Digital Economy: The Future of International Taxation of Business Income

Master thesis English OPEN
Baumann, Anton (2017)
  • Subject: Business Income | Source Taxation | Digitalization | Permanent Establishment | Digital Profits | CCCTB | Business profits | Digital business models | Destination Based Taxation | PE | International Taxation | Digital Economy | Common Consolidated Corporate Tax Base | E-commerce | Withholding Tax | Taxation | Virtual PE | Electronic Commerce | Virtual Permanent Establishment
    acm: ComputingMilieux_GENERAL | ComputingMilieux_LEGALASPECTSOFCOMPUTING

The subject of the thesis is to make an assessment on the situation of the international taxation of business income in a digitalized economy. It has long been obvious that existing international tax rules, especially the Permanent Establishment, is outdated and unfit to allocate taxation right between states in the digital economic era. As economic development has continued, tax development has stagnated. The question of the thesis becomes: what are the possible solutions to this issue? The thesis describes the different proposals made by tax professionals and academics in their literature, and the actions proposed by the OECD in lieu of the BEPS project of 2015. The proposed changes to the OECD Model Tax Convention article 5 are addressed and discussed. Other options such as the “Virtual Permanent Establishment”, the Diverted Profits Tax, Equalization Levy, Digital Withholding Taxes and Destination based approaches (such as the EU Common Consolidated Corporate Tax Base and the US state allocation approach) are described and evaluated. The thesis concludes that even though the BEPS project mitigates the situation to some extent, it is not sufficiently effective to tackle the fundamental problems of taxation in the digital economy. Furthermore, revenue based taxes (like the typical withholding taxes) are not the desired approach, due to its possible breach of the ability-to-pay principle. A destination based tax approach would be a desired solution, even though this approach entails drastic and possibly unrealistic changes to international taxation of business income. However, provided that states can agree to the implementation of this system, it could create a more just international tax environment and align the tax principles with the current economic reality.
  • References (1)

    Skaar (2006) Skaar, Arvid Aage, Norsk Skatteavtalerett (2006)

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