The Digital Services Tax as a Tax on Location-Specific Rent
39 Pages Posted: 18 Nov 2019
Date Written: November 17, 2019
In 2018, the European Council and the UK and Spanish governments each proposed to introduce a Digital Services Tax (DST), to be levied on the revenue of large digital platforms from advertising, online intermediation, and/or the transmission of data. We offer a rationalization of the DST as a tax on location-specific rent (LSR). That is, just as many countries already levy royalties on rent from extracting natural resources, one can think of the DST as levied on rent earned by digital platforms from particular locations. We provide stylized illustrations of how platform rent can be assigned to specific locations, even when users from multiple jurisdictions participate. We then elaborate the analogy between the DST and resource royalties and analyze the DST’s incidence and effect on private and social welfare using a simple model. Finally, we argue that the DST suggests useful directions for redesigning international taxation in the age of labor-replacing AI technology.
Keywords: digital services tax, international taxation, location-specific rent, digital platforms
JEL Classification: H21, H25, K34, M37, M48
Suggested Citation: Suggested Citation