Article 25 – The Tax Challenges of the Digital Economy

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 […]

Written By Stephen Balzan

On June 13, 2016
"

Read more

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.

  1. 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.
  2. 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.
  3. 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.

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.