OCDE has published that international community has been working on a consensus based long term solution to the tax challenges coming from the digital economy. A last sentence of hope: “They keep working towards an agreement by mid 2021”.
It is clear that issues such as environment, nuclear weapons and AI challenges need a solution that will be global or will not be the right solution.
The taxation of digital economy needs also such a global solution that avoids unilateral country measures that can lead to tax inefficiencies where profit of such digital business are allocated in jurisdiction where no taxes may be levied. There is less doubt that innovation and entrepreneurs must be promoted and deserve incentives, there is however a great concern to see physical business being taxed at high tax rates where digital comparable and competitors business are escaping from such a high rates. The hidden legally generally accepted tax discrimination. Some countries are reacting against them, but no consensus has been reached so far.
Behind this taxation for digital economy there are however some other thoughts.
- Profit based tax system. The principles of (international) taxation remain essentially the same over the last one hundred years. The taxation of companies and individuals are based on profit. In a scenario where digital business in a country are legally escaping from taxation, the big question is whether a profit based system is the right one to face up the challenges of the digital economy. Shall we think in deep of a turnover, user number, transactions amounts, bits exchange based system or whatever other system to be agreed on international forum?
- Physical presence on country based taxation. All the taxes are based in the country structure of the planet. Furthermore, the physical presence constitute a tax nexus or principle for taxation. However, the digital activity on most cases has a global scope. The physical presence is not any more so relevant for tax purposes. Transactions such as crypto transactions are made without traceability or difficult access to that. People work homeoffice and have their home anywhere and may change the home base regularly or can have more than one home depending on year period. What is the sense that all taxation are country based? What is the sense of the physical presence?
- Power of digital business. They have not only the economic and the technology power what is even more important. We are not what we eat any more but what we see or consume on internet on daily basis. The question is therefore how free from digital business interest can be the countries negotiating a consensus based solution in order to protect their own national interest with such business.
The question is not to punish in terms of taxation any digital business to which the mankind have some much to thank and recognise, the question is to keep a fair taxation among all economic players and businesses either digital or physical and fair tax revenues in the countries where they are making profits as any other taxpayer.
They keep working…. Let’s see
David Elvira
October 2020
