Paraguay and Ecuador are the most recent South American countries to reveal their plans to tax the cross-border supplies of digital services.
Planned date of introduction: July 1, 2020
Tax rate: 10% VAT
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.
The tax reform is outlined in the publication of Paraguay’s Law 6380/19 of Modernization and Simplification of the National Tax System (Ley de Modernización y Simplificación del Sistema Tributario Nacional).
Digital services are defined in this law as:“Those services that are made available to the user through the internet or any adaptation or application of the protocols, platforms or technology used by the internet or any other network through which they are provided. [The] services are characterized by being essentially automated and not viable in the absence of information technology.”
The location of the customer will be determined based on pieces of evidence commonly used in similar regulations around the world. The customer’s location in Paraguay will be determined using:
- The IP address of the device used by the customer, or
- The country code of the SIM card, or
- The customer’s billing address, or
- The bank account used to remit payment; or
- The billing address of the customer available to the bank, or
- The financial institution issuing the credit or debit card with which the payment is made.
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.
Planned date of introduction: To be decided
Tax rate: 12% VAT
Ecuador’s Internal Revenue Service - Servicio de Rentas Internas (SRI) - last month revealed plans to tax digital services supplied by non-resident businesses to customers based in Ecuador. The plans were revealed in the government’s draft Economic Growth Law that was presented to Ecuador’s national assembly in October 2019.
The burden of the collection of the 12% VAT due on these digital sales will be the responsibility of certain financial institutions that will act as withholding agents.
The expectation is that this proposed legislation will be enacted in December 2019 to be effective from January 1, 2020. Ecuador’s Government expects to raise $100.3 million per annum if the draft rules are passed into law.
However, as reported in Ecuador’s Expreso website VAT collection on these digital sales would begin after three months of the law being passed. The SRI is expected to issue an official list of the services that the tax may apply to. This is, of course, if the reform is passed by Ecuador’s legislature.
We will, of course, keep you up-to-date with developments in South America and beyond.