The Digital Services Tax as a Tax on Location-Specific Rent

39 Pages Posted: 18 Nov 2019

See all articles by Wei Cui

Wei Cui

University of British Columbia (UBC), Faculty of Law

Nigar Hashimzade

Brunel University London

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 2019

Abstract

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

Cui, Wei and Hashimzade, Nigar, The Digital Services Tax as a Tax on Location-Specific Rent (November 17, 2019). Available at SSRN: https://ssrn.com/abstract=3488812 or http://dx.doi.org/10.2139/ssrn.3488812

Wei Cui (Contact Author)

University of British Columbia (UBC), Faculty of Law ( email )

1822 East Mall
Vancouver, British Columbia V6T1Z1
Canada
6048274765 (Phone)

Nigar Hashimzade

Brunel University London ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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