Spurred on by the imperatives of the digital economy, the OECD has published a taxation working paper looking at the effectiveness of simplified registration and collection regimes for taxpayers located outside the jurisdiction where taxing rights are asserted. We understand the OECD is also prioritising the development of an agreed international approach to involving online marketplaces in VAT/GST collection.
The working paper, ‘Simplified registration and collection mechanisms for taxpayers that are not located in the jurisdiction of taxation’ (https://bit.ly/2M7Qzug) outlines systems implemented in several jurisdictions for business-to-consumer (B2C) transactions. The best documented are the EU special scheme for digital services introduced in 2003 and the VAT mini one-stop-shop implemented in 2015. Most of these schemes involve consumption taxes, including VAT and retail sales taxes. However, the report sees them as applicable to other regimes, including direct taxes, where the problem is a similar one of asserting rights over a tax base where the taxpayer is not located in the jurisdiction of taxation.
The two principal approaches to addressing this problem are:
through withholding taxes, making use of an agent or participant in the local jurisdiction; or
through taxpayer registration and collection mechanisms, making compliance sufficiently easy or attractive to induce taxpayers to comply with their tax obligations.
The paper notes that registration and collection mechanisms are generally more appropriate in the context of B2C transactions. The 2016 EU report on the VAT aspects of cross-border e-commerce is cited as evidence for the performance of the simplified regimes. The EU report concluded that:
a high level of compliance can be achieved, and substantial levels of revenue collected through simplified regimes, notwithstanding the limitations on the jurisdiction’s power to compel compliance;
the overwhelming proportion of the revenues at stake is concentrated in a relatively small proportion of large businesses;
compliance costs for small and micro-businesses are relatively high compared to the proportion of revenues collected from such businesses;
adoption of thresholds may therefore be an appropriate solution to avoid imposing a disproportionate administrative burden on small and micro-businesses; and
a good communications strategy is essential to the success of a simplified regime (including appropriate lead time for implementation).
The EU agreed a threshold for small businesses in December 2017, as part of its cross-border e-commerce reform package. Those businesses for which EU-wide supplies of digital services do not exceed €10,000 will be allowed to remain subject to the VAT rules of their home country. This threshold will apply across all member states, including the UK, from 1 January 2019 (see ‘VAT changes to supplies of digital services from January 2019’). The EU plans to extend its one-stop-shop to allow businesses to account for VAT on supplies of goods by 2021.
The OECD is hoping to present a number of agreed approaches for involving digital platforms in the process of VAT/GST collection at the meeting of the global forum on VAT in Melbourne in March 2019. Designing a coordinated approach is understood to have become one of the OECD’s current key priorities. The head of the OECD’s consumption taxes unit, Piet Battiau, told the annual congress of the International Fiscal Association in Seoul that tax authorities are becoming inundated with the sheer number of small packages generated by online platforms. The UK has recently introduced tougher compliance obligations on online marketplaces, including joint and several liability, and a voluntary cooperation agreement. Germany has also legislated for marketplaces to collect and report certain data with effect from January 2019.
The OECD’s centre for tax policy and administration has also set out its key areas of work for 2018/19 at https://bit.ly/2fiBSEW.
Spurred on by the imperatives of the digital economy, the OECD has published a taxation working paper looking at the effectiveness of simplified registration and collection regimes for taxpayers located outside the jurisdiction where taxing rights are asserted. We understand the OECD is also prioritising the development of an agreed international approach to involving online marketplaces in VAT/GST collection.
The working paper, ‘Simplified registration and collection mechanisms for taxpayers that are not located in the jurisdiction of taxation’ (https://bit.ly/2M7Qzug) outlines systems implemented in several jurisdictions for business-to-consumer (B2C) transactions. The best documented are the EU special scheme for digital services introduced in 2003 and the VAT mini one-stop-shop implemented in 2015. Most of these schemes involve consumption taxes, including VAT and retail sales taxes. However, the report sees them as applicable to other regimes, including direct taxes, where the problem is a similar one of asserting rights over a tax base where the taxpayer is not located in the jurisdiction of taxation.
The two principal approaches to addressing this problem are:
through withholding taxes, making use of an agent or participant in the local jurisdiction; or
through taxpayer registration and collection mechanisms, making compliance sufficiently easy or attractive to induce taxpayers to comply with their tax obligations.
The paper notes that registration and collection mechanisms are generally more appropriate in the context of B2C transactions. The 2016 EU report on the VAT aspects of cross-border e-commerce is cited as evidence for the performance of the simplified regimes. The EU report concluded that:
a high level of compliance can be achieved, and substantial levels of revenue collected through simplified regimes, notwithstanding the limitations on the jurisdiction’s power to compel compliance;
the overwhelming proportion of the revenues at stake is concentrated in a relatively small proportion of large businesses;
compliance costs for small and micro-businesses are relatively high compared to the proportion of revenues collected from such businesses;
adoption of thresholds may therefore be an appropriate solution to avoid imposing a disproportionate administrative burden on small and micro-businesses; and
a good communications strategy is essential to the success of a simplified regime (including appropriate lead time for implementation).
The EU agreed a threshold for small businesses in December 2017, as part of its cross-border e-commerce reform package. Those businesses for which EU-wide supplies of digital services do not exceed €10,000 will be allowed to remain subject to the VAT rules of their home country. This threshold will apply across all member states, including the UK, from 1 January 2019 (see ‘VAT changes to supplies of digital services from January 2019’). The EU plans to extend its one-stop-shop to allow businesses to account for VAT on supplies of goods by 2021.
The OECD is hoping to present a number of agreed approaches for involving digital platforms in the process of VAT/GST collection at the meeting of the global forum on VAT in Melbourne in March 2019. Designing a coordinated approach is understood to have become one of the OECD’s current key priorities. The head of the OECD’s consumption taxes unit, Piet Battiau, told the annual congress of the International Fiscal Association in Seoul that tax authorities are becoming inundated with the sheer number of small packages generated by online platforms. The UK has recently introduced tougher compliance obligations on online marketplaces, including joint and several liability, and a voluntary cooperation agreement. Germany has also legislated for marketplaces to collect and report certain data with effect from January 2019.
The OECD’s centre for tax policy and administration has also set out its key areas of work for 2018/19 at https://bit.ly/2fiBSEW.
