As the economy continues to digitalise problems arise when it comes to the effective and consistent collection of VAT/GST on cross-border sales. That is why recent guidance from the Organisation for Economic Cooperation and Development (OECD) on the matter is most welcome.
The OECD guidance revealed in late October 2017 identifies two approaches, contractual and deemed supplier, as the most effective collection mechanisms of VAT/GST from foreign-based suppliers. The information in the OECD report is most welcome and provides tax jurisdictions with significant clarity.
Across the globe indirect VAT/GST rules are being amended to ensure that foreign digital suppliers become liable for the collection and remittance of these taxes.
This pace of change, from a taxation perspective, is rapid. In the first half of 2017 alone Russia, Serbia, Taiwan, India, and Australia all amended their indirect taxation laws (or in India’s case introduced a whole new system).
The Organisation for Economic Co-Operation and Development (OECD) has already approved the destination-based principle in Action 1 of its Base Erosion and Profit Shifting (BEPS) report.
The Organisation for Economic Co-Operation and Development (OECD) has revealed its guidance for the effective and consistent collection of VAT/GST on cross-border digital sales. In doing so they have provided a blueprint for tax authorities planning to amend laws to tax the cross-border supply of digital services.
The issue of how to tax cross-border supplies from non-resident businesses is a pressing one in international taxation. Specifically, the digital economy has created headaches for tax jurisdictions as they grapple with how best to tax these cross-border supplies.
Malaysia looks set to become the latest tax jurisdiction to seek a levelling of the playing field between traditional and digital businesses by amending their GST system to tax foreign-supplied digital services.
In mid-September 2017 Royal Malaysian Customs Department director-general Datuk Seri Subromaniam Tholasy told reporters after a GST conference in Malaysia that:
“We are amending a few of the tax laws, especially with regard to the GST to collect taxes from foreign companies that offer digital services in Malaysia.
VAT, GST, consumption tax, sales tax, use tax – no matter what term, or name, is used it is clear that the taxation of the digital economy is growing in popularity.
Here we outline the tax jurisdictions where such destination-based indirect tax rules are in place.
European Union Value-Added Tax (VAT) rate: 28 EU Member State VAT rates - taxation depends on location of the consumer In January 2015 new rules on the taxation of cross-border supplies of digital services to EU-based consumers came into force.
The connected car of the not-too-distant future will be a revenue-generating machine on wheels: with data transmission at its epicentre. This movement of data will, given global trends, lead to burdens for owners of the potentially lucrative connected car platform as tax architects continue to recalibrate systems to account for the evolving digital economy.
CRUISE CONTROL: A woman (above) on board a test driverless car. Source: Wikimedia Commons. This image has not been changed.
Digital disruption has laid waste to numerous traditional industries, from the ramifications of internet publishing on the print media to the effects of the Uber and AirBnB models on the car travel and lodging sectors.
An increasingly connected (and smartphone-obsessed) population expects this disruption. Today, consumption is all about the now economy. It is now easier than ever, thanks to infrastructural advances in broadband and WiFi, for consumers to access digital content from anywhere in the world.
By 2020 the global digital video game market is predicted to become a USD$90 billion industry. Less than two decades ago it was an industry struggling with declining sales due to its over-reliance on physical video games. Today, thanks to advances in information technology – specifically improvements in broadband quality and the birth of the smartphone – there has been a stunning renaissance.
Today, the growth in in-game microtransactions and downloadable content (DLC) is giving the industry another shot in the arm.
-- A seminal moment in global digital taxation is upon us.
The Organisation for Economic Co-Operation and Development (OECD) has introduced new guidelines endorsing place of consumption rules.
In publishing the ‘International Value Added Tax (VAT)/Goods and Services Tax (GST) Guidelines’ the OECD are further building on work that started in Ottawa, Canada, back in 1998. Eighteen months ago, in November 2015, the initial guidelines were included as part of Action 1 of the Base Erosion and Profit Shifting (BEPS) report released by the OECD in relation to the tax challenges of the digital economy.
Snapchat, the image messaging platform founded in 2011, was valued at USD$40 billion in early March after a record-breaking IPO – making it more valuable than Delta, Target, and CBS.
These eye-watering figures are yet another example of how the sale, download, use, and sharing of digital imagery, music, and video is now big business. According to IBM we create 2.5 quintillion bytes of data every day. The sources of this data boom are everywhere online with all major social media sites depending heavily on user-generated images and videos.
Last month the League of Legends World Championship 2016 was won by a South Korean team, SK Telecom T1. The win netted the six team members a share of the $2 million-plus first prize: $338,000 each to be precise. Back in 1980 the first Atari Space Invaders Championship was held in New York when players competed (merely) for the highest scores. Just so you know: Bill Heineman of Whittier, California, won that competition with a score of 165,200.
