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The Case Against a Global Corporate Tax Rate - YouTube
Channel: Learn Liberty
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- [Narrator 1] Ireland's
GDP has grown rapidly
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since Charlie McCreevy
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reduced the Irish corporate
tax rate from 32% to 12.5%
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in the 1999 finance act.
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The phenomenon resulting,
termed Celtic Tiger,
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has been beneficial to
the people of Ireland,
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many skilled immigrants
and companies alike.
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Sounds like a win-win to us,
but the G7 seems to disagree.
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(upbeat music)
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- The European Union always tried to
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harmonize taxes in the European Union
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because they feel like tax competition
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within the European
Union is not a good idea
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because you have countries like Ireland
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that have 12.5% of corporate tax rate,
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then you have Hungary
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as the lowest in the
European Union with 9%.
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They provide access to the European Union,
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but at a much more competitive rate.
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- [Narrator 1] On June 5th, 2021,
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the G7 agreed on a global tax rate of 15%.
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They suggested that
multinationals should pay
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their fair share of tax in the
countries they do business.
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What does this mean?
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It means that the G7 is
planning to tax companies based
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on where they operate rather
than where they are registered.
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They also said an agreement
on the global tax reform was
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necessary to prevent big
companies like Google, Facebook,
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and Apple from dodging
taxes by locating themselves
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in tax havens like Ireland,
Switzerland, or Luxembourg.
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- So, if you have a bottle of French wine
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and you drink it
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on your couch at home.
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Under the new rules,
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this is where the value would be created.
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You would sit on your couch,
you would enjoy your wine,
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You'd be the user of that wine.
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With the old system,
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the value of that bottle of
wine was created in France
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by the wine maker, who has
centuries of experience
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in how to make the best wine.
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And for the European Union and
the bureaucrats in Brussels.
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This was always a big, big problem.
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Unfortunately for them,
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all those efforts to harmonize
those tax rates failed
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because of the unanimity standards
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and so those countries
always voted against
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they decided, oh, you know,
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we could try to work with
the OECD on some form
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of a global tax agreement that would cover
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the way we tax corporations,
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but it would also impeller to
impose a global minimum tax.
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- [Narrator 1] The picture is no different
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on the other side of the pond,
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the Biden administration
has been particularly eager
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to reach an agreement
because a global minimum tax
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is closely tied to their plans to raise
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the corporate tax rate
in the United States
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to 28% up from 21%.
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But surely he knows that
will make competition worse
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for American companies.
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Then why does he want to do it?
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- When Biden came into office,
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he saw that he has the same problem
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essentially as the European Union.
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And so he decided if I want
to raise taxes domestically
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on the US will be less
competitive than before.
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And so it might be a good idea
to have a high minimum tax
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in order to artificially protect the US
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and make sure it remains competitive.
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I think that is the more important reason
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is that he discovered
that this is a good way
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to form a tax cartel to
restrict and eliminate,
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essentially eliminate competition.
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But even China,
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even communist China has a
lower rate than what Biden
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is proposing asleep.
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He needs all that revenue
for his spending spree.
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You know, he,
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he proposed close to 2 to
$3 trillion in new spending.
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- [Narrator 1] The Answer is,
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to help pay for the president's
infrastructure proposal.
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- [Narrator 2] According to
a treasury department report
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on Biden's made in America tax plan,
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7 of the top 10 locations for
US multinational companies
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were in countries that
applied much lower taxes.
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For example,
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Bermuda holds 10% of all reported
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US multinational foreign profit.
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- Currently we have the physical
presence standard in place,
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and that basically means that
a company gets taxed wherever
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its, you know, its
physical headquarters are.
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And so Facebook and Google and
Amazon and others, you know,
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they're based in the US
so they'll get taxed here.
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And with the new Pillar One proposal,
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some of those taxing rights would be given
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to other nations
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where the users of those
companies are located.
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The reason for that is that
under the new OECD proposal,
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they say that the value of those
companies is not, you know,
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created when they're in the US,
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and their headquarters
and their manufacturing,
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or they're developing
new apps and new programs
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and new services that people then can use,
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But the value is rather being created
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by the user in those countries.
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So the user is adding
the value to the company
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and not the company who
develops those services.
