On 23 June 2021 the OECD published a Value Added Tax (VAT) Digital Toolkit for Latin America and the Caribbean.

VAT is on average the main source of tax revenue in the Latin America and Caribbean (LAC) region. VAT collection amounted to 27.7% of total tax revenues in the region in 2019. It is therefore important to secure these revenues at a time when the economies are being transformed by digitalisation and globalisation, especially in the LAC region where e-commerce is growing quickly.

There has been strong growth in online sales of services and digital products especially to private consumers, but in the absence of effective provisions to charge VAT on such supplies under traditional VAT rules there is only low or no VAT on them. In relation to imports, the strong growth in the volume of imports of low-value goods from online sales, on which VAT is not collected effectively under traditional customs procedures, means that they often enter jurisdictions untaxed.

The OECD policy framework for addressing the VAT challenges of digital trade involves creating the legal basis for jurisdictions to assert the right to impose VAT on international digital trade; ensuring the efficient collection of VAT on online sales of goods, services and digital products from foreign vendors through simplified VAT registration and collection mechanisms; increasing the efficiency of VAT collection by requiring digital platform operators to collect and remit the VAT on sales carried out through their platforms; and improving VAT compliance by foreign online vendors through a modern risk-based compliance strategy and robust administrative co-operation.

The Toolkit sets out comprehensive and detailed guidance for the policy design and implementation of a comprehensive VAT strategy covering digital trade in the LAC region. It also advises policymakers and administrators in relation to audit and risk management strategies that can ensure compliance with VAT for digital trade.

The policy framework for VAT on digital trade includes introducing VAT rules to establish the place of taxation for supplies of services and intangibles to private consumers by reference to the usual country of residence of the consumer. The country can then charge VAT on supplies such as sales of digital services and digital products to private consumers within its borders whether or not the supplier is located in the jurisdiction.

Non-resident suppliers of services and intangibles to private consumers could be required to register and account for the VAT on these supplies in the taxing jurisdiction. A simplified registration and collection regime could be introduced to facilitate this.

A requirement could also be introduced for digital platform operators to collect and remit the VAT on sales made through the digital platforms by non-resident suppliers. There could be reporting requirements to bring greater transparency to the informal economy. The regime could be extended to low value imported goods, so non-resident suppliers or digital platforms would need to collect the VAT on the goods when they are sold to private consumers, and to remit the VAT to the jurisdiction to which they are imported.