Taxation of digital goods
Digital goods are software programs, music, videos or other electronic files that users download exclusively from the Internet.
[2] Many of the largest digital goods and services companies are multinational, often headquartered in the United States and operating internationally.
[4][5] In 2013, the Organization for Economic Cooperation and Development (OECD) began a project to examine base erosion and profit shifting (BEPS) of multinational companies (MNCs), with aim to create a single set of consensus-based international tax rules.
In June 2019, G20 Finance Ministers agreed proposals drawn up by the OECD to find a consensus-based solution by the end of 2020.
[7][8] In the meantime, several countries led first by the European Union have begun to propose and implement digital services taxes (DSTs) which have a number of aims:[3] to raise tax revenues; to put pressure on other countries – in particular the United States – to reach an agreement;[9] and, arguably,[10] to create a level playing field until the OECD/G20 framework reaches an agreement or comes into force.
In 1997, the United States federal government decided to limit taxation of Internet activity for a period of time.
The second extended it again and clarified the definition of Internet access as including certain telecommunication services, as well as reorganizing sections within the Act.
The third amendment again extended the prohibition but narrowed the definition of Internet access to "not include voice, audio or video programming, or other products and services ... that utilize Internet protocol ... and for which there is a charge" except those related to a homepage, email, instant messaging, video clips, and personal storage capacity.
In 2009, Anna Eshoo, Congresswoman from California's 14th District (which includes most of Silicon Valley), introduced a bill to make the Act permanent in its most recent permutation.
The states using their original tax code may fall within the grandfather clause of the ITFA, but there has been no litigation to clarify this or other aspects of the Act.
On the other hand, there may be problems with these taxes because they may cover products and services dealing with homepages, email, personal storage, or video clips.
At present, no litigation has arisen to determine what will be defined as a proper nexus for a distributor of digital content within a state.
Some of these laws specifically address the taxation of software, which may or may not be interpreted by those states' courts to include downloadable content, i.e. music and video files.
In response to other countries digital services taxes, the U.S. has threatened to impose retaliatory tariffs, arguing that DSTs unfairly target U.S. multinational corporations (MNCs).
Although the initial EC proposal was rejected at the EU level, several EU countries – Austria, France, Italy, Poland, and Spain – implemented national digital services taxes and other proposed taxes or stated their intention to do so – Belgium, Czech Republic, Latvia, and Slovenia.
[3] Turkey levies its DST on digital content as well as advertising, intermediary activities, and sale of user data.
[3] In his budget of May 12, 2015, the then Australian Federal Government Treasurer Joe Hockey revealed details of a new 10% goods and services tax (GST) to be introduced on "certain electronic supplies".
On February 10, 2016, the draft bill outlining Australia's new digital GST was introduced with Treasurer Scott Morrison telling the Australian Parliament that the new rules would "ensure Australian businesses selling digital products and services are not disadvantaged relative to overseas businesses that sell equivalent products in Australia.
The idea was revealed in February 2018 and the according bill passed by the parliament of Singapore in November of the same year to come in effect on 1 January 2020.
The main reasoning behind this was explained by the Singapore Finance Minister Heng Swee Keat who said during his speech about budget in 2018: "Today, services such as consultancy and marketing purchased from overseas suppliers are not subject to GST.
[51] At the end of 2023, the Malaysian Ministry of Finance amended the law to increase the tax rate to 8%, effect from March 1, 2024.
[52] Starting from July 2020, Indonesia imposes a 10% value-added tax (VAT) on intangible foreign goods and services transacted through electronic systems.
[53] Foreign suppliers engaged in e-commerce activities or providing application services through digital channels will be designated as VAT collectors by the Ministry of Finance.
These include prominent global technology companies such as Amazon, Google, Netflix, Spotify, LinkedIn, Microsoft, Facebook, Zoom, Twitter, Skype, and others.
This law aims to modernize the tax system and ensure that foreign digital platforms contribute to the Philippine economy, even without having a physical presence in the country.
[58] Foreign companies are required to register for VAT with the local tax authorities when their annual sales exceed TWD 480,000.
On 15 March 2018, São Paulo State Court decided in favour of Association of Information and Communication Technology Companies (Brasscom) and so the effects of the digital tax were suspended on software streaming and downloading.
Usually, the collecting and remittance of VAT is liability of the non-resident supplier; in Argentina the tax is charged through the customers' credit cards used to pay for online services.
