Tec(h)tonic Shifts: Taxing the "Digital Economy"

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. 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. Whatever the outcome, it is clear that changes to the international tax system have the potential to be tec(h)tonic.