The Taxation of E-commerce
Dean Rolfe
March 2019
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What I want to talk about today
1The rise
of the
internetThe
digitization
of
commerce
2 The taxation challenge
3Developments in taxation for the digital economy
4Taxation of
E-commerce
in Vietnam
5
1. The rise of the internet
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The Technology Timeline
20164.62 billion
web pages
exist > 1 billion
iPhones sold
2012UK Starbucks’
voluntary tax
payment
2009Bitcoin
2007First iPhone
was released
League of Nations
International Tax
rule development
1999Tech Crash
1991Start of Internet
World Wide
Web was born
1956Container ship’s
maiden voyage
1958First OECD
model Double
Tax Convention
19283 Model agreements
residency & source1998
Google was
founded
2008App Store was
launched
2013OECD BEPS
project (Action1)
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Internet usage is growing…
Source: Statista
Percentage of global population accessing the internet
(2015 – 2017), by market maturity
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History of Internet Banking- 1969: The first ATM was installed by Chemical Bank in the U.S.
- 1981: New York City banks tested at-home banking, including Citibank,
Chase Manhattan, Chemical Bank and Manufacturers Hanover.
- 1983: Bank of Scotland offered UK’s first home online banking services.
- 1994: Standard Federal Credit Union offered UK’s first internet banking
services.
- 1995: Presidential Bank offered U.S.’ first internet banking services.
- 2000: 80% of U.S. Banks offered internet banking.
- 2017: Online banking is standard practice.
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And services are growing
0
2000
4000
6000
8000
10000
12000
140001981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Bill
ions o
f D
olla
rs
Personal Consumption Expenditures in US (1981 – 2015), by types
Durable Goods Nondurable Goods
Services Personal Consumption Expenditures
Source: Federal Reserve Economic Data (FRED)
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The consumer is evolving
There aremore people, living
longer and becoming wealthier
1bn Middle class
consumers in China by 2030
Indian household income
segments are increasing — by
60%
2.5bnMillennials
Globally
1bn People aged
over 60 globally
People are spending more, but they are
also spending differently
Technology is changing people’s
behavior
Seniors have the
highest disposable
income
78%of Millennials
prefer to spend on experience over
assets
Best experien
cesare now the norm for expectations
8 SecondsThe attention span of a
human is now less than a that of a goldfish
87%Of people use
between 2 and 3 devices
80% of the global population will
own a smartphone in
2020
90%Customers say buying
decisions are influenced by online reviews
61%Are willing to borrow
or share products rather than buy new
ones
Source: KPMG International, Global Customer Insights Program
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v
My life in data……the new gold!
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Three converging megatrends
Rise of the Asian Consumer Consumer EmpowermentDigital Everywhere
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Retailers have to respond to each consumer trend to address all expectations
Value
Experience
ConvenienceOrdering
Delivery
Payment
Digital trading unit
Loyalty programmes
Membership
Robotics
Unique experiences
Collection points
Smarter use of data
Ethics
Personalisation
Data analysis and waste reduction
Promotions and vouchering
Proximity marketing
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Online Landscape in 2018 – Regional vs Global
354 millionActive Social Network Users SEA ONLINE
SNAPSHOT
373 million Internet Users
644 millionTotal Population 141%
Mobile Penetration55% Social Network
Penetration
58% Internet Penetration
31:69Urban: Rural
39%Active Mobile Social User
Penetration
42% Active Social Media User
Penetration
53% Internet Penetration
7,593Total Population
55% Urbanization
GLOBAL ONLINESNAPSHOT
Source: Hootsuite, 2018
Effective reach to upcountry population
Relatively low internet penetration but going up
fast
Crazy about social media
Everyone has at least 1 cell phone
IMPLICATION FOR SEA
VIETNAM ONLINE SNAPSHOT
96.02 millionTotal Population
54.0 million Internet Users
67% Internet Penetration
55 millionActive Social Media Users
57% Penetration
50 millionActive Mobile Social
User52%
Penetration
2. The digitization of commerce is moving faster that regulators can deal with …
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What is E-commerceElectronic commerce, or e-commerce, has been defined by the OECD
as:
Source: OECD BEPS Action 1
The sale or purchase of goods
or services, conducted over
computer networks
“
”
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Internet usage can take many forms
Business-to-consumer (B2C) E-commerce:
Customers deal directly with an organization without the involvement of
any intermediaries
Consumer-to-consumer (C2C) E-commerce:
Buying and selling directly to each other
Business-to-business (B2B) E-commerce:
Business to business transactions
Communication:
WhatsApp, Google Meet, Skype, Messenger, We Chat
Data collection and record keeping:
Taxation – government services are increasingly automated
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- Social media
- Search engine
- Media
- Books (B2C sale of goods)
- On-line travel
- Ride sharing
- Gaming platform (Entertainment)
- Networking
Examples of E-commerce
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Examples of E-commerce in Vietnam
- Social media
- Search engine
- Media
- Books (B2C sale of goods)
- On-line travel
- Ride sharing
- Gaming platform (Entertainment)
- Networking
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How the market leaders have changed in digital era
ExxonMobil 1
Walmart 2
Microsoft 3
P&G 4
Johnson & Johnson 5
AT&T 6
Chevron 7
IBM 8
Alphabet 9
Coca-Cola 10
Sector
Energy
Consumer staples
Tech
Healthcare
Telecoms
Consumer discretionary
Financials
Source: Bloomberg
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The value of intellectual property
Source: mindful money
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Google revenueGoogle's annual revenue
(2002 – 2017), by segment US$ billion
Source: Statista
3. The taxation challenge
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A historical perspective1928: League of Nations: 3 models for the taxation of international
commerce
- Residency
- Source
- Physical presence (Permanent establishment)
1956: Container ship maiden voyage
1991: World Wide Web is born
2000: OECD action on taxation reform – rules not changed!
