Recent Debates on International Digital Taxation

Recent Debates on International Digital Taxation

By Sicheng Shen

The digitalization of the economy has been a key focus of tax debates in recent years.[1] Political debates have focused on the differences between taxing physical business operations and virtual operations.[2] Changing international rules on digital taxation will impact both where and how much tax the impacted digital businesses pay.[3]

The current debate is not about tax avoidance or the existence of stateless income.[4] It is about the division of tax rights among countries who consider that their citizens contribute to the profits made by some digitally focused companies, even if they do so via unconventional means (e.g., by using social media platform or e-commerce website).[5] Most of the countries have the same concerns and their proposal have “shared similar big picture views” of how to reform the existing tax system.[6] They want to attribute value to the users that accesses the service provided by the multinational tech companies, and therefore to collect tax on the profits those companies generate from the digital services.[7]

However, attributing value to a user that accesses a free service is economically challenging because there is no price signal connected to the single user and treating a network of users as a value-creating asset comes with similar measurement and valuation challenges.[8] Without carefully design, the new rule might create a way for multinational businesses to transfer their profits to a lower-tax-jurisdiction where they have consumers or users there, even though they do not have substance and do not create any value.[9]

As policymakers continue to evaluate the options to tax digital businesses it will be necessary to avoid creating new distortive tax policies driven by political agendas.[10] It is normal that imposing new rules on top of the current tax system is likely to create additional uncertainties and compliance challenges.[11] The rules may create distortions in business behavior and further stifle the economic development around the world.[12] To reach a consensus among the world on these debates, it is important to note that preferences for digitalized businesses should be focused on innovation rather than creating tax windfalls.[13]


[1] See, e.g., Jim Tankersley, Global Talks on Taxing Tech Firms Will Slip Into 2021, N.Y. Times (Oct. 12, 2020),; Elke Asen, What European O.E.C.D. Countries are Doing about Digital Services Taxes, Tax Found. (Oct. 14, 2020),; Fair Taxation of the Digital Economy, Eur. Comm’n,

[2] Arthur J. Cockfield, Tax Wars: How to End the Conflict over Taxing Global Digital Commerce, Berkeley Bus. L.J. 347, 349 (2020).

[3] Id.

[4] See Id. See generally, The Challenge of the Digital Economy (Francesco Boccia & Robert Leonardi eds., 2016).

[5] Cf. Asen, supra note 1.

[6] Lilian V. Faulhaber, Taxing Tech: The Future of Digital Taxation, 39 VA. TAX REV. 145, 149 (2019).

[7] See, e.g., id.

[8] Id.; see also, Cockfield, supra note 2.

[9] See e.g., See Daniel Bowie, Barry Freeman, and John Lamszus, The OECD’s Digital Taxation Proposal: A Contradiction of the Original BEPS Project?, BLOOMBERG TAX (Nov. 13, 2020, 2:00 AM),

[10] See e.g., Daniel Bunn, Tax Foundation Response to OECD Public Consultation Document: Reports on the Pillar One and Pillar Two Blueprints, TAX FOUND. (Dec. 14, 2020),

[11] Id.

[12] Tankersley, supra note 1.

[13] See Cockfield, supra note 2; Faulhaber, supra note 6; Bowie, supra note 9.