Digital tax and legislation changes across the globe

digital tax

2nd October 2020

We’ve long highlighted just how rapidly the world of international tax and compliance is changing. While there’s a real array of drivers behind the developments – from authorities’ growing need to recover funds lost through fraud in tough economic times, to an increasing growth in cross-border working – there’s one particular element that’s having a real impact: technology. With the complexity surrounding the monitoring and taxation of digital services, global legislation has been consistently adapted and reviewed to be relevant to the new ‘normal’. But staying ahead of the latest digital tax trends – and much more – is difficult.

Here’s an update for recruitment agencies placing contract professionals internationally:

EU focuses on Digital tax

Across the EU there have been multiple moves by various jurisdictions to better monitor (and ultimately, tax) digital businesses. The European Commission (EC), for example, revealed in mid-September that it plans to push ahead with its own digital tax in 2021 should the OECD fail to reach a global agreement on an international corporate tax framework.

According to Valdis Dombrovskis, executive vice president of the EC, the intention is to “present an Action Plan on business taxation for the 21st century this autumn.”

2021 Netherlands tax plan

Aside from the EC, individual countries across Europe are also pushing ahead with tax changes next year, which is perhaps unsurprising when we consider that Covid-19 has had a profound impact on global economies and certainly looks set to for the foreseeable future. The Netherlands, for example, also announced in September that its tax plans for next year will focus on multinational companies.

Under these proposals, the standard corporation tax rates will stay at 25%, but low corporation taxes will drop to 15%. While the full details surrounding the changes that will impact multinationals are yet to be released, it was reported that the main focus of the plans will be to “prevent companies offsetting excessive losses and curtailing informal capital structures.”

According to the official press statement, this move means that “businesses will pay a more constant amount of corporation tax, and that fewer businesses will pay no tax at all in a particular year”.

The government also revealed other measures in its statement, including:

  • Tackling informal capital structures from 2022 in order to prevent the exploitation of varying tax systems
  • Reducing the number of businesses taking a ‘tax advantage’ from borrowing capital through the general interest limitation rule by tightening regulations
  • Preventing businesses from deducting particular losses without limit when the company ceases trading through a bill on the liquidation and termination of loss.

As Hans Vijlbrief, State Secretary for Finance in the Netherlands explained, these measures are being pushed through to help the country claw back some much-needed funds:

“It’s precisely in times of crisis that we need to set our sights firmly on the future. That’s why this tax plan looks not only to the present but also to the future, so that we can emerge from the crisis with a fairer and greener tax system. For instance, multinationals are going to shoulder a fairer share of the tax burden.”

Spain sets its sights on digital companies

In other digital tax news, Reuters also recently reported that a proposed Spanish law is under consultation which could see call and instant messaging service providers taxed by the government, provided the firm’s annual turnover is above €1 million.

While the tax appears low on paper (with the proposed law stating that it will not go above €1 for every €1,000 of gross revenue), it does have the potential to generate a significant amount of finances for Spain. According to the government, “the tax will realign competition in the telecommunications market because the way people consume communications services has changed.”

APAC’s double digital tax concerns

Beyond the EU, the Asia Pacific region has also seen numerous jurisdictions introducing digital taxes for multinational enterprises – or MNEs. Singapore, Malaysia, Indonesia and India, for example have introduced taxes on digital services as the local governments seek to increase funding in these tough times.

According to a report by the International Tax Review there are two routes that authorities across APAC are taking: introducing a Digital Services Tax or through legislation that covers digital activity in the local indirect tax system. This does however present a potential challenge for businesses operating in the region, as Matthew Campbell, global lead for indirect tax technology and manager of indirect taxes in APAC at JP Morgan explained:

“Governments are almost picking one or the other, at least at the moment. I think they will go down the path of potentially having two of these. But you look at a place like Malaysia, for example, that potentially you have two taxes: a local sales and services tax (SST) and also a DST, that could hit the transaction twice.”

Positive double taxation news

While we’re on the topic of potential double taxation, it’s important to flag that some authorities are continuing to make steps to prevent the possibility of paying taxes in home countries and the destination of work. As a case in point, Bulgaria and the Netherlands signed an agreement in September on the avoidance of double taxation which will be welcome news for businesses and contractors alike operating across these destinations.

A complex tax landscape

The above news stories are just a few examples of how the world of tax – digital or not – is evolving and becoming increasingly complex across the globe. For staffing companies placing contract professionals on a global scale, this really does highlight the rapidly evolving compliance landscape that you will be facing.

With a simple administrative error potentially leading to fines or even prosecution, ensuring your company, its contractors and recruiters operate in a compliant way no matter where in the world they are really is key.

The 6CATS International team are experts in international contractor management and can help you ensure your firm and contractors are compliant, leaving you to carry on with the job at hand without the admin headache. Why not contact them today to find out more?

Contact Us