The Impact of Digitalization on Broadening Income Tax Foundations

This research article systematically examines the taxation challenges arising from the digitalization of the economy and proposes corresponding measures for mitigation. Initially, it delineates the distinctive features of the digital economy and delineates the tax challenges inherent in these features, particularly concerning major digital-tech entities exploiting base erosion and profit-shifting mechanisms to relocate profits from high-tax to low-tax jurisdictions. Subsequently, the article assesses the principal measures targeted at reshaping the international tax framework, encompassing the OECD’s Pillar One, unilateral digital services taxes, and a U.N. proposal. It suggests the adoption of a novel nexus based on market thresholds, subject to a global de minimis amount, devoid of reliance on physical presence. Additionally, the article cautions against the adoption of global revenue thresholds and an overall international perspective as to how income tax base can be widened with the recent technological advancements.