The Parliamentary Price range Workplace launched a report (the PBO Report) on 26 June on the potential introduction of a digital tax in respect of the provides of products and companies by non-residents to South African prospects, that are delivered by digital means.
The PBO Report observes that many international locations have opted for unilateral guidelines to tax the digital financial system in view of the comparatively gradual progress made by the OECD/Inclusive Framework to agree on a brand new strategy, which has turn into important in view of the budgetary constraints following the Covid-19 disaster.
The PBO Report concludes that South Africa can study from these international locations, notably France, the UK, Spain and Italy, which have launched unilateral measures to tax digital provides by imposing a flat tax on the provides by MNEs to prospects of their jurisdictions.
The African Tax Administration Discussion board (ATAF) has additionally lately launched a report (the ATAF Report) containing a instructed strategy for members who’re contemplating whether or not to introduce new guidelines for the taxation of extremely digitalised companies. The ATAF Report observes that the digitalisation of enterprise usually allows MNEs to hold out enterprise in African international locations with no or very restricted bodily presence in these international locations. This development has seen some MNEs with bodily presence in a rustic shut their premises and transfer to on-line buying and selling. This makes it tough for international locations to ascertain taxing rights over the earnings the MNE is making from these enterprise actions.
The ATAF Report additionally acknowledges the work being achieved by the OECD/Inclusive Framework to discover a international consensus resolution to the tax challenges arising from the digitalisation of the financial system. Nonetheless, it expresses the view that there’s a important danger for African international locations to easily wait to see whether or not the OECD/Inclusive Framework can obtain a global resolution since it might considerably delay the introduction of applicable laws, which might price African international locations thousands and thousands of dollars of misplaced tax income.
The principle impediment to such a unilateral digital tax is the essential, current rule of double taxation agreements (DTAs) which solely permits the supply jurisdiction to impose tax on a resident of the opposite contracting state if that resident carried on enterprise through a everlasting institution within the supply state. A number of of the international locations which have threatened to impose the brand new digital tax have determined to droop the efficient date of the brand new tax in view of the uncertainty whether or not the tax could also be declared invalid by the related courts. That is most definitely the results of the strategy of the USA, which has indicated that it might encourage its residents to oppose the imposition of the tax in court docket.
The OECD/Inclusive Framework has remarked multilateral settlement (MLI) amending the related DTAs to permit such taxation by the market jurisdictions could possibly be signed by the center of 2021, which may end result within the implementation of the brand new guidelines in 2022.
Subsequently, it’s advisable for the Authorities to await this worldwide motion to make sure cooperation of different states, notably the USA, since many of the focused MNEs are USA based mostly.
Nonetheless, according to the suggestions within the OECD/Inclusive Framework experiences, the Authorities ought to start the drafting of the related laws to impose such digital taxes, together with provisions to deem earnings generated by a non-resident from provides to residents by digital means as South African supply earnings. Authorities must also contemplate amending the international tax credit score provisions to permit a tax credit score for international digital taxes imposed on digital provides by South African corporations to international prospects. The present international tax credit score provisions would typically not present such aid for the reason that supply of the availability would typically be thought to be in South Africa the place all of the inputs for the web site in query are supplied and the place the services or products offered through a web site might originate.