How Data Should (Not) Be Taxed
13 Pages Posted: 14 Dec 2018
Date Written: November 22, 2018
The core problem with taxing the digital economy is that some business models allow firms to produce in a given country without a physical presence and, thus, avoid (adequate) source taxation in that country. This mismatch of value creation and taxation may require an adjustment of international tax standards. We analyze all major digitalisation trends as to whether and, if so, to which extent they allow for value creation without taxable nexus in the above sense. While some trends are still adequately covered by the existing set of international tax rules, others allow for remote access to local data sources and networks without being liable to source taxation. We propose a systematic and administratively feasible approach to allocating taxing rights based on what we call a sustained user relationship (SURE). We develop a conceptual framework for determining the value of production based on a SURE, emphasizing the role of observable cash flows. To conclude, we provide some tentative proposals for a staged reform.
Keywords: digital economy, business taxation, BEPS
JEL Classification: H25, F23
Suggested Citation: Suggested Citation