Taxing the Digital Economy

International Scenario• Digital tax reform could level the field between domestic

and foreign suppliers of digital goods and services• Growth of the digital economy coincided with realisation

that the rules of the international direct tax system need a major overhaul

Base Erosion & Profit Shifting Project (BEPS)

15. Develop a Multilateral Instrument

5. Counter Harmful Tax Practices More Effectively

4. Limit Base Erosion via Interest Deductions

7. Prevent Artificial Avoidance of PE Status

8 – 10. Assure Transfer Pricing Outcomes are in Line with Value Creation

11. Measuring and Monitoring BEPS

13. Re-examine Transfer Pricing Documentation

14. Make Dispute Resolutions Mechanisms More Effective

12. Taxpayer to Disclose Aggressive Tax Planning Arrangements

1. Address Tax Challenges of Digital Economy

2. NeutraliseEffects of Hybrid Mismatch Arrangements

6. Prevent Treaty Abuse

3. Strengthen CFC Rules

BEPS Package with 15 Action Plans

Digital Transactions & Economy

Direct Tax

Indirect Tax

How to tax?

Possible Tax Options• To tax digital goods and services provided by non-resident

companies- Indirectly taxed by requiring suppliers to collect GST/SST- Directly taxed by redefining the permanent establishment rules- Withholding tax on digital services /technical services- Establish a new separate tax on the income from digital

transactions (e.g. equalisation levy)

Format of the session• Business models in the Digital Economy• BEPS Initiatives / OECD Position• Experience to-date on taxing the Digital Economy• Practical Issues / Difficulties in implementing taxation on

international online service providers

Traditional Model• Trading in v Trading with• Grainger & Son v Gough 1896• Doctrine of source

Permanent Establishment• League of Nations• OECD 1963• A fixed place of business A branch An office A factory

Digital Economic Model 1

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Digital Economic Model 2

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Concluding Comments• The need to protect the tax base is very real• The need for a level playing field in terms of taxation is

clear• Danger is different countries start introducing different

options to tax the digital economy• Outlook – we will see some initiatives soon and it is

possible that things will be clearer after 2020

Thank You