Article 19 – The Tax Challenges of the Digital Economy

Tackling BEPS in the digital economy In our 19th article in a series of articles on the tax challenges of the digital economy, we shall be providing you hereunder with a brief overview on measures that will address BEPS issues in the area of consumption taxes. The digitization of the economy has facilitated the ability of […]

Written By Stephen Balzan

On May 2, 2016
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Tackling BEPS in the digital economy

In our 19th article in a series of articles on the tax challenges of the digital economy, we shall be providing you hereunder with a brief overview on measures that will address BEPS issues in the area of consumption taxes.

The digitization of the economy has facilitated the ability of businesses to acquire a wide range of services and intangibles from suppliers around the world and to structure their operations in a truly global manner.  These developments have allowed businesses to avoid and minimize the amount of unrecoverable vat that they pay on their inputs.

The implementation of Guidelines 2 and 4 of the OECD’s International VAT/GST Guidelines on the place of taxation for business-to-business (B2B) supplies of services and intangibles will minimise BEPS opportunities for supplies of remotely delivered services and intangibles made to exempt businesses, including exempt entities that operate through establishments in multiple jurisdictions.

Guideline 2 recommends that the taxing rights on cross border supplies of services and intangibles between businesses be allocated to the jurisdiction where the customer has located its business establishment and that business customers will be required to self-assess VAT on remotely delivered services or intangibles acquired from foreign suppliers according to the rules of the jurisdiction in which they are located.

Guideline 4 provides that when a supply is made to a business that is established in more than one jurisdiction, taxation should accrue to the jurisdiction where the customer’s establishment using the service or intangible is located.  These Guidelines are set out to achieve the desired result in practice, which is the allocation of the right to levy VAT on B2B services and intangibles to the jurisdiction where these services are used for business purposes, irrespective of how the supply and the acquisition of these services were structured.

In our next article, we shall be focusing our attention on the broader direct tax challenges raised by the digital economy and the options to address them.

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected]. 

Disclaimer: This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.