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- [Narrator 2] Grover Norquist,
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president of Americans
for tax reform said,
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cartels that keep prices
high, hurt consumers,
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creating a tax OPEC of governments
to avoid tax competition
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is bad for citizens and taxpayers.
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Competition drives out self-serving
rent-seekers in business
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and in government.
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Putting a floor on the
cost of the government
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is like putting a floor on
the cost of oil or wheat,
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bad for consumers.
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Why create a new OPEC?
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that's right, That's exactly right.
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A new cartel,
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a group of big countries with
the purpose of maintaining
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prices at a high level and
restricting competition.
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This agreement would significantly damage
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the valuable tax
competition among countries
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and would cause harm
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to businesses, workers and
economies around the world.
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A global minimum tax
would greatly diminish
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the force of tax competition.
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This competition is not only good,
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but also necessary because
it offers a critical check
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on the power of governments.
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And it is vital for ensuring efficient
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and reasonable levels of taxation.
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But there's another
aspect of this competition
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that we care about.
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that of the consumer.
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If governments start imposing
a global minimum tax,
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it will devastate many small businesses
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many large companies are happy
with the global tax rates
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suggestion because first,
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they can afford it,
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and second,
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they can impose the extra costs
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on their larger consumer bases.
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Small businesses cannot do that.
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- So there could be countries like China
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and others that might take advantage
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of the new walls and say, well,
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if we fundamentally change things,
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then why can't we have a user tax for
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everyone who drives a
car on Chinese roads?
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Why can't we have a user tax for everyone
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who uses an iPhone in China?
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And so this is very, very shortsighted,
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and it's very, very dangerous because you,
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those new rules, you know,
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could be flipped around to your
disadvantage in a longterm.
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It's all about the
narrative and the narrative
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they can push.
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And especially the European Union is very,
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very good at identifying a narrative
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that works with citizens,
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even though it might not be true at all.
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So for example, they, they
push the narrative that,
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you know,
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American multinationals are
not paying their fair share.
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So they didn't even
say what fair share is.
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And it's very subjective and
people might disagree on what
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is fair, but they say, they're
not paying their fair share.
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So, so we looked actually at the,
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at the effective corporate
tax rates of those companies
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and compared them to the effect
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of corporate tax rates of other
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European digital companies,
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and also non-digital companies.
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It turns out,
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that American multinationals
often pay a higher,
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effective corporate tax
rates than non-digital
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or digital companies.
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So that narrative is not true.
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And again,
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the same applies here with the tax Haven,
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so-called tax havens.
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Those countries are not tax havens.
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They just decide because
they're sovereign nations.
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They just decide that the way
they want to run their country
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and economy is maybe with
a smaller government,
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maybe more efficient
and with low tax rates.
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So they attract other businesses
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and they can push their economy that way.
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Currently we have the physical
presence standard in place.
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And that basically means that
a company gets taxed wherever
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its physical headquarters are.
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And so Facebook and Google and
Amazon and others, you know,
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they're based in the US
so they'll get taxed here.
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This is why it's so dangerous
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because it's a very short-sighted proposal
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that might create revenue for some
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European and other
nations in the short term,
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but in the longterm,
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no one really knows if we change
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those fundamental principles,
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long standing principles,
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what will happen to companies
that are located in the US
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or in Europe that are currently
not under this proposal.
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And so there,
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there could be countries like
China and others that might
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take advantage of the
new rules and say, well,
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if we fundamentally change things,
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then why can't we have a user
tax where everyone who drives
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a car on Chinese roads?
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Why can't we have a user tax for everyone
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who uses an iPhone in China?
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- [Narrator 1] It is indeed
a short-sighted policy,
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but the European Union
will tell us otherwise,
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do you remember the European
commission's legal battle
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with apple?
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It is not over.
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The EU is not happy with big
companies operating in Europe.
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As the discussion continues,
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we should keep an eye on
these types of tax policies.
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In the end, we consumers pay
the price for governments,
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bad decisions, not them.
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- [Narrator 2] You know
the cost of freedom
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is eternal vigilance.
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Do you agree with this minimum
global tax rates suggestion?
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And your opinion, would
it hurt or help consumers?
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let us know what you
think in the comments.
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