A Study on Digital Income Tax of Taiwan

• Main Authors: Ching-Han Wu, 吳京翰
• Other Authors: Ge Ke-Shang
• Format: Others
• Language: zh-TW
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/7z5655

碩士 === 國立臺灣大學 === 科際整合法律學研究所 === 107 === The digitalization of industry keeps changing people’s way of doing business and ignites the revolution of new business models. Despite the rise of e-commerce in 2000, tax regimes around the world were not aware of the challenges presented by the digital economy until the notorious “Double Irish and Dutch Sandwich Scheme” revealed in 2010. Since then, countries around the world, especially member states of the OECD, started to take actions towards the problems raised by the digital economy. OECD BEPS Action 1, addressing the Tax Challenges of the Digital Economy, is the achievement of multiple years’ hard work. BEPS Action 1 concludes that using intangible assets has become a critical driver of value creation for digital businesses. In addition, advancements in digital technology enable digital service providers to carry out remote business activities and connect with customers far away. Certain processes carried out by local personnel in the past, can now be performed cross-border by automatic equipment like servers and data centers. These innovative characteristics make the value creation process of digital business hard to observe and poses threat to the international taxation system which is constructed on the two aspects: namely, the nexus for taxation and the methodology for allocating profit to the nexus. Meanwhile, tax regimes can be confusing in terms of characterizations of income and allocation of users’ value produced via participation. Although BESP Action 1 has provided 3 possible solutions, which are the new nexus in the form of a significant economic presence, the withholding tax on certain types of digital transactions and the equalisation levy, to tackle the challenges of the digital economy, global consensus remains elusive on whether and how to tax businesses with a substantial digital business footprint without physical presence in a jurisdiction. Some jurisdictions agree with the conclusion made by the OECD that it is not necessary to introduce an interim solution to avoid fragments of international taxation system and potential double taxation. Nevertheless, other tax regimes, like India and Italy, express their concern over bases erosion problem caused by the digitalization and are eager to adopt unilateral scheme to shore up their taxation right on cross border income. Confronted with the similar situation, in December 2018, the Ministry of Finance, R.O.C (Taiwan) revealed the administrative rule (Order No. 10604704390) as the interim solution. However, despite its good intension, the administrative rule is criticized for its withholding and tax bases calculation. Furthermore, the administrative rule’s effectiveness on preventing tax avoidance is at question because foreign digital service providers can still shift their profits to Singapore or Netherlands easily through the Double Taxation Agreements. By comparing and analyzing different interim solutions around the world, this thesis aims to propose a long-term digital taxation solution for Taiwan. Considering the consensus-based solution is still under development, this thesis suggests administrators in Taiwan follow the international trend on tax reform timely and carefully, and erase the gap between Double Taxation Agreements and Income Tax Act.