Problems and the future of corporate income tax and VAT in the conditions of digitalization

Оksana M. Garkushenko, Olha O. Kuvaldina

Abstract


Globalization and digitalization lead to significant changes in society and economy, including the field of taxation. Moreover, the efforts of governments of many countries are aimed at implementing measures to combat profit shifting and ensure that budget revenues from corporate income tax and VAT are received in the proper amount. The article analyses main problems of corporate income tax and VAT, possible ways to solve them in near and distant perspectives. With regard to respective taxes, the main aspects of combating tax base erosion and tax evasion with the use of new digital methods, and the state of BEPS steps implementation in this part are analysed.

Given that the corporate income tax in modern conditions has a number of disadvantages, it is likely that in the future it will be replaced by an alternative – a tax on withdrawn capital or a tax on cash flows at destination. VAT, in turn, is a neutral tax that is easy to algorithmize and administer. Therefore, it can also displace corporate income tax from the tax systems of countries.

At the same time, there are a number of problems with VAT: cases of fraud, non-taxation or double taxation of transactions in international trade. It has been found that in the short run (up to 5 years) it is important for national governments to increase efforts to implement BEPS plan and to strengthen information exchange and international cooperation to counteract base erosion and profit shifting. To simplify VAT administration and improve the interaction between taxpayers and tax authorities within the same country, as well as in international trade, it is feasible to use the e-invoicing practice more widely. In distant perspective, it is possible to use blockchain technology.

Taking into account global trends, the article provides recommendations for improving VAT and corporate income tax in the context of globalization and digitalization (in particular – further implementation of BEPS measures in all countries of the world, mandatory registration as VAT payers in jurisdictions, where sells of goods and services to end users take place, strengthening international coordination and cooperation in the field of taxation), as well as general recommendations that should contribute to digitalization and economic development of Ukraine in the near and distant future.


Keywords


corporate income tax, VAT, digitalization, BEPS, blockchain, e-invoice

Full Text:

PDF

References


Vietskaya, О. V. (2018). Modern trends in corporate income taxation: perspectives of the withdrawn capital tax. Econ. promisl., 2 (82). pp. 24-49. DOI: https://doi.org/10.15407/econindustry2018.02.024 [in Russian].

Vishnevsky, V. P., Harkushenko, O. M., Kniaziev, S. I., & Chekina, V. D. (2020). Digitalization of Ukrainian economy: transformational potential: monograph. In V. P. Vishnevsky, S. I. Kniaziev (Eds.). Kyiv: PH "Akademperiodyka" 2020. 188 p. DOI: https://doi.org/10.15407/akademperiodyka.398.188 [in Ukrainian].

Garkushenko, O. N., & Filippova, N. V. (2016). Directions of VAT rates harmonization to European ones: issues and challenges. Econ. promisl., 3 (75), pp. 49-73. DOI: https://doi.org/10.15407/econindustry2016.03.080 [in Ukrainian].

Harkushenko, O. M. (2018). Information and communication technologies in the era of the smart industry development: problems of definition and conditions of development. Econ. promisl., 2(82), pp. 50-75. DOI: http://doi.org/10.15407/econindustry2018.02.050 [in Russian].

The State Treasury Service of Ukraine (2021). File hub. Reports. The State Treasury Service of Ukraine. Retrieved from https://www.treasury.gov.ua/ua/file-storage/vikonannya-derzhavnogo-byudzhetu [in Ukrainian].

State Statistics Service of Ukraine (2021). National accounts. Gross Domestic Product in current prices. State Statistics Service of Ukraine. Retrieved from http://www.ukrstat.gov.ua/ [in Ukrainian].

State Statistics Service of Ukraine (2021). Commodity structure of Ukrainian foreign trade. State Statistics Service of Ukraine. Retrieved from http://www.ukrstat.gov.ua/ [in Ukrainian].

European Information and Research Center (2016). Transformation of corporate income tax into tax on withdrawn capital. Retrieved from http://euinfocenter.rada.gov.ua/uploads/documents/28909.pdf [in Ukrainian].

Sinyutka, N., & Krysovata, K. (2019). Fiscal dysfunction of VAT electronic administration in Ukraine. Svit finansiv, 4(61), pp. 23-36 p. [in Ukrainian].

Sundaram, J. K., & Chauduri A. (2021). Myths and lobbies are blocking international tax cooperation. Expert, 30 (1216), June 19-25, 9 p. Retrieved from https://expert.ru/expert/2021/30/mify-i-lobbi-blokiruyut-mezhdunarodnoye-nalogovoye-sotrudnichestvo/

Ainsworth, R. T., Alwohaibi, M., Cheetham, M., & Tirand, C. (2018). A VATCoin Solution to MTIC Fraud: Past Efforts, Present Technology, and the EU's 2017 Proposal. Boston Univ. School of Law, Law and Economics Research Paper, 37 p.

