The digital industry has managed to grow in terms of demand and popularity and because of that, the gap between countries is decreasing. Online marketplaces have made our lives easier, as we can now purchase, stream and connect with people around the globe almost instantly. This might be too good to be true. Therefore, we can expect tax implications on digital platforms in the near future.

The implementation of Digital Services Tax (DST) applies to businesses that provide digital services to international customers. It might not be confirmed but if you are someone providing digital solutions to customers from other countries from the comfort of your home, you may be subject to these taxes.

The international tax rates continue to become more complicated with the digital industry expanding and growing. In this article, we will be discussing the effects and implications of DST on online marketplaces.

Jurisdiction of DST:

The purpose of DST being introduced was because local jurisdictions believed that digital companies should pay their taxes to the government of the country they are marketing to instead of the ones they are established in.

The government looks to charge taxes in the country of the purchaser where the product or service is being sold, rather than the government of the country supplying it. In the past it wouldn’t have mattered if you were providing digital services in countries such as Australia or Germany, thinking that you would be paying taxes locally. However, upon DST implications, it would be wise to understand the rules of the country you are providing services for.

The DST also brings relief to digital nomads, as the taxes are only subject to digital giants and recognized digital service providers that include Google, Facebook, Amazon, Netflix, and more that generate revenue without any physical presence.

For the time being, digital nomads and small digital services are out of the danger zone but there’s no surety for what can occur in the future. There is a significant possibility that small businesses would also be enforced on DST.

The Need for International Agreements:

There is a significant need for international agreements, as rules that meet the individual needs for each country along with avoiding double taxes. Most of the digital giants are multinational companies. Therefore, both countries need to agree upon a settlement.

The debate on the National tax platforms continues and so far no final decision has been made. However, one thing is for sure that these implications of tax rules might affect the digital industry, and being aware of these rules is a necessity for all digital providers.

Multinational Agreement:

In order to progress with DST implications, companies are required to come together to make a mutual understanding. The multinational; agreement is a way to make sure that all taxpayers agree on a mutual tax-paying platform that is acceptable by all companies. Otherwise, countries might intersect or contradict the policies of one another without the presence of a mutual multinational agreement.

In the past few years, there have been concerns emerging about the international tax system not being able to capture the new era where digitalization has spread far and wide. There are some arguments present that even if the digital companies are providing digital services to customers of another country, it doesn’t make them eligible to be subject to the foreign country’s tax system, as there is no physical presence.

International Negotiations Underway:

The Organization for Economic Co-operation and Development (OECD) is currently hosting negotiations with 130+ countries to adopt the international digital tax system in a way that benefits all countries without providing inconvenience to the taxpayers.

After negotiations, a definitive solution for these tax challenges hasn’t been found yet. However, it’s more likely that taxpayers would be required to pay a certain percentage of their taxes to their local government. Whereas the remaining percentage is to be paid to the government of the foreign country where their services are being purchased.

How Would Digital Tax Implementation Impact Small Businesses?

If you are not a digital giant means that you are safe for now but believing that things would stay the same might not be such a wise approach. The rules are being worked on right now, which means that it’s just a matter of time when DST is implicated in small digital businesses as well.

Providing digital services is a great way of earning revenue but once taxes are introduced to the picture it might become considerably difficult to sustain your business. It would be best to consider the value-added tax (VAT) before confirming the price of your services. Small businesses would need to up their prices substantially to meet tax requirements. Otherwise, the business could go south ways pretty quickly.

Conclusion:

It’s no secret that digital businesses are worried about the tax system being revised. Even if you are a small digital company, the fact that these rules are being implemented and its sooner or later going to be implemented on small businesses doesn’t help at all. The digital industry has indeed expanded to a whole new level but added taxes are a growing concern for online marketplaces.

All digital companies regardless of their size should be aware of these changing rules, so that they can revise the prices of their digital services accordingly (if required) because if they do not pay any attention to DST rules the impacts can be lethal for these businesses.