BUSINESS MAVERICK: Africa is being left out of the digital tax loop

Google parent company Alphabet reported recently its full-year results for 2018, announcing income of $30-billion off a revenue of $137-billion. But the eye-popping thing about the earnings statement was that its tax bill was just $4.2-billion, 12% of its pre-tax income, which was less than the $5-billion it paid in fines to the European Union. Hence the headline: Google pays more in fines than it does in tax. As one German politician grumbled, Google exists nowhere and pays tax nowhere.

BDO South Africa’s Craig Kirsten, transfer pricing specialist, tax, says multinational enterprises, through our ever-shrinking “global village”, are expanding across many tax jurisdictions and generating profits in a manner that international tax principles simply aren’t equipped to handle.Digital companies such as Uber, Google, Airbnb and Facebook continue to invest significantly across the continent.

The concerns have been raised against the backdrop of the Base Erosion and Profit Shifting 15 point-action plan, which was released by the Organisation for Economic Co-operation and Development and G20 issued in 2015. Action 1 specifically addressed the tax challenges of the digital economy and outlined several recommendations to address the modification of the existing permanent establishment rules, withholding taxes on certain digital transactions and a tax on bandwidth use.

African states are concerned that their tax bases are being eroded by illicit financial flow due to multinationals artificially shifting profits to jurisdictions where their profits are subject it little or no tax. They consider that the outcomes of the OECD/G0 BEPS project do not adequately stem these illicit flows as they are too complex to effectively administer and are not comprehensive enough to address the artificial profit shifting seen in Africa.

The arm’s-length principle is a mechanism used to adjust prices set between related parties to reflect market conditions and the terms and conditions for similar transitions between independent parties. The proposed tax would apply to revenue derived from supplies of specific digital services, for example, the supply of advertising space, facilitation of digital interactions, data generation through user-provided information and so on.

Very interesting piece DURITZ79

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