What You Should Know About Digital Services Tax

The world of tax experienced many approaches in the form of proposals to change the taxes on digital companies. The most well-known is the Digital Services Tax (DST), a European Commission directive that entered the national laws of multiple countries. So, did it influence tax services in Beverly Hills?

In 2018, the European Commission and various national governments stated that they require unique rules to tax digital companies. According to them, users and their data were making many companies valuable, companies that would not be taxed.

An example would be, when are mangos valuable - when harvested, when turned into juice, or when people consume the juice?

The answer affects at what point a company should be taxed on its profits. If a digital platform users develop a value for a company or make it profitable, the profit should be taxed where the users are located. But if the user data does not make sense until it is put through algorithms made and initiated in another country, taxing the profits resulting from the data processing may be justified.

Established international tax principles usually assign taxable profits to a company where its owners, workers, and production are.

But the problem increases for countries that want to tax digital companies depending on where their users are. If companies are paying tax for the existing principles, another tax imposed in users’ locations would mean double taxation.

This problem has an easy solution - ignoring established international tax rules and accepting the political push to tax digital corporations. Thus, you know where DSTs begin.

The European Commission proposal was to impose a 3% tax on companies’ revenues instead of profits if they earned global revenues of $797 million (€750 million).

If you check revenue-based taxes, you will find that they are regressive. So, although the policy aims at corporations, the taxing will lead to a higher effective tax rate for companies with low profits. Hence, taxing profits instead of revenues is better.

The proposal did not get enough support from the EU council. However, countries like Italy, Spain, France, and the UK had their versions.

It is unlikely for all DSTs to be removed as was agreed in 2021 because governments have the space to work around them. In December 2022, the Organization for Economic Co-operation and Development (OECD) showed that it plans to eliminate DSTs and other policies.

Conclusion

Seeking professional tax services Beverly Hills is still necessary, irrespective of taxing regulations.

What You Should Know About Digital Services Tax

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