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DOI: https://doi.org/10.34069/AI/2023.61.01.27
How to Cite:
León-Vega, L., Ron-Amores, E., & Vergara-Romero, A. (2023). The challenges of taxation in the digital economy: analysis of the
Ecuadorian tax system. Amazonia Investiga, 12(61), 262-275. https://doi.org/10.34069/AI/2023.61.01.27
The challenges of taxation in the digital economy: analysis of the
Ecuadorian tax system
Los retos de la fiscalidad en la economía digital: análisis de sistema tributario de Ecuador
Received: February 15, 2023 Accepted: February 23, 2023
Written by:
Luisa León-Vega114
https://orcid.org/0000-0002-2253-3890
Eduardo Ron-Amores115
https://orcid.org/0000-0003-1483-2994
Arnaldo Vergara-Romero116
https://orcid.org/0000-0001-8503-3685
Abstract
The purpose of this research is to evaluate the
current state of taxation of the digital economy and
project its contribution to the tax system in Ecuador.
A methodology of qualitative approach and
exploratory scope was used, through a comparative
matrix of Latin American countries, their BEPS
regulations and an analysis of the effectiveness of
the actions taken on taxes on the digital economy.
Statistical data was taken from Tax
Administrations, the Economic Commission for
Latin America and the Caribbean, the Inter-
American Center of Tax Administrations and the
KPMG Tax News Digital Economy Report. For the
projection of fiscal income, the Financial
Statements of multinational companies that do not
have headquarters in Ecuador were considered and
through simple regression the future collection was
estimated. The results showed that the projection of
digital taxes in Ecuador would be 200.27 million
dollars for the period 2022-2025, with 80%
corresponding to VAT. In addition, it was revealed
that there is a derivative collection not considered
as a product of the information provided by digital
companies, causing additional potential collection.
In the diagnosis of advances in international tax
matters in the Region, it is concluded that tax
regulations in Latin America respond to the tax
challenges of the digital economy on a global scale.
Keywords: Digital economy, collection, tax
system, streaming, Ecuador.
114
Magister en Administración de Empresas, Docente de medio tiempo, Universidad Ecotec, Samborondón, Ecuador.
115
Magister en Administración de Empresas, Docente de tiempo completo, Universidad Ecotec, Samborondón,
Ecuador.
116
Magister en Economía, Docente-Investigador de tiempo completo, Universidad Ecotec, Samborondón, Ecuador.
(Autor de correspondencia)
León-Vega, L., Ron-Amores, E., Vergara-Romero, A. / Volume 12 - Issue 61: 262-275 / January, 2023
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Introduction
The analysis of the tax planning strategy called
Base Erosion and Profit Shifting (BEPS)
presumes a reduction of the income from the
States that could be used for the benefit of the
taxpayers in the form of medical attention,
retirement pension payments, and improvements
of the tourist infrastructure, among others. For
this reason, the first BEPS action on the
challenges of the digital economy for the taxation
of digital companies carried out an in-depth
analysis of the tax aspect of multinational
companies whose line of business is digital and
is of relevant attention from the point of view of
business income as it is related to the principle of
income taxation in the place of residence, as well
as the application of additional indirect taxes on
digital services (Kristel et al., 2020).
The most valuable and highly digitized
multinational companies, such as Google,
Amazon, and Facebook, consistently pay the
lowest effective corporate tax rates, facilitating
the concentration of wealth in a small number of
companies and the people who control them
(OECD, 2018; Kling & Cordero, 1999).
However, there is resistance from countries that
see raising taxes on multinationals as risky for
fear that mobile factors of production will move
to lower-tax jurisdictions, leading to loss of jobs,
investment, and other economic benefits (Abdul
Wahab et al., 2021; Gelepithis & Hearson, 2021).
In an increasingly borderless world, national tax
laws cannot do the job alone, global companies,
especially digital multinationals, can easily
bypass higher tax jurisdictions, so capital moves
with fluidity and breakneck speed, but these
dramatic efficiencies of the digital economy
vastly disrupt tax patterns (Bukht & Heeks, 2018;
Mpofu, 2022). National economies are forced to
cooperate, shore up revenue leakage, and seek
common ground and global parity between tax
systems (Pylypenko et al., 2022).
