Deconstruct to reconstruct E-Book

Ariel Andrés Sánchez Rojas

• Herausgeber: Universidad de los Andes
• Kategorie: Fachliteratur
• Sprache: Spanisch

Seitenzahl: 75

Veröffentlichungsjahr: 2020

Beschreibung

Deconstruct to reconstruct seeks to use a modern benefit principle theory that will allow tax authorities to tax companies in the digital economy, assuring they pay taxes in the countries in which they operate. The emergence of a new business models such as app stores, online advertising, cloud computing, participative network platforms, high-speed trading, and online payment services has reshaped the global economy and made it difficult for tax authorities to determine what and where to tax. Technologies in the new digital economy make it possible for companies to operate in countries without being physically present. While companies such as Netflix, Google, and AirBnB provide services and earn profits in different countries, tax loopholes and intricate tax planning enable them to pay little-to-no taxes in many of these countries. For example, Netflix earned more than US$100 billion in Colombia in 2016, but it did not pay any direct or indirect taxes in the country. The absence of a specific tax or legal rule that targets digital companies has prevented Colombian tax authorities from taxing Netflix or any other company of the sort. Many tax authorities around the world have similar experiences.

Leseprobe

DECONSTRUCTTO RECONSTRUCT

IS IT POSSIBLE TO TAXTHE DIGITAL ECONOMY?

COLECCIÓN CRÍTICA TRIBUTARIA

SERIE NUEVAS TENDENCIAS DE LA

TRIBUTACIÓN INTERNACIONAL Y COMPARADA

DECONSTRUCTTO RECONSTRUCT

IS IT POSSIBLE TO TAXTHE DIGITAL ECONOMY?

Ariel Andrés Sánchez Rojas

Sánchez Rojas, Ariel Andrés

Deconstruct to reconstruct. Is it possible to tax the digital economy? / Ariel Andrés Sánchez Rojas. – Bogotá: Universidad de los Andes, Facultad de Derecho, Ediciones Uniandes, 2020.

(Colección Crítica Tributaria. Serie Nuevas Tendencias de la Tributación Internacional y Comparada)

ISBN 978-958-774-918-2

1. Economía digital 2. Comercio electrónico – Impuestos - Legislación I. Universidad de los Andes (Colombia). Facultad de Derecho II. Tít.

CDD 343.04

SBUA

First edition: January, 2020

© Ariel Andrés Sánchez Rojas

© Universidad de los Andes, Facultad de Derecho

Ediciones Uniandes

Calle 19 n.° 3-10, of. 1401

Bogotá, D. C., Colombia

Phone number: 3394949, ext. 2133

http://ediciones.uniandes.edu.co

http://ebooks.uniandes.edu.co

[email protected]

ISBN: 978-958-774-918-2

ISBN e-book: 978-958-774-919-9

DOI: http://dx.doi.org/10.15425/2017.292

Copy-editing: Jaimie Brzezinski

Typesetting: Vicky Mora

Cover design: Alejandro Ospina

Conversión ePub: Lápiz Blanco S.A.S.

Hecho en Colombia

Made in Colombia

Universidad de los Andes | Vigilada Mineducación.

Reconocimiento como universidad: Decreto 1297 del 30 de mayo de 1964.

Reconocimiento de personería jurídica: Resolución 28 del 23 de febrero de 1949,

Minjusticia. Acreditación institucional de alta calidad, 10 años:

Resolución 582 del 9 de enero del 2015, Mineducación.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Ediciones Uniandes.

To the people I admire most: my mother, father, brother, and sister.

To Professor Eleonora Lozano, who taught me to be rigorous,

and to former Dean of Law Helena Alviar, for broadening my horizons.

Lastly, to Paulina, who I believe will live in a world with tax fairness.

Table of Contents

List of Abbreviations

Introduction: Deconstruct to Reconstruct

Historical Overview: The Benefit Principle or Exchange Theory

The Digital Economy and Its Core: Big Data and E-Commerce

Digital Economy

E-Commerce

Big Data

Is It Possible to Tax Digital Economy Companies?

Do Companies in the Digital Economy Avoid Taxes or Have a Tax Amnesty?

