The Taxation of E-commerce - British Business Group Vietnam€¦ · Document Classification: KPMG Confidential Examples of E-commerce in Vietnam-Social media-Search engine-Media-Books

The Taxation of E-commerce

Dean Rolfe

March 2019

2© 2019 KPMG Limited, KPMG Tax and Advisory Limited, KPMG Legal Limited, all Vietnamese limited liability companies and member firms of the KPMG network of

independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Document Classification: KPMG Confidential

What I want to talk about today

1The rise

of the

internetThe

digitization

of

commerce

2 The taxation challenge

3Developments in taxation for the digital economy

4Taxation of

E-commerce

in Vietnam

5

1. The rise of the internet




The Technology Timeline

20164.62 billion

web pages

exist > 1 billion

iPhones sold

2012UK Starbucks’

voluntary tax

payment

2009Bitcoin

2007First iPhone

was released

League of Nations

International Tax

rule development

1999Tech Crash

1991Start of Internet

World Wide

Web was born

1956Container ship’s

maiden voyage

1958First OECD

model Double

Tax Convention

19283 Model agreements

residency & source1998

Google was

founded

2008App Store was

launched

2013OECD BEPS

project (Action1)




Internet usage is growing…

Source: Statista

Percentage of global population accessing the internet

(2015 – 2017), by market maturity




History of Internet Banking- 1969: The first ATM was installed by Chemical Bank in the U.S.

- 1981: New York City banks tested at-home banking, including Citibank,

Chase Manhattan, Chemical Bank and Manufacturers Hanover.

- 1983: Bank of Scotland offered UK’s first home online banking services.

- 1994: Standard Federal Credit Union offered UK’s first internet banking

services.

- 1995: Presidential Bank offered U.S.’ first internet banking services.

- 2000: 80% of U.S. Banks offered internet banking.

- 2017: Online banking is standard practice.




And services are growing

0

2000

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140001981

1982

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2009

2010

2011

2012

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2015

2016

Bill

ions o

f D

olla

rs

Personal Consumption Expenditures in US (1981 – 2015), by types

Durable Goods Nondurable Goods

Services Personal Consumption Expenditures

Source: Federal Reserve Economic Data (FRED)




The consumer is evolving

There aremore people, living

longer and becoming wealthier

1bn Middle class

consumers in China by 2030

Indian household income

segments are increasing — by

60%

2.5bnMillennials

Globally

1bn People aged

over 60 globally

People are spending more, but they are

also spending differently

Technology is changing people’s

behavior

Seniors have the

highest disposable

income

78%of Millennials

prefer to spend on experience over

assets

Best experien

cesare now the norm for expectations

8 SecondsThe attention span of a

human is now less than a that of a goldfish

87%Of people use

between 2 and 3 devices

80% of the global population will

own a smartphone in

2020

90%Customers say buying

decisions are influenced by online reviews

61%Are willing to borrow

or share products rather than buy new

ones

Source: KPMG International, Global Customer Insights Program










v

My life in data……the new gold!







Three converging megatrends

Rise of the Asian Consumer Consumer EmpowermentDigital Everywhere







Retailers have to respond to each consumer trend to address all expectations

Value

Experience

ConvenienceOrdering

Delivery

Payment

Digital trading unit

Loyalty programmes

Membership

Robotics

Unique experiences

Collection points

Smarter use of data

Ethics

Personalisation

Data analysis and waste reduction

Promotions and vouchering

Proximity marketing




Online Landscape in 2018 – Regional vs Global

354 millionActive Social Network Users SEA ONLINE

SNAPSHOT

373 million Internet Users

644 millionTotal Population 141%

Mobile Penetration55% Social Network

Penetration

58% Internet Penetration

31:69Urban: Rural

39%Active Mobile Social User

Penetration

42% Active Social Media User

Penetration


7,593Total Population

55% Urbanization

GLOBAL ONLINESNAPSHOT

Source: Hootsuite, 2018

Effective reach to upcountry population

Relatively low internet penetration but going up

fast

Crazy about social media

Everyone has at least 1 cell phone

IMPLICATION FOR SEA

VIETNAM ONLINE SNAPSHOT

96.02 millionTotal Population

54.0 million Internet Users


55 millionActive Social Media Users

57% Penetration

50 millionActive Mobile Social

User52%

Penetration

2. The digitization of commerce is moving faster that regulators can deal with …




What is E-commerceElectronic commerce, or e-commerce, has been defined by the OECD