Based on the above, the following research
questions are formulated: Do the current tax
regulations in Latin America respond to the tax
challenges of advancing the digital economy on
a global scale? What is Ecuador doing regarding
taxation to face the challenges the digital
economy brings? Moreover, what would be the
estimated amounts of collection to the tax system
if the collection of Income Tax to non-resident
MNEs in the country is implemented in Ecuador?
This research aims to evaluate the current state of
taxation of the digital economy and its future
contribution to the tax system in Ecuador.
Literature Review
Regarding Latin America and the Caribbean,
some countries have implemented specific
guidelines concerning multinationals that do not
have a physical presence in their territory and are
their resident citizens who make the purchases,
as is the case of VAT on digital services. The first
to implement this tax were Argentina, Colombia,
and Uruguay in 2018, with an average rate of
21% VAT. For the year 2019, Costa Rica and
Paraguay are also executing it, and in the
following year, Chile, Ecuador, and Mexico put
it into operation.
Adopting this tax in the Region shows collection
figures that border on an average contribution of
0.03% to GDP, as seen in Table 1, with Chile
having the highest assistance.
Table 1.
VAT Collection (millions of dollars)
Country
Period
Collection
%GDP
Argentina
2018
53
0,01
2019
79
0,02
Chile
Dec 2020-Jun
119,6
0,04
2021
203,2
0,05
Colombia
Dec 2018-Jul
12,2
0,004
2019
77
0,02
Costa Rica
Oct 2020
1,7
0,003
Ecuador
Dec 2020-Sep
7,4
0,01
2021
21,6
0,02
Paraguay
2021
11,43
0,03
Uruguay
2018
2,7
0,004
2019
18,4
0,03
Note: Taken from Jiménez y Podestá (2021) based on CIAT (2022).
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It should be noted that each State proposed
different nuances for the form of collection,
prioritizing the withholding mechanism. In the
case of Uruguay, it opted to collect the tax
directly from non-resident suppliers. However,
the taxation of income derived from these
transactions remains limited and will require
global solutions, such as those proposed in the
BEPS Inclusive Framework (CEPAL, 2020).
Ecuadorian regulations applied to digital
services
It is worth mentioning that Ecuador is not a
member of the Inclusive Framework of the
OECD, but it is committed to the tax changes that
are being presented. Since 2017 it has been part
of the Global Forum on Transparency and
Exchange of information for tax purposes;
following the same line, it is also part of the
Multilateral Convention on Mutual
Administrative Assistance (CAAM) in Tax
Matters, allowing Ecuador to combat tax evasion
and avoidance more efficiently.
Considering the BEPS actions and, to some
extent, trying to adhere to the guidelines, for the
year 2020 voluntarily, it puts VAT on digital
services into operation, applying the same
national VAT rate of 12% VAT for the use of
platforms. Digital, such as Netflix, Amazon
Prime, Uber, Play Station Network, Linkedin,
HBO, Flickr, Zoom, Facebook, and Twitter, do
not have tax residence in the country (Durdu,
2020).
For this, the Internal Tax Regime Law is
reformed, where the import of digital services is
included as taxable services. The generating
event will be verified at the time of payment by
the resident in favor of the non-resident provider
of the digital services.
It also mentions that payments for digital services
will be charged on the commission received in
the cases of delivery services such as Uber Eats;
that is, it will be set only for the intermediation
of the service.
According to the Regulation of the Tax
Simplification and Progressivity Law, VAT
payment is made through withholding Financial
Institutions from consumers and cataloging non-
resident companies as VAT collection agents,
provided they register with the cadaster. Still, at
the same time, it allows local companies to issue
a purchase statement to support their expenses in
importing digital services; non-resident MNEs
would not be obliged to issue invoices, so there
is no mandatory registration for these companies.
To request registration in the RUC, the process is
not automatic; the application must be sent by
email and attach the requested requirements; for
taxpayers' information, although there is
information in Spanish and English, the process
is done through email, and support is not online.
Being our economic reality, having a high rate of
informality that borders 50% according to the
National Institute of Statistics and Censuses
(INEC), the mechanism that works best in our
environment, according to the KIT of digital
VAT tools for Latin America and the Caribbean
(VAT KIT), is that of withholding at source.
However, it specifies that there are problems if it
is the only means of collection and recommends
establishing a regime for VAT collection from
non-resident suppliers, possibly in combination
with withholdings.
