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How do you tax service suppliers who are outside your territory?

This is a battle that was brewing. Mode 1 trade in services is when the supplier is in Country A, the buyer is in Country B and the transaction occurs over some means of communication, usually electronic. Given the costs of telecom these days, it really does not make sense to open warehouses/server farms in every country. So you have centralized means of delivering services that cross borders electronically (Google, for example) and one-way by post (e.g., Amazon). Now the Europeans who have been preaching the benefits of unfettered trade in services are beginning to scream.

Google reported sales of more than $4 billion in Britain last year. It paid less than $10 million in taxes.Some tax collectors, lawmakers and competitors of Google in Europe say this is unfair.

As governments throughout the region seek to close gaping holes in their budgets, they are taking aim at United States multinational companies, especially Internet giants like Google and Amazon.com, which pay little or no taxes in Europe, despite generating billions of dollars in revenue on the Continent.

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