Taxation Of The Digital Economy: Adapting A 21st-Century Tax System To A Twenty-First Century Economy

Assaf Harpaz (S.J.D. 2022, Duke), Taxation of the Digital Economy: Adapting a Twentieth-Century Tax System to a Twenty-First Century Economy, 46 Yale J. Int'l L. 58 (2021):

This article analyzes the tax challenges of digitalization and the solutions to address them. The article argues in favor of a multilateral approach and proposes applying a new tax based on a worldwide de minimis amount. As more companies conduct business online, current international tax law and its principles have failed to adapt to global commercial practices. Digital-tech giants such as Facebook, Google and Amazon have been able to exploit the international tax framework by avoiding a physical presence in the jurisdiction of their consumers. As a result, profits of highly digitalized enterprises are often stashed in low tax countries and left untaxed in markets where substantial economic activity occurs.

Efforts are underway to reform the international tax framework and apply tax nexus irrespective of traditional physical presence. Such efforts include, namely, an OECD-wide proposal and unilateral digital services taxes, that establish new taxing rights in market jurisdictions. The article examines the leading approaches to taxing highly digitalized businesses and reflects on the global outcomes they produce. The article comprehensively reviews the contemporary debate on digital taxation, including recent developments on the widely publicized U.S.-France controversy of France’s digital services tax, and the plans for international tax reform in the wake of the COVID-19 crisis.