VAT and the industrial revolution 4.0

The new business models that have emerged from the widespread use of new technologies, a legacy of the digital revolution that brought about the arrival of information and telecommunications technology in the mid-20th century, have had a disruptive impact on national tax systems, who must face a complex scenario marked by:

• New schemes of fraud and emptying of tax bases.
• Lack of neutrality (local economy vs relocated companies).
• Loss of legal certainty derived from the complexity/lack of adaptation of the regulatory framework.

On the horizon are the drastic changes to be derived from the so-called fourth industrial revolution (industry 4.0), defined not so much by a set of emerging technologies, but by the transition towards new intelligent systems that are integrated with organizations and people.
It is in this environment that pressure is being produced on the agendas of the different States and international organizations, resulting in actions aimed at:

• Establish mechanisms that allow the digital economy to be taxed.
• Develop long-term policies to:

o Shield tax revenue.
o Ensure fiscal neutrality between national companies and companies from third countries.
o Promote economic growth.

To achieve these objectives, VAT or similar sales taxes play a special role since their collection mechanism based in the “destination principle” is more effective compared to the traditional figures of direct taxation.

Examples of the movements that have been taking place within this scenario are.

• Unilateral initiatives adopted by the States:

o Generalization of VAT (i.e. Saudi Arabia and United Arab Emirates (UAE) introduced it in 2018).
o Introduction of new control obligations based in the use of new technologies (real time reports, mandatory use of e-invoicing).
o Anticipation of the payment obligations (split payment of VAT).
o Introduction of new tax figures of direct taxation that are assimilated to indirect taxes by using the "destination principle" (digital taxes).

• Actions at a multinational level within the framework of the OECD: aimed at creating global standards as a tool to combat fraud. In the field of indirect taxation:

o VAT/GST Guidelines (Services),
o Role of the platforms in the collection of the tax,
o Mechanisms to ensure collection when the supplier is not established.
o Document about the challenges of the digital economy (one of the initiatives of the BEPS Project).

Likewise, although basically focused on direct taxation, as part of the aforementioned BEPS Project (“Base Erosion and Profit Shifting”), due to their impact on national legislative policies it is worth mentioning the Pillar One and Pilar Two initiatives deployed within the called the OECD/G20 Inclusive Framework:

• Pillar One. Right of consumer states to tax multinationals.
• Pillar Two. Limitation of tax competition and establishment of a minimum taxation.

The European Union is no stranger to the aforementioned trends, having undertaken two far-reaching initiatives that have produced and will continue to produce important changes in the VAT regulations within the not too distant future, namely:

• The “VAT Action Plan”, published in April 2016.
• The “Plan for a fairer and simpler taxation that facilitates the recovery strategy”, published in July 2020.