By Elisa Kaminsky, BaseFirma, Miami
The Dominican Republic on September 26 issued its budget for fiscal year 2020, proposing new taxes on companies that operate through a digital platform, such as Netflix, Spotify, Airbnb. Additionally, the 2020 budget imposes a country-by-country reporting obligation on large multinationals.
Dominican Republic digital tax
The taxation of the digital economy has been on the radar for many countries and now it has been brought within the scope of the Dominican Republic as well.
The Dominican Republic budget proposes a tax on online subscription platforms. This surcharge would equivalent to the Tax on the Transfer of Industrialized Goods and Services (ITBIS) or the Selective Consumption Tax (ISC) on all telecommunications services.
The implementation of the digital tax would be applied to the sale of digital content from international platforms, starting fiscal year 2020.
The tax rate for digital services will be 10% and will be applied to online subscription services.
The digital tax issue
The tax implications for digital companies is controversial and has been a topic of discussion between countries for many years.
The difficulty of taxing the digital economy arises from the fact that when a consumer in the Dominican Republic purchases a service through a web platform, let’s say Netflix, it is not purchasing it from a Dominican based entity, but from the company providing the content is based abroad.
In its proposed budget, the government argues that the digital economy allows end consumers to acquire online services and intangibles from non-resident companies without any physical presence in the country. Moreover, the government is questioning the fact that, due to the benefits of the digital economy, consumers can also purchase products from non-resident suppliers who are normally exempt from taxes.
The challenge is how to collect tax from these operations — a difficult practice, if not impossible, under traditional tax standards.
Country-by-country report
The 2020 Dominican Republic budget would also impose country-by-country reporting obligations on large multinationals. It also provides for the exchange of country-by-country reports. We are expecting further information on this respect.
–Elisa Kaminsky is a transfer pricing senior associate, BaseFirma, Miami
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