Digital Service Tax Vs Digital Value-Added Tax

Since the 21st century,the rapid development of digital technology has led to the increase of the digital economy.A number of digital Internet companies represented by Google,Facebook,Amazon have provided new business service model such as online search,social platforms and online shopping..Traditional tax rules require that only non-resident companies with permanent establishments in the country can be taxed.However,these digital Internet companies can obtain commercial profits generated by users in that country through the Internet without existence of a permanent establishment in the country where the user is located,and then through cross-country International tax planning these companies will transfer the profit to tax-free areas such as Ireland and Luxembourg and pay tax at a lower rate,so as to achieve the purpose of tax avoidance.In addition,platforms such as Facebook collect and process user information to accurately push advertisements to users,thus convert users’ personal information data into company advertising revenue.Because it is difficult to accurately measure the commercial value of personal information in this process,it is often difficult to tax it in the country where the user is located.Both of the above situations belong to the problem of tax base erosion and profit shifting(BEPS)caused by the incompatibility of new business models in the digital economy with traditional tax rules.In order to solve these problems and reduce the tax loss of their own countries,many countries around the world at first launched multilateral negotiations on the reform of the global digital taxation system under the framework of OECD.However,because the request of US to add the safe harbor principle was rejected by most countries,the United States subsequently exited the negotiation,so the digital taxation reform plan under the OECD has been in a deadlock.In order to reverse the negative impact of the digital economy on the country’s tax base and tax profits before the OECD’s multilateral reform plan is issued,many countries,including France,have implemented their own temporary unilateral digital tax measures.However,these unilateral digital taxes have met with strong resistance from the United States.The United States launched a 301 investigation into the digital service tax imposed by these countries,and the results of the investigation showed that the French digital service tax is a measure that specifically discriminates against digital companies in the United States and meanwhile contrary to a number of international taxation principles,according to which the United States has adopted retaliatory counter-tariffs on French goods.The disputes over digital taxes have once again reached a deadlock.Based on the above,this article aims to solve the problem of "what digital taxation rules can be reasonably levied on digital services meanwhile ensuring legal compliance,so as to solve the problem of tax loss caused by BEPS".This article is divided into five parts,namely the Preface,Chapter 1 Overview of Digital Tax,Chapter 2 Compliance Analysis of Digital Service Tax under WTO Law,Chapter 3 Design of Digital Tax Collection Model with Compliance-Digital Value-Added Tax,and Chapter 4 Conclusion.In the Preface,the author introduces the development status of digital economy,digital trade and digital tax from the perspectives of the world and China.From a global perspective,new business models brought about by the rapid development of the digital economy are not compatible with traditional international trade and taxation laws and regulations,resulting in a series of direct and indirect tax losses.The digital technology gap between countries cannot be eliminated in a short period of time.If measures are not taken,BEPS situations including 1)by avoiding permanent establishments to transfer taxable profits and avoid taxation and 2)the difficulty to accurately measure the commercial value of personal information will always exist and aggravate its negative impact.From the perspective of China,since the 18th National Congress of the Communist Party of China,the Chinese government has gradually attached importance to the digital economy,and the digital economy has accounted for more than one-third of my country’s GDP.In order to promote the healthy development of the digital economy,China should actively participate in the formulation of international rules for digital taxation and take measures to eliminate the negative impact of digital taxation on the global competitiveness of Chinese enterprises.In Chapter 1,the author first introduced three common types of digital taxes,namely the digital service tax levied by many European countries,the Singapore goods and services tax with the characteristics of value-added tax,and the Indian Equalization Levy tax levied in withholding tax,then provided a detailed explanation of its taxation areas,subjects,thresholds,tax rates and exceptions.Secondly,the author introduced GAFA tax levied by France and the 301 investigation conducted by the United States,and pointed out the design of multiple aspects that the French digital service tax is found to be contrary to the principles of international tax law in the 301 investigation results.In Chapter 2,in order to confirm whether the U.S.301 investigation conclusion is true and accurate,that is,whether the French digital service tax constitutes a discriminatory act,the author separately tested the legal compliance of digital service tax under the two WTO documents---GATS and the "Declaration on Global Electronic Commerce".Based on a comprehensive analysis of examining the application of National Treatment,Most-Favored-Nation Treatment and General Exceptions to the digital service tax,it is concluded that the design of the entry threshold of the digital service tax violates the non-discriminatory obligation in the GATS and may be against the spirit of the Declaration.In Chapter 3,in view of the fact that digital service tax constitutes a discriminatory behavior,the author introduces digital value-added tax as a new digital tax compliant collection mode,to try to replace digital service tax and to be one of the optional taxation methods.First,the author comparatively analyzes the major advantages of digital value-added tax compared to digital service tax;secondly,for the business model of online advertising relating to the second BEPS form,the author proposes a analytical method that"platform subscription fee and royalties offset each other".Finally,using this analytical method,the author provides two assumptions about the value confirmation of the taxable subject concerning the model design of applying digital value-added tax to the business model of online advertising.In Chapter 4,by summarizing the above analysis,the author draws four conclusions:(1)Digital economy impacts traditional taxation rules,and digital taxation system reform is imperative;(2)Digital service tax violates WTO law;(3)In order to solve the BEPS problem caused by the digital economy,many countries in the world should first try to formulate a unified digital taxation standard through multilateral consultation;(4)Before the introduction of the unified standard,taxation countries can consider temporary measures such as revising the digital service tax model or practicing digital value-added tax to moderate the loss of fiscal revenue caused by BEPS.