The Digital Tax Is An Act Of Justice

The income generated by the digital economy leads to the debate of why and how companies should pay taxes in countries that allow them to profit from their citizens.

Publio De Gracia , director of the General Directorate of Income (DGI) of the Ministry of Economy and Finance (MEF), points out in this regard that he has managed to hold meetings with representatives of platforms such as Google, Amazon and Facebook to listen to them and, in the same way, share the point of view of the Panamanian tax administration , according to which “the important thing is that the digital economy contributes to the collection of our countries as an act of justice .”

In this sense, De Gracia shares the appreciation of Pascal Saint-Amans , director of the Center for Fiscal Policy and Administration of the Organization for Economic Cooperation and Development (OECD), who has just said that the digital rate carries this vision implicitly of equity, in relation to those who carry out their work from a physical headquarters.

The director of the DGI shared his insights during the virtual forum Digital Economy: Tax challenges and opportunities , organized by Connectax, Iesa and Capital Financiero .

The forum, moderated by Reynaldo Díaz , director of Connectax, also featured the intervention of Marcio Ferreira Verdi, executive secretary of the Inter-American Center of Tax Administrations (CIAT); of Gerardo Herrera Martínez, adviser to the office of the DGI; by Raúl Zambrano , Ciat’s technology director and José L. Galíndez , partner at Galíndez, Medrano y Asociados.

De Gracia also made reference to the participation of the body in the discussions of the subcommittee of the National Assembly that debates Bill 299 “that creates the law of tax and labor regulation for companies that operate through digital platforms “, proposed by Deputy Raúl Pineda.

In the explanatory memorandum of the law it is explained that it is the interest to examine what would be the tax regulations to apply in each of the taxes generated by digital platforms.

Also cited in the bill is the report “Fiscal Panorama of Latin America and the Caribbean 2019”, of the Economic Commission for Latin America and the Caribbean (ECLAC), organizations that “suggested to Latin American regions to modify their laws to collect taxes to foreign digital service providers.

Currently, only 3 out of 16 countries apply taxes to digital services: Argentina (21%), Colombia (19%) and Uruguay (18%). Another three are in the process of doing so: Chile. Costa Rica and Paraguay ”.

The director of the DGI indicates that most of the participants in the discussion (users, consumers and platforms) agree that the digital economy must contribute, “the issue is how.”

In this sense, the DGI is looking for alternatives, with an advisory team, because “we must guarantee legal certainty.”

He argued that the tax administration understands that it is necessary to do teaching because at a time of pandemic talking about taxes can “generate noise in citizens”, but reiterates that “it is the duty of an institution such as the DGI to seek that collection from everyone” and this It includes companies that are based in the physical territory and those that without being so also participate in the economy and receive benefits.

Similarly, he clarified that seeking tax justice does not mean wanting to reduce the competitiveness of activities related to the digital economy.

He said that countries must reach a comprehensive and multilateral solution so that tax burdens are balanced and competition between the digital and formal economies is stimulated.

He also pointed out that there is a reality: without income we cannot fulfill our obligations to citizens.

Recent figures provided by the director of the DGI himself, confirm that “the effective accumulated collection of the Tax Revenues accumulated until August 2020, reached the figure of $ 2,332.4 million , showing a decrease of $ 1,087.5 million compared to what was collected in the same period of the year 2019. Direct taxes decreased by $ 442.9 million , while indirect taxes resulted in 644.6 million less than the previous year ”.

It recognizes that it is necessary to address the issue of taxation of digital companies in a responsible manner.

“We know that it is not the magic recipe to achieve the income not obtained in the covid-19 , rather they come to be integrated into the regular economy. We bet on multilateral agreements that help us to collect within this economy, with respect to legal security and international agreements ”.

Gerardo Herrera Martínez, advisor to the DGI office, insisted on the need for how to collect, incentivize and not create a lack of incentives for this sector.

He highlighted that for the year 2019, the digital economy moved $ 199,000 million in Latam and the video game industry was the most important segment.

From this perspective, he considers it important to know the business models and then to know what fiscal policy will be applied (a game is not the same as a sale of products).

You can watch the webinar again here

Digital Economy: Tax Challenges and Opportunities
He reiterated that the tax administration has conversations with important actors in the digital economy , “not to seek approval and yes because a rule that does not have a level of consensus, may result in a null and inappropriate aspect.”

He announced that the DGI is also participating together with Ciat, OECD, International Monetary Fund (IMF), Latin American countries and Europe in the design of tools and norms that allow generating “long-term and sustainable markets.”

Specifically, Ciat is working on the voluntary registration of the different platforms that work in Panama and these are steps to develop a collection model.

In the same way, he clarified that there are activities that transit in the digital economy and are obliged to pay taxes, they do not do so and, in this case, a control task is imposed.

Raúl Zambrano , Ciat’s chief technology officer, acknowledges that payment systems that incorporate cards or generally go through the banking system are mechanisms to achieve tax from the digital economy.

The problem occurs when banking does not mediate or instead of buying a product, “superpowers” are acquired as in the case of games.

On the other hand, it is inclined to simplify processes and establish modifications that allow companies, without the need to be in the territory where the income is generated, to pay taxes.

Many companies that are creating new models and are innovative, he said, will want to comply with the law because it is also a matter of reputation.

José L. Galíndez , partner at Galíndez, Medrano y Asociados, explained that the OECD, with pillars 1 and 2, wanted to give a nuance to the digital economy.

Pillar 1 seeks to provide an answer to how to tax if the company is not in the jurisdiction of the tax administration and Pillar 2 to generate a minimum taxation “and, when it is not taxed, that the parent company of the group can tax the income of that entity”.

It recognizes that the taxes to large technology companies, called the GAFA , will not cover the fiscal deficit of the countries, but it is certain that the tax administrations will be quite active to be able to tax the digital economy.

Marcio Ferreira Verdi, executive secretary of the Inter-American Center of Tax Administrations (CIAT), recalled that Brazil was the first country in the world to receive a statement online.

He said that tax policy is alive and must accompany the progress of societies, although “the best model does not exist.”

He commented that the future is today and it is about the pre-made declaration that the Treasury will send, “because if it has all your data, why ask for the self-declaration? That is the big change ”.

Ferreira Verdi argued that the digital economy is a reality that countries must face.

In the field of digital taxation , he considers that it is not necessary to wait for a rule or an international agreement to start collecting consumption taxes, because each country has that power and it is “a matter of equity with local companies.”