The heated debate on Digital Economy Taxation is not only happening in Europe and Asia. The temperature on the topic is clearly increasing in the LATAM region at a fast pace. Additionally to the recent measures from Argentina and Colombia, now Mexico and Chile are also jumping into this topic with specific proposals.
Argentina recently introduced rules in late 2017 for non-residents supplying digital services like streaming and music downloads to Argentina-based consumers that are now subject to a 21% VAT rate in practice since the form was passed on June 27th, 2018.
The burden of collection and remittance of the VAT is not on the foreign digital service provider but on the Argentine customer’s payment provider. There is an exhibit to the Law specifying the companies whose services fall in scope according to the Tax Administration (AFIP).
Mexican 3% Digital Services Tax
On top of the Mexican Congress proposals to amend several tax laws, in early September 2018 one of the Mexican political parties presented a separate proposal aiming to introduce a 3% tax on digital services income that has a number of similarities to the March 2018 EU Directives proposal.
Activities / Services under scope:
• Displaying advertising in a digital interface addressed to its users;
• Providing a “multifaceted digital interface” that enable users to locate and interact with each other or to supply goods or provide underlying services directly between them;
• Transmitting data gathered about users of a digital interface.
Digital Services Tax rate: 3%.
o Annual revenue of taxable services under MXP 100 million;
o If the income is not subject to Mexican income tax under the Income Tax Law;
o In the case of advertising: if the main purpose of the business entity that makes the interface available is to supply digital content to users or provide communication services or payment services or providing financial services;
o In the case of user data transmissions: the transfer of data by a financial services provider;
o Services provided between entities under tax consolidation regime.
Digital Services substitute tax in Chile
A tax reform bill sent to Congress ending July 2018 included the proposal for a 10% Digital Services Tax on services provided to Chilean tax resident individuals by non-resident service providers. The underlying idea is that non-resident Digital service providers don’t have to register for VAT purposes in the country nor be subject to audit, control or review. It is not clear if same can be said from a Corporate income tax perspective.
Services in scope: Entertainment services rendered through digitally delivered content, advertising and promotional services and the use/subscription of internet platform services, as well as remunerated data storage services like cloud or SaaS services.
Government would expect the tax to be collected by an intermediary: the credit card companies or financial institutions that are channeling the payment for the services.
As a difference to the EU proposal it seems that some deductions could be possible in the Mexican proposal, which also will seem to be leaving clear that financial services overall are out of scope, probably with more clarity than the EU based draft.
The Chilean based approach is an interesting one, focused in simplification. It will be necessary to have more information to understand the inter-play between VAT/CIT/ and PE and the potential substitute tax.
The application of the Argentinian list of companies delivering “in scope” services is tied to specific legal entity names that contain certain commercial denominations/words. The list will be regularly updated. Will be necessary to better understand the criteria for being in or out the list.