The taxing issue of location in a digital world
Where is a company located in the digital world?
This is an important question, not just for privacy and data protection, but also for taxation purposes.
It has become most prominent in Australia and elsewhere in the context of the operation of multinational companies offering services digitally from one state for consumption in another.
The recent US Supreme Court case of South Dakota v. Wayfair, Inc overturned previous US jurisprudence on the physical presence nexus to hold, in a 5-4 decision, that an online seller had a physical presence in the State of South Dakota and was thus liable to pay sales tax in that State. The majority said that the physical nexus may be met if a company had a website which was accessible by a customer’s computer within the State, as a “website may leave cookies saved to the customers’ hard drives, or customers may download the company’s app onto their phones.”
Whilst the decision is based on relevant local laws, it has significance for tax policy and the issue of taxing digital transactions being considered by the OECD-G20, the European Commission and within Australia.
The Australian Government has already sought to collect more tax from multinationals, amongst whom are multinational digital companies, under the Multinational Anti-Avoidance Law and Diverted Profits Tax. However, this does not catch revenue which is attributed overseas from online transactions, even though the consumers are local.
On 1 July 2018 the 10 per cent GST commenced to be applied to online purchases.
Whether the Australian Government goes further unilaterally is uncertain. International consensus is important to avoid double taxation. In its absence disputes may arise on the right to tax, and if the burden of taxation is perceived as falling disproportionately on companies associated with a particular country this may invite retaliation. However, the OECD-G20 has been unable to reach consensus on taxing multinationals and its latest project dealing with digital transactions is not scheduled to report till 2020.
The key message is that international jurisprudence on the location of multinational companies for the purposes of taxation may be moving to recognise the reality of the digital economy, at a time when governments around the world are looking at this sector to safeguard traditional revenue sources and sustain fiscal policy initiatives.
 585 U.S. (2018), 21 June 2018
 Ibid at page 15
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