Using global, taxing local: the digital service provider’s dilemma – news
Wam photo file
Electronic services include the provision of software, cloud services, web hosting, distance learning, etc.
âCan you ever think beyond taxation? My sister commented as we streamed a movie on an OTT platform. I had just mentioned that we might cause tax problems for platform owners by using its India subscription in Dubai.
âI’ll try. But first, let’s go out to watch the New Years fireworks. I responded with a smile. And we started discussing the tax issue as we made our way to JBR beach.
Let’s start with the basics
United Arab Emirates VAT is applicable on electronic services provided in the United Arab Emirates. Electronic services cover the provision of content, films, etc., which are automatically distributed over the Internet. Movie streaming services provided by OTT platforms are broadly treated as electronic / digital services.
Electronic Services are considered to be provided in the UAE to the extent that their use and enjoyment is in the UAE. If a movie is watched in the United Arab Emirates, the streaming services are to be treated as used and enjoyed in the United Arab Emirates to that extent, thus attracting UAE VAT.
For B2C supplies, individual subscribers are often not subject to VAT to account for VAT under the Reverse Charge Mechanism (RCM). Thus, VAT obligations should fall on the owners of non-resident platforms.
Place of contract or payment
âBut the subscription was purchased through an Indian IP address and payment was made from our Indian credit card. Why should UAE VAT be applicable? âShe asked.
âUAE VAT law states that ‘actual’ use and enjoyment will be where the services were used, regardless of where the contract or payment was made. I replied, “Therefore, the ‘real’ use and enjoyment has yet to be determined. With current technology, it is not difficult to analyze the different IP addresses / geolocations of the subscriber to determine the actual usage.
Global reach of electronic services
âBut usage can occur worldwide throughout the subscription period. Would the supplier continue to pay VAT in different countries? She asked the next intriguing question.
âThe rules for B2C electronic services are different in each country.â, I replied, âUAE law uses the phraseâ to the extent âof use and enjoyment in the UAE. If the use spans more than one country, the extent of the use in the United Arab Emirates would determine the amount of UAE VAT. “
Interestingly, according to the legal principle confirmed by the European Court of Justice (ECJ), paying VAT / GST on a service in a country (e.g. India) would not prevent the UAE from collect VAT if this service is provided in UAE.
âAnd how can the provider determine the expected usage and enjoyment when the subscription starts? â, Came the next question.
âI agree, it’s not possible,â I explained, âbut tax laws generally allow for the correction of overpaid / underpaid taxes based on subsequent events. The law focuses on actual use and enjoyment, not expected. Suppliers can analyze actual ‘use and enjoyment’ on a monthly or annual basis and issue tax credit notes / invoices accordingly. “
The problem is not unique to OTT platforms. Electronic services include the provision of software, cloud services, web hosting, distance learning, etc. on the Internet. Determining actual use and enjoyment could be a complex challenge for service providers. A detailed examination of their operating models would help determine a rational basis for quantifying the UAE’s tax obligations.
âYou know,â I continued, âthe telecommunications industry faces a much more complex question of determining use and enjoyment. But more again another time.
âI wish you a very happy new year! Will bother you less this year, âI concluded as we watched the spectacular fireworks display.
The author is the Managing Director of AskPankaj Tax Consultants. For comments and questions, you can write to [email protected] The opinions expressed are his own and do not reflect the policy of the newspaper.