Justifying Pillar One: A Qualitative Analysis of OECD Consultation Letters

Abstract

The taxation of the digital economy has emerged as a significant international issue in recent years. Firms frequently transact in countries where they lack a physical presence, leading to a potential misalignment with existing tax frameworks. In response, the OECD and G20 are creating a framework for international taxation that considers digitalization through the OECD Pillar One. This paper categorizes the justifications given for specific tax proposals related to highly digital companies in Pillar One by stakeholders responding to requests for input. Many of the arguments used in favor of new value creation standards suggest that these taxes are not only meant to deemphasize physical location, but also include using taxes to internalize the societal cost of digital platforms’ misinformation, severance taxes for user data extraction akin to those applied to natural resource mining, and taxes as a check on digital firms’ market power.

Keywords: Digital taxes, digital economy, OECD Pillar One

JEL Classification: K34