The problems that have been detected according
to the VAT KIT in this collection mechanism are
a critical lack of data, the difficulty in correcting
errors in VAT returns, and the risks of evasion or
avoidance, these difficulties being a reality for
Ecuador, for example, there are complaints about
improper VAT charges to users who acquired a
movable asset and not a digital service, since
when canceling with a credit card the Bank does
not identify if the payment abroad to companies
such as Apple, was for goods or digital services.
Alternatively, if the purchase has been subject to
a refund or cancellation, the bank has already
proceeded to collect it and not the MNE;
therefore, the difficulty of returning the VAT
paid is excellent.
Another problem arises when the service user is
abroad and cancels a service consumed outside
Ecuador, as with transport service platforms.
When withdrawing with a credit card., the
Financial Institution withholds the VAT, even
when the consumption does not occur in the
country.
Lastly, these described problems derive from
evasion or avoidance because payments can be
made with foreign credit cards, and residents of
Ecuador can use the service, and there would be
no way to collect VAT.
Regarding the companies that must pay the tax,
it maintains a list updated until April with a total
of 640 providers with different denominations to
be able to link them at the time of payment with
the credit card, for example, Uber, register trip,
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eat, cash, credits, Paypal, pass, conference, lime,
that is, the list is extensive because being the
same company, it places the specification for the
collection in detail.
Of the total number of suppliers, 20 of them are
domiciled in Ecuador or have a PE, among which
are online food delivery platforms such as Glovo,
Rappi, and Pedidos Ya; those of electronic
commerce such as free market and OLX; and
subscription television such as GolTV, the tax
base being its commission income. As of April
15, 2022, the company Xsolla and Mo
Technologies have registered in the SRI cadaster
to act as VAT collection agents, according to the
list available on the AT website (SRI, 2022).
These figures show the lack of effectiveness in
registering foreign companies without residence
in the country, and the payment of VAT falls on
the final consumer. Now, regarding the
collection for the year 2020 from September to
December of 7 million dollars and 2021, 22
million dollars, which for collection purposes has
positively impacted its application.
Table 2 below summarizes the advances in
taxation for businesses in the digital economy in
Latin America concerning VAT up to June 2022.
Table 2.
Summary of Advances in Taxation in Terms of the Digital Economy in Latin America.
Country
Year
VAT Rate
Taxpayer
OECD Guidelines
Argentina
2018
21%
B2C Transactions
It does not comply with the provisions of
resident -the preparatory phase. Non
required to register as suppliers are not
VAT payers. The VAT taxpayer is the
buyer.
Brazil
2018
5% -2%
Municipalities
B2C & B2B Transactions
Fails. There is a tax in certain States, and
it is managed with various policies and
parameters.
Chile
2020
19%
TransactionsB2C & B2B
If it complies, Digital platforms must
register with the SII, whether or not they
reside in the country. There are 199
digital platforms registered until 2021
(Netflix, Google, and Apple, among
others). It has a digital platform in two
resident MNEs -and assists nones languag
so that they can comply with their tax
obligations.
Colombia
2018
19% standard 5% reduced
B2C & B2B Transactions
It partially complies since the registration
of suppliers was initially mandatory, but
measures were made more later the
flexible and allowed VAT withholding
without registration.
Costa Rica
2019
13% Standard Reduced rates
B2C Transactions
It does not comply with the provisions of
resident -the preparatory phase. Non register as suppliers are not required to
VAT payers.
Ecuador
2020
12%
B2C Transactions
It does not comply with the provisions of
the preparatory phase. resident suppliers are not required to -Non
register as VAT payers. The VAT
taxpayer is the buyer.
Mexico
2020
16%
TransactionsB2C & B2B
Complies. Digital platforms must register
for the SAT, whether or not they reside in
the country. There are 154 digital
platforms registered until 2022. It has a
resident -digital platform and assists non MNEs so that they can comply with their
tax obligations.
Paraguay
2019
10%
B2C Transactions
It does not comply with the provisions of
the preparatory phase. The VAT taxpayer
is the buyer.
Uruguay
2018
22%
B2C & B2B Transactions
Complies. Digital platforms must register
whether or not they reside with the DGI,
in the country. Post checks are already
running.
Note: Taken from CEPAL (2019) & KPMG (2022). Information of each Tax Administration.
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There are similarities in the application of VAT
in the Latin American countries under analysis,
among which it can be highlighted that they have
not created new taxes on the digital economy, but
rather, have channeled the existing one and that
it has a more significant impact on the collection,
as is the case of VAT.
