Broader direct tax challenges
In our 25th 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 one of the factors that evidences a powerful and sustained interaction with the economy of a particular country, namely the digital factor.
In the digital economy, the ability to establish and maintain a purposeful and sustained interaction with customers in a particular country via an online presence depends on analogous factors such as (i) a local domain name (ii) a local digital platform and (iii) local payment options.
- A local domain name – A non-resident enterprise targeting customers in a particular country will generally obtain the digital equivalent of a local ‘address’. For example a non-resident enterprise targeting a particular country would likely to use a home domain name such as for example ‘.com’ in order to make it more likely that a local user would find the local site. Thus MNEs doing substantial cross border business would very likely operate in a foreign country via a local domain name.
- A local digital platform – Non-resident enterprises frequently establish local websites or other digital platforms in such a way so as to present their goods and services in such a way which is more likely to appeal to the local users or customers. All this take into account factors in particular language and cultural norms. Local websites and digital platforms could include features which are intended to facilitate interaction by local users and customers with the site’s contents, services and functions. Such features could also possibly include discounts, promotions and local terms of services that reflect the commercial and legal reality of the local environment in which the non-resident enterprise is operating in. Establishing a local platform is often critical in attracting local users and customers.
- Local payment options – A non-resident enterprise that wants to maintain a purposeful and sustained interaction with the economy of a country will frequently ensure that local customers have a seamless purchasing experience with prices reflected in local currency with taxes, fees and duties already calculated, while opting to use a local form of payment to complete the purchase. Integration of local forms of payment into a site’s commercial features is often a complicated technical, commercial and legal exercise, which requires substantial resources. A non-resident enterprise would not normally undertake such an investment unless it purposefully participates in the country’s economic life.
In our next article, we shall be focusing our attention on another factor that evidences a powerful and sustained interaction with the economy of a particular country, namely the user based factor.
