- While the discussions on the viability of tax reform for 2021 advance, economic analysts suggest the adoption of a rate similar to that implemented in Europe so that tech giants contribute more consistently in the country;
- For Pedro Sarmiento, part of the Study Commission for a Land Tax Reform and managing partner of taxes in Crowe Colombia, Colombia should adopt the so-called Gafa (Google, Apple, Facebook, and Amazon) tax: between 3% and 5%.
As the pandemic accelerated the adoption of digital products and services, digital platforms are experiencing an unprecedented demand that was first pushed by social distancing and isolation measures. In Colombia, this is no exception.
The taxation of these large apps, such as Amazon, Facebook, Google, and Uber, however, differs from that of other companies due to their digital nature. These platforms, for instance, are exempted from the income tax.
Currently, in Colombia, this type of digital industry pays the sales tax (VAT) and the Industry and Commerce tax (ICA). In addition, the national legislature follows one of the measures of the Organization for Economic Cooperation and Development (OECD), a group of which Colombia is a part, which sets fiscal rules and criteria for the digital economy.
In 2019, these platforms paid 253,678 million pesos, which is no more than 0.68% of the total VAT collection: 37.08 billion pesos, according to the National Directorate of Taxes Customs (Dian). From January to October of this year, the tax collection by digital companies is 209,887 million pesos.
A recent study held by the Community of Latin American and Caribbean States (Celac) and first reported by the Colombian newspaper La República pointed out that, through various practices, digital companies transfer their profits to tax havens, evading taxes and paying a low percentage of their income globally. Besides, they are not taxed in countries where they do not have a physical presence, although they have millions of users who contribute to creating value.
In that sense, Dian proposes that, despite not having an infrastructure in the country, these platforms should transfer more income to the treasury and not evade these resources in tax havens or returns to their countries of origin.
While the discussions on the viability of a tax reform for 2021 advance, intending to alleviate this year’s economic crisis, economic analysts suggest adopting a rate very similar to that implemented in Europe so that the technological giants contribute more consistently to the country.
Economists like Pedro Sarmiento, part of the Study Commission for a Land Tax Reform and managing partner of taxes in Crowe Colombia, pointed out the need for the next tax reform to include a new tribute for these platforms due to their economic consolidation, as a way of increasing collection to face the crisis.
For Sarmiento, Colombia should adopt the so-called Gafa (Google, Apple, Facebook, and Amazon) tax, in which tech giants that do not pay taxes are taxed in countries where, even without being physically established, they generate value, earnings, and benefits.
“In Europe, they have not agreed on how much the ideal rate should be, but it is between 3% and 5%. For example, in Spain, it is already 3%, and in Australia, 5%,” said the expert. “After the pandemic, the adoption of technological services is very broad and, surely, this will be one of the new taxes, hopefully at a reduced rate below that of Europe, that is, an average of 3% to avoid tax competition.”
Despite the need for a new special tax, Sarmiento warned that one of the most complex problems that come with the Gafa tax is that, more than tax havens, “now a severe tax competition is opening between countries because everyone imposes lower rates for the platforms to arrive.”
Dian explained that while setting this proposal towards a tax reform, the retefuente (tax withheld at source) as a form of VAT collection could be an adequate tool to collect taxes from tech companies. In Colombia, there is already a law establishing the mechanism of withholding at source as another way to pay the VAT generated in the provision of services abroad.
This withholding can be practiced by credit and debit card issuers, prepaid card sellers, cash collectors in charge of third parties, and others designated by the authority in the moment of the corresponding payment or credit to the providers from abroad.