Most have opted to collect via withholding
through Financial Institutions, except in the case
of Chile, Mexico, and Uruguay; for this reason,
it is considered that these countries are more
aligned with the OECD guidelines. The VAT rate
in most cases is the same as for other types of
local transactions, and the taxpayers are the final
consumers in all cases, combining with B2C in
countries aligned with OECD parameters.
The good practices analyzed by Latin American
peers allow Ecuador to set new challenges for
VAT management and not only take it to the
consumer collection field, which, although
representative, does not generate the real purpose
of implementing BEPS actions, which is to avoid
the erosion of taxable bases and profit transfers
of large MNEs.
Challenges in indirect digital taxation for
Ecuador
Next, the challenges that Ecuador must face in
indirect taxes are detailed, referencing the OECD
guidelines and the reality of the Latin American
environment.
1. The essential feature of the VAT design is
that the tax is collected through a multiphase
process, so the entry of non-resident
companies to the SRI cadaster must be
strengthened.
2. Strengthen the registry of foreign suppliers.
3. Have a platform that provides easy access to
registration, guidance, and support to
comply with your tax obligations.
4. Receive information on service users from
Financial Institutions to have relevant
information for controls, for example,
payment reports, as is the case in Chile.
5. Receive information from external providers
to be able to designate as taxpayers those
who carry out local activity but do not have
an RUC, for example, Airbnb in property
rental services as done by Uruguay.
6. Following the example of Mexico, although
it is more difficult for Ecuador because it
does not have as much of a market as they
do, it is carrying out subsequent controls
with the blocking of web addresses, given
the persistence in not registering in the
cadaster or worse still not making payments
corresponding VAT.
Methodology
Due to the diversity of the context and to answer
the research questions, the present work will
have a qualitative approach. Regarding the scope
of the research, this will be exploratory, which
investigates a problem that has not been
thoroughly studied or examined in the past
(Romero-Subia et al., 2022). This research scope
is generally carried out to understand the existing
problem better but naturally does not yield a
conclusive result (Stebbins, 2001;
Vergara-Romero et al., 2022). It must be borne in
mind that the digital economy is not new;
however, in recent years, it has evolved rapidly
and allowed the development of new business
models.
In exploratory research, the research process
varies depending on discovering new data or
knowledge (Macas-Acosta et al., 2022). Also
known as interpretive research or the grounded
theory approach, the results of this research
provide answers to questions such as what, how,
and why (Klein et al., 2022; Stebbins, 2001).
As a data collection instrument, a comparative
matrix has been designed that includes reference
countries in Latin America, their regulations
regarding BEPS, and an analysis of the
effectiveness of the actions taken. The
information to be analyzed will be:
1. Indirect taxes on the digital economy in
Latin America.
2. Ecuadorian regulations applied to digital
services.
3. Direct taxes of the digital economy in Latin
America.
4. Ecuadorian regulations applied to non-
residents.
The countries from which the information will be
obtained will be Argentina, Brazil, Chile,
Colombia, Costa Rica, Mexico, Paraguay,
Uruguay, and Ecuador, which have implemented
direct and indirect taxes on digital services in the
Region.
The documents used to obtain information will
be reports, statistical data from the income
institutions of the selected countries, laws and
regulations related to the digital economy, and
reports from entities such as CEPAL, CIAT, the
KPMG Tax News Digital Economy Report, and
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the application of KPMG on BEPS and the
Digital Economy.
For the analysis, the regulations and actions
taken by the region's countries regarding the
collection of digital services will be reviewed and
compared (Vishnevsky et al., 2022); after this,
the best practices applied concerning the tax will
be selected. Income and VAT will be analyzed if
they adjust to the parameters established by the
OECD (Faúndez-Ugalde et al., 2021).
Regarding collection estimates, data will be
taken from the CEPAL report on the Fiscal
Panorama of Latin America (CEPAL, 2019) on
the allocation of revenue by country according to
each digital multinational to determine the
percentage proportion of income they would
generate in Ecuador.
Concerning multinationals, the four largest
worldwide are chosen for analysis, which are not
resident in Ecuador and is the most used
nationally in each segment. Therefore, Netflix,
Airbnb, Uber, and Apple are chosen for the
analysis; Subsequently, their Financial
Statements will be reviewed, taken from the page
of the U.S. Securities and Exchange Commission
(SEC) and segmenting income by the Latin
American Region (Latam) for the years 2019,
2020 and 2021.
