With business models being reshaped by the increasing speed and connectivity of digital technology, it is clear tax authorities are responding in disparate ways, claims accounting company Grant Thornton.

Indeed, the potential for unintended consequences have been heightened by the pace at which legislation is being enacted and the underlying political pressure.

Yet while the digital tax overhaul affects all businesses, it is those firms with highly integrated digital business models, such as platforms or online marketplaces, that the authorities have most firmly in their sights, the firm says.

It adds that the nature of business is rapidly changing as digital services continue to supplant numerous physical products and internet websites continue to replace many shops and physical establishments.

France recently approved a 3% tax on revenues generated by large digital companies in its territory, a move now being investigated as a potentially unfair trade practice by the American government.

Grant Thornton believes it’s essential to have a clear understanding of what’s coming and its implications.

Grant Thornton Isle of Man managing director Dennis McGurgan said: ’In order for the financial services sector to remain at the cutting edge of the industry globally, it is vital that we are kept fully up-to-date with the latest developments in areas such as digital taxation which can have such a major impact.

’Governments and tax authorities are scrambling to keep pace with the increasing digitisation of the global economy and public outcry over the levels of corporate tax being paid by large multinational enterprises.

’The tax presence is now governed by economic substance rather than physical presence and businesses need to register in a lot more jurisdictions and manage compliance demands within them.

’Much of the criteria is not just grey but also fluid as tax rules change in different jurisdictions. Individuals and companies with concerns should contact us as the global expertise of Grant Thornton can be of real benefit.’

As the taxing of the digital economy is the focus of much political discussion throughout the western world, measures such as minimum tax and reallocation of profits can all have a profound impact.

Grant Thornton believes it’s important to be proactive by taking advantage of opportunities to simplify compliance and putting safeguards in place, such as pricing agreements.

It applauds the work of the OECD (Organisation for Economic Co-operation and Development) in pushing for a solution on how to allocate and tax the profits from digital business.

’Its focus is clearly significant’, continued Dennis. ’Whatever transpires, it’s important to consider it as part of the bigger tax shake-up and a collaborative approach is desirable.

’We’d recommend against any unilateral tax enactment that creates uncertainty and inequity and believe there is a need for more thoughtful and creative solutions than a one-size-fits-all regulation.

’Ultimately, the shift from the physical world to the digital one is permanent and affects economic systems in myriad ways.’

Grant Thornton is based in Exchange House in Athol Street, Douglas.