Digitalized economy consistent global taxation is the elevated principle to protect above any string of back & forth retaliations

Digitalized economy taxation agreement needed
  • US initiated the investigation of the passed France’s Digital Services Tax on July 2019, under Section 301 of the Trade Act and determined in December that French DST is discriminatory restricting U.S. commerce as “the services covered are ones where U.S. firms are global leaders”.  It also said it is inconsistent with prevailing international tax policy principles.
  • The US office confirmed also on January 17th that it reserves the right to take retaliatory measure if the Czech Republic imposes a 7% Digital Services Tax.
  • In respect to France the Trade Office proposed additional customs duties of up to 100% on some iconic French products like cheese, Champagne, handbags, cosmetics and others with an approximate trade value of $2.4 billion. 
  • The press quoted Amazon, Google and Facebook as endorsing the Administration’s tariffs plan in the case a negotiated solution could not be reached over the French DST. 
  • Previous US retaliatory 25% duties on wine are in discussion in a separate dispute over supposed European government aid to Airbus, which would now be increased to 100 percent.
  • French Economy Minister mentioned in early January 2020 that he and U.S. Treasury Secretary were doubling their efforts to try and reach a compromise on digital taxation at the OECD,  giving themselves time until next meeting in Davos ending January: “We want to try all options to reach an agreement at the OECD in the next 15 days,” Le Maire said.
  • EU Commissioner for Trade increased the temperature of the debate when confirmed that they back Paris in this dispute:

“The European Commission will stand together with France and all of the member states who wish to have the sovereign right to impose digital taxation on companies in a fair way. We will look at all possibilities if any tariffs and measures are imposed by the US”.

  • Days after, Mr Le Marie stated outright that the recent U.S. proposal that the future international tax reform could be optional for companies is a “non-starter” and is “no longer on the table”, and that it was up to U.S. authorities to make a move on the French digital tax…seemed clear enough.
  • Nonetheless, the Presidents of the 2 countries talked on January 20th , publishing positive tone Twits just after….followed by an announcement from France yesterday the 21st of not a withdrawal of the tax but an effective suspension of the cash collection until the OECD resolves this topic at the end of 2020.  

If the OECD reaches an agreement by the end of 2020, France’s unilateral tax will not be applied.

To note that payments were already collected in November for 2019 on revenues from July.

  • Even when the US Trade Office wants to send a very strong signal to the world with the French DST case,  and it is having some reach as we have just seen yesterday, the reality is that other countries like Spain, Italy,  Austria, Turkey and the UK have either passed or firmly stated again this week their willingness in doing so despite those type of warnings. 

Some of these countries have very tight Public Budgets to deliver on.

A good number of LATAM, African and Asian countries are heading to the same direction.

France has just granted time to align with OECD calendar but remains firm on the intention and the EU Commission reiterated yesterday the support to OECD effort but intention to reactivate the DST Directive if consensus is not reached.

This is the never-ending story of the last 12 months but it is every day more obvious that global consistent solution is required now or not only the tax table, but the international commerce trade balance will suffer on a very deep basis.   

A balance between the currently overarching political aspect and the soundness and practicality of the technical solution will need to be reached, and that is not going to be easy.  But leveling the playing field is needed as digitalized business models will be pervasive in many industries.

Both Microsoft and Apple top executives confirmed yesterday that they back the push for common global solution to pay appropriate taxes where they do business.    

DET3 Comments

We refer to the title we have provided to this article.

African route: Kenya Digital Tax & Nigerian Significant Economic Presence as nexus for 2020 digital economy taxation

Kenya Nigeria Digital Tax

Changes to the Kenyan Corporate Income Tax Act came into force last November 2019, subjecting to tax income accrued in or derived from Kenya by Digital Market Places: ” …a platform that enables direct interactions between buyers and sellers of goods and services through electronic means”.

A VAT change was also introduced, making digital market places goods or services subject to local Value Added Tax.

