• Proposals to scale the digital divide
To this end, the OECD has released two proposals back in March 2018 that they believe will help scale back this digital divide by imposing increased tax costs and compliance burdens for many global digital businesses around the world.
The first ‘interim’ proposal is to implement a 3 per cent digital services tax (DST) on gross revenues from activities in which users are deemed to play a major role in value creations.
According to EY, the definition of these activities would be targeting digital advertisers and platforms acting as online market places whose tax statuses are often murky.
Young start-ups however will not be impeded by the tax as the commission has proposed that criteria of an annual worldwide revenue of 750 million euros or more or annual EU taxable revenues of 50 million euro need to be met before an entity can be subjected to the tax.
The second longer-term proposal, is broader scope of taxes on over 50 different digital activities. A company deemed to having a “significant digital presence” would be classified as a digital permanent establishment. These new classifications are intended to establish a taxable nexus alongside a revised profit allocation rules to determine how taxes on digitally-derived profits are distributed among countries.
While in theory the proposals do sound like the right move for us to evolve our tax laws in the new digital era, the OECD efforts have been met with much resistance from lobbying industries and uncompromising countries.
This has ended up in several countries and zones backing out from the proposed digital taxes or proposing their own take on the issue.