OECD and ECLAC support regional tax on digital services
30 abril 2019

DIGITAL

Tax on digital services. The Organization for Economic Cooperation and Development (OECD) and the Economic Commission for Latin America and the Caribbean (ECLAC) have called for countries in the region to introduce a 3% Value Added Tax (VAT) on digital services. These recommendations are expected to be taken into account by various Latin American governments. Argentina and Costa Rica already have relevant legislation on this, while Chile is debating a similar initiative and the Mexican government plans to introduce a digital services tax in an upcoming tax reform, which the government projects for 2021 or earlier.

The statements were made during the XXXI Regional Seminar on Fiscal Policy organized by ECLAC, where ECLAC and OECD declared that Latin American governments must square up to and take advantage of the tax challenges of digitizing the economy. Specifically in terms of cross-border operations, two options were suggested: either to tax goods and services produced domestically with VAT, or tax goods and services consumed domestically with VAT.

Finally, the OECD and ECLAC emphasized that this tax approach already has precedents in the region: Argentina and Costa Rica have both enacted laws while Chile is considering a tax reform bill incorporating digital services and that is being strongly backed by the OECD. In addition, several pro-government legislators in Mexico are in favor of introducing a similar tax as part of a future tax reform eyed for 2021, and indeed the Executive is thought to be planning to feature such a tax in its Budget next year. It should be noted that, in these cases, financial intermediaries and cards that are used in payment systems are regarded as withholders of these taxes.

Next steps

Chile’s tax reform proposal is expected to continue along its parliamentary passage and to be approved before the end of the year. For its part, it is predicted that the Mexican government will introduce a plan to tax digital platforms in Congress in September with a view to approving it as part of next year’s budget. It is also likely that these moves, together with the explicit support of OECD and ECLAC, will encourage discussion of similar initiatives in other countries of the region, as is the case in Costa Rica whose Congress is considering a 13% tax rate on digital services.

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