as:

Source: OECD BEPS Action 1

The sale or purchase of goods

or services, conducted over

computer networks

“

”




Internet usage can take many forms

Business-to-consumer (B2C) E-commerce:

Customers deal directly with an organization without the involvement of

any intermediaries

Consumer-to-consumer (C2C) E-commerce:

Buying and selling directly to each other

Business-to-business (B2B) E-commerce:

Business to business transactions

Communication:

WhatsApp, Google Meet, Skype, Messenger, We Chat

Data collection and record keeping:

Taxation – government services are increasingly automated




- Social media

- Search engine

- Media

- Books (B2C sale of goods)

- On-line travel

- Ride sharing

- Gaming platform (Entertainment)

- Networking

Examples of E-commerce




Examples of E-commerce in Vietnam

- Social media

- Search engine

- Media

- Books (B2C sale of goods)

- On-line travel

- Ride sharing

- Gaming platform (Entertainment)

- Networking




How the market leaders have changed in digital era

ExxonMobil 1

Walmart 2

Microsoft 3

P&G 4

Johnson & Johnson 5

AT&T 6

Chevron 7

IBM 8

Alphabet 9

Coca-Cola 10

Sector

Energy

Consumer staples

Tech

Healthcare

Telecoms

Consumer discretionary

Financials

Source: Bloomberg




The value of intellectual property

Source: mindful money




Google revenueGoogle's annual revenue

(2002 – 2017), by segment US$ billion

Source: Statista

3. The taxation challenge




A historical perspective1928: League of Nations: 3 models for the taxation of international

commerce

- Residency

- Source

- Physical presence (Permanent establishment)

1956: Container ship maiden voyage

1991: World Wide Web is born

2000: OECD action on taxation reform – rules not changed!

2016: 4.5 billion websites

2017: EU proposal: ‘ Significant Digital Presence’




The taxation challenge …….1. Where is e-commerce revenue or profit earned ?

- No physical presence

- No collection mechanism

- Customer and service provider are in different locations

2. Who is going to tax that revenue or profit ?

- Governments, but which one ?

- Governments will argue about the right to tax income and profits

3. How is e-commerce taxed ?

- Without a traditional taxation footprint this is difficult




This problem is exaggerated with cashless payment systems

Secure electronic payment is a key driver for the adoption of E-

commerce.

Payments can be made in a number of ways including:

- Electronic Cash

- Digital wallets

- Gift cards

- Bitcoin

- Smart cards: Credit, Charge and Debit Cards

- Borderless transactions




A taxation law problem or a perception problem?

Political leaders, media outlets, and civil society around the world

have expressed growing concern about tax planning by

multinational enterprises (MNEs) that makes use of gaps in the

interaction of different tax systems to artificially reduce taxable

income or shift profits to low-tax jurisdictions in which little or no

economic activity is performed.

Source: OECD BEPS Action 1




Why is there a problem?

The European commission concluded that Apple paid a 0.005%

effective tax rate to Irish tax authorities in 2014, which is far

below the corporation tax rate of 12.5%.




OECD & G20 Action on taxation reform

Some of the challenges identified by the OECD in taxing the digital

economy included:

1. Identification

2. Scope of Activities

3. Information collection

4. Identification of customers

5. Lack of physical presence

6. Lack of collection agents

4. Developments in taxation for the digital economy





Action 1 – Addressing the challenges of the digital economy

Feb 2013: OECD and G20 agree 15 Actions to address perceived tax

abuse called base erosion and profit shifting (BEPS) by

multinational companies.

