[ad_1]
The South African government has expressed interest in introducing new digital tax laws that would force companies like Netflix and Facebook to pay taxes locally.
These international companies operate in various jurisdictions and government advisory bodies they have argued that these companies should be required to pay taxes on their local operations.
Bowman’s chief tax officer, Wally Horak, has said that the introduction of a digital tax may be likely in the future, but he faces a major hurdle in the form of double taxation agreements (DTAs).
A DTA only allows the home jurisdiction to tax a resident of the other contracting state if that resident conducted business through a permanent establishment in the home state, he said.
“The main obstacle to a unilateral digital tax of this type is the existing basic rule of double taxation agreements (DTA) that only allows the jurisdiction of origin to impose taxes on a resident of the other contracting state if that resident conducted business through from a permanent establishment in the home state, ”Horak said.
“Several of the countries that have threatened to impose the new digital tax have decided to suspend the effective date of the new tax due to the uncertainty of whether the tax can be declared invalid by the corresponding courts.”
He said this is likely the result of the approach of the United States, which has indicated that it would encourage its residents to oppose the imposition of the tax in court.
This means that if South Africa were to unilaterally implement a digital tax on a service like Netflix, the international company could fight taxation in US courts, relying on the protection of double taxation agreements.
Global framework under development
Horak noted, however, that the Organization for Economic Cooperation and Development (OECD), together with the G-20 countries, has developed a new framework that proposes changes to the existing international tax system to allow countries to impose such digital taxes. .
A primary objective of the framework is to give market jurisdictions the right to tax part of the profits of multinational corporations (MNEs), with reference to the income generated by customers in that jurisdiction, regardless of whether the MNEs have a physical presence in That country. , he said.
“It is therefore advisable for the Government to await this international action to ensure the cooperation of other states, particularly the US, as most of the selected multinational companies are based in the US.
Once a global standard and framework for the taxation of multinational digital companies is developed, this will be easier to implement, as it will likely have the cooperation of the main countries in which these digital service providers are located.
In line with the recommendations in the OECD framework, Horak said the government should start drafting the relevant legislation to impose such digital taxes.
“The government should also consider amending the foreign tax credit provisions to allow a tax credit for foreign digital taxes imposed on digital supplies by South African companies to foreign customers,” he said.
“The current foreign tax credit provisions would generally not provide such relief, as the source of supply would generally be considered in South Africa, where all inputs to the website in question are provided and where products or services sold through of a website.
Now read: How SABC will make money with TelkomONE
[ad_2]
