Across the globe indirect VAT/GST rules are being amended to ensure that foreign digital suppliers become liable for the collection and remittance of these taxes.
Here's a snapshot of what is happening:
Thailand did have provisional plans to introduce a new e-business law on January 1, 2020. That date passed with no new amendments. They are looking closely at the recent moves by their South-East Asia neighbours, Singapore and Malaysia.
South America, in particular, has seen a series of moves with Colombia, Uruguay, and Chile all revealing plans to tax foreign suppliers of digital services. Similar plans in Brazil were put on hold after a legal challenge.
Uzbekistan plans to extend its VAT system to digital services supplied by foreign providers from January 1, 2020. Kazakhstan plans to do so in 2021. More here.
Global digital services tax developments
In this article we provide you with some insight into what digital services tax rules are in the pipeline across the globe.
First, some background: the pace of change, from a taxation perspective, has been rapid. In the first half of 2018 alone Turkey, Saudi Arabia, and the United Arab Emirates all imposed a destination-based VAT on cross-border B2C digital service supplies. On January 1, 2019, Bahrain and the Canadian provinces of Québec and Saskatchewan mirrored these introductions.
The Organisation for Economic Co-Operation and Development (OECD) has already approved the destination-based principle in Action 1 of its Base Erosion and Profit Shifting (BEPS) report. The OECD states that: “For consumption purposes internationally traded services and intangibles should be taxed according to the rules of the jurisdiction of consumption.” Numerous tax jurisdictions are taking their lead from the OECD recommended approaches to taxing the digital economy.
Here we provide a list of tax jurisdictions that are planning to extend their VAT/GST laws to the consumption of cross-border digital services:
A Reuters report in August 2019 quoted Ekniti Nitithanprapas, the director-general of Thailand's Revenue Department, that a VAT on electronic businesses would be introduced in 2020. There was no elaboration on the exact date of such an introduction. According to a previous report - in The Bangkok Post back in April - a draft bill aimed at taxing "digital platform operators" is already being deliberated by the Thai Council of State and the Revenue Department.
In June 2019 Vietnam adopted the Law on Tax Administration. Contained within this regulatory update are plans for foreign e-commerce companies to register for Vietnam VAT purposes. These plans are due to come into effect on July 1, 2020. The place of consumption rule is already in place in Vietnam. However, VAT is currently withheld at source by the Vietnamese party to the contract. This applies unless the foreign contractor has registered for tax purposes in Vietnam.
3. Costa Rica
On July 1 , 2019, Costa Rica became the latest tax jurisdiction to amend its VAT rules relating to the cross-border supply of digital services. A draft resolution confirmed the obligation of VAT collection on domestic credit card issuers. In early December 2019, mirroring the approach in Argentina, Costa Rica released a list of 191 affected digital businesses. More here.
Ukraine has revealed draft plans of a proposal to tax non-resident digital businesses from the start of 2021. The plan contained in a bill before parliament has yet to be considered in parliament but details are available on its official website. More here.
Ecuador’s Internal Revenue Service - Servicio de Rentas Internas (SRI) - revealed plans in October 2019 to tax digital services supplied by non-resident businesses to customers based in Ecuador. The burden of the collection of the 12% VAT on these digital sales will be the responsibility of certain financial institutions that will act as withholding agents. More here.
A bill is being discussed in Mexico’s Congress of the Union seeking to impose VAT at the standard rate of 16% on digital services provided to Mexico-based customers by non-resident businesses from June 1, 2020. More on Mexico's plans here.
Paraguay's tax authority, la Subsecretaría de Estado de Tributación (SET), has revealed plans to tax the supply of digital services by non-residents to consumers based in Paraguay. In common with other South American rules, the burden of the settlement and collection of the VAT due (Paraguay’s standard VAT rate is 10%) will be on the local bank, the issuer of the payment card used in the purchase. More here.
Chile has plans to apply a 19% VAT on certain foreign-supplied digital services. The relevant bill is currently in Chile’s Senate and is likely to be approved and passed into law later in 2020. The moves are part of a broader aim to modernize Chile's tax structure. More here.
Rules governing the supply of cross-border digital services came into force in July 2018. The rules, however, differ from other implementations as income tax may also be due in addition to the 22% VAT.
