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VAT MOSS goes global

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29th Oct 2015
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Following the introduction of new EU VAT rules on digital services, tax authorities across the globe have begun to implement similar schemes.

Prior to the EU’s rules coming into force in January this year, jurisdictions such as Norway, South Africa and Switzerland had already introduced a variety of taxation measures aimed at providers of digital services.

Korea followed suit in June this year, while Japan’s new digital services consumption tax went live on 1 October and ecommerce tax plans for Australia, India and New Zealand are at various stages of development.

According to Irish tax digital specialists Taxamo, countries are acting on the OECD’s lead. As part of their base erosion and profit shifting (BEPS) initiative the OECD reviewed digital taxation, and their final BEPS report (which included a section on ‘addressing the tax challenges of the digital economy’), reiterated the belief that indirect taxes (VAT, GST, sales tax etc.) should be paid in the country of consumption.

The report also recommended that tax jurisdictions and regions worldwide “apply the principles of the international VAT/GST guidelines and consider the introduction of the collection mechanisms included therein.”

The OECD see the measures as ‘levelling the playing field’ between domestic digital service suppliers and overseas suppliers.

According to Taxamo’s CEO John McCarthy: “Countries see these changes as one of those rules they can bring in that will generate revenue. The alternative as they see it is to not to bring the rules in and see other countries benefit instead.

“We’re seeing it happening a lot at the moment and we’ll see more countries bringing in similar rules in the coming months.”

Next week in Paris, the OECD will hold its third meeting of the OECD Forum on VAT, where they will focus on the design and implementation of international solutions for key international VAT/GST challenges.

To date 36 countries have implemented digital taxation rules, and while some have based new tax rules on the ‘successful’ introduction of the EU’s VAT regulations, there has been much debate about how the EU has implemented them. Small businesses in particular have reacted furiously to the lack of a minimum registration threshold, which potentially drags in thousands of businesses previously unaffected by domestic VAT rules.

In an interview with Techcrunch Hugo Grimston, CFO of tech start-up Paddle.com, called the EU’s rules “well-intentioned”, preventing multinational companies from using countries such as Luxembourg to gain a tax advantage over EU competitors.

However, Grimston went on to argue that the implementation was “cack-handed” — particularly the absence of a threshold, making the compliance burden for microbusinesses is disproportionate

Although the European Commission (EC) is broadly supportive of a threshold for its cross-border digital sales tax, and such a threshold has been proposed by campaign group EU VAT Action, this could take years to implement.

The hope of many is that the OECD, the EU and countries will learn from previous implementations of digital taxation rules come up with proposals that will benefit, rather than stifle, the digital economy.

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