Relatively vague the Corporate Tax text still, to be clarified and extended by a future regulation from the National Treasury. No idea yet on how Kenya wants to fix or attract the value creation of this type of platforms to their territory without contradicting current Double Tax treaties.

Perhaps their idea is following the Nigeria steps.

The 2020 Nigerian Budget Law took note of some of the OECD action 1 solutions proposed during 2019 and passed corporate tax related provisions recording the Significant Economic Presence concept (SEP) in black and white.

According to the norm, when a SEP is found a nexus for the taxation of profit earned by non-resident companies engaged in digital, technical, management, consultancy or professional services whose revenue is obtained from a tax resident person in Nigeria will be created.

It is expected that the implementation of the rule will bring an obligation for a withholding tax to be made on the payments to the non-resident service providers.

The 2020 budget law aims to tax non-resident companies delivering very broad range of digital services, digital platforms and e-commerce commissions, and not only that but including online payment services and high frequency trading, on top of consulting and streaming services.

The budget law has not provided a definition of “significant economic presence,” and is requesting the Ministry of Finance to do that later through a Ministerial Order.

The movement represents a departure from the physical presence in Nigeria to generate a Corporate Income Tax Permanent Establishment for those companies captured by any minimum nexus drivers to be set by the Government in the next months.

The captured entities will be required to ask for a Tax registration number and file income tax returns in Nigeria. 

DET3 Comments

Kenya and Nigeria are being not as out of the mark or creative like Uganda as it seems that the idea in the Nigerian Government is following the OECD comments in terms of what could be the SEP triggering drivers and when a sustained significant economic remote connection with the territory exists.

But still, concrete definitions and operational details are required before the law can come effectively into force.

Guidance on how to define the SEP attributable profit will also be required and about how a credit system would work with the ex-ante withholding taxes to be potentially deducted straight from the payments by the payer.

Having standalone recommendations and interpretations from countries taking this SEP route like India, Italy and others, will create a very cumbersome landscape for multi country digital business offerings.

Even much more needed are the Kenya regulatory clarifications as their chosen route is not a kind of new hybrid DST as other countries did.

The new Corporate Income Tax Kenyan changes have to demonstrate viability within the international framework Kenya is part of through the OECD reinforced cooperation.

It is more obvious every day as we have repeated many times that we need a global consistent solution to be applied, interpreted and executed. 

We expect the much-needed Pillar 1 OECD concrete proposal to be released for discussion soon.

Nuances of the Czech Republic Digital Services Tax draft 2020

Czech Republic Digital Tax draft

The government published a draft bill proposing a 7% digital services tax in December 2019. The tax will apply to companies or groups generating with a turnover higher than€750 million and with a tax base relating to local in scope taxable digital services in excess for around €4 million equivalent.

In scope taxable services provided through a digital interface:  

  • Performance of targeted advertising campaigns,
  • Utilization of multilateral digital interfaces,
  • Provision of user data.

Users can be companies or individual consumers.

Like in the EU directive draft the location of the technical equipment used to access the digital interface is the determining triggering point for the tax liability, using the equipment’s IP address as a key indicator. 

For the digital advertising case the campaign must be targeted and can include the provision of accessory services.

The draft establishes a minimum threshold for the taxation of specific individual digital service types:

  • Around €200k for targeted digital advertising campaigns and the provision of user data for a given service.

  • Around 200k of local user accounts in the multilateral digital interface

Registration will be required, and monthly tax payment instalments will be due, as long as records of the digital services on a transaction by transaction basis.

It is foreseen that when passed the law will come into force around June-July 2020, but the draft also comes with an expected law expiration date at the end of 2024.

DET3 Comments

The Czech DST draft law is mostly aligned to the EU Directive draft, with the following key differences:

  • The higher tax rate
  • Includes an anticipated expiration date, likely to be subject to effective OECD level agreement.
  • Companies where digital services are not the core will be exempt from taxation if the in-scope services delivered in the EU and other closer territories are below 10% of total company / Group revenues.