April 2013: Action 1: Addressing the tax challenges of the digital economy –

Draft report

April 2014: Public consultation on Action 1

Oct 2015: Action 1: Addressing the tax challenges of the digital economy –

Final report





Action 1 – Addressing the challenges of the digital economy

How might traditional tax laws need to change and evolve ?

PE: Change the exemptions contained with the definition

of permanent establishment.

Alternative tax nexus: Customer location ?

Virtual PE: Agency, server farm, other ?

Withholding tax: Withholding tax on payments (how?)

VAT and GST: VAT and GST on new classes of transactions (how?)




E.U. action on the digital economy

Independently of the OECD, the European Commission is currently looking

at ways to capture tax from companies that may have no offices, shops or

other physical presence in a country, but are accruing profits through large

numbers of online users or customers.

Taxation based on the creation of a ‘SIGNIFICANT DIGITAL PRESENCE’

and/or

TAXATION OF REVENUE generated in a territory (turnover tax)

NOTE: Brexit will mean these EU proposals will not impact the U.K. going

forward




Australia and UK response to the challenge

Some other jurisdictions are not waiting for international agreement on how

to tax the digital economy

- UK – Diverted Profits Tax (1st April 2015)

- Australia – Diverted Profits Tax (1st July 2017)

Broadly speaking, the intent of these rules is to tax the business profits of a

multinational company (which is considered to have artificially diverted

profits from a high tax jurisdiction into a low tax jurisdiction) using existing

tax rules and principles.




Growing international consensus ?

“Significant Digital Presence”

5. Taxation of E-commerce in Vietnam




Taxation of E-commerce in Vietnam

- Permanent establishment (PE)

- Foreign contractor tax (FCT)

- Value-added tax (VAT)

- New Admin Law – Payment aggregation (proposal)

37@2019 KPMG Limited, KPMG Legal Limited, KPMG Tax and Advisory Limited, all Vietnamese limited liability companies and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


E-commerce in Vietnam

• Website

Law No. 67/2014/QH13 on Investment (Investment Law 2014) and Law No. 68/2014/QH13 on Enterprise (Enterprise Law 2014) and Circular 47/2014/TT-BCT stipulating the management of e-commerce websites,

Regulations Financial

• Vietnam B2C e-commerce retail sale in 2016 reached $5 billion, accounting for 3% of Vietnam total retail products and consumer.

• E-commerce revenue in Vietnam is estimated to reach some $8 billion by 2025.

38© 2019 KPMG Limited, KPMG Tax and Advisory Limited, KPMG Legal Limited, all Vietnamese limited liability companies and member firms of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


Incentives for hi-tech workforceResolution No.41/NQ-CP , date of effect 26 May, 2016

A range of new measures including tax incentives have been introduced

Tax Incentives include:

• Certain activities production of digital contents, software servicing, manufacture of major information technology products, rectification of information safety issues, information safety security are granted corporate income tax incentives similar to that of software development activities.

• Personal income tax concessions for individuals working in hi-tech sectors.




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© 2019 KPMG Limited, KPMG Tax and Advisory Limited, KPMG Legal Limited, all Vietnamese limited liability

companies and member firms of the KPMG network of independent member firms affiliated with KPMG

International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of

any particular individual or entity. Although we endeavor to provide accurate and timely information, there can

be no guarantee that such information is accurate as of the date it is received or that it will continue to be

accurate in the future. No one should act on such information without appropriate professional advice after a

thorough examination of the particular situation.

Dean [email protected]

The Taxation of E-commerce - British Business Group Vietnam€¦ · Document Classification: KPMG Confidential Examples of E-commerce in Vietnam-Social media-Search engine-Media-Books

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