Protecting the Tax Base in the Digital Economy

Document Type

Book Chapter

Publication Date


Source Publication

Trepelkov, Tonino and Halka (eds.), "United Nations Handbook on Selected Issues in Protecting the Tax Base of Developing Countries" (United Nations)


BEPS; Digital economy; Developing countries


Protecting the tax base in the digital economy is Action 1 of the Organisation for Economic Co-operation and Development Action Plan on Base Erosion and Profit Shifting (OECD Action Plan on BEPS). The reason is simple: “International tax rules, which date back to the 1920’s, have not kept pace with the changing business environment, including the growing importance of intangibles and the digital economy.” Existing tax rules are rooted in clear-cut jurisdictional boundaries designed for businesses selling goods and services in bricks-and-mortar, physical locations. They are inapt in dealing with income arising from the digital economy, which renders physical form and location irrelevant. The digital economy is characterized by an unparalleled reliance on intangible assets, massive use of data (notably personal data), widespread adoption of multisided business models capturing value from externalities generated by free products, and the difficulty of determining the jurisdiction in which value-creation activity occurs.