Following the recent and rapid expansion of digitisation and digitised aspects of the economic and societal space, numerous global debates have been sparked in many legal and regulatory tax statutes. The tax implications of digitisation range from direct and indirect taxation, tax policies and tax administration. With the emergence of new digital streams of income, the allocation of profit and the nexus rules to distribute taxing rights on income generated from cross-border activities has given rise to ambiguities as to the manner these tax issues may be resolved.

The Organization for Economic Co-operation and Development (the “OECD”) recognized these emerging tax challenges. Consequently, the OECD and G20 formulated the Inclusive Framework on the Base Erosion and Profit Shifting (the “BEPS Framework”) to resolve them. The Framework contains fifteen (15) actionable measures that may be implemented by member states.

Action 1 relates to the tax challenges arising from digitisation. This action sought to address the fact that the emergence of new and often intangible value drivers has eroded the need for physically proximate markets, hence, the nexus rules to distribute taxing rights on income accrued digitally is difficult to determine. Member states have since dedicated and pledged to co-operate to secure the integrity of the global tax system.

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This alert is for informational purposes only and is not intended to constitute legal advice. If you have any queries or need clarifications, please do not hesitate to contact Renee Omondi – Partner, Meshack Kwaka – Associate, or your usual contact at our firm, for advice relating to the Digital Service Tax and related Regulations.