Global digital taxation: an increasingly complex world

global digital taxation recruitment

5th October 2020

The world of international tax compliance has long been complex. Before the Covid-19 pandemic struck, authorities across the word were clamping down on fraud and we were seeing regular reports of legislative updates as governments sought to recover funds lost through tax evasion. And in a Coronavirus hit economy, almost every country is looking to gain additional funds, which makes the likelihood of stricter regulations much more prominent. However, there’s one consistent trend that we’ve seen both pre-pandemic and now: a greater focus on global digital taxation.

As tech giants such as Amazon, Facebook, Apple and many more, continue to expand their international footprint, global jurisdictions are reviewing how these multinationals are taxed in the countries they operate in and provide services for. But it’s an incredibly multifaceted issue that simply cannot be fixed overnight, which is why we’re seeing reports of international jurisdictions taking action against global firms. The on-going Apple tax saga, for example, has been playing out in European courts for a while now.

A need for a unified approach

The impact of the increasing digitalisation of businesses means that organisations of all shapes and sizes are facing similar challenges to multinationals. This is particularly true in a Covid hit environment where lockdowns have arguably forced more companies to move operations online or expand their international remit. The challenge, however, is that global digital taxes are varied and there is no real unified approach across borders at the moment.

In fact, a recent article for Indonesian newspaper, The Jakarta Post, highlighted just how important a multilateral consensus on global taxation of the digital economy is in the current climate. In the feature, Jeff Paine, the Managing Director of the Asia Internet Coalition (AIC) outlined why now more than ever there needs to be some consistency across borders to not only ensure authorities recover the right payments owed, but also that organisations aren’t at a disadvantage by expanding their digital options:

“The digital economy has played a transformative role in the world’s response to the challenges faced during COVID-19. Emerging technologies have been developed and deployed at an extraordinary pace. Artificial intelligence (AI) and big data analytics have enabled innovative, rapid and wide-ranging responses to public health and essential service delivery. In addition, COVID-19 has accelerated existing trends. With the traditional shop front temporarily shut, access to customers for most businesses has been aided by the digital economy. E-commerce, online education and tele-health services are examples of critical areas that have taken advantage of technology to adapt and thrive during these difficult times.”

“As technology has formed the bedrock of several industries’ COVID-19 responses, more needs to be done to expand access to the digital economy, and not widen the digital divide. A lack of consensus on a global tax framework could widen the gap even further by restricting investments, cross border trade and access to innovations for many communities.”

Tackling the digital tax challenge

Global authorities have, however, recognised this need for both clarity of terms and a unified approach to global digital taxes. Paine referenced the example of the Organisation for Economic Co-operation and Development (OECD) and its attempts to build a multilateral consensus on international taxes that is fit for the digital world.

And the European Commission (EC) revealed in mid-September that it plans to push ahead with its own digital tax in 2021 should the OECD fail to reach a global agreement for this international corporate tax framework.

However, while this action is being progressed, some countries are implementing their own regulations. In Spain, for example, there is a law currently under consultation which could see call and instant messaging service providers taxed by the government, provided the firm’s annual turnover is above €1 million. In Singapore, Malaysia, Indonesia and India, as well, taxes on digital services have been introduced.

For businesses operating on a global scale, this presents the challenge of possible double taxation where they face payments in not only the destination the company or workers are based in, but also the location where the services are being delivered.

Global digital taxation: the impact on your recruitment business

For many staffing companies, tapping into the international recruitment market is becoming increasingly important. With the pandemic forcing many firms to rethink and review the business priorities and revenue options, we’re finding that wider global opportunities are increasingly being explored. However, while overseas contractor placements can be highly lucrative for agencies, the sheer complexity of ensuring your business, its recruiters and contractors all remain compliant can pose a financial threat for those organisations that choose to go it alone.

The move towards better global digital taxation regulations is just one example of how the compliance landscape is constantly evolving. When you throw the variation of requirements from local governments into the mix as well, the potential administrative headache that your firm could face is arguably extensive.

But that doesn’t mean that recruiters shouldn’t tap into the global contractor market. There are already a wealth of staffing companies that are growing following international expansion. But those that do it well bring in the expertise to ensure they are compliant.

The 6CATSPRO team has extensive knowledge and experience that allows them to provide a mix of services to suit your recruitment business, from providing compliance training to your teams, developing a process that’s tailored to your firm’s plan, an audit of current contractors or complete management of compliance. With a wide network of in-country partners, lawyers, accountants and compliance advisors, 6CATSPRO has the connections to help your company no matter where in the world you set your sights.

Our services consist of four main pillars, with a retained option giving you access to them all. Click on the relevant links below for more information on each area:

Want to know more? Contact the team today.

Join in with the compliance conversation by following us on LinkedIn and connect with our Director, Jonathan Clarke for more information.

 

 

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