Addressing Base Erosion and Profit Shifting (BEPS) has been a key priority of governments around the world. The Organisation for Economic Co-operation and Development (OECD) has been working for years to tackle taxation issues across the globe. Much of the world has expressed concern about tax planning by multinational enterprises that make use of gaps in the interaction of different tax systems to artificially reduce income or shift profits to low-tax jurisdictions in which little or no economic activity is performed. To address these challenges the OECD released BEPS Action Plan 1, back in 2013, which focuses on imposing indirect taxes on foreign electronic service providers who have a significant digital presence in the economy of another country but who lack the physical link under current international rules. As a result, countries across the world have worked to ensure fair taxation of all service providers and have brought in laws to ensure foreign service providers register and collect VAT/GST on certain transactions.
What are countries doing today?
The European Union has had rules for remote sellers in place for quite some time now. Since 2015, foreign providers of electronic services have been required to collect and remit VAT to address tax challenges facing the digital economy; sellers must charge the VAT rate applicable in the country where the buyer is established.
Many countries have followed in the footsteps of the European Union, or in cases such as Switzerland, have implemented rules earlier.
What the future holds
Though Europe has had rules in place for many years, other countries throughout the world are starting to catch up. The current hot spots for imposing new rules on foreign service providers look to be Asia and Latin America where countries are rapidly enacting laws to equalize the playing field for providers of electronic services.
January – July 2020
During the last six months, countries including Chile, Malaysia, Mexico, Moldova, Singapore, Uzbekistan, and Zimbabwe have all enacted their own versions of BEPS Action Plan 1 and now require foreign providers of electronic services to register and collect VAT/GST.
August 2020 – 2021
The trend to impose requirements to register, collect, and remit VAT/GST continues to spread globally and there are many countries with proposals in parliament for the upcoming year ahead. Costa Rica, Indonesia, Fiji, Kazakhstan, Mauritius, Panama, Paraguay, Philippines, Thailand, Ukraine, and Vietnam have all recently set out their plans to increase taxation of the digital economy. It certainly would not be a surprise if other countries join them before the year ends.