The Italian Parliament passed a new measure which will prevent companies from buying Internet ads from companies outside of the country. The law was put in place because of the fact that large companies like Google would sell their ads through a regional company in a more tax friendly location. In Google’s case, they would sell ads through an Irish location. This location would then roll the profits up into a headquarters in Bermuda. This would, of course, dramatically reduce the amount of taxes Google would have to pay on the sales of these ads.
While the measure is commonly known as the ‘Google Tax,’ it will affect many other companies including apple, Amazon and others. It is estimated that having regional offices in tax friendly countries saves multi-national companies over $100 billion in taxes each year.
While the measure has been passed in Italy, most people believe that they will run into some problems with it in the future. The European Union laws prevent discrimination over commercial activity between member countries. Most legal experts believe that this law will be seen as a violation of the non-discrimination laws of the EU.
Sol Picciotto, emeritus Professor of Law at Lancaster University, said it is “fairly obviously contrary to EU law.” And that it, “will put further pressure on the OECD to sort it out.” The OECD is the Organization for Economic Cooperation and Development.
The fact that large companies are able to shift profits through different tax havens is a problem many Western countries are looking at due to the huge amount of money that they could be bringing in. While this is certainly an issue for the countries to look into, the solution Italy came up with does not seem to be workable in the long run.
What do you think about this law, or any law that prevents corporations from shifting money around for tax reasons? Please, share your comments below.