Taxing the Digital Economy: Where are we so far?

Ektaa Kumar 03.07.2019

2019 has presented the tax market with a lot of uncertainty, including tax challenges of the digital economy. The global tax environment continues to develop at an exponential pace.

A changing tax environment requires different skills

What has been evident is that the challenges a tax department now face are much more complex than simply managing the Effective Tax Rate (ETR). Issues such as Reputational Risk, Tax Transformation and the ever looming implications of Brexit are priorities to tax leadership teams and as such we’ve seen a huge shift in skillset demands.

Making Tax Digital (MTD) has been a key feature on the agenda for 2019 so far, with digitalisation disrupting traditional business models and changing the ways in which businesses interact with stakeholders. Meanwhile, the ongoing fundamental debate around how digitised business models should be taxed has garnered more attention than ever, thrusting tax teams and their capabilities into the spotlight. This has, inevitably, caused an ongoing effect on the treatment of tax, ultimately leading to the establishment of newly defined tax opportunities for professionals with strong capabilities within the tax technology space.

Related: A quick guide to Making Tax Digital for businesses

Tax challenges of the digital economy 

The argument remains - what do we define as a digital economy? The lack of consensus on the international platform has caused businesses to review their models and ultimately establish stricter guidelines around their services. The business world is becoming increasingly digital with the establishment of apps and the ‘cloud’ solution becoming more prevalent, however the global tax regimes are still very much geared toward a more traditional scheme. This saw significant change in 2015 with the establishment of the OECD/BEPS Guidelines, however due to its localised approach to digital taxation, there continues to be a high degree of ambiguity across Multinational Enterprises.

In the current day, businesses are predominantly taxed where they have a physical presence as opposed to a virtual presence, despite many international businesses operating in a multitude of jurisdictions. This has created challenges in defining where exactly valuation occurs and thus creates obstacles in securing an international consensus on digital taxation. Individual jurisdictions have been encouraged to take matters into their own hands and start to build a more robust plan around this tax reform. This has, inevitably, led to companies reviewing their tax functions and tweaking the structures/backgrounds of individuals to ensure they are fit for purpose.

Find tax roles

The shift of skill set has only been further enhanced by Multinational Enterprises’ appetites towards tax risk and reputational issues around this. Multinational Enterprises have implemented a robust tax infrastructure with the approach of zero tolerance to uncertainty. This has led to tax teams becoming more business aligned and therefore has changed the guard in tax skill. The demand for international tax specialists who are able to interpret this changing tax environment to meet a businesses’ needs has increased exponentially and continues to be a sought after skillset as we continue through 2019.

Lack of stability increases the desire for temporary tax resources

In tune with these international tax regimes, Brexit has caused an air of caution in the market with Heads of Tax facing the pressures of the outsourcing model, cost reduction and relocation of tax services. However, we’ve seen a strong spike in appetite for tax temporary resources due to the flexible arrangement. Without longer term stability around the current business climate, hiring managers have been more inclined to consider a temporary resource who not only allows for a degree of flexibility, but often also approaches the tax team with a greater degree of exposure and the ability to hit the ground running. Temporary tax resources will be useful for defined periods of time as we move through the changes that taxing the digital economy will bring.

Ektaa Kumar's picture
Head of Tax Interim


UK/US High Net Worth Tax Assistant Manager, London
City of London13.12.2019
UK/US High Net Worth Tax Senior Consultant, London
City of London13.12.2019
UK/US High Net Worth Tax Manager, London
City of London13.12.2019