Digital economy tax issues. Cross border taxation of digital transactions presents many challenges to countries and multinational companies. Some countries have acted unilaterally to impose digital taxes, while international organizations have been working to develop multinational approaches. Given the nature of the challenges and the currently fragmented solutions the Association of International Certified Professional Accountants is asking policymakers and multinational organizations to cooperate in developing global approaches to the taxation of transactions in the digital economy.
Digital economy tax issues. On Oct. 23 the Association issued a policy paper, Taxation of the Digitalized Economy, making recommendations. The policy paper does not take a position on any of the issues it raises, but is intended to “educate, enlighten, and stimulate the discussion” on how the new digital economy should be treated and taxed globally.
The policy paper applies the Association’s Guiding Principles of Good Tax Policy in discussing the issues. Those principles include equity and fairness, meaning that similarly situated taxpayers should be treated similarly: certainly in how a tax applies; effective tax administration, meaning costs for governments and companies should be as low as possible; encouraging economic growth and efficiency by not unduly impeding the economy’s growth: and producing appropriate government revenues, meaning that governments should be able to anticipate a predictable and reliable revenue stream to fund their operations.
The paper discusses a number of proposals that are now being developed by international organizations and proposals that have been implemented or proposed by individual countries. The Association emphasizes that several important principles of international taxation remain to be addressed in digital taxation and should be done in a coordinated manner. The Association calls for these proposals to provide a means to avoid double taxation when income may be sourced by two jurisdictions. In the past, double taxation has been avoided by tax treaties and foreign tax credits. But taxes on turnover, including value added tax, VAT, type of taxes, or digital taxes such as the European Commission’s proposed digital service tax based on gross revenues, operate outside the scope of the tax treaties.