In brief - Australian exporters should review their supply chains and transfer pricing arrangements
The internationalisation and splitting up of digital value chains has led to important structuring consequences.
Digital business, via remote technology, can be heavily involved in the economy of a jurisdiction without having any real or significant presence. The structure of an organisation in an international sense can have a significant impact upon that organisation's tax liabilities.
The OECD has been reviewing this issue and sets out its views in Addressing the tax changes of the digital economy, 2015 (Action 1 - 2015 final report) and Tax challenges arising from digitalisation - Interim report 2018.
Various OECD nations have shown significant interest in taxing the profit of companies that sell digital services, including:
- Australia's new GST regime on low value imported goods
- Israel's and India's significant economic presence test
- withholding taxes, and
- the EU's idea of turnover taxes for digital businesses
The European Commission has recently proposed a workaround in a draft directive to the Parliament and the Counsel of the European Commission.
If it is made into a directive (and therefore becomes part of the domestic law in each EU member state via domestic implementation of legislation), it could have a cascading effect as other countries follow the lead of the EU.
The US Supreme Court has recently ruled that US states can levy consumption tax on online businesses with only a digital presence in the jurisdiction, and Australia now levies GST on low value imported goods.
There is no guarantee the EU directive will pass into EU law yet, but it is clear that countries are moving towards some form of more streamlined levying of cross-border consumption and sales taxes.
Australian exporters and importers will need to consider their outward and inward supply chains and monitor developments closely.Toby Blyth
Regulatory and financial services
Colin Biggers & Paisley
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