7 approaches to Digital Economy taxation

ameya's picture

Absent global consensus, different countries are introducing their own unilateral measures to tax digital businesses. There are 7 different approaches observed in taxation:

1.       International VAT/GST Guidelines – introduced in 50+ countries;

2.       Digital PE – taxation based on the factors incorporating digital presence – observed in EU’s proposal, India’s SEP, Israel, Taiwan, Indonesia, Slovak Republic;

3.       Expansion of scope of service PE – observed in Indian court rulings and Saudi Arabia;

4.       Withholding taxes – observed in India;

5.       Turnover taxes - observed in EU’s interim proposal, OECD’s interim report, India, France, Hungary;

6.       Other specific regimes targeting large MNEs – observed in UK, Australia and now US’s BEAT;

7.       Social media or online platforms tax – non-tax drivers – observed in Uganda and Morocco.

While OECD is working hard (and is hoping) to achieve consensus to tax the digital economy by 2020, several unilateral and varying taxation approaches from countries and EU have created a risk of double taxation for the businesses.  The key challenge would be to identify means to mitigate the double taxation.  Considering the diverse economic interests of the countries (eg USA on one side and developing countries or market economies on the other), consensus in short to medium term looks very difficult.