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Digital Taxation

Should highly digitalized companies be taxed in a different way than “traditional companies”?

Explore Digital Taxation

As digital transformation makes it increasingly common for businesses to reach markets in jurisdictions where they may have relatively little physical presence, international tax rules that allocate taxing rights over business profits on the basis of physical presence have struggled to keep pace. Addressing this was the focus for Action 1 of the OECD Base Erosion and Profits Shifting (BEPS) project first launched in 2013, and efforts have continued since that time.

The concern here is that the country of residence for the users of these digital goods and services sees a very high turnover, but no, or very little, corporation tax under traditional rules. As a result, there was a drive from certain countries and stakeholders to change international tax rules and impose local corporation tax on such multinational enterprises (MNEs). This has sometimes been expressed through the argument that users of such digital services are providing data, free of charge, to overseas MNEs, or adding value to them, which, in turn, justifies imposing local corporation tax.

The conclusion, which the OECD reached in its final report on the BEPS project, was that it is not possible to ring fence a digital economy as the entire economy is digitalizing. Therefore, in Pillar One of the so-called BEPS 2.0 project, the OECD has focused more on how to address the phenomenon that modern business models often allow MNEs to make significant sales into jurisdictions where they have no or little tax presence. This is not limited to highly digitalized companies.

Nevertheless, partly due to the length of time it has taken to agree on changes to the global international tax accord, some countries have moved ahead with imposing specific taxes on highly digitalized companies. As such, Digital Services Taxes (DST) focus on taxing revenues from activities such as advertising, the sale of data, and the operation of platforms. As part of the emerging global agreement under Pillar One, it is likely that countries will need to commit to rolling back their DSTs moving forward. In any case, discussions will continue as business models and tax systems continue to evolve.

Another aspect of digitalisation is the increased use of crypto-currencies which, while creating interesting opportunities raise questions about how they should be taxed, how tax authorities can collect required information and their potential impact on evasion, avoidance and tax morale.

Themes addressed within the digital taxation section include:

  • The digitalisation of the economy and the future of corporation tax
  • The taxation of the digital economy, new perspective
  • The impact of businesses of digital services taxes
  • Crypto-currencies and information collection

Explore Digital Taxation

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Tax and Tech Roundtable 29 November 2019

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Professionals in the member firms of KPMG International (KPMG) welcome the opportunity to comment on the OECD’s public consultation document entitled “Public Consultation Document – Global Anti-Base Erosion Proposal (“GloBE”) – Pillar Two”, released on 8 November 2019 (the Consultation Document).

11 Dec 2019
21 min
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Comments on the OECD public consultation document on a Unified approach under Pillar One

Professionals in the member firms of KPMG International (“KPMG”) welcome the opportunity to comment on the OECD’s public consultation document entitled “Secretariat Proposal for a ‘Unified Approach’ under Pillar One,” released on 9 October 2019 (the “Consultation Document”).

17 Nov 2019
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Taxation of the digitalized economy: an EU perspective

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07 Nov 2019
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On 20 June 2019 a roundtable was held in London with a group of tax directors to discuss the digitalization of the economy, the future of corporation tax and the proposals being debated by the OECD Inclusive Framework.

12 Sep 2019
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03 Sep 2019
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Co-author: Chris Morgan Tax is rarely, if ever, out of the headlines: that is because it is a rare connecting point between the individual, civil society, the state and the corporate world. It is the lightning rod through which many complex and charged issues of social justice, the common good and rewards for enterprise meet and mix.We therefore need to...

22 Mar 2019
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Comments on OECD Public Consultation Document on Addressing the Tax Challenges of the Digitalized Economy

Professionals in the member firms of KPMG International1  (“KPMG”) welcome the opportunity to comment on the OECD’s public consultation document entitled “Addressing the Tax Challenges of the Digitalisation of the Economy,” released on 13 February 2019 (the “Consultation Document”). The Consultation Document describes proposals that are being worked on through the Task Force on the Digital Economy (the “Task Force”)...

08 Mar 2019
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Digitalization and the future of corporation tax in Latin America

On Monday 12 November 2018, following the KPMG client conference for the Latin America region, a roundtable was held in Mexico with a group of conference delegates. The theme was digitalisation and the future of corporation tax.The delegates represented a variety of industries from financial services to consumer products, data management and internet sales.

16 Jan 2019
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How do tax leaders think digital challenges should be addressed? New poll

The proliferation of digitization in business raises new questions for tax leaders, not only amongst those leading tax departments in traditionally digital companies, but also across businesses and sectors that have incorporated digital solutions into some aspect of their service delivery or operations—from banks to insurance companies to car manufacturers and beyond. 

07 Nov 2018
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Blockchain tokens and data valuation

Aligning profit attribution and value creation

30 Oct 2018
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Data as a commodity

If designed correctly, a form of tax paid in data could not only benefit the public sector and help improve government services, it could also stimulate a new wave of innovation.Data companies are set to grow increasingly rich and powerful. New-generation tech companies are particularly elusive entities to tax. Movement towards partial payment of taxes in data rather than money...

30 Oct 2018
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"What to tax?” - Full publication now available

Over the past few weeks, we’ve been sharing a series of preview articles from our “What to tax?” publication, and we are pleased to share the full publication, available now. I want to extend my personal thanks to all of the contributors for their time, thinking and writing, as well as to all of you who continue to weigh in...

25 Oct 2018
1 min
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Rome roundtable on digitalization and the future of corporation tax

In late September 2018 a roundtable was held on the subject of the impact of digitalisation and whether or not corporation tax is fit for purpose in the 21st-century. The meeting was held directly after the KPMG European region Tax Summit in Rome and so the opportunity was taken to focus on tax leaders in attendance rather than to extend...

05 Oct 2018
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Indirect taxes and the digital economy — What to tax?

— While there are direct tax debates about which countries have taxing rights over a given transaction, there is near unanimous agreement that indirect taxes should be applied to B2C transactions based on the destination principle.— The question in indirect taxes is not ‘what’ to tax but ‘who’ will collect the tax.— Key issues include ensuring indirect tax is applied...

24 Sep 2018
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New boundaries of tax - digitalization

Should digitalized companies be paying more tax where their customers are based? What are the complexities?

24 Sep 2018
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Contributors

We are grateful to all of our contributors, including:

John Thornhill, Innovation Editor, Financial Times

John Thornhill

Innovation Editor at Financial Times

Lachlan Wolfers, Head of Tax Technology and Head of Indirect Tax; Asia Pacific Regional Leader, Indirect Tax Services, KPMG China

Lachlan Wolfers

Head of Tax Technology and Head of Indirect Tax; Asia Pacific Regional Leader, Indirect Tax Services at KPMG China

Chris Morgan, Head of Global Tax Policy, KPMG LLP

Chris Morgan

Head of Global Tax Policy at KPMG LLP

Robert Phillips, Author, Commentator & CEO, Jericho Chambers

Robert Phillips

Author, Commentator & CEO at Jericho Chambers

Neal Lawson, Author, Jericho Chambers

Neal Lawson

Author at Jericho Chambers

Marie Audrain, Senior Manager, KPMG’s EU Tax Centre

Marie Audrain

Senior Manager at KPMG’s EU Tax Centre

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