Comparative Analysis

How to Tax Digital Economy Companies

Direct Taxes

Indirect Taxes

Transfer Pricing

Conclusions

Bibliography

International Organisms

ACTs

Jurisprudence

Doctrine

List of Abbreviations

AOA

Authorized OECD Approach

B2B

Business-to-business

B2C

Business-to-consumer

BEPS

Base erosion and profit shifting

BR

Berry Ratio

C2C

Consumer-to-consumer

CCCTB

Common Consolidated Corporate Tax Base

COGS

Cost of goods sold

CONPES

Consejo Nacional de Política Económica y Social

CPM

Cost-Plus Method

CUP

Comparable Uncontrolled Price

DEMPE

Development, enhancement, maintenance, protection, and exploitation

DNP

Department of National Planning, Departamento de Planeación Nacional

ECJ

European Court of Justice

EU

European Union

ICT

Information and communication technologies

IP

Internet Protocol

IRC

Internal Revenue Code

ISP

Internet service provider

MNE

Multinational enterprise

MTC

Markup of total cost

OECD

Organisation for Economic Co-operation and Development

OPEX

Operating expense

P2P

Peer-to-peer

PE

Permanent establishment

PoEM

Place of effective management

PSM

Profit-Split method

ROA

Return on asset

ROS

Return on sales

RPM

Resale Price Method

TNMM

Transactional Net Margin Method

US

United States

VAT

Value-added tax

Introduction:Deconstruct to Reconstruct

This book, entitled “Deconstruct to Reconstruct,” is inspired by Jacques Derrida’s thesis on Deconstruction. It will focus on Benefit Theory and reconstruct the term in a twenty-first century context, specifically for the purpose of finding ways to tax companies in the digital economy. While it does not seek to study or suggest new tax policies, rates, exemptions, or participants, it aims to develop a theory that can guide tax authorities regarding how to tax companies, such as Google or Netflix, in the digital economy.

This book will begin by demonstrating how these new business models have reshaped the global economy and international financial transactions. Specifically, it will look at new approaches to engage with customers such as app stores, online advertising, cloud computing, participative network platforms, high-speed trading, and online payment services. These models, which are based on virtual transactions, were the result of the transformative process brought about by the evolution and dissemination of information and communication technologies (ICT), which created the new digital economy.1 ICT has made technologies cheaper, more powerful, and widely standardized, bolstering innovation across all sectors of the economy.

The following example illustrates the new realities facing tax authorities in the new global digital economy: E-commerce reached US$16 trillion in financial transactions in 2014, sales through app stores totaled US$102 billion in 2013, and online advertisement reached US$100.2 billion in 2012.2 However, many countries collect little-to-no taxes from these activities.

To reconstruct Benefit Theory and develop a theory of how to tax companies in the digital economy, this book will first demonstrate how the benefit principle was created. This will be followed by an explanation of how digital companies use big data and e-commerce. Finally, methods will be suggested for how to tax companies in the digital economy using direct taxes, indirect taxes, and the transfer pricing method.

Notes

1 OECD, G20, Base Erosion and Profit Shifting Project. Addressing the Tax Challenges of the Digital Economy (Paris: OECD, 2015).

2 Juan Guillermo Ruiz. “Tributación de la Economía Digital,” Legis, Comunidad Contable (August 12, 2014).

1

Historical Overview:The Benefit Principle or Exchange Theory

An historical overview of the Benefit Principle or Exchange Theory is necessary in order to establish the conceptual basis for allocating taxing rights. In the early 1920s, the League of Nations appointed four economists to determine whether it was possible to formulate general principles to prevent double taxation. The four economists identified four factors comprising economic allegiance: “(i) origin of wealth or income; (ii) situs of wealth or income; (iii) enforcement of the rights to wealth or income, and (iv) place of residence or domicile of the person entitled to dispose of the wealth or income.”1 They concluded that the greatest weight should be given to where the source of wealth is. Therefore, they claimed that a jurisdiction’s right to tax a person rests on the totality of benefits and state services the taxpayer is provided with in that specific jurisdiction. Accordingly, a country has the right to tax resident and non-resident corporations that derive a benefit from its government’s services. This theory is commonly referred to as the BP or Exchange Theory.

While countries’ current tax frameworks are based on the Exchange Theory developed in the twentieth-century, companies in the digital economy are often able to circumvent most if not all tax obligations. Digital companies often pay little to no taxes when they have no physical presence in the country or territory in which they operate. Their activities typically involve: (i) the development, enhancement, maintenance, protection, and exploitation (DEMPE) of intangible assets, and (ii) collecting, storing, processing, analyzing, deploying, and selling user-level data as well as user-generated content. In both sets of activities, fulfilling the four factors comprising economic allegiance is undertaken in different territories, thereby preventing tax authorities from applying Exchange Theory.

The first and second factors of Exchange Theory, which refer to the origin and situs of wealth, can include multiple locations as a product’s development could take place in the United States, its protection in France, and its exploitation in China. Tax authorities in these three countries cannot all tax the same product because it would violate the basic principle of any tax treaty: there can be no juridical double taxation. Regarding the third factor, which refers to enforcing the rights relating to wealth or income, many countries may have enforcement rights in relation to the same product. The right to enforcement could be based on the collection of user-level data within a territory or where the data is processed or analyzed. Finally, the last factor, which refers to the place of residence or domicile, does not apply when digital companies have no physical presence in the territories in which they operate.

The context around digital companies also creates gaps in Exchange Theory, which prevent tax authorities from effectively collecting taxes from companies in the digital economy. The basic starting point to apply Exchange Theory to the digital economy is to recognize the basic principle that a country has the right to tax resident and non-resident corporations that benefit from providing services within its territory.

Notes

1 OECD, G20, Base Erosion and Profit Shifting Project. Action 1: Addressing the Tax Challenges of the Digital Economy. (Paris: OECD, 2015), 25.

2

The Digital Economy and Its Core:Big Data and E-Commerce

Digital Economy