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.
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.
“It is unfair that overseas-based businesses selling services into Australia may not charge GST when local businesses have to charge GST. A local business that employs Australians pays rent in Australia, pays tax in Australia, and helps build our economy is disadvantaged by the current system. We will level the playing field for Australian businesses by mandating that foreign businesses supplying digital products and services are subject to the GST.
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.
From April 1, 2017, international digital businesses with Serbia-based consumers will see an impact on operating costs, regulatory burdens, and resource management as Serbian VAT rules extend to cover their digital supplies.
Here are seven difficulties that any international digital business with consumers in Serbia should be aware for:
1. Tax advice Before you can think of making any inroads in relation to compliance with Serbia’s extension of VAT to cover cross-border digital supplies there is the significant cost in sourcing expert tax advice in relation to the law change.
Australia Digital GST liabilities are to become a reality for international digital service suppliers on the 1st of July.
On July 1, 2017, Australia’s Goods and Services Tax (GST) will – as outlined here new law — be extended to the cross-border supplies of digital services bought by Australian consumers. These supplies include digital services (e.g. the streaming, or downloading, of movies, music, apps, games, e-books) in addition to services such as architectural or legal services.
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.
On January 1, 2017, Russia became the latest country to change laws aimed at taxing the digital economy.
The specific change in Russia is that 18% value added tax (VAT) is now applied to the sale of a digital service based on the location of the end consumer in Russia, rather than the supplier’s location. Russia, mirroring the EU taxation approach, requires two pieces of evidence to be collected during the transaction and there is no threshold for compliance.
Let’s start with the last first.
The ugly: Did you know that the Indian Government is charging digital businesses a fee for collecting tax on their behalf. This fee is over 1% and comes off the digital business’ bottom line. It is not borne by the Indian consumer who pays the service tax.
This fee is charged by way of a margined FX rate. This rate must be used by a foreign business when converting the tax that the business has collected in foreign currency from Indian consumers.
International suppliers of digital services have just two weeks to prepare for new place of consumption tax rules just introduced in India.
On November 9 India’s Central Board of Excise and Customs (CBEC) released an official circular identifying and explaining the rule change. The new rules come into effect on Thursday, December 1, and specifically target the cross-border supply of Business-to-Consumer (B2C) digital services to India-based consumers. The technical tax development here is the withdrawal of the exemption on these B2C cross-border sales.
India – one of the world’s fastest-growing large economies – is finally about to introduce a new taxation system, including a plan to tax the country’s digital economy.
As reflected in recent international approaches, the trend of enacting destination-based indirect tax legislation is to the fore. Ever since the release of the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) report in October 2015 tax jurisdictions across the globe have taken stock of their existing tax collection systems and reassessing options.
Compliance with international tax regimes can be a mountain to climb for merchants that’s why we continue to expand and today can unveil our Swiss VAT support. Swiss VAT support: the key element to digital sales Since January 1, 2010, the Swiss Federal Tax Authority (FTA) has levied a value added tax (VAT) on the supply of services from non-resident companies to Swiss residents.
Article 10 of the Swiss VAT Act states that VAT is applied to a service supplied from “any person who carries on a business based abroad that supplies telecommunication or electronic services on Swiss territory to recipients who are not liable to the tax”.
New Zealand GST on digital services supplied from abroad to New Zealand-based consumers will come into effect on October 1, 2016.
Details of the proposed new digital GST – due to come into effect on October 1, 2016 – passed a third reading in the New Zealand parliament on May 10. The hurdling of this latest legislative barrier now leaves the path clear for the new rules concerning the supply of digital services by foreign companies to New Zealand consumers to be introduced at the start of Q4 2016.