Our world is rapidly evolving and technology is undoubtedly one of the main drivers of this change. The digitalization of the economy and the evolution of business models are affecting our societies and are triggering opportunities and challenges that are also shaping our tax environment. While countries take advantage of information and communication technologies and the Internet to improve their processes, the existence of multinational companies that are truly global and functionally cross-cutting, and which have a virtual or limited physical presence in the countries where they operate, has triggered many challenges for tax operators. Here we do not only have to consider the known MNE’s, but due to this digital revolution also SME’s operate in multiple countries and face the same issues as MNE’s.
Digital transformation is also shaping our tax environment. Businesses engaged in cross-border transactions face a changing tax landscape, including new definitions for nexus and new approaches to sourcing and allocating taxable income. These developments will have far-reaching effects throughout the international business community— and many companies will be affected, not just the digital behemoths.
International institutions are uniting efforts to issue a collective response:
- On 27 May 2020, amidst the COVID-19 crisis, the European Commission adopted the Next Generation EU recovery plan, which will ensure that these investments and reforms focus on the challenges related to the green and digital transitions. In addition, in 2018 the EU proposed a plan for that Fair Taxation of the Digital, which did not achieve unanimity within the EU members and was left in stand-still ever since.
- The OECD is also committed to address the new tax challenges through the Unified Approach by the Inclusive Framework, commonly known as Pillar I and Pillar II Reports. These reports aim to adapt tax systems globally. An agreement is not reached yet due to some very political decisions that need to be taken.
The evident challenges of reaching a collective unanimous answer to the new tax developments has led an increasing number of jurisdictions to work on their own so-called Digital Services Tax. In addition, various jurisdictions have adapted their local Indirect Tax system(s) in order to apply an even stronger destination principle with regard to online services.
The lengthy multilateral discussions between countries and institutions trying to get a grip on these new developments as well as the national regulations that are different in every jurisdiction make it even more complicated for companies to anticipate on.
WTS Global partners are united by the ambition of building a truly global tax practice that anticipates to the new digital world.
In our strive to offer high quality advice to clients worldwide in a constantly changing environment, WTS Global has set up a dedicated team within our international network, the WTS Global Digital Tax Law Center ("DTLC"). The DTLC monitors all the developments across various regions, as well as the international negotiations, in order to assist our clients on these new challenges.
Some of the activities performed by the WTS Global DTLC in order to offer the best solutions include:
- Identifying the trends in Digital Taxation worldwide
- Collecting the technical expertise from our member firms in any of the relevant areas of tax law (TP, Direct, Indirect...)
- Keeping strong connections to local and regional policy makers, as well as international institutions
- Attending and participating actively in international tax conferences
- Following closely the evolution of our clients's business models
- Sharing knowledge between jurisdictions and conducting comparative analysis
