Vertex Contributes to United Nations Research on Digital Taxation

Countries in Europe and other mature economies are speeding ahead with e-invoicing, real-time reporting and related digital tax compliance requirements. Yet, tax authorities within many developing countries are struggling to keep pace with the growing adoption of e-commerce and related digital transformations while contending with what a new United Nations research report, Indirect Taxation of E-commerce and Digital Trade, describes as “unprecedented fiscal strain.” The report, which was published by the United Nations Conference on Trade and Development’s (UNCTAD’s) Division of Technology and Logistics, framed the digital taxation challenge this way:

“E-commerce, and its impact on tax revenue, offers unique opportunities for developing countries to modernize their digital economy and advance sustainable development. However, challenges pertaining to the digital divide are the result of a multitude of diverse factors that encompass scarce resources and low levels of digital maturity in governance, public finance systems and tax administrations.”

I’m proud to report that this passage is authored by Vertex Chief Economist and Senior Tax Policy Director George L. Salis. George contributed a chapter to the report in which he lays out recommendations for policymakers and other public and private business leaders who are interested in building and expanding a solid and secure e-commerce foundation for generating revenue via digital taxation.  

George’s analysis is timely given that the digital tax divide between established economies and developing countries is poised to grow wider as new e-invoicing mandates take effect. Among other points, George emphasizes that:

• The digital tax divide among tax authorities is multifaceted: "Prior to engaging in infrastructure and capacity-building, an interdisciplinary gap assessment is advisable for policymakers,” George writes. “The assessment should comprise: (1) technology, (2) technical capacity (knowledge, skills and abilities), and (3) the non-technical substantive areas described above, such as national and international legal and regulatory frameworks, trade logistics and regulations…”
• Cybersecurity is non-negotiable when it comes to taxing digital trade: George emphasizes that a “secure commercial data and payment environment strongly incentivizes and encourages e-commerce flows in a protected and reliable system. It forms the basis of a reinforced regional digital ecosystem."
• Regulatory complexity creates compliance burdens and barriers: “Regulatory complexity can also create tax differentials, rate and factor gaps, and other economic and competitive distortions, as well as triggering tax avoidance and non-compliance,” George notes.

He shares that private sector leaders are prioritizing cross-border data flow security in developing countries and seeking to simplify regulations for local e-commerce and tax compliance.

My congratulations to George, whose deep and rare expertise is ideally suited to unpacking and addressing challenges and opportunities that exist at the intersection of taxation, policymaking, economics and regulation. His contribution to this important, ongoing research reflects Vertex’s commitment to influencing the global tax policymaking ecosystem on behalf of our customers, partners and other stakeholders.