Finally, an income projection of the five digital
MNEs will be made for the years 2022 to 2025
through simple regression of the data. The
potential collection of Ecuador will be estimated
on the income of multinationals that do not
operate in the country.
Results and Discussion
In this section, the questions related to the
problem exposed for the object of study are
answered, and, in turn, the results are discussed.
Do the current tax regulations in Latin America
respond to the tax challenges of advancing the
digital economy on a global scale?
In the last five years, tax regulations in LATAM
have advanced on international tax issues,
especially with VAT and Income taxes, which
are the predominant collections of tax agencies.
In VAT, similarities are observed in its
application between the countries analyzed,
being in most cases the same rate as for
traditional services and opting for collection
through withholding at source carried out by
Banks.
Regarding Income Tax, the countries that are
applying some derivation for its collection are
Argentina, Mexico, Paraguay, and Uruguay,
taking into account the jurisdictional link of
significant economic presence to provide tax
authority to the State where there is a digital
presence of a signature without the requirement
of having a permanent establishment in the
country.
What is Ecuador doing regarding taxation to face
the challenges the digital economy brings?
Ecuador is adopting measures to adapt to the
challenges of international taxation, increasing
tax collection, and having a global reach in
companies that provide services in the country.
Among these measures are the adoption of
international standards, the updating of tax laws,
the strengthening of the tax administration, and
the participation in international forums.
For Ecuador, the challenge in Income Tax is
more significant than VAT since there is
currently no specific regulation on this subject;
being able to create the figure of significant
economic presence with the extension of the
territoriality and permanence criteria to be able to
expand the enforcement of its tax regulations to
foreign companies.
When the challenges that the digital economy
brings with it are not considered in the tax
systems, significant tax collection is not
obtained, which will increase year after year. For
this reason, it is imperative to consider the
recommendations and experiences of countries in
the Region to take full advantage of measuring
this source of income for the State.
What would be the estimated amounts of
collection to the tax system if the collection of
Income Tax to non-resident MNEs in the country
is implemented in Ecuador?
In the case of Ecuador, an estimate of tax revenue
from the digital economy in VAT and Income
Tax is made during the years 2022 to 2025. In the
case of VAT, there are already historical figures
for 2021 for what is considered the collection
base, while, in the Income Tax, it would be an
assumption of what the SRI could receive if it
applied an average rate of 3%.
The multinationals selected for the estimate are
Netflix, Airbnb, Uber, and Apple; the
information was taken from their Financial
Statements for 2019 to 2021 regarding sales in
Latin America.
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It is essential to mention that the calculations
according to Pillars I and II implementation
guidelines have been excluded from the
estimates since they are not yet in force. Pillar II
is more advanced and expected to enter the
workforce in 2023. Ecuadorian regulations must
be modified for its application and include the
global minimum tax of 15%, although since it
does not belong to the MI, its application is not
mandatory. Pillar I is expected to enter into force
in 2024 and still presents a preliminary version in
public consultation. You could even take the
position of Chile and wait for an international
consensus to start applying the Income Tax to
MNEs, but this passive position could be
reflected in ceasing to collect taxes in this way.
Sales trend in Latin America for Netflix
The sales trend in the last three years for Latin
America has been growth, showing a positive
variation of 12.92% between 2019 and 2020 and
13.31% between 2020 and 2021, as reported in
its Financial Statements published in the SEQ.
Even for the year 2022, it mentions in its
quarterly reports that the Region represented the
highest revenue growth compared to other
regions worldwide.
According to data from Statista, it is forecast that
by the end of 2026, the number of subscriptions
to video-on-demand (SVOD) platforms in Latin
America will exceed 115.6 million subscriptions.
In that same year, the paid streaming video
platform with the most significant presence in the
region is expected to be Netflix, with 42.4% of
all SVOD subscriptions in Latin America.
In the same portal, an estimate is presented for
the year 2022, in which the Brazilian market for
video-on-demand (VoD) streaming,
consumption, and video downloads, would
generate income of 970 million US dollars,
which would make it the largest video-on-
demand market in Latin America. In Mexico, it
is expected that about 495 million dollars in
revenues will be generated.
Figure 1. Netflix Revenue from VoD Services in Latin American and Caribbean Countries in 2021
(millions of dollars).
Source: Statista, (2022).
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Figure 1 shows that Netflix has its largest market
in Brazil, while Ecuador ranks eighth with 81
million by 2021.
