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The Organisation for Economic Co-operation and Development (OECD) recently held a forum which considered how to level the playing field between traditional and online businesses and to collect the correct amount of tax. It is recognised that the current rules and different application of those rules in different countries has led to VAT not being collected in full in respect of online transactions.
OECD
The OECD Global Forum on VAT is a platform for a global dialogue on international VAT standards and key issues of VAT policy and operation.
The report
The subsequent report The role of digital platforms in the collection of VAT/GST on online sales focuses on the design of rules and mechanisms for the effective collection of VAT on digital sales of goods, services and intangibles, including sales by offshore digital sellers. It states that it provides “practical guidance to tax authorities on the design and implementation of a variety of solutions for enlisting the platforms economy, including e-commerce marketplaces and other digital platforms, in the effective and efficient collection of VAT/GST on digital sales”.
Background
Tax action is necessary as global B2C e-commerce sales of goods alone are now estimated to be worth in the region of USD 2 trillion annually with projections indicating they may reach USD 4.5 trillion by 2021, USD 1 trillion of which is estimated to be cross-border e-commerce with approximately 1.6 billion consumers buying online. This clearly represents considerable VAT revenue which is at stake.
See details on online evasion here
Issues
The problems which have been identified in previous report are:
- imports of low-value parcels from online sales which are treated as VAT free in many jurisdictions, and
- the strong growth in the trade of services and intangibles, particularly B2C, on which often no, or an inappropriately low amount of VAT is levied due to the complexity of enforcing VAT payment on such supplies
Exemptions for imports of low-value goods have become increasingly controversial in the growing digital economy. At the time when most of these exemptions were introduced, internet shopping did not exist and the level of imports benefitting from the relief was relatively small. Over recent years, many countries have seen a significant and rapid growth in the volume of low-value imports of goods on which VAT is not collected. This results in decreased VAT revenues and unfair competitive pressures on domestic retailers who are required to charge VAT on their sales.
Summary
The focus was on the rôle of digital platforms. These are capable of collecting a vast amount of data. The report stated that it is reasonable to require this information/data to be shared and that is proportionately relevant for VAT compliance purposes, ie; necessary to satisfy the tax authorities that the tax for a supply has been charged and accounted for correctly by the underlying supplier.
The two potential models are:
- to make the digital platform fully liable for the payment and remittance of VAT on the online sales they facilitate
- or, alternatively, to limit the responsibility of the digital platforms to simply assisting authorities in the collection of VAT
Implementation
Two options could be considered for the implementation of any information sharing obligation for digital platforms in connection to online sales:
- provision of information on request. Under this option, a jurisdiction requires that a digital platform retains records of the sales that are subject to VAT in that jurisdiction, and that this information be made available on request.
- systematic provision of information. Via this option, a digital platform is required to systematically and periodically provide information on online sales carried out via the platform to the tax authority of the jurisdiction of taxation.
Overall
The report is a good “solid” and long study (I cannot however, recommend it as holiday reading, although the above précis may assist). The proposed solutions are sensible, considered and workable and are likely to, at least, provide more equality and a better way for tax authorities to collect tax which is due.