The digitalisation of the economy has raised many challenges for taxation. While the global trend of online commerce and international trade of services and intangibles consolidates, national governments in developing countries struggle to mobilise resources to finance their development goals. Tax administrations face the challenge of adapting their operative systems to collect revenues from cross-border transactions and new business models. To address this challenge and harness the revenue potential of digital transactions, the Inter-American Center of Tax Administrations (CIAT), with the support from the Norwegian Agency for Development Cooperation (Norad), has developed the Digital Economy Compliance Tool (DEC). In an insightful webinar, CIAT presented the DEC tool and explained how other ATI members can profit from it.
The DEC tool offers a simplified voluntary mechanism for registration, declaration, payment and communication of companies operating without a physical presence in a country. In his introductory remarks, the Director of Cooperation and International Taxation at CIAT, Mr. Isaac Gonzalo Arias Esteban, stated that the tool has a global potential because it is open source and completely parametrisable. The tool can contribute to expedite the collection of VAT, allowing countries to apply the destination principle in cross-border transactions, and ultimately fostering fair competition in international trade.
Against this background, Mr. Eduardo Jiménez, advisor in the Consumption Taxes Unit, Centre for Tax Policy and Administration at the OECD, presented the OECD recommendations on indirect taxation of digital economy transactions. The recommendations have four core pillars (i) the creation of an effective legal basis for a right to tax inbound international online sales; (ii) the implementation of an efficient and effective collection mechanism; (iii) the leverage of the potentials of existing digital platforms to enhance VAT collection and; (iv) the facilitation of compliance and strengthening of enforcement through modern, data-driven risk management and administrative cooperation. Mr. Jiménez brought attention to the publication of the first VAT digital toolkit, which has a regional focus on Latin America and the Caribbean.
To showcase the revenue potential that e-commerce has, Mr. Santiago Díaz de Sarralde, director of Tax Studies and Research at CIAT, presented empirical evidence on the levels of VAT collection that could be levied through effective taxation of digital services. Taking a sample of eight Latin American countries, it is estimated that yearly additional revenues could amount to USD 255 million in total, which represents between 0.03% and 0.06% percentage points of the national GDPs in the selected countries. The areas with the highest revenue potentials are the digital advertising and the audio-visual production, respectively.
Next, Mr. Raúl Zambrano, Technical Assistance and Information Technology and Communication director at CIAT, presented the DEC Tool, a software-based solution that aims to facilitate the collection of VAT for transactions taking place virtually. The tool has two interfaces: one for the tax administration and one for the taxpayer, and it can be adapted to any language. Mr. Zambrano explained how to utilise the multiple functions of the DEC tool, such as registering new taxpayers, filling return requests, uploading documents and paying obligations. Since the tool can be customised and adapted to the necessities of any tax administration, there are countless additional options to collect information and optimise processes. In terms of security, the DEC Tool fulfils the highest security standards and can be operated on-prem (within the tax administration’s internal system and hardware) or as cloud-based solution (via internet).
To conclude, Mr. Simen Bjørnerud, Policy Advisor at Norad and representative of ATI Consultative Group 1, pointed out the importance of improving fair and effective VAT collection, as it represents the most important revenue source for developing countries. Furthermore, he celebrated the increasing cooperation among CIAT and the OECD in the last years to address relevant challenges for the taxation of the digitalised economy. Mr. Bjørnerud emphasised the potential of the DEC tool to foster domestic revenue mobilisation, particularly in the Least Developing Countries (LDCs), and emphasised that the ATI will continue fostering the exchange of experiences and peer learning among members on the topic.