The OECD recently released a working paper on simplified registration and collection mechanisms aimed at tax authorities and addressing the issue of the effective enforcement of taxation rights on non-resident taxpayers. Countries generally have two options in order to enforce the tax collection toward non-resident taxpayers. They can either oblige a resident taxpayer involved in the transaction to collect the tax by way of withholding tax on the payment to the non-resident or require the non-resident taxpayer to register himself for tax purpose and file a tax return in order to assess his tax liability. As withholding taxes are generally not an effective mechanism to collect taxes in Business-to-Customer (“B2C”) transactions, OECD countries are engaged in discussions on how to simplify the registration procedures for self-assessments by non-residents. The emphasis on this topic is driven by the increase of B2C transactions pursuant to the digitalisation of the economy and by a need to ensure the effective collection of taxes owed.
The work paper covers direct taxes and is based on the experience of OECD member states in consumption taxes (i.e. VAT) and discusses the possibility to extend this mechanism for non-residents to taxes other than consumption taxes. The process would entail:
- Simplifying the registration and compliance procedure for taxpayers with simplified tax returns;
- Implementing thresholds as most of the tax revenue are generated by a small number of companies in order to reduce the tax collection costs;
- Improving the use of electronic procedures;
- Facilitating the communication between tax administration and taxpayers;
- Improving the information exchange and cooperation between tax administrations.
Those measures would require the adaptation of domestic tax legislation and would result in an increased compliance burden for companies, especially those involved in B2C transactions or in the intermediation between consumers and suppliers, such as managers of online market platforms.