This program addresses tax challenges affecting businesses engaged in cross-border transactions, with particular attention to the effects of digital goods and services. Business advisors need to understand the changing tax landscape, including new definitions for nexus and new approaches to sourcing and allocating taxable income, which will have far-reaching effects throughout the international business community. This program is not just for large tech companies and multinationals!
Innovation in internet and related communication technology has spawned new ways for firms to tap into foreign markets. Business models built on digital platforms can generate significant income from remote markets through network connections, without a significant physical presence in the form of facilities or personnel. The sharing economy, cloud computing, streaming services, electronic marketplaces, advertising, and software services provide examples of activities that can target remote markets from operational bases that could be anywhere. Moreover, these activities are a common part of many business models.
Digital operations have eroded the state’s power to tax effectively. As the value chain for providing goods and services continues to expand across jurisdictional boundaries, governments have struggled to address their ability to capture an appropriate share of cross-border activity. The “permanent establishment” concept utilized in treaties over the past century to allocate taxing authority can leave significant gaps, allowing firms without a physical presence in a market state to avoid income taxation there. Moreover, firms have also developed clever techniques to shift income from high-tax to low-tax jurisdictions, which further erode the tax base. Governments have responded by developing various anti-avoidance rules to protect their domestic tax base and prevent shifting profits elsewhere.