of goods or services.
There is a by now historical sentence here in Italy about the organizers of a contest and a local newspaper[0].
Basically the newspaper published about the contest (not as a news article but rather as an ad, including the rules, forms and what not) and the contest organizers had on all their printed material (forms to sign in, posters, etc.) a note like "in cooperation with newspaper name".
The Tax office considered this "exchange" as if it was two operations, one in which the newspaper sold publicity, and one in which they bought publicity on the contest material and it went through all the various courts until the Cassazione confirmed this approach.
That was a case between two entities subject to VAT, in the case of citizens (not subject to VAT) and an entity subject to VAT (Meta in this case) the part subject to VAT should (in theory) emit an "auto-invoice" and declare the VAT on the value. (or at least this is how I understand the matter, probably there will be more details in the news in the next few days/weeks).
[0] (in Italian):
https://sentenze.laleggepertutti.it/sentenza/cassazione-civi...
Why stop at user registration? The service can collect user data for anonymous users just the same. And why stop at collection of user data being the quid pro quo in the exchange? If a site is letting people use it for free, the site must be getting something of value from that user no matter how undefinable, and that value can be taxed.
In some jurisdictions, contracts require a quid pro quo in order to be valid. I don't know whether Italy is one of them – but don't big tech people keep talking about how their services are a fair exchange for your data?[0]
Your "anonymous users" point seems reasonable. Your second does not: blatantly assuming that all free services are extracting a profit is foolish, and not something I've seen officials actually do.
[0]: https://www.theregister.com/2019/02/21/zuckerberg_privacy_in...
Even if it's your neighbor, it's still Italy!!
Something like that would never happen in another neighbor like Switzerland....no wait let me make another example...i meant Austria...oh wait...damn i stop here.
Large companies indeed usually don't get in trouble for tax evasion, but they are certainly the ones more often committing it. They don't call it "evasion", of course, but more like "tax minimization", or "using every legal loophole possible known to our army of lawyers".
The only thing Meta messed up is maybe not being up-to-date with some obscure legal gotcha in Italy, and even so, the fine will just be the cost of doing business.
Or there's some intentional vague wording so that some politician can get "a big win" and their polls up by going after an unpopular "evil foreign tech giant".
If you can't innovate, regulate!
If you have a $100M debt with the bank, the bank's in trouble.
s/bank/government/g
In one situation a party has taken on risk for the expectation of future profit for itself. In the other a party has invested to stimulate activity beneficial to a larger group.
They might seem superficially similar but I don't think you can compare them that easily.
Joking, of course.