We first learned of Uruguay’s plans to tax foreign-supplied digital services back in October 2015 when a report in El Observador website outlined how the National Association of Uruguayan Broadcasters (Andebu) had raised the issue of an unfair marketplace when competing with the likes of international streaming players such as Netflix and Spotify. It is estimated that this new VAT could raise USD$10 million per year from sales of foreign digital services to customers based in Uruguay.
An October 2017 Brazilian State Agreement (Convênio ICMS 106⁄2017) had revealed plans to tax digital services – e.g. games, streaming services, music and image downloads, etc — via the State tax mechanism (ICMS).
However, by March 2018, these plans were put on hold after a favourable ruling for the Brazilian Association of Information and Communication Technology Companies (Brasscom). This association had filed a petition against the imposition of ICMS on software downloads and streaming. They won a preliminary injunction to suspend the effects of the ICMS Decree that proposed to impose ICMS on the purchase of software via download or streaming.
In late October 2017 it was revealed that non-residents supplying digital services – such as streaming and music downloads – to Argentina-based consumers will be subject to a 21% tax from a provisional start date of 2019. However, the rules in Argentina differ slightly from other global implementations as according to local news reports the Federal Public Revenue Administration (AFIP) in Argentina will start charging taxes through credit cards to digital service platforms. Affected platforms will include the likes of Netflix, Spotify, and Airbnb. More here.
The Canadian provinces of Québec and Saskatchewan already tax the cross-border supply of digital services by non-resident businesses, but there is no federal Canadian approach at the moment. It is increasingly likely that Canada will move to change how the supply of digital services by foreign companies is taxed from 2021. Any move may follow the path of Québec and Saskatchewan. More here.
13. GCC (Gulf Cooperation Council)
The six members of the Gulf Cooperation Council (GCC) committed to introduce VAT systems back in January 2018. The six member states of the GCC are Saudi Arabia, Kuwait, the United Arab Emirates (UAE), Qatar, Bahrain, and Oman. As of January 2019 three of the GCC member states (Saudi Arabia, UAE, and Bahrain) had implemented VAT systems. It is expected that the remaining three member states of the GCC (Kuwait, Qatar, and Oman) will follow in their neighbours' taxation path in early 2021. More here.
In June 2018 Bangladesh proposed a 5% VAT on all types of ‘virtual business’ in its 2018-19 budget. The term ‘virtual business’ was later clarified to mean digital platforms such as Facebook, YouTube, and Google. Here at Taxamo we have been following developments in Bangladesh very closely. You can learn more about what has happened, and what is planned, here.
Major tax reform is on the agenda in the Philippines with the taxation of foreign-supplied digital services firmly in the sights of the tax authority there. As of October 2019, however, the Bureau of Internal Revenue (BIR) were still "studying the taxation of the digital economy." The BIR's deputy commissioner Arnel Guballa said: “We also have to tax the digital economy. We have to capture them, pay the taxes. Because what is happening now is, we will go online, we will order, and anything we can order, we can get. There’s no receipt, we don’t pay taxes to the BIR.”
In a significant move, back in April 2016, the Israeli Tax Authority (ITA) proposed to change its VAT legislation so that foreign tech firms would have to register in Israel to account for VAT on digital services sold to Israeli consumers. In September 2018 the ITA issued a ruling (6369/18) allowing a streamlined procedure for B2B e-commerce supplies by foreign businesses to Israeli businesses. There has been no movement, however, on B2C supplies by foreign businesses to Israeli-based customers.
According to proposed changes, a foreign digital service supplier with customers in Kazakhstan will be required to register for VAT. These suppliers will also be obliged to regularly remit VAT on their sales in Kazakhstan based on the turnover of services rendered. The rule change is planned to come into effect on January 1, 2021. More here.
Moldova is the latest in a burgeoning number of tax jurisdictions that are revising rules to tax the cross-border sales by digital businesses. The new rules may come into effect in April 2020. More here.
Fiji has revealed plans to tax the sales of digital services, or remote services as they are referred to in the Fiji VAT Bill that is before Parliament. Such a move will trigger VAT registration obligations for affected digital service suppliers and electronic marketplaces. More here.
20. British Columbia
The Canadian province of British Columbia revealed plans to tax foreign-supplied digital services from July 2020 in its 2020 Budget. More here.