Malaysia has found a new source of revenue from digital service providers. Since the execution of the Digital Services Tax, the Malaysian government has collected around $105M from digital services providers such as Netflix, Amazon, Facebook, and Instagram. The Deputy Finance Minister, Abd Rahim Bakri also said that the tax on digital service providers will be enhanced. After Singapore, Malaysia is the second country in South-East Asia to introduce such a tax. We can all predict the newer changes that are yet to be implemented in the world of tech.
🧽 Sponger’s Relief
It is nothing new to us that Facebook, Apple, and other tech giants use Tax Havens like Ireland and the Netherlands to save billions and billions in taxes.
🧠 The case for intellectual property (IP). Facebook holds multiple intellectual properties in Ireland. Facebook companies all over the Globe pay the Irish holding company for the use of the IP. This has allowed Facebook to shift a magnanimous percentage of its global sales outside of the USA. Kudos to Ireland for that.
🔙 In 2018, Facebook International Holdings I Unlimited Company paid a 🤏 piffling $101M (€83M) in Irish corporate tax on profits of more than $15B. The turnover stood whopping $30B, which is more than half of FBs total global turnover i.e. $56B. The company also paid out a dividend of $14B to its US parent company (an entity based in Delaware). The firm had more than $20B in assets, which have since been shifted to the US.
⚖️ IRS dragged FB to the courts. It recently claimed that the tech giant owed $9B in back taxes to the USA based on its decision to shift assets to Ireland in 2010.
👇 FB had “downplayed” the value of its IP when it was transferred to Ireland in 2010 as part of a move to pay less US tax. The valuation was done at $6.5B to which the IRS argued that the valuation was $21B. 😱
🧱 This structure allows the giant to book money through Irish holding companies. It then pays out large dividends with almost zero tax liability, moving profits back to the USA.
🏠 Where it truly belongs. Facebook has decided to shut down its Irish divisions and return its intellectual property to the USA. Liquidators have been appointed to Facebook Ireland Holdings Unlimited, Facebook International Holdings Unlimited I, and Facebook International Holdings Unlimited II.
Google did the same in January. Hence, closing of the “double Irish” tax loophole, which has been used by US companies to channel international profits through Ireland and on to tax havens like Bermuda, keeping them outside the US.
As said by Margaret Hodge, the teeny tiny tax payment was a ‘beggar’s relief.’
₿ There is news for crypto-holders as well.
If it’s good or bad, we will leave that decision up to you. There are talks among the Indian Government to impose a transaction tax on Bitcoin. A tax imposition on Cryptocurrency might result in more investment as this regulation will increase the legitimacy of crypto. This imposition is also aimed to generate an additional $1 billion in revenue per year. The finance ministry, has proposed imposing an 18 percent goods and services tax (GST) on all bitcoin transactions. Depending on the holding period, these transactions might also be treated as capital gains. The current value of Bitcoin stands at $28,891.70. So now might be the best time to start planning your investments, if you haven’t already!
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🍫 Have a Tax Break, Have a KitKat – Crazy Tax Story
✌️ Two decades ago. Nestle and the Excise Department were in court over the issue – is KitKat a biscuit or a bar of chocolate? The rate of excise on chocolates was 20% while on biscuits/wafers was 10%. However, in 1999, Nestle succeeded in classifying Kitkat as a ‘wafer with a chocolate coating’ instead of a ‘chocolate with a wafer inside.’
🗣️ The Tax Authorities remarked… “The product is a composite product consisting of chocolate, wafer, and praline. It, therefore, cannot be classified as a wafer… It would also not be correct to say that wafer contains chocolate since it is completely covered by it. The predominant product in terms of value and weight is milk chocolate, comprising 68 to 72% by weight of chocolate and also value. It is also considered by the manufacturer to be chocolate and treated as chocolate for purposes of storage and transport. It is perceived by the dealers of the product as well as its ultimate customers as chocolate and no person in common trade parlance refers to it as a wafer.”…only to lose.
🔥 The internet on fire:
- you find it with other chocolates in the supermarket, hence it is a chocolate
- it’s a chocolate-covered wafer, hence it is a wafer
- you don’t dip it in tea, hence it is a chocolate
⚖️ The final judgment. Although all chocolate products contain cocoa…it is not necessary that all cocoa products/preparation are chocolates! well, we do use it in cakes and drinks. That said, Nestle never marketed the product like chocolate. Similarly, chocolate was not what made the customers buy KitKat.
⚔️ Classification wars. southern Rotis (parotta) will be taxed more than north Indian Rotis. Parachute oil is edible. Vicks is a medicine. And whatnot. The Tax authorities have always been on an all-out war with the classification of products.