With the rise of big data and artificial intelligence, digital technology knows very few borders. The levels of globalization the internet has introduced have had many benefits in this sense, creating a booming digital economy and ecommerce industries. As these have evolved and transformed to form a more complex economy though, the issue of taxation has arisen.
Adaption is key to survival in such a complex digital economy. As Sean Mallon points out, tax authorities have already been using big data for audits, matching 1099s to similar social security numbers, monitoring social media data, and using regional income statistics to watch cash-based businesses. But how do tax authorities use big data to level the playing field globally? The recent proposition of international tax codes is one potential solution. This signals a sense of impending deglobulization and disruption which could bring further challenges.
Big Data Can Help Regulate Existing Taxes on the Digital Economy
In light of the OECD’s Base Erosion and Profit Sharing (BEPS) project, specific tax measures have been suggested on a regional and national basis within the digital economy. Tax jurisdiction for buying and selling products and services online have been somewhat unclear, with little regulation. This has allowed giants such as Facebook and Google to move profits around to avoid taxation on digital advertising revenue and more.
Rules around taxation are constantly changing around the world. For this reason, such large digital corporations have been moving profits between jurisdictions to pick and choose those which best benefit them. Recently there has been a growing trend in some countries for the governments to charge tax based on the location of the purchaser instead to avoid taking advantage of low rates in other countries. International tax codes will help tax authorities use big data to prevent digital giants from global tax evasion.
Already there are a number of countries which have introduced new digital tax laws. These range from charging an extra 10 per cent on sales of low value goods in Australia by non-resident ecommerce companies to Norway’s VAT requirements for B2C transactions for e-services with an annual threshold above NOR 50,000 (that have been in place since 2011).
International Tax Code Propositions Will Make Room for Big Data
According to Pierre Moscovici, European commissioner for economic and financial affairs, taxation and customs, a European digital tax is happening. The question of if has now turned into when and how. Many European governments now share the same view that action is required to fix what has become a big problem of many large digital companies paying low levels of tax across the board.
In April another OECD report is expected into the area. Therefore, the EU is currently finalising its plans for tax reform to create a workable and effective international approach to deal with digital taxation. Tax takes have failed to keep up with rising profits, but the digital economy will not wait for reform, so the implementation of international tax codes needs to be sooner rather than later.
One OECD report stated that for consumption purposes, internationally traded services and goods should be taxed according to the rules of the jurisdiction of consumption. These international tax codes will differ for each country and region, meaning digital companies and consumers will need to be aware of such individual taxation rules. As mentioned, many countries outside of the EU already have some in place, while others are in the process of developing ones.
The digital economy is currently undergoing and preparing for some large changes in relation to taxation, so all such businesses need to conform to new regulations. International tax authorities have big data and AI tools already at their fingertips – it’s just a matter of having the laws in place to allow them to use new technology to level the global playing field.