Protecting the Tax Base in a Digital Economy

Abstract

This paper provides an overview of the main features of digital economy and why it poses challenges to existing framework and principles of international taxation. It explains the fiscal impact of these challenges in developing countries. Among the challenges is the “cyberization” of tax base because the existing jurisdictional nexus (such as permanent establishment) and profit attribution rules assume physical presence and actual activities, neither is particularly relevant in a digital business. The paper canvasses some recent developments and urges developing countries to participate in developing global solutions.

Keywords: BEPS, digital economy, permanent establishment, source of income, developing countries