Digitalisation and broadcasting: Evaluating the application of royalty withholding tax to digitalised business models

Abstract

The digital economy and, more specifically, highly digitalised business models are putting pressure on domestic and international tax systems. As potential responses are being explored by individual governments and the OECD Inclusive Framework, one alternative that has been raised is to more effectively utilise the royalty withholding tax mechanism. In order to evaluate this option in relation to a digitalised business, this article considers the application of withholding tax to payments made to an overseas supplier for access to a live transmission. The article analyses Australia's domestic law and tax treaty network, revealing three patterns in the treaty definition of royalties that can lead to substantively different outcomes in relation to live transmissions. This analysis shows that the royalty withholding tax frameworks developed for traditional over-the-air broadcasting are under increasing strain as the technologies of media and communications converge. The degree of variability and uncertainty in tax outcomes that this analysis evidences is inconsistent with establishing a level playing field between traditional and more highly digitalised broadcasting businesses.