Legal and Regulatory Framework: International Tax Reform Essential to Make eCommerce Work for All (Tax and Fiscal Justice Asia)

Arguments

Current global tax system was established in the 1920s before many developing countries were even in existence

Supporting facts:

• The current tax system was established by colonial powers in the 1920s

• Developing countries started to contribute to broader economic issues leading to pushback from colonial powers

African countries and global South are asking for the conversation on tax regulation to be shifted back to the United Nations

Supporting facts:

• The shift aims for an equitable playing field where the interests of all countries are taken into consideration

• Global South countries had voiced the need for an inclusive forum for tax discussions in the past

• The Africa group recently tabled continuation of the discussion at the United Nations

Shift in power dynamics to reflect the interests and needs of global South countries is starting to emerge

Supporting facts:

• The UK on behalf of EU countries, tabled a motion to not have a discussion on a UN framework convention, but this was voted against by Global South countries

• This is the first time conversations are leading towards an equitable space for these countries

Report

The current global tax system, established by colonial powers in the 1920s, is facing criticism from developing countries. These countries argue that the tax system was put in place before many of them even existed, and as a result, it does not adequately consider their interests and needs.

In recent years, developing countries have started to contribute more to broader economic issues, which has led to pushback from colonial powers who have traditionally dominated the global tax discussions. African countries and the Global South are at the forefront of the call for a shift in power dynamics and the inclusion of their perspectives in global tax discussions.

They believe that the conversation on tax regulation should be brought back to the United Nations, where all countries can participate and have their voices heard. The aim of this shift is to create a more equitable playing field, where the interests of all countries are taken into consideration.

There have been notable efforts in this direction. The Global South countries, particularly those in Africa, have expressed the need for an inclusive forum for tax discussions in the past. Most recently, the Africa group tabled a proposal to continue the discussion on tax regulation at the United Nations.

This move highlights the growing support for a more inclusive and equitable approach to tax policy. However, the UK, on behalf of EU countries, initially opposed the idea of having a discussion on a UN framework convention for tax regulation.

This motion was ultimately voted against by Global South countries, marking a significant shift in power dynamics. For the first time, conversations are leading towards an equitable space that reflects the interests and needs of the Global South countries. In conclusion, the current global tax system, established by colonial powers in the 1920s, is facing criticism from developing countries.

African countries and the Global South are demanding a shift in power dynamics and the inclusion of their perspectives in global tax discussions. The push for the conversation on tax regulation to be brought back to the United Nations aims to create a more equitable playing field and consider the interests of all countries.

While opposition initially existed, there are signs that the power dynamics are starting to shift towards a more inclusive approach.

Arguments

The current international tax architecture needs reform

Supporting facts:

• The digital economy has made the tax rules ineffective

• E-commerce is an integral part of various sectors including manufacturing and services.

• There are diverging opinions about the correct forum to discuss these reforms

Trade rules impact on taxation

Supporting facts:

• Rules like not requiring offshore providers to have a local presence, not requiring data to be held within the source country, and not capping the cross-border royalty payments can pose obstacles to new tax regimes.

• There are differences between the trade rules in different agreements such as TPP, CPTPP, ASEP, etc.

Digital Service Taxes (DSTs) are introduced as a solution

Supporting facts:

• Countries introduce DSTs to tax revenue of large digital services businesses

• U.S. launched investigations under Section 301 and threatened to impose sanctions

• OECD G20 BEPS process’ Pillar 1 solution seeks to address e-commerce taxation.

Report

The current international tax architecture is in need of reform due to the ineffective tax rules imposed by the digital economy. This has generated concerns and criticisms, leading to a negative sentiment surrounding the issue. E-commerce taxation, which is an integral part of various sectors including manufacturing and services, has had a detrimental impact on taxation.

One of the main arguments is that trade rules have also contributed to the negative impact on taxation. For instance, rules such as not requiring offshore providers to have a local presence, not mandating data to be held within the source country, and not capping cross-border royalty payments have created obstacles for new tax regimes.

Furthermore, there are discrepancies between trade rules found in different agreements, such as TPP, CPTPP, ASEP, and others. In response to these issues, Digital Service Taxes (DSTs) have been introduced as a proposed solution. Countries have taken action by implementing DSTs to tax the revenue of large digital services businesses.

This development shows a neutral sentiment towards DSTs. Additionally, other initiatives such as the OECD G20 BEPS process’ Pillar 1 solution seek to address the challenges related to e-commerce taxation. It is worth mentioning that Canada and New Zealand are among the countries planning to implement DSTs.

This demonstrates a positive stance towards finding a common solution to the problem. In the face of challenges like Section 301 of the U.S. Trade Act, collective defense strategies may be employed to safeguard countries against potential sanctions. In conclusion, the need for reform in the international tax architecture is evident due to the ineffectiveness of current tax rules in the digital economy.

