OECD Addresses Digital Platforms’ Taxing DilemmaBy Alessa Flores | Mon, 05/11/2020 - 12:06
Digital companies in Mexico must pay VAT from June 1 onward, as Amazon, Airbnb, Spotify, Uber, DiDi’s activities, to name a few, should be subject to paying the corresponding taxes, according to the Ministry of Finance. Arturo Herrera, Minister of Finance, explained on his official Twitter that VAT was created in 1980, when the digital services offered by platforms as we know them today did not exist. Therefore, the application of VAT guarantees that these platforms pay the taxes corresponding to the business activities they carry out in Mexico.
Responses to this tax have varied. Netflix announced on its social media on May 7 that it would increase its streaming prices due to changes in the collection of taxes in the country. Users who will see a greater increase are those who pay the Premium Plan that will have an increase from MX MX$229 to MX$266 per month (US$91 to US$11.29). The Standard Plan, will go from MX$169 to MX$196 (US$7.09 to US$8.22) a month, while the Basic Plan, which is the simplest and least affected, will rise from MX $129 to MX$139 (US$5.41 to US$5.83) per month.
Uber and DiDi ruled out an increase in their rates. Uber explained that it will do the ISR contribution directly to the Tax Administration Service (SAT) without affecting users, while drivers or distributors will be in charge of paying the VAT, according to an interview with Reforma. DiDi, meanwhile, stressed that it will be analyzing all the provisions in relation to the 16 percent VAT that they will have to pay and how to apply it in a way that users are not affected.
In March of last year, the OECD published a report on the “Role of Digital Platforms in the Collection of VAT/GTS on Online Sales” to provide practical guidance to tax authorities on the design and implementation of a variety of solutions for taxing digital platforms, including e-commerce marketplaces. Traditionally, consumers needed a store to buy products and services but nowadays they have access to digital platforms to consume digital goods from their own country or from others. Thus, digitalization has changed the economic dynamics and the nature of retail distribution channels towards the sale of intangible goods and services to private consumers, according to the OECD.
Global B2C e-commerce sales of goods alone are now estimated to be worth US$2 trillion and projections indicate they may reach US$4.5 trillion by 2021. Of this, approximately US$1 trillion is estimated to be cross-border e-commerce, according to the OCDE’s report. In addition, the international organization estimates there are approximately 1.6 billion consumers who are buying online and this is estimated to grow to 2.2 billion by 2022.
Taxes on digital platforms are not a unique discussion of Mexico; several countries worldwide are facing the same situation. About half of all OECD countries in Europe have either declared, introduced or enforced a digital services tax (DST). By March 2020, countries such as Austria, France, Hungary, Italy, Turkey and the UK had already adopted a DST tax, while countries such as the Czech Republic, Slovakia and Spain have released plans to adopt DST, according to Tax Foundation. The tax rates range from 2 percent in the UK to 7.5 percent in both Hungary and Turkey.
Asian countries, such as Singapore, introduced a VAT rate of 7 percent to foreign suppliers of digital services whose annual global turnover exceeds SGD$1 million (US$705,150) and whose sale of digital services to consumers in Singapore exceeds SGD$100,000 (US$70,500). In the case of Indonesia, the country introduced a 10 percent VAT on all online transactions, with no threshold.
Although there is no consensus on how to tax digital platforms, there is an expectation for countries to consider the Ottawa Taxation Framework Conditions to implement political and administrative measures that are based on the respect of neutrality, efficiency, certainty, simplicity, effectiveness, fairness and flexibility of digital operations.