Taxation

Updates

The European Parliament approved amendments to the Directive on Copyright in the Digital Single Market 2016/0280(COD), also known as the EU Copyright Directive, which intends to harmonise aspects of the copyright law across the EU. The vote included two controversial points, enshrined in Articles 11 and 13, dubbed the 'link tax' (or ‘snippet tax’) and the 'upload filter' by critics. Article 11 is intended to give publishers and newspapers a way to make money when companies like Google link to their stories. It extends the 2001 Copyright Directive to grant publishers direct copyright over "online use of their press publications by information society service providers". Search engines and online platforms, like Twitter and Facebook, will have to pay a license to link to news publishers when quoting portions of text from these outlets. The bill says that the new rights given to publishers “shall not prevent legitimate private and non-commercial use of press publications by individual users”. However, it does not make clear what counts as ‘portions of the text’ or as a commercial platform which could allegedly encompass blogs, RSS feeds, or a Facebook page operated by an individual who has a considerably large audience for example. Article 13 says that online platforms are liable for content uploaded by users that infringes copyright. It requires that platforms proactively work with rightsholders to stop users uploading copyrighted content. This could potentially mean scanning all data being uploaded to sites like YouTube and Facebook. This measure could affect memes - images or videos that spread 'virally' online, often accompanied by a witty snippet of text - and music remixes shared online. The proposal will now enter negotiations between the Council of the EU, The European Commission and the Parliament. If these three bodies agree, it will be sent to each EU member state for implementation in 2019.

The Legal Affairs Committee of the European Parliament (JURI) adopted the proposed version for copyright reform, including highly disputed Article 13 as well as tax provisions in Article 11 of Copyright Directive. The biggest controversies about this reform were around the text of Article 13 that practically requires some form of filtering and monitoring measures from internet platforms. In spite of the strong criticism of this article from NGO and expert community, this text is going into the further legislative procedure. Even though it is still possible for things to change up to the final vote in EU Parlament, this would be very uncommon in this stage.

EU Commission announced that legislative work about reform and modernization of copyright legislation is coming to an end. The new set of rules are primary trying to ease cross-border access to content online, create wider opportunities to use copyrighted materials in education, research and cultural heritage and to create better -functioning copyright marketplace. However, the expert community is really worried about the real effect of these changes, especially proposed article 13 of Copyright Directive. This article requires internet platforms that host a large amount of user-generated content and that optimize that content, to take measures that should enable functioning of agreements concluded with rights-holders for the use of their works. In essence, this article would require internet platforms to police content on their platforms in order the remove the ones that infringe right holders copyright.  This would severely affect freedom of speech and can lead to some form of censorship, especially in regard to memes, re-mixes, and similar content. The very application of algorithms and various filtering mechanisms would, even more, threaten freedom of speech. Numerous organization already addressed their concerns in the letter addressed to EU Parlament.  Another disputed provision of this Directive is article 11 that should impose so-called  "snippet tax" which would require companies to pay some form of tax when they use short extracts from other news publications. The next step for this proposal is voting in EU Parlament that should be at the end of the month.

The Ugandan government has decided to impose a tax on the use of social media in an effort to increase revenue. Users will be charged with a daily rate of 200 shillings ($0,0531) to use services such as Facebook, Twitter and Whatsapp. The government’s plans have drawn criticism over the last months and is feared to stifle freedom of expression and political organisation. The law is due to take effect in July 2019 and will be collected daily by mobile phone operators.

As a result of Australia’s new tax laws - which require online retailers to collect a 10% goods and services tax on all overseas purchases from 1 July - Amazon has announced that it will no longer provide Australian shoppers with access to its international websites. Instead, Australians will only be able to use Amazon’s smaller Australian site. Amazon states that while regretting the inconvenience caused by the measure, ‘we have had to assess the workability of the legislation as a global business with multiple international sites’.

French president Emmanuel Macron has held a meeting with about 60 key figures of the tech industry, including Facebook’s Mark Zuckerberg, Uber’s Dara Khosrowshahi and Microsoft’s Satya Nadella. During the meeting, he reportedly warned the industry that they cannot just be ‘free riding’ without giving back to society and helping to improve ‘social situations, inequalities, [and] climate change’. The issue of taxation was one of the key discussion topics. In addition, with the meeting, Macron hoped to boost investment and jobs in France, especially in the area of artificial intelligence. Macron also discussed issues as data protection, hate speech, and fake news with the technology companies.

The spirit of the discussion on the Internet and taxation can be likened to Faraday’s response to a politician who asked him about the purpose of his invention (electromagnetic induction): ‘Sir, I do not know what it is good for. But of one thing I am quite certain, some day you will tax it.’

