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2019 Int'l Tax Stud. 2 (2019)
Taxation in the Digital Economy - Recent Policy Developments and the Question of Value Creation

handle is hein.journals/itnltxs2019 and id is 74 raw text is: Marcel Olbert and Christoph Spengel Taxation in the Digital Economy - Recent Policy Developments and the Question of Value Creation Marcel Olbert and Christoph Spengel This article reviews the evidence regarding the challenges of digitalization for direct (corporate profit) and indirect (consumption) taxation. Based on both anecdotal and empirical evidence, the authors evaluate ongoing developments at the OECD and EU level and argue that there is no justification for introducing a new tax order for digital businesses. In particular, the significant digital presence and the digital services tax as put forward by the European Commission will most likely distort corporate decisions and spur on tax competition. To contribute to the development of tax rules in line with value creation as the gold standard for profit taxation, the article discusses data as a new value-driving asset in the digital economy. It draws on insights from interdisciplinary research to highlight that the value of data emerges through proprietary activities conducted within businesses. The authors ultimately discuss how existing transfer pricing solutions can be adapted to business models employing data mining. 1. Introduction Digitalization has become the leading phenomenon in the world today since the industrial revolution. Scholars, politicians and businesses uniformly agree that the digitalization of both society and the economy poses several challenges to the international business tax framework. Most economists and supranational organizations add optimistic predictions of future economic growth, innovation and societal change to the first statement on digitalization.' With regard to taxation, however, considerable controversy in the tax community prevails. The inherent discussion is gain- ing momentum and importance since the recent pub- lication of the OECD's interim report on the tax chal- lenges arising from digitalization2 and the European Commission's proposals on new tax rules targeting digital firms.3 In this article, the authors review the academic evidence regarding the tax challenges of dig- * Marcel Olbert is a PhD student and research assistant under Prof. Dr Christoph Spengel at the University of Mannheim. Prof. Dr Christoph Spengel holds the Chair of Business Administration and Taxation II at the University of Mannheim and is director and speaker of the Leibniz Science Campus MannheimTaxation (MaTax) at the University of Mannheim and ZEW. The authors gratefully acknowledge the support of MaTax and PAKT. 1. E. Brynjolfsson & A. McAfee, Machine, Platform, Crowd : Harnessing Our Digital Future, pp. 1-12 (W.W. Norton & Company 2017); E. Brynjolfsson & T. Mitchell, What Can Machine Learning Do? Workforce Implications, 358 Science 6370, pp. 1530-1534 (2017); OECD, The Internet of Things: Seizing the Benefits and Addressing the Challenges, OECD Digital Economy Papers, No. 252 (OECD 2016); OECD, OECD Digital Economy Outlook 2017 (OECD 2017). 2. OECD, Tax Challenges Arising from Digitalisation - Interim Report 2018 (OECD 2018), Primary Sources IBFD. 3. European Commission, Proposal for a Council Directive on the Common System of a Digital Services Tax on Revenues Resulting from the Provision of Certain Digital Services, COM(2018) 148 final, Primary Sources IBFD; European Commission, Proposal for a Council Directive Laying Down Rules Relating to the Corporate Taxation of a Significant Digital Presence, COM(2018) 147 final, Primary Sources IBFD. italization and critically assess current reform propos- als against the background of this (lacking) evidence and the economic consequences of digitalization. The authors further discuss how to reach the oft-cited goal of aligning taxation with value creation in a pragmatic and timely manner. An abundant literature on international taxation in the digital economy has emerged since the OECD's Action Plan on Base Erosion and Profit Shifting (BEPS),4 and even more publications build on and criticize these articles and the OECD's work published in the OECD's 2015 Final Report Addressing the Tax Challenges of the Digital Economy.5 It is neither the aim nor within the scope of this article to provide a comprehensive overview.6 However, the authors note that there is no in-depth analysis of what the current tax challenges are and that no scientific evidence exists for the asserted flaws in the existing tax system.'8 The 4. OECD, Addressing Base Erosion and Profit Shifting (OECD 2013), Primary Sources IBFD. 5. OECD/G20, Addressing the Tax Challenges of the Digital Economy - Action 1: Final Report (OECD 2015), Primary Sources IBFD. 6. See M. Olbert & C. Spengel, International taxation in the digital economy: challenge accepted, 9 World Tax J. 1, pp. 3-46 (2017), Journal Articles & Papers IBFD, for a review of articles published up to early 2017. 7. W. Schdn, Ten Questions About Why and How to Tax the Digitalized Economy, 72 Bull. Intl. Taxn. 4/5, pp. 278-292 (2018), Journal Articles & Papers IBFD. 8. Different scholarly proposals take on the paramount view in that the current tax system, in general, is unable to solve the challenges of the digital economy and that a fundamental tax reform is needed, e.g., P. Hongler & P. Pistone, Blueprints for a New PE Nexus to Tax Business Income in the Era of a Digital Economy, White Paper (2015), Journal Articles & Papers IBFD; Y. Brauner & A. Baez Moreno, Withholding Taxes in the Service of BEPS Action 1: Address the Tax Challenges of the Digital Economy, White Paper (2015), Journal Articles & Papers IBFD; M.P. Devereux & J. Vella, Implications of Digitalization for International Corporate Tax Reform, WP 17/07, Working Paper Series, Oxford University Centre for Business Taxation (2017); U. Schreiber & L.M. Fell, International Profit Allocation, Intangibles and Sales-Based Transactional Profit Split, 9 World Tax J. 1 (2017), Journal INTERNATIONAL TAX STUDIES 3-2019 12 0 IBFD

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