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hungry for a piece of the pie

Kitty Miv, Editor
23 August, 2018

Taxpayers in Brazil might have been a little alarmed when they read the headline "UK Chancellor mulling Amazon tax." Brazil has a complicated enough tax regime already, as the International Monetary Fund observed again earlier this month, without other countries adding their two cents to the already mind-bogglingly complex equation.

Obviously, Philip Hammond was talking about Amazon the company, not the Amazon river (although both share the distinction of being extraordinarily large). Nevertheless, given the subject matter and the UK Government's intent, his words would have reverberated globally, perhaps even as far as the upper reaches of the Amazon. The river, that is. Though no doubt the upper reaches of Amazon's management structure are well aware that governments and tax authorities the world over are circling, hungry for a piece of the pie.

Indeed, in Amazon's home country, states have quickly capitalized on the landmark ruling by the US Supreme Court earlier this year in the Wayfair case, which has provided them with a firmer legal basis to apply new tax nexus rules on remote sales. You can't blame them for not looking a gift horse in the mouth I suppose, when revenue generation continues to be a challenge in many state capitols. Jurisdictions beyond the US are also chomping at the bit for a much more substantial bite of Amazon's sales and profits.

Of course, this isn't all just about Amazon, or the handful of other large tech companies that make up the so-called "GAFA" group (Google, Apple, Facebook, and Amazon). As the OECD has repeatedly pointed out, the digital economy is increasingly the economy itself, which is probably why it is so determined to avoid the unleashing of half-baked digital tax measures on the global economy. However, in a very trend-driven international tax environment, the worry is that Hammond's words might encourage other jurisdictions to do just that.

Additional developments over the past week or so also provide more reminders of how we are in the midst of a technological transformation that, from a taxation point of view, is both benefiting and challenging governments and taxpayers.

In one of the more positive examples, South Africa announced the launch of its "eFiling MobiSite," allowing taxpayers to submit individual income tax returns from a mobile device's internet browser. In another, the Internal Revenue Service of Chile launched a new mobile app on August 10 that will allow invoices to be issued and validated also using a mobile device, a move the Government predicts will benefit 730,000 taxpayers.

Some changes are taking place that will more obviously benefit tax authorities rather than taxpayers, such as the August 13 statement by the Romanian Ministry of Finance directing companies to make preparations for mandatory electronic cash registers, a measure intended to counter tax evasion. In a similar vein, food and beverage vending machines are now connected to the tax authority's computers to ensure that vendors can't escape their VAT obligations.

Other recent measures though, have been more questionable. Take for example Zambia's incoming "Skype tax," under which voice-over-internet calls will be subject to a daily levy. The Government has justified the move by arguing that free internet calls will send the country's telecoms industry into terminal decline. Funny how other countries haven't made the same connection, though. Still, few things really surprise me in the world of taxation anymore.

But perhaps we have been provided with a real a glimpse into the future courtesy of the Dubai International Financial Centre, which announced earlier this month that it is working towards the creation of the first "Court of the Blockchain." Can you imagine? Cases argued by virtual lawyers, decided by digital judges and juries, at the speed of light? No, neither can I. But perhaps we should get used to the idea of doing virtual jury service or being virtually subpoenaed.

The dangers of going all electronic were, however, highlighted in a press release issued by the US Internal Revenue Service last week as tax practitioners were reminded of the importance of cybersecurity. And while the IRS has taken great strides towards reducing levels of tax-related ID theft, which fell by 40 percent from 2016 to 2017, the numbers are still worryingly high. Last year, there were 242,000 reported cases, which represents 663 ID thefts every single day, on average. And this is just tax-related ID thefts, never mind what's going on out in the wider economy. Perhaps it's time to have virtual cops to go with the cyber courts?

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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