Throughout Latin America, there is a lack of uniformity in the way in which each country charges taxes, as some countries levy value added tax (VAT) and others look to income tax.
According to a March report by the UN Economic Commission for Latin America and the Caribbean (Eclac
), Argentina (21%), Colombia (19%) and Uruguay (22%) are already charging VAT on digital services such as Netflix, Spotify and Amazon. Meanwhile, Costa Rica
(8.5%), Paraguay (10%) and Chile (19%) are currently proposing to apply VAT (BN Americas
According to the report, Uruguay and Peru are the only two countries that have modified their laws to charge income tax on digital platforms. Mexico currently has a bill in congress to do so.
The Eclac report estimates that Latin American countries would bring in roughly US $580M a year
if they applied VAT and a special 3% digital services tax on Netflix, Spotify, Apple and Uber. Referring to a 2017 study, Eclac estimated that Netflix
generated about $4.7B USD in revenues in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru and Uruguay.
How, or where, digital services platforms, such as the big four– Google, Amazon, Facebook and Apple– should pay taxes is not a new debate. Some big tech companies have a tax haven, and a gateway to Europe, in Ireland.
As reported by BN Americas
, this debate was recently reopened after the Trump administration launched a 301 investigation into France.
“The French levy would impose a 3% income tax on total revenues generated by certain large digital services companies operating in the country. The tax only applies to companies with total annual revenues of at least 750mn euros (US$840mn) globally and 25mn euros in France.”
There was a general agreement among lawyers consulted by BNamericas that it is quite unlikely that the United States would take retaliatory measures against Latin American nations- or even against France- as punishment for implementing digital taxes.
According to Thierry de Saint Pierre, President of Chile’s IT association Acti
, charging VAT on digital services platforms is a global trend that is currently being discussed by the OECD nations.
Claudio Magliona, President of Acti’s legal team, told BNAmericas
“Charging VAT is seen by many in the market as the fairest form of taxation to level the playing field between local and international players, which will pay the same, and that the services will be taxed under the regime in which they are consumed.”
According to Víctor Fenner, Executive Director of EY Chile
, domestic companies can deduct a tax credit from VAT, while foreign companies cannot.
“In that case, one could say that the worst affected [by taxing foreign digital services companies] is the consumer, which is maybe why many countries in the OECD are looking at applying taxes other than VAT, including income taxes.”
This conversation raises the fundamental question of who will end up paying the tax. Under Chile’s proposal, the tax will be retained by credit card processors.
According to the Information Technology Industry Council
(ITI), a multilateral solution is necessary to avoid uncertainty and fragmentation. Therefore, the OECD
’s efforts should be taken into account as a reference.
"The digitization of global business is raising important questions about long standing principles of international taxation. A coordinated, multilateral approach is imperative to reforming the global tax system, especially when it comes to addressing services that are provided digitally across borders.”