(continued from part 1)
Determining where indirect taxes are to be paid is now more complex than before. Digitization is associated with a phenomenon in which many goods have become services or intangibles. For example, discs or books lose weight as material support of music or literature. Instead, the client can download a computer file.
This has made it possible for many companies to provide services from remote locations and even difficult to identify. Given this circumstance, the options are two: taxation at origin or at destination.
Taxation at destination is preferred. Transactions would be taxed in the customer’s country, which seems more appropriate in a consumption tax. In addition, a particular good or service is not taxed with more or less taxes depending on the country in which it occurs.
The taxes of the digital giants are distributed among countries in proportion to what they charge in each place. The problem is that they can provide services without a permanent establishment in the country of destination.
Compliance with formal obligations is complicated. Companies can be forced to register fiscally for export to a country. An alternative is to take charge of declaring and entering VAT. However, while that may be feasible when it comes to business, it certainly becomes complex when it comes to individuals.
Taxation at source would facilitate the reduction of the number of taxable persons. However, digital giants could seek formulas to avoid complying with all formal obligations to ensure that all information is available to fight fraud.
Ultimately, there is a way to advance the mechanisms of testing the conditions under which a digital transaction has been made. This complicates both the configuration of the appropriate framework and the application of standards.
Many traditional companies complain that internet giants have instruments at their disposal that they do not have. They lack their mobility and the aggressive fiscal planning they practice. His complaint centers on many dubious, if not clearly abusive, assumptions.
At the same time, it is increasing its power of pressure to demand a regulatory framework more conducive to its activities. Companies that want to compete differently, with a more traditional approach, see their options limited.
However, digital giants, in general, have arguments with which they attempt to refute that alleged abuse that grounds criticism. They argue that behind every practice there is a valid economic motive and not a mere artifice to pay less taxes.
For example, many of the countries that are criticized for their excessively benevolent taxation are, at the same time, technologically advanced nations, with a well-trained population in these areas, with a very strong digital ecosystem and a regulatory environment that facilitates their activities.
It is said that the taxation of digital giants can be a decisive factor for establishing them in a country. It would be able to decant investment decisions, job creation, financing, project execution and offers.
In such circumstances, if a country does not want to be left behind, it may be forced to reduce its taxes. But then, it is expected that the other countries would respond with additional rebates. In the long term, this phenomenon could pose a threat to the sustainability of certain taxes.
An international agreement could avoid this trend. However, it is not clear that all relevant countries have incentives to sign it. An ambitious agreement would threaten the establishment of these companies in certain countries.
However, this phenomenon is not new. Although the digital giants have greater mobility, this situation has been occurring for a long time.
On the other hand, the majority of affected countries are democratic and there is a principle of tax legality. The main determinants of taxes are set by law. Ultimately, it is the parliamentary representatives who have the power to decide. In terms of fiscal pressure there is an important diversity of positions.
The use of tax havens generates some concern. On the one hand, its low or zero taxation may limit the possibilities of other countries. However, the main concern is the problem of lack of information. The lack of information on certain operations generates not only fiscal fears, but also their legitimacy.
Cases where more tax is levied
Companies with less mobility can not take advantage of more advantageous taxation. It also influences access to internal or external legal advice, especially in international matters.
As for the digital giants, their main fiscal threat is the possible establishment of some new tax. Especially, a turnover tax is being considered. In the medium term, it is possible to bet on reforms in national corporate tax laws.
The taxes of the digital giants will lead to an important debate in the coming years. They have been doing it for some time. This is a complex issue where we often find conflicting interests.