The collection of value added tax on cross-border digital trade - part 2: VAT collection by banks

The viability of Value Added Tax (VAT) as an effective source of revenue relies chiefly on the ability to enforce VAT rules and to collect VAT effectively on affected transactions. Existing VAT collection mechanisms are in dire need of modernisation, in that they are inefficient and increasingly burdensome on revenue authorities and suppliers. International trends show that tax collection by third party intermediaries is increasingly being introduced in countries where cross-border trade and employment are on the rise. Cross-border digital trade is a fully fledged electronic trading, and often automated, phenomenon. The execution of these transactions requires no or minimal human intervention. A withholding tax mechanism by financial institutions through the implementation of an automated split-payment system, offers the possibility of the execution of online cross-border transactions with no or minimal human intervention. Part 2 investigates VAT collection by financial institutions as a viable tax collection model for cross-border digital trade.