For purposes of estimating revenue from Netflix
in Latin America for the years 2022 to 2025, the
equation that can be seen in Figure 2 was
considered, reflecting figures of $3,958 million
for 2022, $4,348 for 2023, $4,739 for the year
2024 and $5,130 million by 2025. These figures
will allow the association to the income
generated by the VoD service provided in
Ecuador and thus estimate the collection of taxes
on digital services for the coming years.
Figure 2. Netflix Sales Trend in Latin America 2019-2021.
Source: U.S. Securities & Exchange Commission (2022).
Airbnb sales trend in Latin America
The type of business that Airbnb presents has
different characteristics; since they are an
intermediary between those who provide their
home for rent and the users who want to rent it,
this causes the risk of not paying taxes to be
higher since it not only includes the multinational
but involves the owners of the real estate.
Worldwide there are 4 million hosts on Airbnb,
and 90% of them are individuals; it is estimated
that in total, Airbnb hosts have earned a total of
100,000 million dollars to date, with recent years
being the fastest growing from income.
The scope of the service it provides is active in
98% of the world, allowing it to elucidate the
content of this company and how complex its
global taxation would be (Airbnb, 2022).
Although these figures are encouraging for the
MNE, from 2019 to 2020, there was a 27.98%
decrease in sales for the Region, going from $336
million to $242 million for 2020, as a result of
the COVID-19 pandemic. This atypical behavior
compared to previous years affects the sales
trend, as shown in figure 3, so the revenue
estimate for the coming years will be cautious.
Even more so since, in some countries, there are
still lockdowns for short periods.
y = 390,75x + 2394,8
$-
$500,00
$1.000,00
$1.500,00
$2.000,00
$2.500,00
$3.000,00
$3.500,00
$4.000,00
0 1 2 3
Netflix
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Figure 3. Airbnb Sales Trend in Latin America 2019-2021.
Source: U.S. Securities & Exchange Commission (2022).
Sales trend in Latin America of Uber
Uber in Latin America has found a market in
which cooperative "taxis" maintain licenses to
operate, so it has had to adapt its business model
in the Region. According to América Economía
magazine, Latam was once a haven for Uber
from stiff competition in the United States and
European regulatory battles. However, the region
has experienced massive demonstrations by taxi
drivers against this type of transport, operating in
a gray area in most countries.
Uber Technologies uses a massive network to
power movement from point A to point B; this
includes business divisions such as connecting
consumers with independent ride-sharing service
providers and connecting other consumers with
restaurants, grocery stores, and other stores
through delivery service providers.
One of the segments mentioned is drivers who
own cars and are looking for a form of income,
but they do not have an operating permit and do
not pay taxes on the income they receive; similar
to the case of Airbnb, the problem is not only the
MNE that it does not pay taxes, but individuals
are not regulated before the TA to carry out
economic activity, which triggers a growth in
informality and hinders the reduction of tax gaps.
In the COVID-19 pandemic, mobility restrictions
significantly affected company revenues
worldwide, and Latam was no exception; as can
be seen in figure 4, sales decreased in 2020
compared to 2019 with a negative variation of
$30 .45%, and for the following period it is
possible to recover with 9.42%. However, it still
does not reach sales before the pandemic.
Figure 4. Uber Sales in Latin America 2019-2021.
Source: U.S. Securities & Exchange Commission (2022).
y = 47,5x + 241,33
$-
$50,00
$100,00
$150,00
$200,00
$250,00
$300,00
$350,00
$400,00
$450,00
$500,00
0 1 2 3
Airbnb
$1.862,00
$1.295,00 $1.417,00
$-
$200,00
$400,00
$600,00
$800,00
$1.000,00
$1.200,00
$1.400,00
$1.600,00
$1.800,00
$2.000,00
2019 2020 2021
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The income recorded in its Financial Statements
comprises three segments; the first is Mobility
Income, mainly from the fees paid by drivers for
the use of the platform; the second, delivery
income, is given by the use that merchants and
couriers make of the delivery platform and the
last; freight revenue, consisting of revenue from
freight transportation services provided to
shippers. This allows knowing the company's
scope so far in its services, identifying the
national segment that has income from work
through the platform, and carrying out respective
tax controls.
Although Uber has not yet recovered from its
market loss during the confinement period, the
revenue trend in figure 5 shows that the recovery
in sales levels, if the factors do not change, will
take a few years to recover pre-pandemic levels.
