Taxing Where Value is Created: What’s 'User Involvement' Got to Do With It?

Abstract

Acccording to the OECD and the EU Commission, profits should be taxed "where value is created”. A commonly accepted definition of the term “value creation” is so far lacking, though. In this paper, we offer a pragmatic and contextualised analysis of the new “value creation” paradigm and examine its implications for international tax policy in the era of digitalisation. A special focus is put on the role of users (especially of online platforms) that are said to contribute to value creation e.g. by forming valuable networks, by providing data or by posting online content. We critically discuss the argument that, due to user involvement in a firm’s value creation, the location of user groups and networks should give rise to taxation rights. We conclude that a better option is to recalibrate the international tax system based on the concept of sustained user relationships (“SURE”) that aligns itself with the rationale of a consistently defined notion of “value creation”.

Keywords: Profit Taxation, Value Creation, User Involvement

JEL Classification: H25, H26, F23