E-commerce taxation and trade rules create obstacles and discrepancies in tax regimes. As a solution, DSTs have been introduced, and countries are starting to implement them. It is imperative for countries to collaborate to find a common solution, as there are shared interests and potential collective defense strategies to address the challenges that arise.

Arguments

There is a need to reform the international tax architecture that is over 100 years old for it to accommodate the contemporary economic landscape including e-commerce

Supporting facts:

• There is an international consensus that change is needed

• The current legal framework governing the international tax architecture is not fit for purpose especially with regards to e-commerce

There is debate over the correct forum for these reforms; competing processes are ongoing at the OECD and UN

Supporting facts:

• OECD’s BEPS project has run for close to a decade

• UN’s mandate provided by the UNGA resolution where 125 mostly developing countries backed a UN draft resolution proposed by Nigeria on behalf of the African group calling for a framework convention on international tax cooperation

The OECD’s pillar 1 solution attempts to address e-commerce taxation by allowing market jurisdictions to tax digital platforms even if they don’t have physical presence in those jurisdictions

This OECD pillar 1 solution is seen as inadequate by developing countries and tax justice advocates

Supporting facts:

• They believe it would continue to exempt companies with billions in assets and revenues

There is an ongoing debate regarding the issue of moratorium and custom duties on electronic transmissions both at the WTO and in free trade agreements

The UN resolution is pushing towards a UN tax convention and the creation of a UN tax body

Supporting facts:

• The Africa group led by Nigeria and other African nations pushed for this UN resolution to create a more equitable playing field

The attempts to exempt digital economy taxation discussions at the United Nations should be viewed with skepticism

Supporting facts:

• Many sectors, including international financial institutions, are trying to carve out UN for taxation of the digital economy, arguing that the issue is too complicated for developing countries to handle. However, this is a condescending and inaccurate view as all countries have capacity to discuss these issues

It is important for developing countries to engage both the UN and WTO processes

Supporting facts:

• As the big companies look at these issues on a holistic level, developing countries must also engage both UN and WTO processes in order to counteract any move to exempt platforms from income taxation in developing countries

Report

The international tax architecture is widely seen as in need of reform to better adapt to the changing economic landscape, particularly in relation to e-commerce. There is a growing consensus that the current legal framework governing international taxation is inadequate.

The argument for reforming the tax system is supported by the fact that the existing architecture is over 100 years old and does not adequately address the complexities and challenges posed by e-commerce. The debate over the correct forum for these tax reforms is ongoing, with competing processes taking place at both the Organisation for Economic Cooperation and Development (OECD) and the United Nations (UN).

The OECD has been running its Base Erosion and Profit Shifting (BEPS) project for almost a decade, while the UN has received a mandate from the United Nations General Assembly (UNGA) to create a framework convention on international tax cooperation, backed by 125 mostly developing countries.

One proposed solution from the OECD is referred to as “pillar 1”, which aims to address e-commerce taxation by allowing market jurisdictions to tax digital platforms, even if they do not have a physical presence in those jurisdictions. However, this solution is viewed as inadequate by developing countries and tax justice advocates, who argue that it would still exempt companies with significant assets and revenues.

There is also an ongoing debate regarding the issue of moratoriums and customs duties on electronic transmissions, both at the World Trade Organization (WTO) and in free trade agreements. This debate raises questions about the potential impact on developing countries and their revenues.

The push for tax reforms is further reinforced by the UN resolution calling for the creation of a UN tax convention and a UN tax body. This resolution, advocated by the Africa group and other African nations, seeks to create a fairer playing field in international taxation.

Critics argue that the OECD’s inclusive framework is not genuinely inclusive as it fails to genuinely include the voices of southern countries. This raises concerns about the representation and inclusion of perspectives from developing countries in the reform process. There are also concerns about attempts to exempt discussions on digital economy taxation at the United Nations, with some arguing that such attempts should be viewed with skepticism.

Moreover, the renewal of the WTO moratorium on customs duties on electronic transmissions is deemed detrimental for developing countries. It is argued that this could lead to significant revenue losses, particularly when combined with efforts by big companies to obtain tax-free treatments at both the customs and corporate income tax levels.

In conclusion, there is a growing consensus that the international tax architecture needs to be reformed to accommodate the evolving economic landscape, particularly with regard to e-commerce. The debate over the correct forum for these reforms is ongoing between the OECD and the UN.

The OECD’s proposed solution is seen as insufficient by developing countries and their advocates. There are also discussions about moratoriums and customs duties on electronic transmissions. The UN resolution aims to create a fairer playing field through a UN tax convention and a UN tax body.

Critics argue that the OECD’s inclusive framework lacks inclusivity, and there are concerns about attempts to exempt discussions on digital economy taxation at the UN. Renewing the WTO moratorium on customs duties is viewed as detrimental to developing countries’ revenues.

Developing countries are encouraged to engage in both UN and WTO processes to address these issues.

