With the UK being the biggest userbase in the EU for Dropbox its a shame they've decided to open up in Dublin, as my accountant would say its a good "tax optimisation" strategy.
Sure, hate the game not the player, but they could have scored some major plus points on the day Public Accounts Committee in the UK have poured scorn on Google, Amazon and Starbucks:
I continue to have difficulty understanding the gnashing of teeth around various "tax minimization" strategies, e.g. being "immoral" and all that.
Setting aside those companies that deal in 'hard goods' (e.g. Amazon-the-store, Starbucks, etc), could someone explain the rationale of taxation w.r.t. corporate domicile?
Say I offer a software-based service in the U.S. (i.e. all the servers, billing, admin, dev, etc are done there), and by dint of luck/happenstance, a majority of the userbase ends up being in the EU. I (or my ISP) or my customers (or their ISP) are paying for the pipe between us (which is presumably taxed however the relevant localities have chosen); beyond that, I am not benefiting from any government services in the EU.
Should I nevertheless pay taxes in the EU (perhaps proportionately to each member nation based on the mix of nationalities of my userbase)? When I set up a European office, shall I be shamed into setting up HQ in whatever country houses the majority of my customers that year? What happens when that mix changes such that the majority of my customers are in a different nation?
All of this sounds absurd, but it sounds like the standard (or something similar to it) being applied to Dropbox in this case.
I think the argument is that if you're making a profit off a country's citizens, you should also be paying taxes to that country's government, otherwise there'll be a large net flux of money out of that country (e.g. with Amazon, Starbucks in the UK).
Let me put it another way, you say that:
>beyond that, I am not benefiting from any government services in the EU.
but you are benefiting from the government. Without a stable and moderately successful government, your customers wouldn't be in a position to be able to pay for your services. And that's exactly why most of your customers could, conceivably, come from the EU, but are unlikely to come from a developing country.
I'm not saying I agree with this; I don't know enough about how this sort of taxation affects the system as a whole, but I believe that's the logic.
The rule generally applied, which I think is a sensible one, is that you pay tax in a country on profits derived from it IF you have a permanent place of establishment there (branch office, sales office, retail outlets etc).
This means a company that has no physical presence in a country but sells products digitally there has no taxes due (except sales tax/VAT in the EU in some cases if over a certain threshold).
The issue in the case of Amazon, Starbucks et all in the UK right now is that these companies DO have a local permanent establishment, but manage to minimize their corporate tax through a mechanism called "transfer pricing", whereby they pay their sister branches in lower tax jurisdictions license fees etc for using brand, IP, software systems etc, thus increasing their tax deductible expenses in the high tax jurisdiction (UK).
What's useful to note is that none of this would be possible without double taxation agreements and the EU, both which successive UK govts and tax authorities have painstakingly and explicitly negotiated and agreed to.
If there are no double taxation treaties, taxes for cross-border payments would in fact be quite punitive (withholding taxes etc).
It seems to me the UK govt thought they would benefit from these agreements when they where originally negotiated, but it has not turned out to be the case. The whole "moral outrage" is just the government passing the buck on a ball they themselves dropped.
As a side note, I don't believe moral outrage is conducive to the rule of law. These multinationals follow the letter of the law and have no further obligations.
If the government thinks otherwise, they should renegotiate their positions and stop pointing fingers at others for a ball they dropped.
The problem with corporate tax is that it's not a tax on a specific, quantifiable activity, like "income", "capital gain" or "sale". These are pretty difficult to fudge.
Rather, corporate tax is a tax on making a profit. Consider the battle between development and sales - who's making the profit? To the very untrained eye, sales, because they're the ones bring the cheques home, and, indeed, salaries and bonuses in that department seems to confirm that. But without a good product to sell, there would be no sales, so it's obvious that devs deserve a cut as well - but how much?
That's essentially the same discussion Mrs Hodge is trying to have with Starbucks. Are the profits generated by sales (the stores in the UK) or by devs and backoffice (marketing, branding, sourcing, supply chain, finance etc etc etc), conveniently, but legitimately, placed outside the UK?
I had honestly never considered such a notion. Considering hard goods for a moment: when I order something from a foreign merchant, I sometimes need to pay import duty. I suppose this line of thinking would have the U.S. collecting the same duty from me as well as levying a tax on the merchant for the privilege of having me delivered as an educated, well-heeled-enough customer?
There aren't (generally!) duties on "imports" of intangible products and services worldwide, but the hard good example makes the notion sound even more absurd. This all reminds me of the crazy "Amazon" rules U.S. states have been setting so as to define affiliates as nexuses for sales tax purposes.
> they could have scored some major plus points on the day Public Accounts Committee in the UK
There's nothing like politicians calling businesses who are obeying the law "insulting" in a play to stir up outrage to attract new businesses to a country. Come here, and be publicly harangued.
Instead Dropbox seems to have scored major plus points with IDA Ireland.
Maybe, however in these times of austerity there's also nothing like a large corporate playing smart to irritate the natives (speaking as a UK income and corporate tax payer).
I would love to see the impact the UK boycott of Starbuck has had on their bottom line. Sure, not everyone cares but clearly enough people have forgone their red cups over the past few weeks for Seattle to take notice based on todays headlines.
People practically never follow through on actual actions to back up their "principles" - to the point where the Starbucks next to the Occupy London was, well, occupied. If not even people who sleep in tents on the pavements for weeks are principled enough to forego Starbucks coffee, don't count on the average guy to be.
So I'd venture a guess that Starbucks UK haven't seen any real decrease in sales - rather, it's probably their PR people who figures it's better to be seen as "responsible", as you put it, to not irritate the natives.
