Understanding Ecommerce Tax Obligations

💻🇺🇸🌎 DSTs and Retaliatory Tariffs With the OECD’s Pillar 1 looking dead on arrival given a lack of US support, digital services taxes (DSTs) might be back on the menu for some countries. But will they survive US tariff threats? 🇨🇦 As an example, Canada has recently legislated to have a DST, kicking in retrospectively from 2022, so soon picking up 3 years of back taxes. It is 3% of Canadian digital services revenue above C$20m, applying only for large MNEs. 🇺🇸 What is the US likely to do in response? This was in play before Trump won, but now we know tariffs are high on the agenda. 🔙 What happened last time? DSTs were announced in 🇫🇷France, 🇮🇹Italy, 🇪🇸Spain, 🇹🇷Turkey and the 🇬🇧UK before the DST standstill was agreed during P1 (attempted) negotiations. The US agreed with all these countries that any P1 agreement would be retrospective, with any excess DST credited against corporate income tax. But here we are with P1 on life support… 🔜 So what happens this time around? Will the threat of US tariffs on French wine, Italian cars, Spanish olive oil, Turkish clothing and UK financial services cause countries to back down on their DSTs (again)? Or will those countries hold strong now that P1 is looking like an unlikely alternative? 🇺🇸🇨🇦🇲🇽 As for Canada, the US has initiated the consultation process under the US / Canada / Mexico free trade agreement, arguing the Canada DST breaches the FTA. The US has now served the waiting period and can send the dispute to arbitration. 📆 Presumably nothing will happen until Trump is inaugurated on 20 January, but maybe then the fights with Canada and other countries will resume quickly, including by forming part of larger trade and geopolitical negotiations. #taxlaw #internationaltax #transferpricing #taxlitigation #tariffs

Who ultimately bears the burden of digital service taxes (DSTs)? Governments introduced DSTs to tax large digital firms like Amazon. But because they are taxes on revenues rather than profits, firms may pass them on. In a new CESifo working paper with Rohit Reddy Muddasani, we study this using data from Amazon marketplaces across Europe. We focus on Amazon’s “Fulfillment by Amazon” (FBA) service, where third-party sellers pay Amazon fees for storage, packing, and shipping. These marketplace fees are subject to DSTs, while Amazon’s own retail sales are not. This gives us a useful setting to study tax incidence. Using data from France, Spain, Italy, the UK, and Germany, we find: • Amazon increased marketplace fees after DST introduction, often roughly in line with the tax itself • Third-party sellers then passed much of these higher costs on to consumers through higher prices • In France, Spain, and the UK, consumers ultimately bear much of the burden • Italy is the exception: we find little pass-through there The results suggest that DSTs do not primarily tax Amazon shareholders. They look more like tariffs on digital intermediation services, with much of the burden falling on domestic consumers and sellers. Thus, they don't work to indirectly tax the profits of digital firms; but they do make these firms less attractive relative to brick-and-mortar retailers. Here is the full paper: https://lnkd.in/dc6ciD7p

My latest paper examines a growing issue affecting digital trade: the rapid escalation of direct and indirect taxes.For most trade experts and analysts, tax is not typically part of the equation since the topic is handled mostly by different parts of government.But the rise of digital trade and the rapidly growing number of companies engaging in international trade is set to create more challenges for tax collection and growing costs associated with compliance.There are two changes on the tax horizon of particular importance.First, direct tax is quickly changing as the OECD BEPS processes are getting bogging down, and governments are moving to implement digital services taxes on the largest digital companies.Second, indirect tax is also swiftly adjusting as a rapid shift to e-invoicing allows real-time tax collection.Both of these trends are starting to capture more and more firms engaging in cross-border transactions.The growing spread of digital taxes, especially without careful efforts to ensure consistency, will make it much harder for firms of all sizes to engage in trade.Tax policy changes are likely to drive up costs for consumers. I do not recall many conversations I’ve had recently within my trade networks that have noted these issues. #tax #beps #vat #trade #digital

It’s official, Canada has enacted a 3% Digital Services Tax (DST) and it’s reinvigorating the discussion about countries taxing digital services without coordinated international tax agreements. As of June 28, 2024, Canada has officially implemented a new 3% Digital Services Tax (DST) on certain online revenues, marking a significant development in the country's tax landscape. This measure, which received Royal Assent on June 20, 2024, applies retroactively from January 1, 2022. ** Here are the key highlights: > The DST applies to revenues generated from certain digital services provided to Canadian users, including: - Online advertising services - Sale or licensing of user data - Digital intermediation services (e.g., online marketplaces) > Businesses with global revenues of €750 million or more and Canadian revenues of at least CAD 20 million will be subject to this new tax. > The tax is designed to ensure that large multinational enterprises pay their fair share of taxes in Canada, aligning with global efforts to address the challenges of the digital economy. ** This tax change will have implications beyond Canada’s borders. Here’s why: > Complex Compliance Requirements: Compliance with the DST could be complex for multinational enterprises, requiring significant adjustments to existing tax strategies and reporting processes. - This may impact how companies do business with Canadian residents. - Multinationals will dedicate time and resources to determining what is (and is not) ‘digital services’ > Risk of Double Taxation: There are concerns about potential double taxation issues, especially if other countries implement similar taxes without coordinated international tax agreements. > Impact on Digital Services Costs: It would not be surprising to see some company pass the tax burden on to consumers, potentially leading to higher costs for digital services in Canada. #DigitalServicesTax #Canada #TaxUpdates #DigitalEconomy #BusinessNews #Finance #Tax #Tech https://lnkd.in/gtyB7pU3