Alkhodre, A., Jan, S., Khusro, S., Ali, T., Alsaawy, Y., & Yasar, M. (2019). A blockchain-based value added tax (VAT) system: Saudi Arabia as a use-case. Int. J. Adv. Comput. Sci. Appl, 10(9), pp. 708-716. DOI: 10.14569/IJACSA.2019.01005 88

Auerbach, A., Devereux, M. P., Keen, M., & Vella, J. (2017). Destination-Based Cash Flow Taxation. Saïd Business School. Research Papers. Retrieved from https://eml.berkeley.edu/~auerbach/CBTWP1701.pdf

Barros, M. (2019). Robots and Tax Reform: Context, Issues and Future Perspectives. International Tax Studies, 6-2019. 22 p.

Hebous, S., Klemm, A. D., & Stausholm, S. (2019, 15 January). Revenue Implications of Destina-tion-Based Cash-Flow Taxation. IMF Working Paper. Retrieved from https://www.imf.org/en/Publications/WP/Issues/2019/01/15/Revenue-Implications-of-Destination-Based-Cash-Flow-Taxation-46506

Lamensch, M. (2018). VAT fraud: Economic impact, challenges and policy issues. Brussel: European Union. 74 p.

Li, Jinyan (2014, June). Protecting the Tax Base in the Digital Economy. UN Papers on Selected Topics in Protecting the Tax Base of Developing Countries. Paper No. 9. 49 p.

Milliken, D., & Holton, K. (2021, June). Tech giants and tax havens targeted by histo-ric G7 deal Reuters. Retrieved from https://www.reuters.com/business/g7-nations-near-historic-deal-taxing-multinationals-2021-06-05/

OECD (2015a, November). International VAT/GST guidelines. OECD. 81 p. Retrieved from http://www.oecd.org/ctp/consumption/international-vat-gst-guidelines.pdf

OECD (2015b, November). OECD delivers international standard for collection of VAT on cross-border sales. OECD. Retrieved from http://www.oecd.org/ctp/consumption/oecd-delivers-international-standard-for-collection-of-vat-on-cross-border-sales.htm

OECD (2019). Programme of Work to Develop a Consensus Solution to the Tax Chal-lenges Arising from the Digitalisation of the Economy, OECD/G20 Inclusive Framework on BEPS. Retrieved from https://www.oecd.org/tax/beps/programme-of-work-to-develop-a-consensus-solution-to-the-tax-challenges-arising-from-the-digitalisation-of-the-economy.pdf

OECD (2021). BEPS Actions. OECD. Retrieved from https://www.oecd.org/tax/beps/beps-actions/

Olbert, M., & Spengel, C. (2019). Taxation in the Digital Economy-Recent Policy Developments and the Question of Value Creation. ZEW-Centre for European Economic Research Discussion Paper, 19-010. 35 р.

Quaderno Library (2018). The ultimate guide to EU VAT digital taxes. Quaderno. Retrieved from https://quaderno.io/resources/eu-vat-guide/

Setyowati, M. S., Utami, N. D., Saragih, A. H., & Hendrawan, A. (2020). Blockchain Technology Application for Value-Added Tax Systems. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), pp. 156-183. DOI: https://doi.org/10.3390/joitmc6040156

Tax Foundation (2020). Corporate Tax Rates around the World, 2020. Tax Foundation. Retrieved from https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/#Findings

Terada-Hagiwara, A., Gonzales, K., & Wang, J. (2019, May). Taxation Challenges in a Digital Economy - The Case of the People’s Republic of China. ADB Briefs, 108. 8 р.

The Asia Internet Coalition (2017, June). Indirect Taxation Challenges in the Digital Economy. AIC Tax Policy Paper. 4 p.

VAT GST in A Global Digital Economy: Eucotax Series on European Taxation (Book 43). (2015, 19 August). Eds. M. Lang & I. Legeune. Alphen aan den Rijn, The Netherlands: Walters Kluwer Law & Business. 256 p.

VATBox (2020, 22 July). Experts weigh out on the future of VAT. VATBox. Retrieved from https://vatbox.com/experts-weigh-out-on-the-future-of-vat/

Wolfers, L. (2019a, 3 December). VAT and technology: The first fully automated tax? ITR. Retrieved from https://www.internationaltaxreview.com/article/b1j8ydd4qghx0w/vat-and-technology-the-first-fully-automated-tax

Wolfers, L. (2019b, 3 December). Future of VAT: Continued evolution and increasing significance

Wyonch, R. (2017, August). Bits, Bytes, and Taxes: VAT and the Digital Economy in Canada. Commentary 487. Toronto: C.D. Howe Institute. 28 p.




DOI: https://doi.org/10.15407/econindustry2021.03.052

Refbacks

  • There are currently no refbacks.