On February 23, 2022, the plenary of the Congress heard the bill called “Law to Promote and Facilitate Cross Border Electronic Commerce”. The initiative proposes to amend the Value Added Tax Law, the Tax Update Law (which regulates Income Tax) and the Provisions for the Strengthening of the Tax Administration (Decree 20-2006).
Regarding Value Added Tax, the initiative adds the definitions of “digital products or goods”, defining them as an incorporeal and intangible good that is commercialized by electronic means. It adds the definitions of importation and exportation of these products or digital goods and adds as tax generating events, the sale or exchange of products or digital goods and their importation. In the definition of importation of these goods or products, it adds that it is the downloading and commercialization from third countries of digital products destined for definitive use or consumption in the country.
Currently, the Value Added Tax Law taxes, among others, the sale of personal property or real rights constituted on them and the rendering of services in the national territory. Within the current definition, sale is understood as the transfer for valuable consideration of the total or partial ownership of movable property located in the national territory.
The amendment intends to tax the downloading and commercialization of digital products; however, this amendment does not include the rendering of services abroad, which are used in Guatemala. Likewise, the proposed law does not establish a mechanism for the collection of such tax, since it does not establish when it must be paid. The initiative only mentions that no customs procedures must be carried out for the importation of these goods; however, it does not establish how to declare and pay the tax. It also does not establish the treatment of goods that are used in the country, but do not necessarily require a discharge in the country.
In other jurisdictions, digital services, which are used within the jurisdiction, such as platforms that transmit digital content, without the need to download them (streaming), are subject to Value Added Tax. In these jurisdictions, an intermediary is obliged to withhold the tax, such as credit card issuers, or the platforms are obliged to register in the country for the declaration and payment of the tax.
In this case, since the initiative is not clear on what is taxed and, by not establishing an obligation on the form of payment of digital goods and services, it will generate confusion on the operability of the application of this tax.
This initiative also does not address the issue of where certain types of digital goods are considered to be located, for example, cryptocurrencies, since these are not downloaded in the country, but are kept in virtual wallets.
The bill also proposes amendments to the law that regulates Income Tax in Guatemala. The law adds as deductible cost and expense, the amortizations or products of digital goods, in case the Value Added Tax has been paid.
Likewise, it adds within the tax rates applicable to income received by non-residents, who operate without a permanent establishment in Guatemala, three percent (3%) to the following services:
(i) Electronic intermediation services for the commercialization of tangible goods, digital products and/or services through digital platforms, applications, internet sites or similar.
ii) Transmission of images or videos and digital content on behalf of a third party by electronic means, platforms, internet sites or similar.
It establishes that the recipient of the service is considered to be in the national territory when he/she provides the service provider with an address located in the national territory and this is registered before the Tax Administration or the payment is made through an intermediary located in the national territory.
It must be considered that, at present, the Tax Update Law only taxes the rendering of services rendered in Guatemala. Therefore, establishing a specific tax rate for digital services does not modify the tax generating facts.
Likewise, it could be considered that the initiative intends to tax services when the recipient of the service is located within the national territory, but this does not clarify either, since it does not modify the generating fact.
In the same case as in the Value Added Tax, the amendments do not establish a mechanism to make the payment of the tax effective.
Finally, the initiative considers modifying the provisions of Decree 20-2006.
This law contains the obligation of withholding a percentage of the Value Added Tax by credit or debit card operators. The initiative proposes to establish an exception to the withholding obligation in the case of payment of export collection transactions through an electronic intermediation service or collections on behalf of third parties.