Digital economy: issues in defining the concept for the purpose of improving tax legislation

This article provides an overview of the understanding of the concept of digital economy within Ukrainian legislation, legal doctrine, economic science, and documents from the Organization for Economic Cooperation and Development (OECD), particularly in Action 1 of the BEPS (Base Erosion and Profit Shifting) Action Plan, which aims to develop rules for the taxation of the digital economy. During the analysis, the author focused on defining the concept of digital economy, describing its characteristic features as a phenomenon, and examining its impact on taxation. Specifically, conclusions were drawn regarding the distinctive traits of the digital economy that contribute to the erosion of the tax base and the shifting of profits out of taxation, thus leading to overall tax avoidance. Based on the conducted analysis, it was determined that Ukrainian legislation and legal science predominantly operate with a narrow understanding of the concept, equating the digital economy with activities in the IT sector. Economic researchers primarily interpret this concept as an evolution of business practices resulting from the industrial-technological revolution and a consequence of the digitization of business processes. The understanding of the digital economy within the OECD is similar to that found in Ukrainian legal science. Additionally, the article examined the characteristic features of the digital economy highlighted by the OECD, such as asset mobility, functions, personnel, sources of profit, data utilization and collection, and user participation in data creation and value addition. Furthermore, the research demonstrated why the narrow understanding of the digital economy in legislation and legal science negatively affects the lawmaker’s ability to fairly regulate relationships in the realm of digital economy taxation. In conclusion, a hypothesis was proposed regarding the understanding of the digital economy as a socio-economic phenomenon. A definition of the digital economy was suggested to guide legislative efforts in regulating the digital economy, particularly concerning its taxation.