Taxation in a Global Digital Economy

1. S. 302The Premises: Digital Business Models Erode Taxable Basis and Shift Profits

1.1. The Old Base Erosions and Profit Shifting Debates

In recent years, there has been an increasing debate over tax matters, especially over corporate tax matters. Even though the discussions are not new, there is a new movement towards fighting base erosion and profit shifting arrangements. In 2013, the OECD and G20 began this movement by issuing the report on Addressing Base Erosion and Profit Shifting (‘BEPS’) and the related BEPS Action Plan.

It is interesting to first look at the source of what leads to base erosions and profit shifting arrangements. The principle of economic freedom empowers a taxpayer to undergo any legal arrangement that brings economic value to its business. The question is whether the reduced costs by avoidance of taxes may be seen as economic value or may be in any way acceptable. This debate between taxpayer’s behavior to reduce costs and the State’s interest to increase tax revenues generated from such costs has been the focus of numerous analyses, reports, and court cases. The case law on such tax behaviors is arguing in favor of both parties: the taxpayer and the State. A US...