Digital taxation risks double taxation for all businesses

Governments and tax authorities are scrambling to keep pace with the increasing digitisation of the global economy, and as they respond in disparate ways it's businesses that will face the burden.

Businesses face huge risks from believing changes to legislation don’t apply to them or from relying on a reactive compliance-focused response. Your business doesn’t just need to comply with a multitude of new legislation, but also manage the impact on your value chain. A clear understanding of what’s coming and its implications is essential.

Download the article for the implications to your business and the actions you can take now to stay ahead. 

Every business is affected, but nothing is clear

The main reason for the overhaul of digital taxation is the level of public pressure stemming from headlines about companies only paying a tiny percentage of corporate tax on their revenues and profits. Although a large proportion of revenue is generated by consumption taxes like VAT, the political sensitivities surrounding digital tax ‘fairness’ mean that governments need to be seen to be bringing in more corporate tax on digital transactions. The qualification for a taxable presence is therefore being extended from physical to virtual (eg online marketplace based in one country selling into another).

Get ready for a bumpy ride

The bulk of businesses we speak to want certainty, simplicity and the avoidance of costly and protracted disputes, even if this means paying more tax in some jurisdictions or even more tax overall.

The speed with which individual countries are coming up with their own disparate set of solutions means that the OECD is under pressure to set a clear path forward rather than a ‘wait and see’ approach.

Whatever the OECD decides, however, these recommendations will struggle to get around the fundamental divergence in interests between different countries. For example, the significant economic presence approach is likely to maximise tax take in a giant consumer market like India, while the marketing intangible option preserves tax income in jurisdictions where a significant proportion of the intellectual property is generated and risks taken such as the US. The patchwork of approaches and the complexity and uncertainty they create will therefore almost definitely remain.


If you would like to discuss any of the areas raised in this article, please contact us.