Italy’s Parliament today passed a new measure on web advertising, the so-called ‘Google tax,’ which will require Italian companies to purchase their Internet ads from locally registered companies, instead of from units based in havens such as Ireland, Luxembourg and Bermuda. Google, for example, says that it sells nearly all its advertising in Europe from an Irish unit, leaving little taxable profits in the countries where its customers are based. That unit in turn pays royalties to a second Irish subsidiary, which says its headquarters are in Bermuda. 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.” This news from Bloomberg.
Yes, that is , clearly and obviously, illegal under EU laws. You’re just not allowes to discriminate, in law, among people based in different EU countries. So much so that, for example, when the British government wanted to make an order for some new trains it could not favour the UK based company over a German bid. If you’re not allowed to have national preference in government acquisition then obviously you’re not allowed to tell private companies that they must follow some form of national preference.
“Italy’s measure is “ fairly obviously contrary to EU law,” said Sol Picciotto, an emeritus professor of law at Lancaster University in the U.K.
Sol Picciotto is one of the campaigners associated with the Tax Justice Network. This Google and Facebook selling from Ireland thing is one of the matters that they complain about bitterly. And if they say that this potential solution is illegal then I think we can take it as being true that it is illegal.
And I have been making this point for some time now . And It’s not as if people in Italy haven’t graspedthe point. Beppe Grillo got it immediately. We even know that Francesco Boccia, the proponent of this tax, knows about it. For we’ve even got his response to my having pointed it out.
And the way this European system works is that European Union law is superior to national law. It doesn’t matter what the Italian Deputies, or Senators, nor even the President or Prime Minister, say about what the law should be in Italy, if it breaches EU law then it doesn’t stand.
What’s worse than the law being illegal is that even if it were not illegal it still wouldn’t do what its propoents want it to do. For what it says is that Italian advertisers must purchase their internet advertising from a company with an Italian VAT registration. OK : but the problem with this is that this does not then mean that Google’s profits would be taxable in Italy. For the Italian double taxation treaties state, explicitly, that selling through an agent does not create a permanent establishment in Italy are not taxable in Italy. So, Google appoints an agent, an agent with an Italian VAT number, and the law is met and still none of Google’s profits from Italy are taxable In Italy.
The Google Tax is actually worse than being an illegal law. It’s an incompetent one.