Killorglin, Ireland – Taxamo, market leader in the provision of digital tax solutions introduces Taxamo Assure: a new service removing the VAT/GST burden for digital businesses.
The global economy is forecast to be worth over $98tn by 2020 and research from Accenture has indicated that the digital economy will make up over $24tn of this. Tax authorities around the world are waking up to the potential black hole in VAT receipts this represents by introducing rules to tax cross border digital sales.
Last month we were delighted to feature in The Sunday Business Post’s prestigious 100 Hot Start-Ups list among some top digital companies.
The publication, which featured a host of FinTech and RegTech companies based in Ireland, was produced in conjunction with Enterprise Ireland to highlight the success of companies that continue to break new ground in domestic and international business.
We are pleased, and proud, to feature in such an excellent publication.
There have been some major digital tax developments in the Asia-Pacific region this month. In early February 2016 Ernst & Young urged the Singapore Government to introduce a new tax on international digital service suppliers in the island city-state’s 2016 Budget. Photo: Pixabay
The Asia-Pacific region, in general, has been very active in the realm of digital taxation.
In October 2015 Japan amended their consumption tax laws. Now, all foreign businesses supplying digital services to Japanese consumers must collect and remit an 8% consumption tax to the Japanese tax authorities.
Russia digital VAT looks set to become a reality by 2017.
But why is Russia making this move now?
First, some context. At the start of December 2015 it was revealed that Russia plans to introduce a new value-added tax (VAT) on digital services provided by foreign companies in January 2017.
This new 18% VAT (the standard rate) will mirror similar taxation intentions in the European Union (EU), and is aimed at non-Russian digital service companies supplying Russian consumers.
Tax jurisdictions across the world are implementing new rules on the taxation of digital services, akin to the new EU VAT rules introduced at the start of 2015.
In early December a draft digital VAT bill was passed in the Russian Duma. The bill effectively mirrors the EU VAT rules on the supply of digital services. Once this bill passes through the remaining legislative hoops it is planned to come into effect on January 1, 2017.
Addressing legislative and technical pain points for digital merchants. While merchants struggle to comply with varying and conflicting digital tax laws from around the world, a new white paper released by Taxamo outlines a number of recommendations for tax authorities that if adopted, would greatly ease the burden of compliance for digital merchants.
Taking recent tax changes implemented in Europe, Japan, and South Africa as case examples, the white paper, ‘Standardizing International Digital Tax Compliance’ provides detailed background and guidance on:
In less than two decades eLearning has revolutionised how we receive knowledge and improve skills: these needs are combining to produce an industry that within a decade will become a $250 billion market.
Forbes have estimated that the 2015 global eLearning market is worth $107 billion. Others have predicted that the industry will grow at 10% per annum, to be worth a whopping $243.8 billion by 2022. A simple Google search will unveil a plethora of reports and predictions, all estimating a marketplace growing in the billions.
On Monday, October 5, the Organisation for Economic Cooperation and Development (OECD) released their final BEPS report including a section on ‘Addressing the Tax Challenges of the Digital Economy’.
The report – according to KPMG in the UK – is seen as the biggest rewrite of the international tax landscape since the League of Nations proposed the first bilateral tax treaty in 1928. The OECD approach has indeed been exhaustive featuring 23 discussion drafts; 12,000 pages of commentary, and 11 public consultations.
Since September 10 Albania, Norway, and Morocco are treated differently by Google Play due to new digital tax rules.
A recent email from Google Play stated that due to a VAT [value added tax] law in the three countries Google will now be “responsible for determining, charging, and remitting VAT for Google Play paid apps and in-app sales to customers in Albania, Norway, and Morocco.”
The September 3 email from the Google Play Team to Google Play developers also included details on how the VAT is to be remitted to the appropriate tax jurisdiction:
Forty years ago it took Kodak’s Steven Sassoon 46 seconds to record and display the world’s first digital image. Today, on the photo-sharing platform Snapchat 404,616 photos are shared every 46 seconds!
Technological advances and the proliferation of social media has led to an explosion in digital imagery. We take 1.5 million digital photos every 46 seconds across the globe, most are uploaded, shared and stored on the web.
White paper proposes a more practical approach to communicating with digital merchants.
A lack of transparency and poor communication in the introduction of new digital tax rules in Europe resulted in a lack of awareness and significant resistance from small-to-medium (SME) sized online merchants. Although these digital tax changes had been agreed since 2008, many merchants were left in the dark as the January 1 deadline approached.