The impact on the economy and the increase in
unemployment generated a growth in
informality, being one of the jobs taken by people
who work in parallel to the use of the platform;
in Ecuador, the segment above is known as
"informal taxi drivers”.
Figure 5. Uber trend in Latin America 2019-2021.
Source: U.S. Securities & Exchange Commission (2022).
Apple's Latin American sales tren
For Apple, the trend is presented with growth
figures for the following years; this is due to the
favorable variations, as observed in figure 6, for
the years 2019 to 2020, which registered an
increase of 6.54%, while the income variation in
2020 and 2021 were 23.08%. A relevant piece of
data found in the annual performance reports for
products and services shows an increase in sales
for services by 27%, which includes sales of the
Company's advertising, AppleCare, cloud,
digital content, and payments.
The increase described in its notes to the
Financial Statements shows the importance of
taxation focused on cross-border digital services.
y = -222,5x + 1969,7
$-
$200,00
$400,00
$600,00
$800,00
$1.000,00
$1.200,00
$1.400,00
$1.600,00
$1.800,00
$2.000,00
0 1 2 3
Uber
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Figure 6. Apple trend in Latin America 2019-2021.
Source: U.S. Securities & Exchange Commission (2022).
The reality that these services continue to expand
and are not taxed prevents competition under
similar conditions and implies a growing impact
on tax revenues. Local economic activities in
Latin America, although they are not highly
digitized if they are displaced by these business
models, as is the case of accommodation services
that do pay corresponding taxes, as well as the
permits that those who provide mobility must
obtain to local people or companies that sell
imported products paying tariffs and taxes. In
contrast, foreign ones do so without any type of
specific national regulation for them.
The negative impact on the income of local legal
affects future collection levels, an effect that
could further deepen if local companies or
companies from traditional sectors seek to move
towards the digital sector and industry out their
operations from abroad, still causing plus the loss
of revenue.
Table 3 shows the consolidated sales that these
four large multinational companies NAUA
(Netflix, Airbnb, Uber, and Apple) have had in
Latin America in fiscal periods 2019-2021.
Table 3.
Summary of NAUA sales in Latin America (millions of dollars)
Sales in
LATAM
EMN
2019
2020
2021
Netflix
2795,4
3156,7
3576,9
Airbnb
336
242
431
Uber
1862
1295
1417
Apple
2823,45
3008
3702,31
Source: U.S. Securities & Exchange Commission (2022).
Estimation of tax revenue from digital taxes in
Ecuador
Considering the sales trend of four large
multinationals for the years 2022 to 2025 in
figures, as shown in Table 4, and taking as a
reference the estimates of the 2019 CEPAL
Report on the Fiscal Panorama in Latin America,
Ecuador has a 2.23 % of the average share of
revenue of the mentioned MNEs.
The taxable base would be the net income, so it
is estimated that in Income Tax, it could
contribute 6.81 million dollars for 2023, $7.25
million for 2024, and $7.69 million for 2025. The
proposal presented is cautious since other digital
companies provide services in the country and
have not been considered as they do not have
figures applied to the Region in their Financial
Statements. Although 2022 is still at stake, due to
the effects of the Ecuadorian Tax Code in article
11, the validity of the law in the annual Income
Tax will apply from the first day of the following
calendar year. If we analyze retrospectively, an
estimated $17.63 million have not been received
for Income Tax on digital services from 2020 to
2022, which is the average application period in
the rest of the Latin American countries.
y = 439,43x + 2299,1
$-
$500,00
$1.000,00
$1.500,00
$2.000,00
$2.500,00
$3.000,00
$3.500,00
$4.000,00
0 1 2 3
Apple
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In the case of VAT, the estimated collection is
feasible since the regulations contemplate
collecting this tax. As can be seen in table 4, tax
revenue is higher for this indirect tax versus the
direct one.
The collection of indirect taxes has represented
Ecuador over the years, more than 50% of the
national contribution, contributing to the country's
tax structure with 6% of GDP. Highlighting the
relevance of strengthening the collection of this tax
considering the new businesses of the digital
economy.
It is estimated that from 2022 to 2025, the collection
for the treasury would be $112.48 million. The form
of VAT collection for digital services in Ecuador
does not interfere even when Pillar 1 is applied
since the current configuration of tax collection is
from final consumers and not from MNEs.
