Abstract
The emergence of the internet has disrupted, altered and transformed the way business is conducted. The conventional brick-and-mortar business models have been replaced and continue to be replaced by new operating models that are, by their very nature, impervious to national borders. The broadcasting and media sector is no different. The previous 20 years have seen consumers moving away from scheduled local television, in the form of traditional pay-TV, to a growing demand for subscription video on demand (“SVoD”) (internet-based) television. SVoD businesses are conducted over the internet with no limitations on their physical presence in a country. The ability to conduct successful businesses in foreign jurisdictions without having any physical presence in those foreign market jurisdictions has allowed and enabled multinational (MNE) SVoD businesses to plan their tax affairs in a manner that often results in little or no taxes being paid in the jurisdictions where their customers are based. Globally, tax administrations have not had reportable successes with the taxation of SVoD transactions, especially where the SVoD activities are performed by persons located in different jurisdictions. This is largely due to the fact, in terms of the current international taxation principles, an MNE SVoD business can only be taxed in a foreign jurisdiction if it has a permanent establishment (PE) in that foreign jurisdiction. The OECD has recognised that the international tax laws have not kept pace with the digital economy, such as SVoD businesses. It has therefore embarked on an exercise to refine taxation rules in relation to digital businesses like SVoDs. The primary objective of this research paper is to investigate the applicability of the guidance proposed by the OECD, as a tool to address challenges on the taxation of SVoD transactions. The analysis was performed from a direct tax perspective only. This study finds that the current international tax rules, through the PE concept, are failing to tax the new digital economy, especially those online businesses where no physical delivery of goods is required, such as is the case with SVoD businesses.
M.Com. (South African and International Tax)