The Organisation for Economic Co-Operation and Development (OECD) has revealed its guidance for the effective and consistent collection of VAT/GST on cross-border digital sales. In doing so they have provided a blueprint for tax authorities planning to amend laws to tax the cross-border supply of digital services.
The issue of how to tax cross-border supplies from non-resident businesses is a pressing one in international taxation. Specifically, the digital economy has created headaches for tax jurisdictions as they grapple with how best to tax these cross-border supplies. Tax jurisdictions are now faced with a borderless economy to police. This is welcome clarity from the OECD and will aid the consistent and coherent implementation of such collection mechanisms across jurisdictions.
This OECD guidance also builds on the recommended approaches to taxing the digital economy as outlined in Action 1 of the seminal October 2015 Base Erosion and Profit Shifting (BEPS) report. Since the publication of the BEPS report tax jurisdictions such as India, Russia, Australia, New Zealand, and Serbia have amended their rules concerning the cross-border supply of digital services from non-resident businesses. From January 2018 Saudi Arabia, the United Arab Emirates (UAE), and Belarus will follow suit. We also know of dozens of other tax jurisdictions that are reassessing their existing consumption tax laws.
Limiting compliance costs
This guidance, however, is not just about a consistent approach in terms of collection mechanisms. This is also about reducing the cost of VAT/GST compliance from the supplier’s side.
In the press release announcing the guidance, the OECD state that: “The new implementation guidance will support enhanced compliance levels while limiting compliance costs for digital suppliers by promoting the consistent and coherent implementation of these collection mechanisms across jurisdictions.”
Blueprint for future digital VAT/GST implementations
Here at Taxamo, we see this trend of tax jurisdictions across the globe introducing rules that place the liability for VAT/GST compliance on the foreign-based supplier. What this OECD report achieves is a clear definition of effective collection mechanisms, based on the experience of these various global implementations.
In effect, this guidance from the OECD — the fruits of years of debate — provides a blueprint for legislative amendments on how best to tax non-resident suppliers of digital services.
Currently, close to 50 tax jurisdictions have implemented such rules with others (such as Singapore, Thailand, Indonesia, and Malaysia) flagging impending amendments to legislation so as to tax the cross-border supply of digital services.
How Taxamo helps
At Taxamo we take on the VAT/GST liability in respect to compliance with international digital tax rules.
Our aim is to support every country which brings in destination-based VAT/GST for digital sales.
We know every business is different, we use this knowledge to create bespoke solutions for each partner.
We look after your global tax liabilities so you can continue to sell your services.
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