Surprises await traditional companies
The focus on taxing revenue from digital operations may catch many companies that don’t consider themselves “digital” enterprises by surprise because they, too, may be affected. Owing to the penetration of digital technology into many aspects of their operations, companies that have been in business since before computers were invented are suddenly “converging” with the digital economy and suddenly qualifying as taxpaying members.
This convergence has been one of the most important themes of global business operations for several years. Tech companies are competing with traditional companies, while at the same time traditional companies are going digital by buying digital companies and developing digital products and services.
The public has been made aware of tech companies “disrupting” traditional business sectors by launching competitive ventures but the public still sees traditional companies in their traditional roles: automotive giants still design and manufacture cars; global oil companies still drill for oil, etc. But tax collectors now look at those traditional companies differently, and of course we as tax advisors do, too.
Probably every one of those companies now earns a considerable amount of taxable “digital” revenue and qualifies for more tech-related tax deductions, such as more taxable income from intellectual property, higher deductions for research and development expenditures, and qualifying for incentives such as lower rates of tax, withholding tax abatements and R&D incentive regimes such as “patent” or “innovation development” boxes, among other things.
From the perspective of national tax authorities, and also international authorities like the OECD, those traditional companies could end up being “part of the digital economy” and needing to comply with new tax laws that are allegedly targeted at global high tech.
Traditional but now digitized companies might not be as attuned to the digital tax world as the born-digital companies.