Symposium Posts

The aim of this contribution is to suggest some courses of action for Latin America and the Caribbean (hereinafter, LAC) in relation to the taxation of the digital economy. For this purpose, after a brief description of the international background on direct and indirect taxation, I refer to the state of play in the LAC region, making a few preliminary considerations and presenting some generalities on the measures that have been adopted. Finally, I will share some thoughts and recommendations.

Teaching taxation is not only a matter of mastering the tax codes and regulations, not anymore. Tax return filing apps, either provided by governments or companies, will provide for results that may not reflect the best interpretation of legal provisions. Working with tax policies for the digital economy has proved to be almost an ”impossible mission”: difficult to draft a proposal and even more difficult to reach a consensus.

The COVID19 pandemic has shown that, while physical presence-based commerce was suffering the consequences of social isolation, with many businesses going into bankruptcy, the e-commerce increased. With millions of new customers - lots of those who had never bought anything on the internet before - the sector experienced unprecedented growth, despite the Pandemic, despite the crisis.

The role of  States’ in the protection and delivery of fundamental rights was reintroduced in the international debate.  The  State is responsible for the implementation of the most relevant measures, mainly in emergencies such as the one we are facing now. Only coordinated measures with collective goals will have a real effect on the fight against the COVID19. The cries of "less state" began to be rethought. We may mention the example of the Brazilian health system,  the SUS - Free and universal Unified Health System, which provided for health services for most cases of COVID19 in Brazil, despite a large private health services network across the country. At this moment, we hope that Brazilian authorities will become more aware of the importance of social controls of public money and demand transparency and efficiency of public measures and expenses.

A week ago, the Zambian Court of Appeal issued an order to halt the liquidation of the public limited company Konkola Copper Mines (“KCM”). The liquidation proceedings were attempted by State Owned Entity ZCCM Investments Holdings, a successor company to Zambia Consolidated Copper Mines Limited (ZCCM Ltd). Zambia is already defending an ICSID claim in the mining sector filed this summer by Kansanshi Mining Plc.

Adopting an electronic version of the euro and granting it the legal tender status would certainly allow States to adopt more stringent policies for fighting AML and tax evasion. Even though most of the references and examples in this contribution were focusing on the EU context, similar conclusions can be drawn for other parts of the world. While new technologies such as a CBDC could represent an additional tool at disposal of tax authorities to fight tax evasion and fraud, issues concerning the digital divide and privacy shall be addressed while the debate over the design of a CBDC is still ongoing.

Developed and developing countries have committed to implement global standards as developed by the OECD with the political mandate of the G20 including standards that provide for exchange of information among tax administrations. Some of  the reasons for this exchange to take place, is the need to provide tax administrations with the relevant information on taxpayer’s activities/assets abroad, as well as to ensure that taxpayers including multinationals pay their fair share of taxation. Exchange of information is the key instrument for tax administrations in order to prevent tax evasion, tax fraud, and aggressive tax planning.

Today, the influence of technology on the economy is not platitudinous and it has been deepened through the current Covid-19 crisis. In the same way, the tax administrations (TAs) of Latin America and the Caribbean (LAC) have not been oblivious of this trend and have sought to adapt technological changes to the tax collection process. Within the world there are different levels of progress in the incorporation of digital services in TAs however, it is important to note that there is no universal solution for all countries, as there is also influence of the country's own conditions, for example, levels of evasion and informality, technological infrastructure, the behaviour of taxpayers, institutional capacity, etc.

The primary objective of this post is to highlight the importance and gravity of the existing tax evasion in Latin America and the Caribbean today. A study conducted by Santiago Diaz de Sarralde Miguez reports that Latin America and the Caribbean are characterized by a relatively low tax burden, which averages 22.8% of GDP. That is 11.5% less than the OECD (2015). While it is true that there are large differences between countries, as the tax burden varies from 12.4% in Guatemala to 38.6% in Cuba.

Technological progress and trade liberalization dramatically increased electronic trade and opened new chapter for the businesses to remotely supply services and intangibles to the customers anywhere around the world. Such rise of e-trade and emergence of global economy created new challenges for the policy makers in applying goods and services tax (GST) on cross-border business to consumer (“B2C”) transactions.