Importance For International Taxation Of Video Games And Social Networks

Common Features Of Video Games And Social Networks: Importance For International Taxation Presented by: Anna Vvedenskaya Date: 3 February 2021 Agenda 1. Meet & Greet 2. What is international taxation about? 3. Digitalization problems in international taxation 4. International taxation in 2021 5. How the video games industry is affected? 6. Video games industry specifics 7. Main takeaways What Is International Taxation About? - One country • The services are created and sold in one country - all the profit is taxable there only - Two and more countries • Where and how much to tax? • Key principle: taxing where the value is created • Double taxation and non-taxation issues Main Types Of Tax - Consumption Taxes • VAT and GST, carried by consumers of the goods and services - Profits Taxes • - Usually corporate and individual profits taxes paid businesses and residents System was working relatively well, double taxation was somehow avoided Digitalization Problems In International Taxation - Key principle: Taxing where the value is created • Questions posed in last decade:  Where is value created?  Who creates value?  Is value created outside of the company? • Digitalized companies carve data from users, monetize it and sell services remotely • - Users create value for the company The system dates to 1920-s and mostly cannot capture the income without physical presence of the business at the market jurisdiction. International Taxation In 2021 - Countries solely come with the measures to additionally tax the digitalized companies - So-called Digital Services Taxes: usually a % of all the sales in country • Implemented by the UK, Austria, Turkey, Spain, Poland • Discussed world-wide Digital Services Taxes issues - They all are different, don't fit in the existing system, and cause double taxation for the taxpayer - Supposedly discriminatory for digital businesses (stores, manufactures, other services etc.) Pillar I proposal – Unified approach - Additional tax measure may be adopted by 137 countries, update mid-2021 - This tax allegedly fits the system - Although it allegedly fits the system - Extremely complex calculation and additional administrative burden - Consensus of many countries on tax/ revenue amount is required How The Video Games Industry Is Affected? - Textbook example of a digitalized industry - Production and sales are made worldwide - User data is very important - The tax authorities are aware, that during the COVID-19 times the industry is blooming Video Games Industry Specifics - Industry was off the tax radar for a long period - Includes different digitalized businesses (services, goods, platforms, broadcasting, etc.) - Does not fit perfectly to any of the value creation models addressed by the OECD Single-Player VS Multi-Player Video Games - Single-player video game is the game environment with the input of one player; user is interested in software - Multi-player video game is the game environment where more than one player can interact simultaneously; user is interested in both software and interaction with other players - Simultaneous interaction between users is essential for the Multi-player video game, which affects the game design, revenue models, business operations, etc. Different Business Models And Sources Of Revenue 1. Single-player video games 2. Multi-player video games with in- game purchases 3. Advertisement sales 4. Etc. Multi-Player Video Games - Are similar to social networks - Rely heavily on User participation and Network effects - Such reliance is reflected in the business models, revenue and value creation process and should be important for the respective tax obligations Final Remarks - International tax system is messed up - No one has a perfect solution - With the COVID-19 crisis governments worldwide aim to tax more; digitalized companies are the target #1 - Businesses will have lots of extra work and costs not only for finance-related departments but also for back-end developers, systems architects, Big Data specialists, and others - Gamers will have to cover these costs and pay more