The future of indirect taxation in a digital world: Tax authorities have yet to carry out tax audits of digital businesses. When they do, they ll realize they have made it impossible to fully comply.

Thus far, there is relatively little evidence (even anecdotal) of audit activity regarding the VAT rules governing the digital economy. This is perhaps not surprising because many countries only recently implemented these rules and need time to educate taxpayers to maintain voluntary compliance and build their own tax authority processes. Moreover, the COVID-19 pandemic reduced audit activity more generally.

Soon, there are likely to be two categories of taxpayers impacted by audit activity in this area. The first is for new or emerging digital economy participants, who may not have registered and accounted for VAT in a given country, or in any country, for that matter. The second is for established digital economy participants, for which the audit activity will focus on their compliance with the detailed rules in a given jurisdiction. Let’s examine each.

Source KPMG

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