Biden proposes digital tax compromise focusing on 100 largest companies
- On Thursday, March 8, it was reported that the Biden administration shared a plan to address the challenges of the OECD’s Pillar One proposals. The US plan apparently would apply to the 100 largest companies without regard to whether they are engaged in digital services activities, and would remove the distinct categories of services in the OECD digital tax plan. The goal of the US plan is to simplify compliance and alleviate administrative burdens. The details of the plan were released only to other OECD participants, and have not yet been made generally available.
UK and EU stand behind digital taxes amid US trade investigations
- After the US Trade Representative announced potential 25% tariffs in response to the digital services taxes (DSTs) from several countries, the UK noted that it was “working positively with the US and other international partners to find a global solution to this problem and will remove the DST when that is in place.” However, the UK noted that if the US did implement tariffs, the UK “would consider all options to defend UK interests and industry.” Similarly, the EU affirmed its intent to introduce a digital levy after the US announced a potential tariff on EU member nations Austria, Italy, and Spain in response to their DSTs. The EU noted it will “work with the US on finding a timely global solution to the fair taxation of the digital sector.”
US support for global minimum tax brings hope to international solution
- Following the President Biden’s proposal of replacing the BEAT regime with an anti-abuse measure that is generally consistent with the OCED’s “Pillar Two” plan, Secretary Janet Yellen emphasized the administration’s intention to implement a new global minimum tax. The proposal was viewed favorably by French Finance Minister Bruno Le Maire who called on other financial ministers to “seize this historic opportunity” for a “comprehensive agreement on international taxation.” The White House’s proposal of a 21% minimum global tax is higher than the 12.5% levy under discussion at the OECD as a part of its Pillar One and Pillar Two Blueprint. Le Maire noted that France was open to a higher rate, while Irish Finance Minister Paschal Donohoe noted that Ireland has “reservations” about the “principle of a global minimum tax.” Discussions surrounding a global minimum tax necessarily implicate the multilateral negotiations surrounding digital taxes.
UN releases final draft of digital tax treaty article
- The UN’s Committee of Experts on International Cooperating in Tax Matters released the final version of Article 12B, Income from Automated Digital Services, of the UN Model Tax Treaty. Under Article 12B, “automated digital services arising in a Contracting State, underlying payments for which are made to a resident of the other Contracting State, may be taxed in that other State.” The exact rate of tax will be set through bilateral negotiations. The article now defines “automated digital services” to include online advertising services; supply of user data; online search engines; online intermediation platform services; social media platforms; digital content services; online gaming; cloud computing services; and standardized online teaching services. Article 12B does not apply if the underlying income also qualifies as royalties or fees for technical services, which are covered under Articles 12 and 12A of the treaty, respectively.
United States news
Florida sends economic nexus and marketplace facilitator bill to the governor
- On April 12, 2021, the Florida legislature presented S.B. 50 to Governor DeSantis, which would require sales tax collection from a person whose remote sales to Florida exceed $100,000 per year. It states that a person whose “taxable remote sales in the previous calendar year” exceed $100,000 has a “substantial number of remote sales” and is therefore a “dealer.” The bill also requires a collection by a “marketplace provider,” defined as a person who facilitates retail sales by listing or advertising for sale in a marketplace and directly or indirectly collects payment from the customer. The bill provides an exclusion from this rule for travel agency services, delivery network companies, and payment processor businesses. These requirements apply to remote sales made or facilitated on or after July 1, 2021, by a person who made or facilitated a substantial number of remote sales in calendar year 2020. A marketplace seller shall consider only those sales made outside a marketplace to determine whether it made a substantial number of remote sales. Starting April 1, 2022, marketplace providers are also required to collect and remit the E911 fee, waste tire fee, and lead-acid battery fee.
New York Department of Taxation finds that IT support service was not subject to sales tax
- The New York State Department of Taxation and Finance issued an advisory opinion determining that the fee paid for an information technology support service was not subject to sales and use tax because the taxable component of the service was delivered outside of New York. The taxpayer provided investment advice to its customers and as part of the service, it conveyed significant data through its website. To deliver this service the taxpayer used servers and other information technology assets located outside of New York. The taxpayer hired a New York based company to manage these assets and to provide IT services. The advisory opinion determined that the management of the IT system including security audits, providing anti-virus software, routing emails through anti-spam platform, and managing the taxpayer’s domain name system, constituted a taxable protective service under New York statute. However, because the computer assets and data being protected were located outside of New York, this service was not subject to New York sales tax.