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31 Intertax 214 (2003)
ICT and International Corporate Taxation: Tax Attributes and Scope of Taxation

handle is hein.kluwer/intrtax0031 and id is 214 raw text is: ARTICLES
ICT and International Corporate Taxation:
Tax Attributes and Scope of Taxation,
Professor Dr. H.C. Mult. Otto H. Jacobs, Dr. Christoph Spengel and Anne Schafer,

University-of Mannheim and Centre for European Economic Research (ZEW)

1. Introduction
In the last few years, information and communication
technologies (ICT) have spread with increasing speed
in both private and business sectors. The implementa-
tion of ICT is leading to noticeable changes in the
organizational structures of the economy. A 'virtuali-
zation' can be observed in the internal organization of
enterprises as well as in the market organization.
Market transactions carried out by enterprises are
processed either completely or in part by ICT, thus
creating digital markets. It is possible to participate in
these markets from locations all over the world and the
participants may remain anonymous. With respect to
the internal organization of a company, the imple-
mentation of ICT leads to regional decentralization
since the process of producing goods and services
makes use of production factors situated in various
locations. Also, an organizational decentralization can
be observed within the enterprise as a modularization
of the value added chain is taking place. In addition,
the application of ICT entails the creation of hybrid
forms of enterprise cooperation, such as virtual
organizations. Thus, the companies' boundaries are
blurring. Furthermore, the contribution of each
partner to the creation of value is difficult to identify.
To summarize, due to the utilization of ICT, economic
activities are becoming more mobile and international.
In contrast to the locally independent and interna-
tional activities of the enterprises, the current system of
international corporate taxation is intended to be
applied to traditional economic activities: physical and
legal aspects serve as taxable entities and tax
attributes, such as the legal form of the company or
the definitions of the place of effective management
and the permanent establishment.
Based on the organizational changes as outlined
above, this article highlights the principal problems in
corporate taxation resulting from the use of ICT.2 The

main focus lies on the systematic compilation of the
resulting consequences for the tax attributes and the
scope of international corporate taxation. Accordingly,
the emphasis is placed on the definition of the tax
attributes, the stipulation of the source and residence
principle as well as on the choice of methods to avoid
international double taxation. In this regard, particu-
larly the definition of the place of effective manage-
ment and the definition of a permanent establishment
raise problems. The previous discussion concerning
taxation issues raised by ICT as well as the resulting
consequences mainly concentrated on the enlargement
of taxation at the source. It is often presumed that the
tax revenues in the source country are declining and
that, consequently, an enlargement of the tax attri-
butes in the source country as well as a taxation
according to the source principle is necessary in order
to guarantee inter-nation equity. In contrast, it is
shown that the focus should lie on the residence
principle due to economic as well as practical reasons.
The basis for the evaluation of the current tax
regulations are the generally accepted tax principles
which underlie the system of international taxation.
The main criteria are neutrality and equity, which
require equal treatment among different taxpayers. In
addition, inter-nation equity as well as administrative
feasibility of the international tax system are required.
Using the outcome of this analysis, the question
whether or not the currently valid international
taxation regulations can be upheld and to what extent
several amendments need to be made will be investi-
gated. Based on these findings the additional objective
of this article is to discuss possible approaches to
reform the tax attributes as well as the scope of
international corporate taxation. The reform concepts
should be based on the stipulated international tax
principles and, moreover, should include considera-
tions developed in other countries or by supranational
institutions, especially by the OECD.

INTERTAX. Volume 31. issue 6/7  ( Kluwer Law International 2003

Financial support by the Landessriftung Baden-Wurttemberg foundation is gratefully acknowledged. We would like to thank Christiane Malke for proofreading the
In order to assess possible solutions, one first has to be aware of the underlying problems. See J.J.B. Hickey, 'Permanent Establishments: The OECD Draft Position
on Web Sites and Computer Equipment', British Tax Review 2000, p. 91.

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