Problems and the future of corporate income tax and VAT in the conditions of digitalization

Abstract

Globalization and digitalization lead to significant changes in society and economy, including the field of taxation. Moreover, the efforts of governments of many countries are aimed at implementing measures to combat profit shifting and ensure that budget revenues from corporate income tax and VAT are received in the proper amount. The article analyses main problems of corporate income tax and VAT, possible ways to solve them in near and distant perspectives. With regard to respective taxes, the main aspects of combating tax base erosion and tax evasion with the use of new digital methods, and the state of BEPS steps implementation in this part are analysed. Given that the corporate income tax in modern conditions has a number of disadvantages, it is likely that in the future it will be replaced by an alternative – a tax on withdrawn capital or a tax on cash flows at destination. VAT, in turn, is a neutral tax that is easy to algorithmize and administer. Therefore, it can also displace corporate income tax from the tax systems of countries. At the same time, there are a number of problems with VAT: cases of fraud, non-taxation or double taxation of transactions in international trade. It has been found that in the short run (up to 5 years) it is important for national governments to increase efforts to implement BEPS plan and to strengthen information exchange and international cooperation to counteract base erosion and profit shifting. To simplify VAT administration and improve the interaction between taxpayers and tax authorities within the same country, as well as in international trade, it is feasible to use the e-invoicing practice more widely. In distant perspective, it is possible to use blockchain technology. Taking into account global trends, the article provides recommendations for improving VAT and corporate income tax in the context of globalization and digitalization (in particular – further implementation of BEPS measures in all countries of the world, mandatory registration as VAT payers in jurisdictions, where sells of goods and services to end users take place, strengthening international coordination and cooperation in the field of taxation), as well as general recommendations that should contribute to digitalization and economic development of Ukraine in the near and distant future.