IMF Working Papers

Tec(h)tonic Shifts: Taxing the “Digital Economy”

By Aqib Aslam, Alpa Shah

May 29, 2020

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Aqib Aslam, and Alpa Shah. Tec(h)tonic Shifts: Taxing the “Digital Economy”, (USA: International Monetary Fund, 2020) accessed November 13, 2024

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Summary

The ever-increasing digitalization of businesses has accelerated the need to address the many shortcomings and unresolved issues within the international corporate income tax system. In particular, the customer or “user”—through their online activities—is now considered by many as being a critical driving force behind the value of digital services. Furthermore, the rapid growth of digital service providers over the last decade has made them an increasingly popular target for special taxes—similar to wealth and solidarity taxes—which can also help mobilize much-needed revenues in the wake of a crisis. This paper argues that a plausible conceptual case can be made to tax the value generated by users under the corporate income tax. However, a number of issues need to be tackled for user-based tax measures to become a reality, which include agreement among countries on whether user value justifies a reallocation of taxing rights, establishing the legal right to tax income derived from user value, as well as an appropriate metric for valuing user-generated data if it is ever to be used as a tax base. Furthermore, attempting to tax only certain types of business is ill-advised, especially as user data is now being exploited widely enough for it to be recognized as an input for almost all businesses. Several options present themselves for consideration—from a modified permanent establishment definition combined with taxation by formulary apportionment, to user-based royalty-type taxes—each with their own merits and misdemeanors.

Subject: Corporate income tax, Data collection, Economic and financial statistics, Income and capital gains taxes, Income tax systems, Revenue administration, Taxes

Keywords: Company activity, Computer database, Corporate income tax, Corporate Taxation, Customer base, Data collection, Digital economy, Digitalization, Global, Gross income, Income and capital gains taxes, Income tax, Income tax systems, Market power, Multinational enterprise, Natural resource, Profit margin, Resident company, Resource company, Small business, Social media, Tax treatment, User data, Withholding tax, WP

Publication Details

  • Pages:

    81

  • Volume:

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  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2020/076

  • Stock No:

    WPIEA2020076

  • ISBN:

    9781513545974

  • ISSN:

    1018-5941