COVID-19 threatens global tax wars
- Jun 8, 2020 | Richard Asquith
A new round of cross-border tax wars is being ignited as governments struggle to control ballooning coronavirus deficits, and launch ‘self-sufficiency’ economic strategies. Whilst the U.S. publicly toys with import taxes, or fiscal incentives to bring production home, it is being met by a range of levies targeting its businesses selling internationally. Many are rushed; showing signs of poor design or details for businesses to understand their liabilities.
The imposition of Value Added Tax (VAT) on ecommerce and digital services selling to foreign consumers makes up the first line of attack. But COVID-19 also now threatens to undermine the fragile solidarity around global tax reform negotiations achieved by the OECD, and dent globalisation.
VAT imposed on foreign ecommerce
In the past month, the following new taxes on foreign businesses have been enacted:
- Mexico is charging 16% VAT on digital services (downloads/streaming media, apps) from 1 June.
- Hungary has reintroduced a Retail Tax on 1 May, now including foreign ecommerce sellers from around the world.
- Sweden has announced an extension of its ‘Chemical Tax’ to include e-retailers selling electronics and clothing to its consumers from 1 October.
- Indonesia is to charge 10% VAT on foreign ecommerce merchants from 1 July.
- Philippines has this week announced a digital services tax proposal.
- Canada, British Columbia is to levy 7% provincial sales tax on digital services provided by non-resident providers from 1 July.
- Chile has imposed 19% VAT on downloads of digital media from the start of May.
- Vietnam has introduced VAT on goods and digital services from July.
COVID-19 to destabilise global tax rethink
A likely second-round battleground will be European and Asian countries targeting the U.S., and, increasingly, Chinese, digital giants.
The digitisation of the world economy has created an opportunity for online consumer tech giants to bypass the existing global tax system. It is widely accepted that the international tax system needs reform to reflect the 21st Century digital world, and this has been progressing under the supervision of the OECD. However, the COVID-19 lockdown has stalled talks. Countries such as France have warned that they have now lost patience, need the tax revenues, and so will push ahead with unilateral measures. Other countries, such as Italy and the U.K., have their digital taxes in place ready to start collections at the end of this year.
As the COVID-19 bill crystallises over the summer, more countries will join the foreign tax stampede. This can only add to the worries of future global trade.