    This is a relevant nuance; in the public comments to EU Directives and Spain digital tax DET3 remarked the necessity to set up the Non-Core Digital Services exemption to avoid economic distortions and undesired overall effects of the DST regulations.

Welcome to the new twenties: Italian Digital Services Tax is finally here

The digital services tax text amendment that was included in the budget law has been finally passed and is effective since January 1st  2020.

The text has been elevated to match the EU directive draft model in its majority part.

The comparation to it results in the following summary points:

  • Thresholds: WW revenue is the same €750M.
                        Local in scope digital services of at least €5,5 M.
  • In scope services are the same 3 and tax rate is the same (3%).
  • Not in scope activities:
    • Same than in the EU text, but adding “services for the management of platforms for the exchange of electricity, gas and carbon credits” and “making available a digital interface for the supply of goods subject to excise duties”.
  • IC transactions out of scope equally.
  • Formalities: a special monthly ledger to record the DST revenues will required.
  • Determining the user location is based on the IP address also.
  • A DST identification number will be required and a tax representative is to be appointed by the foreign digital services rendering company. Local subsidiaries of PEs are jointly liable for the DST.
  • First cash payment of the DST for FY 2020 will be due February 16th 2021, while its return is to be filed the last day of March 2021.

DET3 Comments

The tale became true finally and the Italian DST is in force now.  Deeper guidance is needed about how to interpret in real cases the IP address part of the regulation or about how to exercise the new formal requirements.

Let’s hope for a much faster elaboration of those Decrees as practical guidance will be clearly needed and the admin duty is for sure going to be heavy in practice for the affected companies.

To be seen if the Tax Agencies of the EU countries that have a DST in place with a same source foundation or are about to pass it share a minimum level of interpretation guidelines as the practical issues will be the same and the digital services revenues taxed connected in many cases.

For MNEs operating in the EU such a common interpretative guidance would be highly appreciated for what is expected to be the “interim” period until the OECD global solution is nailed and in force.  

Key note on the Turkish DST in force from March 2020

The digital services tax provisions were passed on 7 December 2019 with no major changes to the November draft and will come into force in March 2020.

In a few words, the key elements of the Turkish DST are as follow:

  • Tax rate = 7.5% on Turkish revenues.
  • Services in scope:

    • Digital advertising and technical services for the presentation of advertising, including advertising control and measurement and management of users

    • Sales of audible, visual or digital content including computer programs, apps, music, video, games and related, via a Digital Platform

    • Provision and operation of a digital platform by which users may interact with each other, including for sell or facilitate goods or services among those users.
  • Intermediary services providing by a digital platform to the above in scope service providers do also fall in scope.
  • Thresholds to be a taxpayer:
    • A minimum of €750M total ww revenue
    • Approx. €3,1 M from in scope digital services
  • No physical presence is needed to fall in scope.
  • Exemptions:

    • Services for which the special communication tax is paid
    • Banking law services
    • Services created with local based intellectual property from legally defined R&D centers
    • Payment services, including electronic

DET3 Comments

Most EU unilateral drafted or passed DSTs are tied to the core of the EU directive drafted in 2018. 

The Turkish DST scope is sculpted around the 3 in scope core EU definitions, but goes far beyond in the tax rate and in neglecting many of the exempted services connected to digital content and software.

It is not clear if the DST is compatible for the recently passed withholding tax on digital advertising transactions, but nothing has been said against this potential duplication affecting this specific transaction.

Interestingly, the Turkish law recognizes the traditional heavy special taxes burden of the Telco sector by excluding it from the tax together with banking and payment services.

Nothing is said about platform distributing or intermediating in energy / utilities.  

The strong economic and trade policy angle of this measure is  confirmed when the passed regulation authorizes the Ministry to request the Communication Authority to bann the electronic activities of the digital and IT if no action has been taken by such companies to comply with the new DST obligations.

What’s the true nature of the 2020 Malaysia Digital Services Tax?

According to the Services Tax Amendment Act 2019 Digital services in scope were “…any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.”

