In turn, African countries need to think about how to tax digital companies, some of which generate income without creating jobs at home. In order to speed up thinking, ATAF is proposing a series of legislative proposals.
Several members of the African Tax Administration Forum (ATAF) share the difficulties they experience in taxing digitally-intensive companies operating in their countries.
This is why this pan-African organization is proposing a form of “turnkey” legislation. It would allow African countries, if implemented, to collect as much tax revenue as possible, without compromising the establishment or activity of international companies at home.
ATAF starts from the observation that African economies are digitizing at a rapid rate, and that this growth allows multinational companies to carry out activities in African countries, with no or very limited physical presence on their territory.
This trend has gained momentum with the Covid-19 pandemic, which has made the use of digital processes essential. Some multinational companies have closed their facilities to fall back on online commerce. It is therefore this situation that contributes to the difficulty that countries have in establishing tax jurisdiction over the profits that these companies make through their commercial activities.
The current international tax rules are the source of this difficulty, since they only grant powers of taxation to a country when a non-resident company has established a sufficient physical presence in its territory.
That is, the company creates a fiscal “tie” in that country. Business models allow a multinational corporation to operate in an African country with no or very limited physical presence in its territory; they therefore represent a considerable tax risk. There are many examples among social media platforms, search engines and online marketplaces …
It is urgent to take action!
Representatives of the OECD are discussing this phenomenon and trying to find a global consensus solution. ATAF, whose members are the tax authorities of African countries, technically and analytically supports those of its members who are also part of the OECD’s “Inclusive Framework”. The Forum must ensure that any eventual comprehensive solution is responsive to Africa’s needs.
However, ATAF believes that it is no longer time to wait. The palaver is significantly delaying the enactment and implementation of legislation that guarantees countries appropriate taxing rights on the profits of digitally-intensive companies.
These delays are costing African countries millions of dollars in taxes, as many of these companies saw their profits increase dramatically during the pandemic. While at the same time, African economies are suffering and need to be extra vigilant about tax revenues.
This is why, to support members in their reflection on introducing new rules relating to the taxation of companies with a strong digital component, ATAF has drawn up a legislative grid, which could serve as a basis for tax legislation on digital services. Its work could serve as a model for future legislation.
This document renews the legal approach to the digital services tax (TSN). It aims to offer African countries which are considering introducing a DST a model of structure and content for their legislation.
It provides a framework that draws on the various DST laws enacted in other jurisdictions while remaining tailored to the specific challenges facing African countries. DST is a means of collecting taxes from the business models that presently present the greatest challenge for the international tax framework and especially for Africa where they pay very little or no tax at all.
As we see, African countries – the priority is not the same everywhere, ATAF acknowledges – will have to deploy greater resources to ensure that the digital economy is taxed appropriately.
The introduction of a tax targeting international businesses, including non-established ones, helps to improve the level of public confidence in the fairness of the tax system: an important factor in promoting voluntary discipline. Of course, such taxation should not hinder digital growth in African countries, especially for start-ups and SMEs. It is up to the States to assume their responsibilities.
Reference: https://www.ataftax.org/ataf-publishes-an-approach-to-taxing-the-digital-economy