2016: 4.5 billion websites
2017: EU proposal: ‘ Significant Digital Presence’
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The taxation challenge …….1. Where is e-commerce revenue or profit earned ?
- No physical presence
- No collection mechanism
- Customer and service provider are in different locations
2. Who is going to tax that revenue or profit ?
- Governments, but which one ?
- Governments will argue about the right to tax income and profits
3. How is e-commerce taxed ?
- Without a traditional taxation footprint this is difficult
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This problem is exaggerated with cashless payment systems
Secure electronic payment is a key driver for the adoption of E-
commerce.
Payments can be made in a number of ways including:
- Electronic Cash
- Digital wallets
- Gift cards
- Bitcoin
- Smart cards: Credit, Charge and Debit Cards
- Borderless transactions
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A taxation law problem or a perception problem?
Political leaders, media outlets, and civil society around the world
have expressed growing concern about tax planning by
multinational enterprises (MNEs) that makes use of gaps in the
interaction of different tax systems to artificially reduce taxable
income or shift profits to low-tax jurisdictions in which little or no
economic activity is performed.
Source: OECD BEPS Action 1
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Why is there a problem?
The European commission concluded that Apple paid a 0.005%
effective tax rate to Irish tax authorities in 2014, which is far
below the corporation tax rate of 12.5%.
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OECD & G20 Action on taxation reform
Some of the challenges identified by the OECD in taxing the digital
economy included:
1. Identification
2. Scope of Activities
3. Information collection
4. Identification of customers
5. Lack of physical presence
6. Lack of collection agents
4. Developments in taxation for the digital economy
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OECD & G20 Action on taxation reform
Action 1 – Addressing the challenges of the digital economy
Feb 2013: OECD and G20 agree 15 Actions to address perceived tax
abuse called base erosion and profit shifting (BEPS) by
multinational companies.
April 2013: Action 1: Addressing the tax challenges of the digital economy –
Draft report
April 2014: Public consultation on Action 1
Oct 2015: Action 1: Addressing the tax challenges of the digital economy –
Final report
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OECD & G20 Action on taxation reform
Action 1 – Addressing the challenges of the digital economy
How might traditional tax laws need to change and evolve ?
PE: Change the exemptions contained with the definition
of permanent establishment.
Alternative tax nexus: Customer location ?
Virtual PE: Agency, server farm, other ?
Withholding tax: Withholding tax on payments (how?)
VAT and GST: VAT and GST on new classes of transactions (how?)
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E.U. action on the digital economy
Independently of the OECD, the European Commission is currently looking
at ways to capture tax from companies that may have no offices, shops or
other physical presence in a country, but are accruing profits through large
numbers of online users or customers.
Taxation based on the creation of a ‘SIGNIFICANT DIGITAL PRESENCE’
and/or
TAXATION OF REVENUE generated in a territory (turnover tax)
NOTE: Brexit will mean these EU proposals will not impact the U.K. going
forward
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Australia and UK response to the challenge
Some other jurisdictions are not waiting for international agreement on how
to tax the digital economy
- UK – Diverted Profits Tax (1st April 2015)
- Australia – Diverted Profits Tax (1st July 2017)
Broadly speaking, the intent of these rules is to tax the business profits of a
multinational company (which is considered to have artificially diverted
profits from a high tax jurisdiction into a low tax jurisdiction) using existing
tax rules and principles.
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Growing international consensus ?
“Significant Digital Presence”
5. Taxation of E-commerce in Vietnam
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Taxation of E-commerce in Vietnam
- Permanent establishment (PE)
- Foreign contractor tax (FCT)
- Value-added tax (VAT)
- New Admin Law – Payment aggregation (proposal)
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E-commerce in Vietnam
• Website
Law No. 67/2014/QH13 on Investment (Investment Law 2014) and Law No. 68/2014/QH13 on Enterprise (Enterprise Law 2014) and Circular 47/2014/TT-BCT stipulating the management of e-commerce websites,
Regulations Financial
• Vietnam B2C e-commerce retail sale in 2016 reached $5 billion, accounting for 3% of Vietnam total retail products and consumer.
• E-commerce revenue in Vietnam is estimated to reach some $8 billion by 2025.
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Incentives for hi-tech workforceResolution No.41/NQ-CP , date of effect 26 May, 2016
A range of new measures including tax incentives have been introduced
Tax Incentives include:
• Certain activities production of digital contents, software servicing, manufacture of major information technology products, rectification of information safety issues, information safety security are granted corporate income tax incentives similar to that of software development activities.
• Personal income tax concessions for individuals working in hi-tech sectors.
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We are leaders in Digital Transformation and at the forefront of Corporate Innovation Enablement
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