Tec(h)tonic Shifts: Taxing the 'Digital Economy'

82 Pages Posted: 30 Jun 2020

See all articles by Aqib Aslam

Aqib Aslam

International Monetary Fund (IMF) - Research Department

Alpa Shah

International Monetary Fund (IMF)

Date Written: May 2020

Abstract

The ever-increasing digitalization of businesses has accelerated the need to address the many shortcomings and unresolved issues within the international corporate income tax system. In particular, the customer or 'user'-through their online activities-is now considered by many as being a critical driving force behind the value of digital services. Furthermore, the rapid growth of digital service providers over the last decade has made them an increasingly popular target for special taxes-similar to wealth and solidarity taxes-which can also help mobilize much-needed revenues in the wake of a crisis. This paper argues that a plausible conceptual case can be made to tax the value generated by users under the corporate income tax. However, a number of issues need to be tackled for user-based tax measures to become a reality, which include agreement among countries on whether user value justifies a reallocation of taxing rights, establishing the legal right to tax income derived from user value, as well as an appropriate metric for valuing user-generated data if it is ever to be used as a tax base. Furthermore, attempting to tax only certain types of business is ill-advised, especially as user data is now being exploited widely enough for it to be recognized as an input for almost all businesses. Several options present themselves for consideration-from a modified permanent establishment definition combined with taxation by formulary apportionment, to user-based royalty-type taxes-each with their own merits and misdemeanors.

Keywords: Tax revenue, Economic integration, Tax competition, Revenue measures, Supply and demand, Corporate Taxation, Digitalization, WP, user-based, user data, digital service, multinational enterprise, network externality

JEL Classification: D23, D47, H2, L1, K21, K24, E01, H71, K34, H83

Suggested Citation

Aslam, Aqib and Shah, Alpa, Tec(h)tonic Shifts: Taxing the 'Digital Economy' (May 2020). IMF Working Paper No. 20/76, Available at SSRN: https://ssrn.com/abstract=3638523

Aqib Aslam (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Alpa Shah

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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