Article 34 – The Tax Challenges of the Digital Economy

Broader indirect tax challenges In our 34th and last 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 how the second challenge i.e. the low or no vat collected from sales by non-resident suppliers to private consumers may be addressed. […]

Written By Stephen Balzan

On August 12, 2016
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Broader indirect tax challenges

In our 34th and last 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 how the second challenge i.e. the low or no vat collected from sales by non-resident suppliers to private consumers may be addressed.

Recommended approaches to effectively collect vat on the sales of digital products to private consumers by non-resident suppliers were developed by the OECD and the G20.  Their scope is not limited to the trade of digital products but covers services and intangibles more generally.  These Guidelines present a separate solution for B2B trade and B2C trade.

The B2C Guidelines present a set of standards for determining the place of taxation for B2C supplies of services and intangibles, in accordance with the destination principle.  The standards allow suppliers and tax administrators to predict with reasonable accuracy the place where the services and intangibles are likely to be consumed while taking into account practical constraints.  The implementation of these standards aims at ensuring that vat is collected in the market jurisdiction at the same rate as for domestic supplies.  This ensures an even level playing field between domestic suppliers and non-resident ones.

The B2C Guidelines indicate that the most effective and efficient approach to ensure the effective collection of vat on cross border B2C supplies is to require the non-resident supplier to register and account for vat in the jurisdiction of consumption.  The same Guidelines recommend that jurisdictions consider establishing a simplified registration and compliance regime to facilitate compliance by non-resident suppliers. 

To achieve the highest level of compliance by non-resident suppliers of cross-border services and intangibles, compliance obligations in the jurisdiction of taxation must be limited to what is strictly necessary for the effective collection of tax.  This is especially important since a number of suppliers would be delivering their services in a number of jurisdictions, thus facing compliance obligations in multiple jurisdictions.

Cooperation between tax administrations in the field of indirect taxation is important for an effective system of vat collection to be achieved.  This co-operation can be enhanced through the development of a common standard for the exchange of information that is simple, minimizes the costs for tax administrations and businesses by limiting the amount of data to be exchanged and which can be implemented in a short time frame.

This article brings to an end our articles in a series of articles which the tax team of ACT has written on addressing the tax challenges of the digital economy. 

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.