Double Taxation in the Digital Economy: Implications and Challenges in Tanzania

In recent years, the taxation of the digital economy has been an important discussion topic. Businesses now regularly perform activities in jurisdictions without maintaining a physical presence, by not having a legal entity or branch. This may result in misalignment between where value is created for certain (digital) activities and where the current international tax regime allocates the taxing rights. Therefore, the fundamental concepts of tax residence and source on which the current international tax system is based is viewed to be problematic. Despite the attempts to reach a consensus at a global EU level, international initiatives have not yet led to adjustments of the international rules of taxation of certain digital activities. This in turn leads to the creation of the issue of double taxation where nations dispute over which has the right to taxation on the digital services provided. Hence, more than twenty countries worldwide (including the UK, France, Italy, Spain, India and Canada) have implemented or proposed to implement a so-called Digital Services Tax (“DST”). These unilateral DSTs are generally meant as an interim solution until there is an agreement at international level for the taxation of income generated by multinational enterprises with digital services. It is intended to have a coordinated repeal of unilateral measures, such as DSTs, when agreement is reached on OECD/G20’s Pillar One (Pillar One and Transfer Pricing).