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Digital Taxes Dominate Again

Kitty Miv, Editor
09 July, 2021

It seems that digital tax reforms are everywhere (well, virtually, at least), and recent columns certainly back that up, as does the long-awaited entry into force on July 1 of the EU's E-commerce VAT reform package.

The European Union introduced considerable changes to the value-added tax rules for e-commerce at the start of the month, intended to simplify VAT rules for goods sold online and introduce new obligations on online marketplaces to require them to contribute in the fight against tax fraud.

In Canada, also on July 1, new goods and services tax and harmonized sales tax (GST/HST) obligations were introduced for overseas providers of digital goods and services, who are now required to collect and remit GST/HST on:

  • video or music streaming services;
  • platform-based short-term accommodation, like homestays or vacation rentals; and
  • goods supplied through fulfillment warehouses in Canada.

Affected businesses are required to register for, charge, collect, and remit GST/HST on these products and services. Once registered, businesses are to be listed on an online registry, available on the Canadian Government's website.

Meanwhile, in Chile, the authorities welcomed the success of the country's new digital value-added tax regime, which was introduced last year.

Chile began requiring overseas suppliers of electronic services to collect VAT on supplies to Chilean consumers on June 1, 2020. The regime covers software provided as a service, video and music streaming services, digital media, certain gig economy activities, data storage services, certain intermediation services, and online advertising. Since June 2020, suppliers have been obliged to collect VAT at the headline rate of 19 percent regardless of whether they have a physical presence in Chile.

According to the tax agency, a total of 199 platforms are now collecting VAT on supplies to Chile. More than CLP153bn (USD208.88m) has been collected, with the five highest digital taxpayers being Google, Netflix, Apple, Sony, and Facebook.

However, the tax authority recently published a list of foreign digital platforms that have failed to register to pay VAT on digital services.

Offending companies include online gambling services providers, trader or financial intermediation services providers, and video games providers.

Of course, the big news this week was the OECD announcement that 131 countries and jurisdictions have put their name to an international agreement on an overhaul to tax rules for the digitalized economy and for large multinational businesses.

The OECD explained that its two-pillar plan seeks to ensure that large multinational enterprises (MNEs) pay tax where they operate and earn profits. It stated that: "Pillar One will ensure a fairer distribution of profits and taxing rights among countries with respect to the largest MNEs, including digital companies. It would re-allocate some taxing rights over MNEs from their home countries to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there." Meanwhile, "Pillar Two seeks to put a floor on competition over corporate income tax, through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases."

Until next week!


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About the Author


Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net

 

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