{"id":180914,"date":"2022-04-23T20:29:40","date_gmt":"2022-04-23T14:59:40","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=180914"},"modified":"2022-04-23T20:29:40","modified_gmt":"2022-04-23T14:59:40","slug":"addressing-the-digital-tax-challenge","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/addressing-the-digital-tax-challenge\/","title":{"rendered":"Addressing the digital tax challenge"},"content":{"rendered":"\n

Context<\/strong>: Over the past four years, 137 countries have been engaged with the OECD. It is related to the ongoing discussion and proposal to find a solution to the tax challenges <\/strong>arising from digitalisation.<\/p>\n

What are the tax challenges in the age of digitization?<\/strong><\/h5>\n

In a digital economy, the firms operate seamlessly across borders. Therefore, the manner of taxing profits in the digital economy becomes difficult in any economy.<\/p>\n

It has also become a political issue. The largest technology firms <\/strong>are tax residents of developed countries<\/p>\n

There is divergence<\/strong> in expectations among developed vs developing countries about the ideal solution. Developing countries want the profits from digital operations to be fractionally apportioned to markets while developed countries believe that a fraction of residual profit<\/strong>, mainly arising from marketing functions<\/strong>, should be taxed in markets.<\/p>\n

The divergence has compelled countries to implement unilateral measures. For example, India implemented a gross equalisation levy on turnover. Similarly, several other countries have announced a digital services tax (DST).<\/p>\n

In 2021, India expanded the scope of the equalisation levy. Thereafter, the US <\/strong>declared India\u2019s DST discriminatory. The US also announced retaliatory tariffs<\/strong>.<\/p>\n

What are the steps that can be taken?
\n<\/strong><\/h5>\n

The solution requires a consensus approach <\/strong>and excessive global coordination.<\/strong> For this, a process of dispute resolution panels<\/strong> should be created.<\/p>\n

Redefining the digital presence of the large technology firms<\/strong> for the purpose of taxation would give India more right to tax.<\/strong><\/p>\n

The OECD has been considering the issue of allocation of taxing rights<\/strong>. It has adopted a two-pillar approach.<\/strong><\/p>\n

The first pillar<\/strong> involves defining the rules for taxing <\/strong>digital companies. It is supposed to go beyond digital companies. It will apply to large companies<\/strong> with annual revenue over \u20ac 20 billion.<\/p>\n

India\u2019s stance on OECD\u2019s approach <\/strong>must be calibrated. Current tax collections indicate that the EL can level the playing field between digital and brick and mortar firms through behavioural change or higher taxes.<\/p>\n

Corporations that argue in favour of simplicity must also consider the potential benefits from an EL like tax that sets aside the complications of attributing profits to complex functions.<\/p>\n

As per an estimate of the US Treasury, 72% of the companies covered by EL in India are US companies. Therefore, India needs to negotiate with the US.<\/p>\n

The OECD has proposed a global minimum tax <\/strong>as a package deal. It allows the profits reallocated through Pillar One to be compensated for. It allows taxing back global profits taxed below 155.<\/p>\n

As per Pillar One proposal,<\/strong> once the OECD approach is ratified in 2023, it will lead to removal of DSTs.<\/p>\n

Source<\/strong>: The post is based on an article \u201cAddressing the digital tax challenge<\/strong>\u201d published in the Indian Express<\/strong> on 23rd<\/sup> April 2022<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Context: Over the past four years, 137 countries have been engaged with the OECD. It is related to the ongoing discussion and proposal to find a solution to the tax challenges arising from digitalisation. What are the tax challenges in the age of digitization? In a digital economy, the firms operate seamlessly across borders. Therefore,… Continue reading Addressing the digital tax challenge<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10500],"class_list":["post-180914","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/180914","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=180914"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/180914\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=180914"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=180914"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=180914"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}