Digital economy, tax reform and blouse tax – 09/29/2024 – What tax is this

Consumption taxes, a central theme of tax reform, have adapted well to the digital economy, as shown by the experiences of the European Union and other countries that use VAT (Value Added Tax). A challenge that still arises is the taxation of international operations.

According to the OECD, 20% of e-commerce is linked to imports. These are products and services —often of low value— intended for millions of consumers, which makes inspection difficult.

Even when the tax is paid, it does not necessarily remain with the recipient’s country, which goes against the VAT principle of collection at the destination.

I recently purchased a digital audio file from a company in the USA online. I was taxed with the American tax.

Another problem is what the OECD calls the “package tsunami”: there has been an increase in imports of low-value goods, and governments are facing challenges in collecting these taxes. We have lost revenue, competitive distortion and a negative impact on employment and income. It’s a discussion similar to what became known in Brazil as the “blouse tax”.

Other data from the same organization points to a way to resolve the issue. More than 60% of transactions are concentrated on a few international trading platforms. Hence the entity’s recommendation that the seller who is abroad and the large companies that carry out this intermediation be responsible for collecting the tax.

More than 100 countries have already implemented VAT reforms aimed at digital commerce and 30 are considering changes. The European Union has followed this model since 2021.

What are the OECD recommendations? The place of taxation must be the customer’s location. It is necessary to require overseas digital suppliers to register and account for tax through an online portal. Marketplaces and other platforms that dominate global online commerce must bear full responsibility for VAT.

This was the path adopted by the Federal Revenue of Brazil in the Conform Remittance Program, which generated the issue of “blouses”. At first, the exemption for purchases of up to US$50 was maintained. Then, due to pressure from Congress and companies, reduced taxation was created in these cases.

The tax reform regulation proposal also touches on these points. The version of the project approved by the Chamber in July says that platforms are responsible for collecting new taxes on sales made by suppliers in other countries. If the seller is in Brazil, the marketplaces are jointly liable for the taxes.

The platform must consult the Revenue and the committee made up of states and municipalities, which are obliged to inform whether or not the supplier needs to collect the new taxes. An individual who eventually sells a used good will not be taxed.

Finally, it is necessary to calibrate the new taxes with the import tax. The difficulty in the current model is that we do not know what the national product is today. It may vary depending on the company’s location and tax benefits. The standardization of tax rates also helps to resolve this issue.

For those who want to delve deeper into the subject, I leave here the link to the debate held by the Tax Reform Observatory on the topic and also the link to a report in which I previously addressed this issue. Below, a video of Sheet about Conformal Shipping.

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