New Pillar to Address Tax Challenges Arising from Digitalization of the Economy

Traditional international tax rules empower a source state to tax non-residents who have a strong physical connection to that state. Digitalized business models reduce, or even eliminate, the need for a physical presence to conduct economic activities in the state where customers are located. This change has created significant challenges for tax administrations, and many jurisdictions have adopted unilateral digital services taxes to increase collection from digitalized businesses. The OECD/G20 Inclusive Framework aims to reform the ‘outdated’ international tax rules by promoting the Pillar One project on the tax challenges of digitalization in order to enable greater taxing rights by market jurisdiction. However, Pillar One seems to foster uncertainty rather than reassurance. This article considers the possibility of coordinating digital services taxes among individual jurisdictions: instead of focusing on the uncertainty and complexity of Pillar One, the OECD could use the Inclusive Framework to provide guidance on the collection of digital services taxes to protect taxing rights of market states and prevent double taxation of multinational enterprises.

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Publication Details

Journal
Florida Tax Review
Published
2024-08-08
DOI
https://doi.org/10.5744/ftr.2023.2005
Primary Topic
Corporate Taxation and Avoidance
Type
article
Field-Weighted Citation Impact
0.00
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article

New Pillar to Address Tax Challenges Arising from Digitalization of the Economy

Jingyi Wang
Florida Tax Review
Corporate Taxation and Avoidance
article

New Pillar to Address Tax Challenges Arising from Digitalization of the Economy

Jingyi Wang
article en

Abstract

Traditional international tax rules empower a source state to tax non-residents who have a strong physical connection to that state. Digitalized business models reduce, or even eliminate, the need for a physical presence to conduct economic activities in the state where customers are located. This change has created significant challenges for tax administrations, and many jurisdictions have adopted unilateral digital services taxes to increase collection from digitalized businesses. The OECD/G20 Inclusive Framework aims to reform the ‘outdated’ international tax rules by promoting the Pillar One project on the tax challenges of digitalization in order to enable greater taxing rights by market jurisdiction. However, Pillar One seems to foster uncertainty rather than reassurance. This article considers the possibility of coordinating digital services taxes among individual jurisdictions: instead of focusing on the uncertainty and complexity of Pillar One, the OECD could use the Inclusive Framework to provide guidance on the collection of digital services taxes to protect taxing rights of market states and prevent double taxation of multinational enterprises.

Florida Tax ReviewVol. 26(2)
Chinese University of Hong Kong (HK)
Partnerships for the goals
Openalex Percentile: Top 76%
Corporate Taxation and Avoidance
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