By Emmanuel Mounier, Secretary General, Global Travel Tech.
Imagine a traveler in a Barcelona café booking a last-minute vacation in Bali through a Seattle-based travel app. This single transaction sets in motion a complex network of cross-border transactions that underscore the challenges of taxation in a globalized digital economy.
As digital services continue to transcend borders, determining fair taxation is increasingly complex. In the travel tech industry, where companies facilitate millions of cross-border transactions, existing tax systems, designed for pre-digital times, struggle to keep pace. However, while complex, these issues are not unsolvable.
The global OECD tax agreement—designed to set out a harmonized for the taxation of digital services—is now under significant strain. With the recent election of Donald Trump, there are heightened concerns about the future of this framework. A shift to unilateral initiatives at national is unfortunately likely, as can be seen already in Canada or in New-Zealand.
When designing such national digital services taxation schemes, a balanced approach is critical. While large tech corporations should contribute their fair share, tax policies must avoid unintended consequences for smaller businesses and the tourism sector, which benefits significantly from digital travel platforms. For instance, if it becomes unprofitable for a travel app to operate in a given country, it could reduce international customer flows to small businesses, such as independent hotels and local attractions, thereby diminishing the intended benefits of the tax policy.
Moreover, different digital sectors face unique financial dynamics. Many companies in travel tech operate on relatively low margins compared to other digital business models, making broad digital services taxes, based on income and not on profit, particularly impactful. A “safe harbor” framework, as seen in some DST schemes, could protect companies with minimal or no profits from excessive taxation, allowing smaller players to continue innovating and competing fairly in the market.
Double taxation is another significant challenge. Travel businesses may face digital services taxes both in the country of sale and where the service is consumed. A fair tax framework should include provisions to prevent this, supporting businesses that rely mainly on cross-border operations such as travel tech platforms.
Finally, any digital service tax should be temporary and include a sunset clause, aligning with international efforts toward a comprehensive tax solution. This approach would prevent market distortions while fostering a more stable competitive landscape.
As policymakers consider the path forward, ensuring a balanced, fair approach that acknowledges the cross-border nature of the digital economy is crucial. The travel tech sector exemplifies the need for solutions that protect industry vitality and support global economic growth.