With the Internet moving into the mainstream of modern society, the question of taxation has come into sharper focus. It has become even more important since the financial crisis in 2008. Many governments have been trying to increase fiscal income in order to reduce growing public debt. The taxation of economic activities on the Internet became one of the first possibilities for increasing fiscal income. One of the first comprehensive reports on Internet taxation was presented by the French Ministry of Economy and Finance in January 2013, and was later followed by other reports dealing with the issue of taxation in the digital economy (e.g. by EY and OECD).

The Internet governance dilemma of whether cyber issues should be treated differently from real-life issues is clearly mirrored in the question of taxation. Since the early days, the USA has been attempting to declare the Internet a tax-free zone. In 1998, the US Congress adopted the Internet Tax Freedom Act. After this act was extended several times, the US Senate finally decided to pass legislation that permantly bans states and local governments from taxing Internet access. In addition to the permanent extension of the Internet Tax Freedom Act, the measure bans some taxes on digital goods and services.

The OECD and the EU have promoted the opposite view, that is, that the Internet should not have a special taxation treatment. The OECD’s Ottawa Principles (outlined in the Electronic Commerce: Taxation Framework Conditions report that was endorsed by the OECD Ministerial Conference in 1998) specify that taxation of e-commerce should be based on the same principles as taxation for traditional commercial activities: neutrality, efficiency, certainty and simplicity, effectiveness and fairness, and flexibility. In a recent report, the European Commission reiterated that ‘there should not be a special tax regime for digital companies. Rather the general rules should be applied or adapted so that ‘digital’ companies are treated in the same way as others.’ Following the view that the Internet should not have special taxation treatment, the EU introduced legislation in 2003 requesting non-EU e-commerce companies to pay value added tax (VAT) if they sold goods within the EU. The main motivation for the EU’s decision was that non-EU (mainly US) companies had an edge over European companies, which had to pay VAT on all transactions, including electronic ones.

Currently, non-EU countries have started to adopt similar strategies. With the rapid increase in the number of Internet users and the increased centrality of Internet companies - mostly from the USA - in their economies, many countries have started to tax Internet services that are offered by companies not registered within their borders. Examples range from Russia and India to Israel and Indonesia.

Another e-taxation issue that remains unresolved is the question of the location of taxation. The Ottawa Principles introduced a ‘destination’ instead of ‘origin’ principle of taxation. The US  government, however, has a strong interest in having taxation remain at the origin of transactions, since most e-commerce companies are based in the USA. In contrast, the EU, for example, is interested in ‘destination taxation’ is it has more e-commerce consumers than sellers.

In the context of the Internet, taxation is not only discussed as an object of revised legislation, but also in the context of tax avoidance by large Internet companies. In January 2016, the European Commission presented an Anti Tax Avoidance Package, which aims to prevent companies in the EU from shifting their profits to low-tax countries. The publication came in the midst of rising discussions concerning Google’s tax practices. According to Italian authorities, Google evaded 227 million euros in taxes between 2009 and 2013. On top of that, controversy arose in the United Kingdom concerning the revelation of a 130 million pound tax deal between Google and national tax authorities. In May 2016, the French government even organised a search in Google’s Paris headquarters as part of an investigation in tax fraud, as France accused the company of owing it 1.6 billion euros in unpaid taxes. A 2015 study showed that among the top 30 tax withholding businesses, 10 were tech companies, with Apple as record holder.

Some countries are introducing tax reliefs for Internet infrastructure providers and/or providers of online services, with the aim to encourage investments in the deployment of infrastructure and to boost local e-commerce companies. In India, for example, the telecom ministry proposed a ten-year tax ‘holiday’ for big projects in the IT sector in order to draw investment. In China, the State Council offers tax concessions to Chinese hi-tech companies, lowering their corporate tax from 25 to 15 percent. The UK government included a provision in its 2016 budget introducing a tax relief for micro-entrepreneurs who sell their services online or rent their home through the Internet.

Events

Actors

(EC)

Over-the-top services, next generation networks, the collaborative economy, and artificial intelligence are am

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Over-the-top services, next generation networks, the collaborative economy, and artificial intelligence are among the issues the European Commission is paying particular attention to. The Electronic Communications Code proposed by the Commission in September 2016 plans to introduce some level of regulation for OTT services. Encouraging the deployment of NGN networks able to better support the provision of converged services is a priority for the Commission, as part of its Broadband Strategy and Policy. The EU executive body has also issued guidelines and policy recommendations for the collaborative economy, while its Digitising European Industry strategy identified artificial intelligence and robotics are cornerstone technologies to be supported.

(OECD)

Convergence is one of the digital policy issues that the OECD is paying attention to, especially in relation t

...

Convergence is one of the digital policy issues that the OECD is paying attention to, especially in relation to the challenges this phenomenon brings on traditional markets, and the need for adequate policy and regulatory frameworks to address them. In 2008, the organisation issued a set of policy guidelines for regulators to take into account when addressing challenges posed by convergence. In 2016, a report issued in preparation for the OECD Ministerial Meeting on the Digital Economy included new recommendations for policy-makers. Digital convergence issues have been on the agenda of OECD Ministerial meetings since 2008, and are also tackled in the regular OECD Digital Economy Outlook report.

