The tax rules defining how revenue from “Cloud Computing is characterized, has significant implications on how and where the revenue is taxed. The competition among governmental authorities to redesign the rules to get a bigger piece of the “tax pie” is heating up!
The business and tax planning successes of FAANG companies (Facebook, Apple, Amazon, Netflix, and Alphabet’s Google) as well as the reduction in corporate tax rates in the U.S. due to Tax Reform, have added a sense of urgency.
The European Union “EU” wants to make sure that profits of US companies earned in the EU are taxed there. Will upcoming tax initiatives due in March include some type of “turnover tax”?
The Organization for Economic Cooperation and Development “OECD” has been working toward reaching a consensus on “digital taxation” and issuing a report in April. Will the OECD maintain its historical approach based on the permanent establishment concept or will it yield to some countries, who are looking for special profit attribution rules or formulary apportionment, where a slice of profit will be taxed based on sales, assets, and labor in a country?
In the U.S., the IRS is working on regulations to address “cloud computing”. Will they find a way to use existing tax principles?
In addition, in the U.S., on the state side, the Supreme Court has agreed, in January to hear South Dakota’s challenge to Quill vs. North Dakota. Will the Supreme Court overturn its 26-year old rule and allow states to impose tax collection obligations on vendors without a physical presence within a state?
Inevitably, tax rules designed for large multinational groups cascade down to much smaller enterprises, creating added complexity for all. Moreover, without global consensus, one should expect to see an increase in cost due to added controversy. All this adds up to a higher cost for cross-border business.
This material has been prepared for general informational and educational purposes only and is not intended, and should not be relied upon, as accounting, tax or other professional advice. Please refer to your advisors for specific advise.