The recently published Guide provides now a non-exhaustive list of services that could be regarded as digital services:

(a) online licensing of software, updates and add-ons website filters and firewalls;

(b) mobile applications and video games;

(c) provision of digital content, for e.g., music, e-book, film, images, text and information;

(d) advertisement platform, for e.g., provision of online advertising space on intangible media platform;

(e) online platform, for e.g., offering of a platform to trade products or services;

(f) search engines services;

(g) social networks;

(h) database and hosting, e.g., website hosting, online data warehousing, filesharing and cloud storage services;

(i) internet-based telecommunication;

(j) online training, for e.g., provision of distance teaching, e-learning, online courses and webinars;

(k) online newspapers and journals subscription; and

(l) payment processing services.

Any foreign service provider (FSP) or Platform Operator treated as such, with an annual services value above an equivalent to approximately USD$120,000 is forced to register in Malaysia for this tax purposes and collect it at a rate of 6% on their sales to Malaysia-based B2B or B2C customers.

Your customer can be considered to be Malaysian when makes payment for the  digital services using a credit or debit facility provided by any financial institution or company in Malaysia, has an internet protocol address registered in Malaysia or an international mobile phone country code assigned to Malaysia or resides in Malaysia.


This tax is not exactly a unilateral DST in the sense of some country’s passed / drafted regulations or the EU draft directive that are more targeted on purpose.  

This is in fact a Sales and Services Tax on a wide range of imported Digital Services equivalent to a GST/VAT type of indirect tax, with a reduced tax rate.

The Guide has confirmed a kind of prevalence of the new Digital Sales and Services tax formal obligation stating that there will be an exemption granted to Malaysian businesses from the obligation to reverse charge to avoid double taxation, if such company has already been charged with service tax by a FSP.

In essence this rule forces an indirect tax registration and subsequent tax collection in Malaysia if the users of the non- established digital service provider are local, with a low quantitative threshold to be in-scope.

As a difference with a unilateral DST, the 6% B2B charged amount should therefore be deductible at the level of the services importer and the invoice to the final B2B customer should not therefore be increased versus before. Unilateral DSTs force the companies to decide whether to pass-on that cost or not the final customer.  

The tax aims to level the playing field between foreign digital service providers of any type and local digital service providers.

Many US companies like Facebook, Netflix and Google confirmed their intention to comply with the law, but the impact should be the same for instance for transactions as normal as standard software licenses, or on-line courses acquired automatically through the web with low or no human intervention at all.

This is a different policy option than that of the unilateral pure DSTs, with some equivalence points; countries like Russia, New Zealand and Norway took this road before as well as several LATAM indirect tax regulations.    

Between trade wars, retaliations and the many different tax policy options including DSTs, Withholding taxes, Pillar 2, Indirect Taxation and the like, we are making it really cumbersome for any global digital 24/7entrepreneur.  

We shall reflect on the impact of it in one of our next news or blog posts.

DET3 input to OECD Pillar 2 public consultation

Early December 2019 was the due date to file observations to the OECD public consultation in respect to the Global Anti-Base Erosion Proposal (“Globe”) under Pillar II and a specific public consultation meeting on the topic happened on December 9th.

You can find the complete input DET3 contributed to that consultation in the reports section of our web, and you can see below the


We do agree with using the consolidated financial accounts prepared with ultimate parent accounting standards as starting point for this exercise.

This is objective audited information that is consistent and homogeneous. The possibilities to manipulate it are rather limited and it is a set aligned with the starting point of Pillar 1 final potential solution.

  • Our position relies on not taking in account any type of differences between accounting and tax.

