A common fear of governments when taking unilateral decisions to implement a new tax is that it may drive foreign direct investment to other countries. This fear has been echoed concerning introducing a new type of tax on digital corporations. This tax is often termed a Digital Service Tax ("DST") in some countries. A review of various draft legislation introducing DST shows that this fear may be misplaced. DST acts as a backstop to ensure a non-resident digital corporation gets taxed like local firms even when they have no physical presence in a country. Current international tax rules will ordinarily not permit taxation of a corporation which maintains no physical presence in a country. Unfortunately for governments, the business model of some digital corporations does not require actual physical presence to extract value from their users and customers in a country.
If a corporation has no physical presence in a country, it means that it is investing little or nothing there. DST may be a tool to encourage FDI into a country where a corporation pays tax on net business income rather than gross revenue from sales into a country. Note that some countries allow DST on net sales. Examples include Hungary and Taiwan.
As more countries implement a DST, others are inspired to follow suit or see how it plays out. Digital corporations should pay attention to weighing the benefits of registering a business in a country and taking advantage of tax treaties. This article highlights the countries that will or may implement a DST pending a global solution to taxing digital corporations. France, Italy, Malaysia, and Turkey intend implementing a DST from January 2019.
Click here to find an excel schedule of the countries with the source of information used in collating the data.
A map of all countries implementing a DST or equalization levy is also available here.
Modupe O. OTOIDE is an International Tax and Business Consultant. She is also a licensed attorney in the State of New York and Nigeria. She has a graduate degree in International Taxation from the New York University (NYU) School of Law. With her vast knowledge of regulatory and tax law, she has worked assiduously to structure commercial and corporate transactions to ensure profitability of business enterprises in various sectors of the Nigerian economy and the US. She currently works with a Fortune 500 company where she researches, develops, and executes international tax planning strategies for taxable and tax-free mergers and acquisitions, divestitures, corporate restructuring, and cross border financing.
She researches and writes on the global economy and how changing tax rules affect competitiveness and profitability of businesses.
In her spare time she loves travelling and exploring different cultures of the world.
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