In an effort to avoid this situation in other tax jurisdictions, digital tax experts Taxamo have released a White Paper written exclusively for tax authorities that have, or soon plan to implement taxation based on the place of consumption of digital services.
The cover of Time magazine is a good gauge of cultural relevance: so when Shawn Fanning adorned its cover in October 2000 people sat up and took notice. Most did so as it was probably the first time they had ever seen Fanning’s face, prompting the question: why was he on the cover of Time?
Fanning is one of the godfathers of peer-to-peer file sharing. In 1999 he – along with his brother, John, and Sean Parker – co-founded Napster, the pioneering audio file sharing site that shook the music world to its core.
A practical approach to communicating digital tax rules with global digital service merchants.
Given the rapid pace of technological evolution a clear definition of the digital economy is difficult to provide and, as a result, increasingly difficult to legislate For.
This is why communication between legislators and potentially affected stakeholders is vital from an early stage. Any legislation on the taxation of the digital economy will attempt a definition to determine what type of digital services are in scope.
The spectre of commoditization, with ever decreasing margins, looms over the payment industry. A key strategy for payment services providers (PSPs) is to move up the payments value chain by innovating in adjacent industries. Let us explain.
There has been a stream of vanilla services in the past half-decade all promising pretty much the same thing. This impact of this industry evolution has been for rivals to primarily compete solely on price.
The power of eLearning has tripled in just four years. In 2015 this booming industry is tipped to expand to $107 billion in revenue, up from $35.6 billion in 2011.
Why is this happening? Here we outline five reasons as to why the eLearning industry is booming:
1. Cloud formation The key catalyst for the eLearning boom has been the development of the Cloud. The Cloud has enabled the creation of multiple service-as-a-software (SaaS) business models that are perfect for the supply of eLearning courses.
The Digital Single Market strategy launched on May 6 is an attempt to bring order to the chaos that is the digital economy.
It is chaotic for numerous reasons, chief among them being the fact that many digital service providers still do not comply with taxation rules. The problem here is that many of these rules were created before certain digital economy industry segments even existed. Apply – and collecting – tax to cloud computing and online streaming services is a new headache for legislators.
App developers will need to forensically trawl over their contracts with app marketplaces and other platforms ahead of the introduction of new EU VAT rules on January 1, 2015.
How contracts are written between developers and app stores will be crucial as regards who pays the EU VAT on the cross-border supply of digital services. For example, Google and Apple will pay the VAT – but what about other app stores and intermediaries?
New EU VAT rules hit previously exempt UK businesses.
Major VAT rule changes impacting how tens of thousands of UK e-service providers do business in the EU are less than four months away, yet the majority of those affected are unprepared and may be at risk of heavy non-compliance penalties.
Technology provider Taxamo, who offer software that helps companies navigate and process the new rules, say that e-service merchants, many of whom are small-to-medium sized businesses and were previously small enough to be exempt from UK VAT rules, are ill-equipped to deal with the significant obligations that come with the 2015 rules changes.
Beware the EU tax authorities trawling the internet to ensure VAT compliance.
That was one of the messages that was issued loud and clear at the recent HMRC-organised conferenceon the new EU VAT changes.
All eMerchants are on EU tax authorities’ radar. They trawl the web searching for non-compliant companies.
During the afternoon session there was a question from the floor regarding the burden that the new rules will impose on SMEs in the UK.
WE have blogged on technological trends before and how the EU VAT Directive is framed to take advantage. These technological trends have already revamped our lives and are about to become much more important (or, indeed, instrusive, depending on your outlook).
The EU has gone to great lengths to ensure that technological trends are catered for in their 2015 VAT Directive. Photo: Getty Images
Well, the EU Expert Group on the Taxation of the Digital Economy gives us some fascinating insight into what the European Commission is keeping a close eye on.
IN late April 2014 the EU’s expert group on the taxation of the digital economy held their fourth-ever meeting in Brussels. The EU had already taken the first steps towards taxing the digital economy with the 2015 VAT Directive, now the expert group was exploring other sources of digital economy tax.
Internet traffic is doubling every two to three years and mobile internet traffic every year.
The group’s get-togethers ran parallel with the OECD’s own probe into the tax challenges of the digital economy.
Taxing the digital economy is a priority for tax jurisdictions across the globe but the EU’s attempt may well become the global template. These new rules covering the supply of digital services in the EU come into effect on January 1, 2015.
The expert group on the taxation of the digital economy is up and running. Image from EU Commission website.
This statement was just one of the nuggets mined from a January 2014 meeting of the EU expert group on the taxation of the digital economy.