Philippines Explores Multilateral Tax Treaties to Capture Digital Transactions

The Philippines is exploring regional tax pacts to effectively tax digital transactions, aiming to gain leverage over foreign online platforms and secure information sharing for capturing digital economy growth.

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Hadeel Hashem
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Philippines Explores Multilateral Tax Treaties to Capture Digital Transactions

Philippines Explores Multilateral Tax Treaties to Capture Digital Transactions

The Philippines is examining regional pacts to enhance multilateral options to effectively tax digital transactions, including pursuing regional tax treaties with the Association of Southeast Asian Nations (ASEAN) and the European Union (EU). According to a research paper by the Philippine Institute for Development Studies (PIDS), these agreements aim to gain leverage over foreign online platforms and secure information sharing for capturing digital transactions.

The PIDS study suggests that the Philippines should establish a framework for joint tax enforcement efforts and information sharing with other countries in the region and the EU. This would give the Philippines more negotiating power to gain meaningful concessions from multinational platforms and ensure effective taxation and regulation of the growing digital economy.

The research paper argues that while the Marcos administration's priority measure to impose Value Added Tax (VAT) on digital service providers (DSPs) is a step in the right direction, unilateral measures like local legislation may not be sufficient. "Cross-border tax administration requires international cooperation, and smaller economies like the Philippines need additional leverage or combined negotiating power," the study states.

The PIDS study identified 21 variations of six revenue models in the digital economy and the key actors involved, highlighting the central role of platforms like online marketplaces, streaming services, and gaming sites. It noted the growing political pressure to require big tech companies to pay their fair share and suggested that cooperation through multilateral agreements can help the Philippines use 'blunt tools' like denying market access to non-compliant companies.

Why this matters: As the digital economy continues to grow, accounting for 8.4% of the Philippines' GDP in 2023, effective taxation of digital transactions becomes increasingly important. Multilateral tax treaties can help level the playing field for smaller economies like the Philippines and ensure that foreign online platforms contribute their fair share to the country's tax revenue.

The Philippines is also considering domestic measures, such as the proposed Digital Economy VAT law, which aims to close ambiguities in the VAT system and generate an estimated P154 billion in incremental revenues over five years. The Philippine Statistics Authority (PSA) has conducted a pilot study on the digital economy and plans to institutionalize the compilation of the Philippine Digital Economy Satellite Account, subject to the approval of the PSA Board. These efforts underscore the Philippines' commitment to effectively taxing and regulating the rapidly evolving digital landscape.

Key Takeaways

  • PH examining regional pacts to enhance taxation of digital transactions
  • Aims to gain leverage over foreign platforms, secure info sharing
  • Unilateral measures may not be sufficient, need international cooperation
  • Digital economy accounts for 8.4% of PH GDP in 2023, taxation crucial
  • PH considering domestic measures like Digital Economy VAT law