Arguments

Digital Companies often escape taxation by setting their businesses in tax heavens

Supporting facts:

• Certain companies like MercadoLibre have legal addresses in tax havens

• These companies often favor to declare their economic activities as IT services or financial intermediation

Digital economy should bring benefits to the society

Supporting facts:

• The digital platform economy is expanding in Latin America, positioning itself as an inclusive service provider

• Digital companies have managed to bring services into sectors of the population that previously didn’t have access

Report

According to the analysis, digital companies often engage in tax evasion by establishing their businesses in tax havens. They take advantage of this loophole by declaring their economic activities as IT services or financial intermediation, thereby avoiding paying taxes. This practice has a negative sentiment associated with it as it leads to a loss of tax revenue for governments and exacerbates income inequality.

To address this issue, it is argued that there is a need for reform in the taxation system for digital companies. This reform is necessary to ensure a fair and equitable tax system. The current system often results in consumers bearing the burden of taxes through increased prices, rather than the companies themselves.

This sentiment is grounded in the belief that digital companies should contribute their fair share to society through taxation. Furthermore, the expansion of the digital platform economy in Latin America is seen as a positive development. It is positioning itself as an inclusive service provider, bringing services to sectors of the population that previously had limited or no access.

This is viewed as a significant benefit for society as it promotes economic growth, innovation, and infrastructure development. The digital economy is seen as a promising avenue for achieving the Sustainable Development Goals, particularly SDG 9 (Industry, Innovation, and Infrastructure) and SDG 8 (Decent Work and Economic Growth).

In conclusion, the analysis highlights the issue of tax evasion among digital companies operating in tax havens. It supports the argument for tax reform with the aim of ensuring a fair and equitable tax system. The expansion of the digital platform economy in Latin America is seen as a positive development that can bring numerous benefits to society, including increased access to services and opportunities for previously marginalized populations.

Arguments

India has been trying to regulate tax on digital services since 2016 through the ‘equalization levy’, charging 6% tax on non-resident e-commerce operators engaged in online advertisement and related activities.

Supporting facts:

• India’s initial Equalization Levy was introduced in the Finance Act of 2016

• From April 2020 under the Finance Act 2020, India expanded the scope of the equalization levy to include a tax of 2% on gross income of non-resident e-commerce operators.

Despite its introduction, the equalization levy has met with challenges and gaps in regular assessment and collection.

Supporting facts:

• Businesses are required to self-assess and remit the relevant fee on a quarterly basis, but compliance is not perfect.

• There’s a lack of understanding and guidance among professionals about the equalization levy.

The surge in digital transactions and e-commerce particularly post-Covid, reveals the urgent need to facilitate more stringent measures for taxation of digital platforms.

Supporting facts:

• Due to the Covid-19, digital transactions and e-commerce have significantly surged across India, thereby enlarging the market for e-commerce companies.

• Many digital platforms like gaming, streaming services are yet to be properly taxed.

Indian companies functioning as Multinational Companies (MNCs) can be as extractive and damaging as foreign MNCs

Supporting facts:

• Indian companies are conducting business in Africa and other regions worldwide.

Report

India has been attempting to regulate the taxation of digital services since 2016 through the implementation of the equalisation levy. This levy imposes a 6% tax on non-resident e-commerce operators engaged in online advertising and related activities. However, despite its introduction, there have been challenges and gaps in the assessment and collection of the equalisation levy.

To address the surge in digital transactions and e-commerce, particularly in light of the Covid-19 pandemic, stricter taxation measures for digital platforms are urgently required. This increase in digital transactions has significantly expanded the market for e-commerce companies in India.

Yet, many digital platforms, such as gaming and streaming services, are not being properly taxed. The lack of understanding and guidance among professionals regarding the equalisation levy has resulted in imperfect compliance. Businesses are required to self-assess and remit the relevant fee on a quarterly basis, but there are gaps in ensuring full compliance.

This highlights the need for improved education and support to ensure accurate assessment and collection of the equalisation levy. The discussion also emphasizes the crucial role of civil society and grassroots movements in advocating for better taxation policies. There is limited understanding of taxation issues among citizens and grassroots movements, leading to a lack of pressure on policymakers.

The speaker, who is a member of the Indian Social Action Forum and Tax and Fiscal Justice Asia group, plans to campaign for improved taxation of digital platforms. Furthermore, it is highlighted that Indian companies operating as multinational companies (MNCs) can be just as extractive and damaging as foreign MNCs.

This challenges the perception that domestic companies are inherently more responsible and sustainable in their business practices. Therefore, civil society in India should scrutinise both foreign and domestic businesses to hold them accountable. Overall, this extended summary highlights the need for stricter taxation measures for digital platforms, improved compliance and collection of the equalisation levy, and increased pressure from civil society and grassroots movements to ensure better taxation policies that benefit the people.