An Analysis Of The Alternatives To Impose Direct Taxes On Income From Non-Resident App Stores
The debate on the appropriateness of the current international tax framework to address electronic commerce business models has been ongoing for almost two decades with little resolution on alternatives for reform. One of the recent business models to emerge in the last eight years was the internet app store. Since its launch in 2008, the internet app store has exploded into a multi-billion dollar business model extending across the globe. The internet app store is a digital distribution platform in which developers and platform providers sell apps and digital content to consumers through their mobile devices. In a tax treaty context South Africa may only tax the income from non-resident app stores when a PE is created in South Africa by the non-resident. However, the tax planning structure and intangible nature of the internet app store enables non-resident platform providers and developers to sell apps and digital content extensively to consumers in a country without having a taxable presence in that country. In an effort to address the inability of the PE concept to cover e-commerce business models like the app store, the OECD raised potential alternatives in Action One of its 2015 BEPS Action Plan. The main purpose of this study was to consider the application of two of these potential alternatives to the app store, namely a new PE nexus based on significant economic presence and a withholding tax on digital transactions, in order to determine the difficulties with the application of each alternative in South Africa. In order to address the main purpose of this study, it was necessary to obtain an understanding of the app store business model and to determine the current SA direct tax legislation which is applicable to the income from non-resident app stores operating in South Africa