Technology is disruptive especially when it comes to State power. It overrides territorial borders and their rules on taxation. E-commerce is one of the elements that technology allowed. States are now trying to impose their borders against borderless worldwide internet. In Turkey, finance minister, Naci Agbal, promised the establishment of a withholding tax in order to impose tax on foreign-based e-commerce companies. The question arising out of this declaration is the way it will be done compared to the solutions found in France and China.
In the end of Spring 2017, Naci Agbal gave an interview to Habertürk where he explicitly stated that its ministry is planning a withholding tax over foreign e-commerce transactions. Newspapers in Turkey have relayed this news as the coming of an equitable time. The Finance Minister declared that this withholding tax will be taken by banks when the money is transferred from the customer to the e-commerce company. Indeed, he only refers to companies which are not registered in Turkey and that do not pay any taxes in Turkey. This is purported to bring an equal treatment between national e-commerce companies and foreign e-commerce companies. The former are paying all their taxes in Turkey while the latter were not paying anything in Turkey while capturing a portion of Turkish consumers. This is an unbalanced situation that the minister wants to end. To implement this tax, the finance minister promised to hire 100-200 more staff in the revenue administration in order to follow the implementation. He affirmed that this tax would be taken both for services and goods.
President of the Turkish Payment and Electronic Money Institution (ÖDED), Burhan Eliaçik, stated that online shopping on foreign e-commerce companies represented ₺5,4 billions (around €331 millions) in 2016. He foresees around ₺8 billions (around €972 millions) in 2020 and imagines the millions of tax that could be taken from this shopping.
However, the declaration of the minister has been analyzed by some experts in different newspapers and problems of implementation seem to appear.
Indeed, the first problem seems to be the effect of these measures on Turkish e-commerce companies abroad. It is said that the bilateral tax agreements preventing double taxation will be applied and Turkish e-commerce companies selling abroad could be subjected to the same kind of tax in the country of performance. This could hinder their benefits abroad.
The second problem is the case when the company is foreign however the seller is Turkish. Indeed, there are different business models and some of them are just about linking the seller and the buyer. Hence; the following questions, “How could this automatic withholding tax know about these details?” “Will the bank have enough information to carry out this role of taking taxes from these transfers?” are legit questions because of the lack of information on this future withholding tax.
However, Turkish companies operating e-commerce websites are quite pleased with this news. The president of a well-known Turkish e-commerce website stated that the lack of taxation of foreign e-commerce companies led to an unfair competition. He even argues that this decision could act as an incentive to invest in Turkey.
The examples of France and China may be taken to have an idea of the current practices of other countries. In 8 April 2016, China established a tax on parcels with a limit of 2.000._CNY and pursuant to this regulation, only tax and VAT must be paid on 70% of the value of the declared goods on the parcel. However, above that level, customs duty must be added to it.
However, in France, it works differently: intra-European e-commerce is dealt differently than international e-commerce. Hence, for Europe, VAT registration is required when the turnover of the company in France exceeds €35.000. Otherwise, the company can impose the VAT of the country of exportation. However, outside the European Union, customs duty must be paid for each parcel and any VAT shall not be imposed until 22 euros. This loophole of products under €22 will not be available from 2018 as it does not bring a fair competition between national and foreign e-commerce companies. However, the French system does not seem to work properly as some recent news emphasized on the massive loss due to the lack of implementation.
As seen above, the regulation documents are still on progress. It would be interesting to see how Turkey will deal with this question considering the failure of France because of the European Union and due to the possibility of an easy fiscal dumping.
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