Yep, my startup business Powered Now is pure B2B. The same methodologies apply regardless of the market, however I take your point about stable processes. I think (and would love a discussion on it) the idea of a "stable process" comes with scale, the larger the orginisation the less likely they are to consider adapting or trying new things, although that might be a sweeping generalisation.
Regardless of the size of the business there are always people on the cutting edge, the early adopters you need to find and involve.
Best of luck, I'll watch this thread with interest.
I agree with you. But i think that beyond scale and state of mind, one key factor in B2B is the tolerance of the organisation (not only the leader) to change and experiments.
It takes a great deal of leadership to bring everyone on board and convince the naysayers.
In my case, on of my customer has ~100 users. the problem is not my stakeholder, but a slice of the 99 other users, who have to deal with the change. Some request additional training, some complain...
With all the good will of the leader, i just fear that he eventually grows tired of fighting for each change, regardless the value brought by such change.
So the question about experiment is maybe more a question of overcoming user resistance (and, in a company, the associated cost).
The reactions to UI changes in Facebook are probably a good indicator that it's a tough battle :)
The challenge is to take enough from the feedback to be useful and informative while keeping your focus. Its VERY easy to become obsessed about delivering what your customers / friends want and loose the original vision. Its about time for everyones fave Henry Ford quote "if I listened to my customers I would have built them a faster Horse".
Rather than simply asking "what do you think of X" I like to ask people about their pain points and then try to put two and two together. It can be frustrating and rewarding at the same time.
So when we hired them (just after the start of the project) they worked remotely. They were a small agency who we essentially block-booked for large chunks of time. They would occasionally come to the shared office but not regularly enough to close all the gaps on the project. I estimate that to keep things running reasonably smoothly (and there were still major problems which led to me firing them and hiring brilliant software engineers), I probably spent north of £1k on travel to and from their location to manage them, which was painful both financially (I could be spending that money on almost anything else and it would be better-spent) and emotionally (it's a lot of energy).
Now everyone is in the same room and on the same page. I'm sure there are occasional productivity hits (conversations, phone calls, stand up meetings), but it's a quick "Hey I just deployed this" instead of Email > New Message > everyone@startup.com > I just deployed the XYZ feature we talked about > Send.
It's also more helpful for me to work this way because I am a hands on product manager. We can iterate things very quickly, I can break them and suggest improvements, and we can then iterate them again. Irrespective of whether my benevolent dictatorship is a good way of working, the fact is that I will always work like this and to do that over any kind of distance greater than 5 metres is inefficient and frustrating.
Thats a great post, to some extent I think its true.
Most people tend to specialise in a particular skill set (development, sales, marketing), people with a broad spectrum that are suitable for high flying roles are very hard to find, just ask HP. Most CEOs I've worked with have tended to have a natural slant towards a particular skill and this tends to influence strategy. I know this only too well from my own experience, I try to counter this by getting involved in areas of the business I don't know so well, every day is a school day. Back to the post, IMHO its impossible to set any vision (especially a successful one) unless you spend time understanding the business as a whole, this means getting involved.
I think this makes complete sense for HBO, although as a consumer its pretty irritating. I'm hunting for the reference but I seem to remember reading about (UK) Sky signup accelerating after the launch of Sky Atlantic, which shows HBO content pretty much exclusively, their content brings people to providers. Until the cord cutters outnumber the cable subscribers its not going to change I'm afraid. Also the providers also have their own IPTV solutions so whats the benefit to HBO?
Payments is a really exciting space at the moment, its being disrupted at an impressive rate and it seems a new provider pops up almost every day. While its great to read this story I believe to a certain extent at the moment its better the devil you know, especially if you are an established business.
I always recommend PayPal to our merchants, not only is it the quickest way to send and receive money online its also backed up by one of the largest payment networks in the world. Also lots of people have money in paypal accounts they would like to spend, not everyone links it back to their bank account. For E-Commerce sites you can expect to loose about 10% of sales by not offering PayPal. However, I appreciate its not for everyone.
For alternatives, here I think it really depends on the size and type of your business. If you are doing any type of volume the only serious way to receive payments online is via a Payment Service Provider (PSP), and there are millions of them. You can seriously reduce your transaction costs and often you get some pretty weapons grade anti fraud protection thrown in. Unfortunately setting up a PSP isn't as simple as it sounds, its a two stage process starting with a Merchant Account. This space is pretty dominated by the traditional banks so get ready for a little red tape. Once you have your Merchant Account the PSP slice is normally fairly painless.
With regards to Stripe, I'd personally give any startup in this space some time to debug and increase transactions before you trust them with your business.
The logistics industry (in the UK at least) is in utter turmoil. I have about 10k ecommerce merchants using our platform and I hear these points on a daily basis.
Speaking to a few logistics and delivery providers recently they tell me the cost of delivering this service has tripled in the past three years. However this hasn't been passed onto the merchant / customer, this industry is living in an artificial bubble and I predict its going to pop. The truth is the price has gone down as companies such as Yodell have arrived to disrupt the space with rock bottom prices (and rock bottom service), this puts huge pressure onto the other providers who are dropping services at a rate of knots.
Its not an easy thing to fix, especially as there are so many interconnected services and companies.
I just got a parcel from Yodell for the first time the other day, are these the same guys as Hermes? The driver was the same and the service was piss-poor (missed first delivery despite being in at the time, was left a blank card, phoned premium rate phone number which was automated saying minimum 10 minute wait, instead opting not to pay went online and re-scheduled delivery which was not honoured, parcel finally arrived randomly at 9 o'clock at night driver just chucked in the porch and drove off).
Sure, hate the game not the player, but they could have scored some major plus points on the day Public Accounts Committee in the UK have poured scorn on Google, Amazon and Starbucks:
http://www.bbc.co.uk/news/business-20559791