Kitty Miv, Editor
23 December, 2020
With the news dominated by the new Coronavirus variant, its implications for the movement of people and goods, and the knock-on economic effects of that, I think you'll agree that things aren't feeling particularly festive this holiday week.
This is especially the case in the United Kingdom, which also has Brexit (the shape of which is still as yet uncertain at the time of writing...!) and its associated logistical issues to deal with. However, never known to shy away from a challenge, the UK authorities decided this week to give themselves another issue to deal with, and launched a consultation on VAT as it relates to the sharing economy in the UK.
In a new call for evidence on the need for reform of the UK's VAT rules, the Government noted that the sharing economy (covering services such as ride-sharing and temporary accommodation) creates huge opportunities for the UK economy but also potentially presents certain challenges to the VAT tax base.
Specifically, the call for evidence noted the potential for long-term erosion of the VAT base due to consumers shifting their consumption to the sharing economy. Without reform, this erosion will take place, for instance, because individual suppliers are typically not required to charge and remit VAT because their turnover falls under the VAT registration threshold, the paper said. In addition, as they are not required to register for VAT, their payments of commission fees to digital platforms situated overseas without a fixed place of establishment in the UK will not be caught by the rules for business-to-business supplies of services, under which VAT would be due in the UK under a reverse charge.
The report also looks at problems regarding ensuring that service providers comply with VAT rules, and at compliance by digital platforms, especially those based offshore. Input is being sought until March 3, 2021.
The OECD, meanwhile, is in the process of aggregating the findings from a consultation on the issue of taxing digital services, and has published the responses received. The OECD revealed that the feedback received will be discussed at a public consultation meeting, due to be held virtually on January 14-15, 2021.
On October 12, 2020, the OECD released its proposals for reform of international tax rules. Under pillar one of its proposals, new rules will be established on where tax should be paid ("nexus" rules) and there will be a fundamentally new way of sharing taxing rights between countries. The aim of the pillar one proposals is ensure that digitally-intensive or consumer-facing Multinational Enterprises (MNEs) pay taxes where they conduct sustained and significant business, even when they do not have a physical presence there.
The second pillar would introduce a global minimum tax, which the OECD considers would help countries around the world address remaining issues linked to base erosion and profit shifting by MNEs.
Digital tax matters were also part of the agenda laid out by the European Union when discussing the bloc's economic plans for the coming seven years. On December 16, 2020, Members of the European Parliament approved the next budget, which includes a roadmap for the introduction of new tax measures.
The Parliament approved a text agreed with the European Council on the Multiannual Financial Framework for 2021-27, as well as an Interinstitutional Agreement between the Parliament, Council, and Commission on budgetary matters and own resources.
The Interinstitutional Agreement states that new own resources "should support Union priorities such as the European Green Deal and a Europe fit for the Digital Age, and should contribute to fair taxation and the strengthening of the fight against tax fraud and tax evasion."
The roadmap includes a digital levy, to be introduced from 2023. A recovery plan published by the Commission in May included a potential digital tax on companies with global turnover of over EUR750bn.
Wishing you all (digitally) a happy and safe festive period - until next week!
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