The taxation of digital services and online transactions is challenging, and a growing number of countries in the world are trying to solve it by imposing VAT on transactions that were previously not taxed. With this, they’re aiming to improve tax collection on economic activities that are steadily growing in importance both locally and globally.
OECD’s Consumption Tax Trends report and VAT
In their latest Consumption Tax Trends report for 2020, the OECD is providing advice and guidance on the taxation of digital services, which also includes considerations about VAT. Many states, members or non-members of the OECD alike, have started adopting these guidelines. In OECD members, VAT is the most important source of taxes on the consumption of goods and services. VAT regulations, however, still need to be better adapted to online transactions, and to digital services in particular.
In the past year, many consumers turned to online entertainment and streaming platforms, and countries are trying to keep up with these changes in consumer behavior and collect VAT and other consumption taxes on this part of the economy.
Which businesses are concerned?
Companies that provide services online or that sell goods through online platforms, marketplaces, or on their own websites, need to monitor changes in VAT regulations in the countries where they’re operating, and do that continuously. Online marketplaces, streaming platforms, and other transaction platforms for renting or selling goods need to also make sure they’re staying up to date with the latest changes in local tax laws.
They need to be prepared for the changes that many countries are expected to adopt in the near future, in order to ensure business continuity and be able to operate in different countries, and comply with local tax regulations.
VAT regulations: what are the changes that are expected to happen?
In a number of countries, businesses who aren’t locally established and do not have a local tax registration are not yet required to collect, report and remit VAT. This gives foreign businesses an unfair advantage over local companies (who need to charge VAT), and it also means that countries are failing to collect VAT on a growing number of transactions, resulting in a loss of tax revenue. Countries are striving to address these discrepancies and create an adequate taxation legal framework for foreign digital businesses. A few countries have started collecting VAT on digital services, or have imposed other digital taxes. Many more countries are expected to do that in the near future.
E-commerce platforms and sellers are also targeted, and VAT and import regulations are tightening, especially on goods of a low value that were often not taxed, neither during their purchase, nor during import or delivery. VAT exemptions are now being lifted in many countries, or modified to be better adapted to the digital economy’s specifics.
We've got you covered
If you are a fast-growing digital business, you may at some point be confronted with digital service taxes. It’s a good idea to plan ahead and understand any potential liabilities you will face when doing business online.
Reach out to us, and our team will be happy to give you more information on what rules and regulations apply to your business in each country, and how you can use technology to monitor the state of your tax obligations automatically.