International news
UN Tax Committee discussing multilateral instrument for Model Treaty Article 12B
The UN Tax Committee is considering how to implement a digital tax treaty provision using a multilateral instrument. Last year, the UN Tax Committee formally approved Article 12B, which addresses automated digital services. Article 12B “does not require any particular threshold, such as a permanent establishment, fixed base, or minimum period of presence, in a Contracting State as a condition for the taxation of income from automated digital services.”
A multilateral instrument would allow countries to immediately incorporate Article 12B of the UN model tax treaty into existing tax treaties.
"Lex Netflix" tax to be put to nationwide Swiss vote
On May 15, Swiss voters will vote on an amendment (dubbed Lex Netflix) to the Federal Cinematic Culture and Production Law requiring major international streaming platforms in Switzerland to invest 4% of their domestic revenue in Swiss film productions. Alternatively, the streaming service providers may pay an equal amount to the Federal Office of Culture which would then use the proceeds for domestic productions. The tax is expected to generate revenues between CHF 18 million and CHF 30 million per year for the Swiss film industry, based on estimates from the Federal Office of Culture and the Swiss Parliament.
Other countries such as Denmark have recently defended their own streaming levies by distinguishing the levy as not having the same characteristics as digital service taxes in the OECD agreement on global tax reform. Pillar I of the agreement requires all parties to remove all digital services taxes and other relevant similar measures with respect to all companies, and to commit not to introduce such measures in the future.
Kenya looks to double digital services tax rate to 3 percent; OECD pushes back
The government of Kenya is looking to increase the current digital services tax from 1.5 percent to 3 percent. The digital service tax took effect in January 2021 and applies to various digital items including apps, electronic books, movies, digital content streaming, online ticket sales, and cloud storage services.
The OECD urged Kenya to join the global minimum tax deal instead of implementing unilateral measures. Nearly 140 countries reached a deal last October but Kenya did not sign on to the agreement
United States news
Virginia sales tax exemption expanded to include Internet network equipment
Virginia’s Governor signed H.B. 1155, which expands the sales tax exemption for amplification, transmission and distribution equipment to now include “network equipment” that is used to provide Internet service. The expanded exemption defines a “network” to include modems, fiber optic cables, coaxial cables, radio equipment, routing equipment, switching equipment, a cable modem termination system, associated software, transmitters, power equipment, storage devices, servers, multiplexers, and antennas that are used to provide Internet service. This exemption is available to telephone common carriers whose networks are also used to provide services other than Internet. The amended exemption becomes effective July 1, 2022.
Online account access services taxable in Washington
On April 12, 2022, the Administrative Review and Hearings Division of the Washington Department of Revenue released decision number 41 WTD 118 (originally issued on June 4, 2020), concluding that a company providing online account access services to credit unions was providing taxable digital automated services (DAS) and not data processing services which is excluded from taxable DAS. The company’s online account access services included an online banking platform allowing member credit unions to provide various online banking services to their customers, and an automated phone system for customers to make inquiries, access account information, and activate credit cards. In concluding the services were taxable DAS, the decision explained that each of the services were a component part of a larger integrated service that constituted a taxable DAS. The decision also ruled that the tax was not discriminatory against e-commerce under the federal Internet Tax Freedom Act because there was not a non-digital equivalent to categorize as similar for purposes of establishing discrimination.
