As the OECD is studying the Pillar One blueprint, and the UN is contemplating its own Digital Services Tax (DST) proposal, attached is a useful reference for unilateral DST initiatives.
France has also determined that it will collect its DST payments in December this year, notwithstanding trade/tariffimplications.
The DST regimes will, inexplicably, involve more complexity, differing tax systems globally and the possibility for more disputes to arise, although such disputes may hopefully have efficient arbitration remedies.
IRS issued new regulations for translation in Sec. 986(c)
The IRS also issued new LB&I guidance addressing computation of Sec. 986(c) computations, attached for reference.
US T.D. 9909, Final Regulations, in coordination with the issuance of proposed regulations, REG-124737-19, addressing Sec. 245A and the exception to subpart F income under Sec. 954(c)(6). The final regulations address extraordinary dispositions and reductions.
The UK will drop its Digital Service Tax (DST) initiative, knowing it would only increase its stimulus by several hundred million dollars , while COVID-19 has set the country back hundreds of billions of dollars in stimulus. It will be interesting how other countries, who have adopted or are thinking about a unilateral DST, will react prior to the OECD Project addressing this in Pillar One.
As the French digital services tax (DST) is in effect from 1/1/2019, with the first payment due in November, there is considerable uncertainty how this tax will be repealed/refunded when/if an OECD DST model takes its place.
The politicians see this as a potential remedy to put out the fire which started with implementation of this tax. However, this issue becomes more complex from an international tax perspective as to how a refund/repeal would be treated: prospectively, retroactively, or some other method.
As this tax, similar to other provisions, was enacted unilaterally by the French administration anxious to improve their fisc, it is now shown to be disingenuous timing at the expense of multinationals which now have to pay this tax. Hopefully, other countries do not follow this lead in advance of the OECD DST proposals.
Not awaiting the OECD’s proposals for which a Workplace will be delivered in 2020, implementation following that several years later, New Zealand seeks to propose a 2-3% Digital Services Tax (DST) in the interim. Public comments will be accepted by July 18th. The Government discussion document and EY’s Global Tax Alert provide details, as referenced herein.
Discussion document highlights:
The Government is committed to ensuring everyone pays their fair share of tax, including digital multinationals. Achieving this will require changes to the current tax rules. There are two options for this:
The first option is to apply a separate digital services tax (DST) to certain digital transactions. A DST taxes at a low rate (for example, 2% to 3%) the gross turnover of certain highly digitalised businesses that are attributable to the country.
The other option is to change the current international income tax rules, which have been agreed to by countries (usually referred to as “the international tax framework”).
In summary, New Zealand is not patient to wait for OECD rules, wishes to implement a transition tax in the interim and plans to repeal this tax with the OECD solution when it becomes effective.