Exco FCA
June 10, 2021
June 10, 2021
May 12, 2021
By Guillermo Narvaez – Technical Director of the Kreston International Global Tax Group
Digital Services Taxes (DSTs) are a new global initiative designed to charge larger technology companies that provide digital platforms such as social media, advertising, online marketplaces and other search engine tools for commercial transactions or selling user data online advertising. It is beginning to apply across the world at the behest of the G20 – the Organisation for Economic Co-operation and Development (OECD) who are calling for changes to the international tax system to address the challenges of the digitisation of the economy by mid-2021.
A simple enough idea – impose additional tax costs on those who earn more – but is it really this simple? Who actually pays this tax, as on the face of it, it is the customers themselves who face liability rather than the platforms on which they are advertising.
Online platforms essential for SMEs to grow
Big tech companies like Amazon, Google and Apple shift the tax burden instigated by DSTs downstream to their customers, many of whom are SMEs. The European Centre for International Political Economy (ECIPE) has stated that “the EU’s commercial landscape is characterised by an overall share of highly diverse SMEs who account for 99.8% of all EU enterprises and 66.6% of overall EU employment.”
Copenhagen Economics also point out that 82% of SMEs in Europe use search engines to promote products and services online, while 42% of SMEs use online marketplaces to sell their products and services.
So we can see that SMEs are disproportionately affected by DSTs and are the ones left with the bill.
But in reality, to what extent are DSTs targeting the big fish? The DSTs’ purpose is well-meaning – challenge some of the world’s largest multinational enterprises (MNEs) to pay their dues.
However, when these enterprises can just pass this on to others – particularly digitally dependent SMEs who cannot otherwise achieve their goals – the DST is surely not having its desired effect?
Not looking at the profitability of the platforms means that the DST may end up being a disproportionate levy and, as a result, drive a possible deceleration of economic growth.
SMEs are inadvertent “victims” of the new tax levy
So what is the thinking behind this new levy? Many SMEs exist either in the middle of the digital services supply chain or to ensure the delivery of a product or service to its final customer. Where tech companies at one end of the chain and final customers at the other, SMEs sit between the two, paying for services (such as advertising) provided by the tech companies.
The logic of the DST is, in part, that tax on profitability (such as income tax) do not have the reach to impose tax burdens on tech companies for digital services. However, tech companies can circumvent the economic burden of the DST by transferring the levy to their customers, as they currently do with SMEs.
Conversely, whilst tech companies can pass on the levy to SMEs by increasing the cost of their services and so cover their tax liability, SMEs cannot similarly shift the burden downstream to their customers, as doing so may well take away their competitive advantage.
A well-meaning but flawed tax concept
Finally, even though consumers successfully use one or more digital service, they do not usually have to pay anything at all. Most of these can access any information, products and services through the use of free online services.
While SMEs serve a vital purpose in domestic economies, they are often the primary victims of this tax burden, whereas tech companies escape cost-free. Hence this system of taxation is a flawed one and deeply unfair.
SMEs are part of the digital services supply chain and a vital element of any country seeking to pursue economic growth while achieving a healthy economy. Since over 99% of EU businesses are SMEs, surely it would be fairer to support their development, rather than leave them to have to shoulder most of the actual tax burden?
(a version of this article also appeared in Accountancy Daily, May 12th 2021)
April 30, 2021
Two member firms of Kreston – Kreston FLS, based in Mexico, and Daehyun Accounting Corporation, based in Seoul – have joined the Expatland Global Network, a leading provider of global mobility services.
The addition of the two firms as Expatland Global Network partners represents the latest expansion of the network’s collaboration with Kreston, which now includes a total of 13 member firms around the globe.
The Expatland Global Network brings together international teams of professionals to provide global mobility services across taxation, logistics, real estate, education advice and more. These ‘E-Teams’ are made up of like-minded service providers in over 30 cities globally. Their expertise ranges from banking and insurance to medical and education, each passionate about helping expats coordinate their moves abroad and settle into their new home.
The partnership with Expatland Global Network will provide expats with access to trusted advice on tax planning and financial reporting across Mexico and South Korea, benefitting from the expert advice and local insight offered by Expatland Global Network’s international ‘E-Teams’.
Kreston FLS is a full-service accounting, legal and financial services firm based in Mexico City. Its clients span a wide spectrum of sectors, most notably in manufacturing and services. With its five offices and 95 staff members, Kreston FLS is one of six firms that make up Kreston International’s Mexican presence.
Based in Seoul, Daehyun Accounting Corporation provides a broad spectrum of services, including audit, tax, consulting and M&A for its SME clients both local and international. Daehyun Accounting Corporation is one of two Seoul-based Kreston International members.
Kreston FLS and Daehyun Accounting Corporation become the 68th and 69th partners, respectively, to join the Expatland Global Network– 13 of which are Kreston International member firms – across the UK, Europe, Asia-Pacific and North America.
Liza Robbins, Chief Executive of Kreston: “Expatland Global Network has for some time been a trusted partner of Kreston Global and is at the forefront of providing global mobility services and insight. The addition of these two firms to the Expatland network is a testament to its success and we look forward to seeing this international partnership continue to bear fruit.”
John Marcarian, Founder of Expatland Global Network: “Despite the setbacks to international movement caused by the pandemic, the demand for expatriation among the internationally mobile community looks set to recover quickly. We’re pleased to expand our relationship with Kreston International by adding these two firms as new partners and, in doing so, significantly enhance our offering in Mexico and South Korea.”
April 6, 2021
Tax experts from Kreston predict digitalisation of tax and transfer pricing will be dominant issues for the next two years, in addition to base erosion and profit shifting (BEPS).
In a survey of attendees of Kreston’s International Tax Conference, a significant number of respondents indicated that BEPS and Transfer Pricing (both 19.35%), along with tax digitalisation (17.26%), were the top three issues likely to be at the forefront of industry debate.
Tax avoidance and evasion (15.48%), harmonisation of tax (11.31%) and tax investigations (10.7%) were also highly ranked, highlighting the public and political scrutiny these issues continue to receive around the globe.
Notably, one of the most contentious tax issues globally – the debate over the potential levying of wealth taxes – was viewed as least likely to dominate the agenda, with only 6.55% of respondents putting it in their top three choices.
Mark Taylor, Chair of the Global Tax Group at Kreston Global, said:
“These figures bear out our conversations within the Kreston International network: that the BEPS project and transfer pricing continue to dominate the international tax landscape for multi-nationals.
“The fact that tax digitalisation came second in our poll reflects the belief that governments across the globe have this high on their agenda. As ever the tax landscape globally continues to evolve and this is only likely to accelerate in the post-Covid era as individual countries look to rebalance their economies.”
The findings of the survey were initially presented at the 2021 International Tax Conference, held virtually on 24 March. The event brought together nearly 130 global tax professionals from 41 different countries across the Kreston network.
March 31, 2021
Our Mozambique firm, Kreston Mozambique, has been busy using the Kreston network to its advantage with many new client successes.
Kreston Mozambique recently won a very successful three-year contract by utilising the Kreston network leveraging off the international network and working with two other Kreston firms based in Uganda and Myanmar.
They also won a proposal for a business valuation project working with Kreston South Africa to complete the work together. The client was “extremely happy with the high standard of professional relations and services that Kreston provided.”
We pride ourselves on the quality of work that all our Kreston members around the world deliver.
