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2017 World Tax J. 3 (2017)

handle is hein.journals/wldtxjrn2017 and id is 1 raw text is: Marcel Olbert* and Christoph Spengel** International Taxation in the Digital Economy: Challenge Accepted? The digitalization of the economy is considered as a key driver of innovation, economic growth and societal change, and is a major challenge for the international tax system. The OECD has addressed this challenge in its extensive Action 1 Final Report as part of its BEPS project. This article critically depicts the OECD's view and reform proposals on taxing businesses in the digital economy. Further, recent literature contributions on the matter are synthesized. While taxing profits according to value creation is detected as the new paradigm in international taxation, this review reveals that the understanding of the digital economy and corresponding reform proposals for taxation are premature. The authors show that the OECD has systematically missed the opportunities to define the paradigm of value creation and to analyse digital business models accordingly. Considering the current challenges, the key pressure area for taxing digital businesses in the near future is transfer pricing. Drawing from practical case studies and research in industrial economics, accounting and management science, this article derives a concept for value creation in digital businesses. Based on this concept, the authors propose a framework to refine transfer pricing guidance in order to come closer to the goal of aligning profit taxation with value creation. Contents 1. Introduction 4 2. The OECD-View on the Challenges of the Digital Economy 6 2.1. Technological features and business models 6 2.2. Recognized tax challenges 7 2.2.1. BEPS 7 2.2.2. Broader challenges 8 2.3. The new gold standard: Value creation 9 2.4. Transfer pricing in the digital economy 10 2.5. Interim conclusion 11 3. Proposals to Tax Companies in the Digital Economy 12 3.1. BEPS action items affecting taxation in the digital economy 12 3.1.1. Treaty abuse and the avoidance of the PE status 12 3.1.2. Individual anti-avoidance measures 12 3.1.3. Aligning transfer pricing outcomes with value creation 13 3.2. Adjustments of the PE concept and alternative concepts of nexus 14 3.3. Withholding taxes 17 3.4. Consumption-oriented tax system and transaction taxes 19 * MSc, University of Mannheim, Business School. The author can be contacted at olbert@uni-mannheim. de. ** Prof. Dr, University of Mannheim, Business School, Chair of Business Administration and Taxation II and Centre for European Economic Research (ZEW). The author can be contacted at spengel@ uni-mannheim.de. The authors wish to thank John Vella and Sven-Eric Birsch for their valuable comments, as well as the organizers and participants of the Oxford University Centre for Business Taxation 6th Annual Doctoral Meeting for a fruitful discussion. The authors appreciate the detailed comments of two anonymous reviewers that helped to elaborate on the economics behind digital businesses. The authors also thank Mannheim Leibniz Science Campus MaTax for its financial support. WORLD TAX JOURNAL FEBRUARY 2017 13

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