Biased Tax Collection on 'Streaming' 

July, 2018 - Luis Chacón

According to the bill, online purchases will also be taxed

Recently, the government announced the submission of the latest tax reform to the Legislative Assembly, which is called the Public Finance Enhancement Plan.

This new tax package is the merging of four projects that have been floating around the Legislative Assembly for a few months now. The government is combining the Value-Added Tax project (IVA, as per its name in Spanish) with another project that seeks to tax all services, except for private education and medical services (with preferential rate), and raise the rate from 13% to 15%; the Income Tax project, which among other things seeks to tax capital gains and apply a global taxation scheme; the project on fiscal responsibility, which limits current spending growth according to the Central Government’s debt; and the bill on public wages, which would cap and put clearer regulations on public sector salaries.

Within this tax plan, the government announced that Internet transmission services, or streaming, such as Netflix or HBO GO, will be taxed with the new IVA, has caused uproar in the public opinion.

The government, however, failed to mention in its announcement that, according to Article 30 of the referred bill, tangible and intangible goods and services bought via the Internet or any other telecommunication platform will also be taxed 15% as IVA.

This means that the IVA would have to be paid on more than just streaming services, but also on every online purchase of tangible or intangible goods, including any and all applications purchased on mobile phones, in addition to all transactions made using a telecommunication platform.


The bill is contradictory since it could be interpreted to state that not every user that purchases goods and/or services via the Internet is required to pay the IVA. In fact, even though the government’s intention, according to the announcement, is to tax all final recipients, the bill presents serious flaws and contradictions in that sense.

When a tax is created, the law that regulates it must establish certain essential parameters for its application and interpretation. Among the constituent elements of these contributions, we have the tax objective and the taxpayers. In this sense, the bill objective would be to apply the IVA to all sales and services rendered in Costa Rican territory.

Regarding taxpayers, as exception to the previous rule, it is declared that sales or services made abroad may be taxed only when the recipient is an IVA taxpayer.

In other words, and to be more precise, this bill established the following guidelines: Article 1° indicated that the sale of goods and delivery of services made in the Republic’s territory are subject to the IVA. Meanwhile, Article 4 declares that when the service or tangible good provider is residing outside of Costa Rica, those who must pay the tax are those that use services and are duly registered as taxpayers before the Ministry of Finance (i.e.: those who present and pay their IVA declaration monthly).

According to the policies established in this bill, hotels that offer guests Netflix or Apple TV services would have to pay the IVA. Hotels would be required to pay the IVA when, even if the streaming services are provided through an external platform, the Hotel is an IVA taxpayer, as hotel services are subject to this tax.

On the contrary, if a person purchases intangible goods on the Internet, is a Netflix user, or uses any other streaming service and is not an IVA taxpayer because they do not produce or sell merchandise or services under this tax, they do not have to pay the IVA for online purchases and services whose platforms are found outside of Costa Rica.


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