Four Things You Probably Don’t Know about Digital Services Taxes

True or False:

Global tax jurisdictions are expected to take a highly aggressive approach to enforcing newly enacted digital services taxes.

The answer (not true, at least over the short term) might surprise you. “Digital services tax compliance will rely entirely on the willingness of companies to adhere, as proposed approaches come with an ambiguous set of allocation rules–such as where a user opens an account or sees an ad–that makes it hard to determine and track the tax obligation,” explains Vertex Senior Product Manager Aleksandra Bal in a new CPA Practice Advisory article. “Governments do not have the technology to monitor such activity, so the burden would be placed on businesses themselves.”

As recent coverage of the U.S.-France tax-and-tariff tiff point out, France earlier this year introduced a 3% tax on global technology companies. Here’s another bit of news that may surprise you: France is not the only country that is unwilling to wait for the EU to finalize a multilateral plan for digital services taxation. Italy passed a new digital tax that takes effect in 2020 and both Turkey and Hungary have proposed their own digital services taxes.

Aleksandra’s rundown provides some much-needed clarity on these unilateral digital tax rules. She discusses their economic impact, role in trade disputes, enforcement challenges, and which companies (including some giants based in China) will bear the brunt of these new rules.