International tax law for digital business: Time for a parking ticket?

I’ve written in the past about the challenges of applying industrial-age tax rules to digital age businesses. It’s one of the biggest problems the tax authorities face, but recently the debate in the press has focused on whether digital businesses pay the right amount of tax, rarely do these articles talk about the difficulty that businesses in general, and digital businesses in particular, have in interpreting those rules to calculate the right amount of tax.

I was looking for a parking space in a town near my home the other day and it struck me, while I drove around in ever increasing circles, that there’s an analogy to be had between tax and parking regulations. Never one to avoid a good analogy, I decided to share it with you.

If you think about the rules that set out parking restrictions, the most obvious are the double yellow lines painted on the road. They are the best possible indication that the town’s council doesn’t want anyone to park there. Many councils also set out the parking policy, and areas where you can park for free, or for a fee, on their website. But which rule trumps the other?

Say, for example, that a council has a general rule that there’s no parking on the street within a mile of the war memorial at the centre of a fictional town. Double yellow lines reinforce this rule, but when the roads are resurfaced the contractor runs out of yellow paint, leaving one road that’s previously had double yellow lines, without. A few people park there, and get a parking ticket for their pains. They appeal, the court finds for the drivers, and the tickets are withdrawn.

The council, though, is less than happy and so passes a byelaw to make sure that the spirit of its traffic management rules are obeyed in the future. The new byelaw – let’s randomly pick a name and call it the Parking Anti-Avoidance Rule – says that parking-related road markings (or lack thereof) are to be interpreted in the light of the council’s published traffic enforcement policy.

For a while, everything runs smoothly. But over the next two years things change: a new shopping centre has opened, the town is busier and the parking situation has deteriorated as a result. Eventually the council decides that the solution is to extend the no-parking zone by an extra half a mile.

Some shop owners in the new no-parking zone, though, are less than pleased at the impact on their business. The mayor expresses public sympathy for their objections without expressly supporting them, but when the new road markings are laid out there are single – rather than double – yellow lines along this stretch. And there are other anomalies; a couple of roads which start just within the zone but stretch well beyond it, have no lines at all.

The result is a bit of a mess. Did the council really intend to enforce no parking on a road that begins 20 metres inside the central zone but extends a mile beyond it? And which rule applies for the single-yellow road outside the vociferous shopkeepers’ establishments? The single yellow line? Or the council’s stated policy?

If you took the position that the only indicator is the yellow lines on the road, the problem goes away. But if you assume that the yellow lines are what the council’s parking policy says, the council ends up with a no-parking zone that doesn’t match what it thought it created.

That's essentially where we are with tax law today. The policy says one thing; the yellow lines say something else; and that's a system that's bound to breed uncertainty.


John Steveni | Communications Tax Leader
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