Therefore, the moratorium given in this Pillar did
not impact a future elimination of your collection,
at least in the short or medium term.
Table 4.
Estimated tax revenue from taxes on the digital economy in Ecuador (millions of dollars).
EMN
2022
2023
2024
2025
LATAM Trend
Netflix
3.958
4.348
4.739
5.130
Airbnb
431
479
526
574
Uber
1.080
857
635
412
Apple
4.057
4.496
4.936
5.375
Ecuador
Netflix
88,26
96,67
105,69
114,4
Airbnb
9,62
10,68
11,74
12,8
Uber
24,08
19,12
14,15
9,19
Apple
90,47
100,27
110,07
119,86
TOTAL
212,42
227,03
241,64
256,25
VAT Collection 12%
25,49
27,24
29
30,75
Rent Collection 3%
6,37
6,81
7,25
7,69
Source: U.S. Securities & Exchange Commission (2022) & CEPAL (2019).
Conclusions
The studies around the imposition of the digital
economy show how the physical presence of the
companies on which the taxation was based is
already possible to apply in this type of company.
The emerging regulation establishes tax rights
based on the value that companies create through
participation in consumer or market states. The
initiatives on the part of the OECD have evolved
to adapt to the new tax challenges that have had
more significant growth, to the speed of response
by the Tax Administrations, being its last
proposal that of Pillars I and II, which are He
hopes they will be of great help to regulate the
collection of Income Tax worldwide when they
come into force.
The initiatives presented regarding taxes on
companies belonging to the digital economy are
premised on the collection need of the states and
to avoid abusive treatment by MNEs to avoid
paying their tax obligations by being located in
places of low taxation and being digital
companies that have a global reach, their income
is high. At the same time, the remuneration to
society materialized in taxes is low.
In the diagnosis of advances in international tax
matters in the Region, it is concluded that the tax
regulations in Latin America respond to the tax
challenges of advancing the digital economy on
a global scale. In most cases, they are structured
accordingly. Consumption taxes are not aligned
with the OECD guidelines, which seek a
consensual solution based predominantly on
proposals to change the rules for the taxation of
corporate profits of multinationals.
In the estimation of tax revenues from digital
taxes in the Ecuadorian tax system, it is
concluded that, currently, the contribution to the
Ecuadorian State has been 28.80 million dollars
in VAT collection for digital services, and it is
estimated that this figure will increase. Year after
year, due to the supposed increase in
consumption reaching annual statistics between
25 and 30 million dollars.
In Income Tax, estimates are shown of the
figures that the SRI could collect if it considers
the collection of a fee of 3% on income, an
amount that amounts to $28.12 million until
2025, with an approximate annual collection of
$7 million. Finally, it must be considered that
although implementing a tax on the digital
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economy generates a positive collection effect,
the decisions made in this area cannot be
unilateral but instead follow the
recommendations and guidelines of international
organizations that allow adequate or consensual
treatment of digital taxes.
Finally, the recapitulation of the work brings a
relevant point in the investigation, this being the
use of the supply of information that these digital
companies can provide, that is, not only for the
collection of taxes from them but through the
derivation of data. For tax purposes, as a result of
the extensive database of operations with
subscribers, users, or payments, causing other
potential collections. For example, real estate
rentals that do not have their activity registered
in the RUC base and do not pay taxes are unfair
competition for the tourism sector. In Spain, this
debate was presented years ago. Currently, they
should report those platforms that mediate in the
transfer of tourist homes, as is the case of Airbnb,
having to identify the owner or owners of the
house in the report, enter the full address of the
property, the number of rental days including the
start and end of the assignment, and the amount
received by the owners of the home; All this
information is beneficial to be able to place this
type of business derived from the digital
economy on the radar of the Tax Administration.
Another similar case is that of influencers,
YouTubers, or Instagrammers, who receive
income and are not subject to paying any tax as
residents in the country. Although they should
comply with the national regulations for paying
income tax or VAT under any regime that their
income level allows, they do not do so due to the
lack of control or not having the necessary
information to identify them quickly. For this
reason, it is specified that the data provided by
the digital platforms will be a way of supplying
information to control national evaders.
Likewise, Financial Institutions that withhold
foreign payments for digital services could
provide information without prior request, for
subsequent controls, for debugging the database
of digital companies, and inclusion of new ones
in the list so that it can be shortened. The evasion
gap in the payment of VAT to digital services.
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