Digital Services Tax: A Cross-Border Variation of the Consumption Tax Debate

55 Pages Posted: 12 May 2020 Last revised: 4 Dec 2020

See all articles by Young Ran (Christine) Kim

Young Ran (Christine) Kim

Yeshiva University - Benjamin N. Cardozo School of Law

Date Written: March 30, 2020


The rise of highly digitalized businesses, such as Google and Amazon, has strained the traditional income tax rules on nexus and profit allocation. Traditionally, profit is allocated to market countries where consumers are located only if the business has a physical presence. However, in the digital economy, profits can be easily generated in market countries without a physical presence, resulting in tax revenue loss for market countries. In response, market countries have started imposing a new tax, called the digital services tax (DST), on certain digital business models, which has ignited heated debate across the globe. Supporters defend the DST, designed as a turnover style consumption tax, as an effective measure to make up the foregone revenue in the digital economy because it is not bound by the traditional rules of income taxation. Opponents criticize DSTs as “ring-fencing” or segregating certain digital business models, discriminating against American tech giants, and arguably imposing a disguised income tax. The debate has been focused on the imminent impact, such as who is the immediate winner and loser, but the discussion lacks efforts to understand the fundamentals of DSTs, especially with regard to the consumption tax aspect.

This Article is the first academic paper that highlights DSTs as a consumption tax and provides normative implications for policy makers deliberating a DST. It argues that a DST, with certain modifications, can be a good solution for the tax challenges of the digital economy. First, the Article offers an in-depth analysis of DSTs’ economic impact in multisided digital platforms. Second, it offers the advantages of DSTs over other types of consumption tax, such as value added tax and cash-flow tax. Finally, it illustrates how the recent Supreme Court case of South Dakota v. Wayfair, Inc., which discusses a sales tax imposed on certain remote sellers, and the subsequent Netflix Tax may shed light on ways to overcome the ring-fencing problem of the DST.

Keywords: digital economy, digital services tax, DST, consumption tax, turnover tax, gross receipts tax, international tax, transfer pricing, profit allocation, nexus, multi-sided platforms, multi-sided market, tax incidence, Netflix Tax

JEL Classification: K34, K33, K20, H20, H22, H25, H26, O30, O33, O38

Suggested Citation

Kim, Young Ran (Christine), Digital Services Tax: A Cross-Border Variation of the Consumption Tax Debate (March 30, 2020). 72 Alabama Law Review 131 (2020), University of Utah College of Law Research Paper No. 371, Available at SSRN:

Young Ran (Christine) Kim (Contact Author)

Yeshiva University - Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States


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