The Digital Services Revolution

The international tax system is essentially based on a 'bricks and mortar' business. The application of these rules to digital supplies is not a simple process. The two key general principles of the current international tax system are that:Foreign companies do not become subject to a country's corporate income tax until they have created a permanent establishment (PE) there; andIncome should be taxed wherever the value of a good or service is created.As such, most countries require some form of permanent establishment (PE) in their jurisdiction in order to give rise to a right to tax income. In addition, double tax treaties, which overlay the domestic law, generally require a PE.
This means, the concept of a permanent establishment, doesn't really apply to the digital sector. If taxing rights are computed from the profit collected from a fixed presence within a country, the business model of most tech and digital companies means can generate large revenues with little to no actual physical presence in a country. Defining a taxable presence, is therefore far more complicated.
Additionally, the intangible nature of the goods and services sold makes it difficult to both define value creation, and then link this value creation to a specific tax jurisdiction. For instance, in the case of the usage of user data, how do you calculate the value that arises from the generation, storage and use of the data?
The OECD has been struggling with how to apply these concepts to the digital economy, and this guide looks at the tax issues and opportunities that apply to digital activities.
This guide is not tied to any specific jurisdiction and is therefore relevant irrespective of your current country of residence.
Whether you're based in the US, UK, Europe, Asia or the Middle East the principles in this guide apply to consider the tax treatment of international digital supplies.
What is covered in this guide?The importance of both where you live and where your income arisesHow different jurisdictions tax digital supplies and how you can use this to your advantageWhy simply moving to a low or nil tax jurisdiction doesn't necessarily workAfter reading this guide you will have a good understanding of the interaction between tax in your country or residence and a source jurisdictionWhen digital supplies give rise to a taxing right both in the country or residence and a source jurisdictionEverything you need to know аbout:Digital withholding taxesDigital permanent establishmentsDigital service taxesHow double tax treaties impact on the tax you pay on your online/digital supplies and how to use them to your advantageThe general approach to VAT on digital supplies and how they are treated internationallyThe OECD approach and how it is planning to change the tax treatment of the digital economy from 2023The key jurisdictions that allow low or nil tax for digital nomads, including preferential residence schemesAnd much more...

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