    We do consider that the annual consolidated net result before taxes is the indicator that can better measure & reflect the economic capacity of a group for GloBE purposes over time.
  • Analyzing the 3 options to address or smooth the impact of timing differences, we consider that computing the annual worldwide (WW) Effective Tax rate (ETR) through the consolidated average corporate taxes accrued over a 3 years period would provide simplicity and ease execution and review. We, therefore, endorse this practical option.
  • We are supportive of a worldwide blending approach as the first option for the MNE group. Yet, we suggest giving the group the option to select the jurisdictional level as a second default option, if needed.
  • Two key benefits of the proposed approach for ETR formula determination:
  • Simplicity due to the removal of complex calculations, tracking and potential carry over by jurisdiction or entity in respect of taxable bases / tax attributes / Intragroup dividends & intercompany transactions.
  • The result would be based on an objective perspective of the group economic capacity.
  • We support considering qualitative / “behavioral” carve outs based on either a “Responsible & sustainable taxpayer index”, a “Substance index”, or a combination of both. These two (or mix of) indexes are industry agnostic and aligned with the main Pillar 2 objective of addressing remaining BEPS challenges.

DET3 input to OECD Unified Approach under Pillar 1

Last November 2019 21st and 22nd OECD organized a public consultation on the Unified Approach under Pillar 1

You can find the complete input DET3 contributed to that process in the reports section of our web, but see please below the


  • Strong need to clarify concepts & definitions, specifically regarding:
    • Excluded industries
    • Level of the market of activities in scope (B2C / or B2C + B2B)
    • Remote interaction
    • Activities behind the portion of the residual profit allocated through A amount
  • Highly regulated industries such as financial services, utilities or telecom, or regulated activities fulfilling certain criteria should be left out of scope
  • Revenue alone should not be sufficient to trigger the New Nexus rights; Consider introducing complementary qualitative KPIs supporting the “sustained and significant remote involvement“ in the market country.

  • If confirmed that A amount covers sales & marketing intangibles residual profit allocation to the markets, the NTR should spot when there is meaningful remote commercial interaction with a consumers base from abroad, likely with strong assistance of digital technology.

  • The NTR should not in our view be triggered when the majority of revenue obtained in the market is derived by a local entrepreneurial customer facing entity with appropriate substance that pay arm’s length taxes locally
  • When NTR applies, a minimum segmentation for activities or Business Lines may become necessary, although it will generate significant workload as the process itself will bring a high level of complexity.
  • Flexibility is needed for MNEs to define their level of activities aggregation. Homogeneous approach in information sources will be required
  • A consistent methodology should be used to determine the profits affecting A, B & C amounts in a way that can be traced and reconciled. To avoid double/multiple taxation, but also to facilitate review and administration of the new system under the Unified Approach 
  • Examples of the interactions between the NTR rules and current profit allocation rules will be appreciated

France to increase online platforms reporting dues

Previous to July passed French DST, any foreign company managing a digital platform was already required to observe a number of reporting obligations like delivering user’s activity reports to the users and also to the French Tax Authorities. 

For the report to the Tax Authorities, the first deadline will actually be January 31st, 2020 becaue of  the early French transposition of EU VAT Directive 2006/112/EC article 242 bis. Across Europe such Directive will be in effect from 2021 onwards.

On top of the individual or corporate digital platform users identification data to be reported, a recent draft decree published indicates that online platforms must also provide the amount of revenue obtained in transactions conducted with French users when they are subject to French VAT.  

The penalty regime associated to the absence of compliance of the potential obligations under this draft could attract a penalty equal to 5% of the understated or undeclared revenue.

The aim of the French Tax Administration is a higher involvement of Digital Platforms as key economic actors in addressing VAT fraud in the transactions affected by such directive, a movement that started strongly few years ago in the Latin-america region for instance.


This revenue information required, together with the DST reported information could be used also for Corporate Tax Permanent Establishment review purposes, and for strong indiciary profit attribution determination during a tax audit.  

The international landscape of reporting / cooperative obligations for Digital platforms is becoming more and more complex, onerous and fragmented with relevant differences of the platforms “in-scope” of these obligations.

A balanced discussion on this topic should happen also soon on a coordinated international basis as these requirements are affecting new business model digital platforms, as well as payment intermediaries or telco providers, depending on the side of the world we are.