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Consensus coming closer on taxing digital economy

(BNamericas) Nearly 130 countries have agreed on a global roadmap proposed by the Organisation for Economic Co-operation and Development (OECD), which could lead to an international consensus to level out the taxation of internet giants by the end of 2020.

The 129 members of OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS) adopted a work program to lay out the process.

Its members include the US, China, Europe and most Latin American nations, including the biggest economies: Brazil, Mexico, Argentina, Colombia, Chile and Peru.

The members of the OECD’s Inclusive Framework have set out an ambitious work plan to come to a consensus by 2020 on revising the way the digital economy is taxed.
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Notable Latin American absentees from the group are Ecuador, Bolivia, Venezuela, Nicaragua, El Salvador, Cuba and Honduras.

The document was approved last month by the Inclusive Framework and will be presented by OECD Secretary-General Angel Gurría to G20 finance ministers during their 8-9 June ministerial meeting in Fukuoka, Japan, the OECD said in a statement.

The initiative is aimed at US internet behemoths Google, Apple Facebook and Amazon – a group known by the acronym GAFA — which some critics claim dodge existing rules and pay lower taxes by registering profits in countries with lighter levies, no matter where the end consumer is.

OECD/G20’s proposal, which can be seen here: www.oecd.org/tax/beps/, is based on two pillars. The first will explore potential solutions for determining where tax should be paid and on what basis (“nexus”), as well as what portion of profits could or should be taxed in the jurisdictions where clients or users are located (“profit allocation”).

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A second pillar, said the entity, will explore the design of a system to ensure that multinational enterprises – in the digital economy and beyond – pay a minimum level of tax.

This pillar would provide countries with a new tool to protect their taxbase from companies shifting profits to low or no-tax jurisdictions and is intended to address remaining issues identified by the OECD/G20 BEPS initiative.

In 2015 the OECD estimated that tax losses reached up to US$240 billion, equivalent to 10% of global corporate tax revenues, due to base erosion and profit shifting.


In Latin America, some countries are advancing individually by convening working groups to address the topic and/or proposing regulations to tax the digital economy.

This is the case of Mexico, where deputy finance minister Arturo Herrera was recently quoted as saying that the country was considering interim measures that could allow taxation of companies in the digital economy.

Such measures would be added to the country’s 2020 budget plan, due to be discussed by congress in September.

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“It’s currently very easy to collect taxes on a coffee shop. You’re charging income tax on an easily identifiable space, but it’s more difficult in the digital economy. When someone watches a movie on Netflix it’s not clear if the transaction is happening here, where we see the movie, or in the US, where the movie is being downloaded,” Herrera was quoted as saying.

Likewise, Chile’s economy minister José Ramón Valente asked congress in March to include a 19% tax on digital platforms like Netflix, Airbnb and Spotify as part of a tax reform bill.

“What we’re aiming for is to sync the digital economy with the rest of the economy,” Valente was quoted as saying at the time.

A report by the Economic Commission for Latin America (ECLAC) estimated that Latin American countries would rake in around US$580mn a year if they applied value-added taxes (VAT) and a special 3% digital services tax on Netflix, Spotify, Apple and Uber in the region.

The paper was based on a 2017 study of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru and Uruguay.

Tax imbalances in the digital economy will be one of the topics addressed in the 7th edition of the Latin American Telecommunications Congress (CLT 2019), which takes place in Córdoba, Argentina, in July.

Source: BNamericas.com

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