Here, we provide a brief summary of what has happened in a number of South American jurisdictions and in Mexico. One consistent thread running through these laws, and proposed laws, is that the scope of digital services covered is focused on international digital companies.
Argentina announced its intention to tax digital services supplied by non-resident companies back in December 2017. This was planned under Law 27,430 and initially effective as from February 1, 2018. However, this date remained irrelevant as there was no collection mechanism in place, this was later implemented under Resolution 4240 and has been effective as of June 27, 2018.
A key difference in the design of the Argentine rules when compared to other global implementations is that the liability to collect and remit the tax is placed upon the payment service provider. In addition, this liability only concerns foreign digital service merchants that appear on an AFIP (Administración Federal de Ingresos Públicos - Argentina’s revenue service) list. More here.
Back in November 2017, a Brazilian State Agreement (Convênio ICMS 106/2017) 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 August 2019, Chile's lower house of Congress (the Chamber of Deputies) set in train a major reform of the country's tax system. Included was a tax (of 19% VAT) on digital services rendered in Chile by non-residents.
Chile has been reviewing its legislation relating to cross-border digital sales for some time. Back in June 2018, Chile’s then Finance Minister Felipe Larraín Bascuñán revealed his government's plans. “We are looking at other ways to apply tax, perhaps charge a transaction fee,” Larraín Bascuñán was quoted by Reuters. “Initial estimates suggest that collecting taxes from the digital economy and digital commerce could bring in several hundred million dollars.”
In July 2018 Colombia published a law confirming the liability for foreign suppliers to register, collect, and remit VAT at 19% for sales to individuals in Colombia. The law came into effect on January 1, 2019.
An important point to note is that if a foreign supplier does not register, collect, and remit VAT to the Colombian tax authority (DIAN), the government could instruct the Colombian bank card issuers to withhold the tax that is due. 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 plans were revealed in the government’s draft Economic Growth Law that was presented to Ecuador’s national assembly with a potential go-live date of January 1, 2020.
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. The rules are due to come into effect on January 1, 2020.
The tax reform is outlined in the publication of Paraguay’s Law 6380/19 (link in Spanish) of the Modernization and Simplification of the National Tax System (Ley de Modernización y Simplificación del Sistema Tributario Nacional).
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.
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.