How to cope with uncertainty about taxing the digital economy
The debate on taxing the fast-growing digital economy is heating up. Even as the Organisation for Economic Co-operation and Development (OECD) seeks to forge a multilateral agreement by the end of 2020 on how to tax companies in the digital economy, some 25 countries have taken unilateral action. And others, including the U.K., Austria, Spain, Chile, and Thailand, are considering doing the same.
These short-term measures are creating challenges and uncertainty for a wide range of organizations across all industries. They could also stoke trade frictions, as evidenced by President Trump’s warning in late July that the U.S. might slap retaliatory tariffs on French wine after the country enacted a new 3% tax on digital services.
“There’s growing concern that revenue derived from not only digital advertising but also digital services and other digital activities may be taxed,” says Jeff LeSage, Americas Vice Chairman – Tax, KPMG. “Because so many businesses have gone digital to one extent or another, changing international tax laws around the digital economy will likely hit many U.S. companies with increased tax costs and compliance burdens.”
Four steps to be prepared
As the OECD’s efforts to find global consensus on taxing the digital economy continue, LeSage advises companies to:
- Determine how unilateral actions taken to date by certain countries, along with those being considered, could affect your business in order to respond appropriately.
- Stay abreast of the various proposals for reform under consideration.
- Model the potential impact of these proposals on your operating structure to assist in developing a point of view and a strategy to deal with different scenarios.
- Assess and address what consensus – or failed consensus – could mean to your business.
With countries around the globe reassessing their approaches to taxation in today’s increasingly globalized, digitized world, companies need to be prepared for various possible outcomes, LeSage notes.
For additional information or to speak with Jeff LeSage, please contact Bob Nihen.
Learn more
Visit KPMG’s Tax Challenges of Digitalization website for the latest on the debate over taxing the digital economy, including maps and summaries of the unilateral actions taken thus far by individual countries and actions being considered by others.
Read the September edition of CTO Insights for an overview of efforts to forge global consensus and recent unilateral actions.
