How to tax a cloud? Experts discuss taxation in a digitized economy
With the advancement of information technologies, such as cloud computing and blockchain, an increasing portion of the global economic activity is moving online. Along with immense opportunities, the digital economy also brings serious challenges, including to tax systems, which may particularly affect the developing countries. How to tax digital activities conducted by businesses located in different countries? Who should collect the taxes for income generated by online products and services? A recent UN meeting of tax experts considered these and other issues.
The UN Economic and Social Council (ECOSOC) special meeting on international cooperation in tax matters, held on 18 May 2018, discussed how international tax cooperation can help countries mobilize more domestic resources for sustainable development. It also considered what institutional arrangements are needed to promote such cooperation.
A wide range of tax experts from national tax authorities, international organizations, the business sector and civil society took part in the meeting, including the new members of the UN Committee of Experts on International Cooperation in Tax Matters.
Building on the deliberations at the 2018 ECOSOC Financing for Development Forum, the speakers focused on the need to adapt the tax rules to the new business realities created by digital technologies. Several countries have already implemented important changes to their tax systems, but there is currently no consensus on which way the international community should be heading. Participants therefore welcomed that the Tax Committee had taken the topic on its agenda.
The meeting also discussed the tax treatment of projects funded with official development assistance (ODA). Some donor governments and international organizations request wide tax exemptions for such projects. According to some estimates, these exemptions can represent as much as three per cent of Gross Domestic Product (GDP) in certain countries.
In addition to lost tax revenue, tax exemptions could also lead to higher transaction costs, potential for abuses and an increased burden for tax administrations, the experts noted. The Tax Committee has already developed draft guidelines on the issue in 2007 and is now considering updating them.
In addition to the thematic discussions, the special meeting also received an update on the work of the UN Committee of Experts on International Cooperation in Tax Matters and the Inter-agency Platform for Collaboration on Tax, which had held its first global conference on “Taxation and the Sustainable Development Goals” at the UN Headquarters in February this year.
For more information: ECOSOC special meeting on international cooperation in tax matters