(WTO)

The WTO’s involvement in e-commerce-related issues started in 1998, when the Ministerial Conference adopted th

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The WTO’s involvement in e-commerce-related issues started in 1998, when the Ministerial Conference adopted the Declaration on Global Electronic Commerce, which called for the development of a work programme on e-commerce. The programme, also adopted in 1998, provides a definition for e-commerce and sets out responsibilities for WTO bodies in e-commerce-related areas. Other e-commerce-related initiatives undertaken by the WTO include: a moratorium rendering electronic transmissions free of custom duties among WTO member states; a dispute resolution mechanism which addresses, among others, cases involving electronic transactions; and the annual WTO Public Forum. There are ongoing discussions among WTO member states as to whether the organisation should play an increasing role in e‑commerce.

G20
(G20 )

G20 pays particular attention to issues related to taxation in the digital economy.

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G20 pays particular attention to issues related to taxation in the digital economy. The G20 Hamburg Action Plan (adopted at the 2017 Summit) outlines the members’ commitment to the implementation of the Base Erosion and Profit Shifting (BEPS) Package (elaborated together with the OECD and which outlines actions for governments to tackle practices through which companies (including Internet ones) exploit gaps in tax rules to artificially shift profits to low or no-tax locations). The Plan also notes the importance of monitoring and evaluating the developments related to the digitalisation of the economy, and developing policy options to address related tax challenges.

(IMF)

The IMF is exploring the implications of new technologies for financial services.

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The IMF is exploring the implications of new technologies for financial services. A January 2016 paper on ‘Virtual Currencies and Beyond: Initial Considerations’ points at different challenges related to the regulation of virtual currencies and outlines the need ‘to calibrate regulation in a manner that appropriately addresses the risk without stifling innovation’. The organisation has an Interdepartmental Working Group on Finance and Technology and a High Level Advisory Group on Fintech, which study the economic and regulatory implications of developments in finance and technology. A June 2017 paper explores the possible impact of fintech on financial service and possible regulatory responses.

(EP)

In addition to its work on directives and regulations dealing with taxation issues (such as the

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In addition to its work on directives and regulations dealing with taxation issues (such as the rules against tax avoidance practices), the Parliament has also addressed taxation in the context of non-legislative documents. The Resolution on a European Agenda for the collaborative economy (June 2017) notes that similar tax obligations should be applied to companies providing comparable services, whether in the traditional or the collaborative economy. Taxation was also discussed with reference to robotics and artificial intelligence, when an initial proposal was made to consider introducing a ‘tax on the work performed by a robot’; the proposal was, however, not included in the final resolution.

Resources

Articles

The Anti Tax Avoidance Package - Questions and Answers (2016)
The Dawning of Digital Economy Taxation (2015)
Taxation and Today's Digital Economy (2015)
Withholding Taxes in the Service of BEPS Action 1: Address the Tax Challenges of the Digital Economy (2015)
A Policymaker's Guide to Internet Tax (2013)

Publications

Internet Governance Acronym Glossary (2015)
An Introduction to Internet Governance (2014)

Reports

e-Commerce in India: A Game Changer for the Economy (2016)
Virtual Currencies and Beyond: Initial Considerations (2016)
Addressing the Tax Challenges of the Digital Economy (2015)
OECD Digital Economy Outlook 2015 (2015)
Taxation and the Digital Economy: A Survey of Theoretical Models (2015)
Commission Expert Group on Taxation of the Digital Economy (2014)
Consumption Taxation of Cross Border Services and Intangible Property in the context of E-commerce: Guidelines on the Definition of Place of Consumption (2003)

GIP event reports

How can WTO contribute to ensure that technology enables trade in goods and services in 2030 and beyond? Is the e-commerce multilateral initiative the right solution? (2018)
How the Digital Revolution Changes Our Work Life (2017)
Decent Jobs for All (2017)

Processes

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UNCTAD 2018

12th IGF 2017

WTO Public Forum 2017

IGF 2016

Taxation on the Internet was discussed in a few sessions including the consequences of trade agreements (WS 7) and tax strategies (WS 200). One particular view on taxation was that it was considered a hindrance to access. A typical example offered by a Facebook representative during Revenue Streams that Grow & Sustain Internet Economies (WS 241) was that of connectivity taxes: import duties, sales taxes of devices and sales taxes on the purchase of data plans are being imposed at various points in the value chain between a user buying a device and actually being able to use it. ‘Typically, you tax things you want less of. If you want more connectivity and you’re imposing additional taxes, or you want more affordability and you’re imposing additional taxes, that’s a hindrance, not something that helps to facilitate what you’re trying to achieve.’

 

 

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