Taxing the digital economy : theory, policy and practice / Craig Elliffe, University of Auckland Faculty of Law.

Format:

Book

Author/Creator:

Elliffe, Craig, 1961- author.

Series:

Cambridge tax law series.

Cambridge tax law

Language:

English

Subjects (All):

Corporations--Taxation--European Union countries--Data processing.

Corporations.

Information technology--Economic aspects--European Union countries.

Information technology.

Corporations--Taxation--Law and legislation--European Union countries.

Electronic commerce--Taxation--Law and legislation--European Union countries.

Electronic commerce.

Physical Description:

1 online resource (xiv, 340 pages) : digital, PDF file(s).

Place of Publication:

Cambridge : Cambridge University Press, 2021.

Summary:

The question of how to tax multinational companies that operate highly digitalised business models is one of the most contested areas of international taxation. The tax paid in the jurisdictions in which these companies operate has not kept pace with their immense growth and the OECD has proposed a new international tax compromise that will allocate taxing rights to market jurisdictions and remove the need to have a physical presence in the taxing jurisdictions in order to sustain taxability. In this work, Craig Elliffe explains the problems with the existing international tax system and its inability to respond to challenges posed by digitalised companies. In addition to looking at how the new international tax rules will work, Elliffe assesses their likely effectiveness and highlights features that are likely to endure in the next waves of international tax reform.

Contents:

Cover

Half-title

Series information

Title page

Copyright information

Dedication

Contents

List of Figures

Preface

Background to This Book

Structure of the Book

Acknowledgements

Part I

1 Taxing Cross-Border Business Income

1.1 What Is Cross-Border Taxation?

1.1.1 Introduction

1.1.2 Income Tax and Cross-Border Trade: A Relatively Recent Phenomenon

1.2 Fundamental Concepts of International Taxation: Residence and Source

1.2.1 Residence Taxation

1.2.2 Source Taxation

1.2.3 The International Tax Dilemma Arising from the Competing Demands of Residence and Source Taxation

1.3 The History of International Double Taxation: The ''1920s Compromise''

1.3.1 Observation One: The Recommendation Was to Allocate Taxing Rights for Different Categories of Income between Residence and Source Countries

1.3.2 Observation Two: The Recommendation Recognises the Competing Claims of Source and Residence Taxation, Acknowledging That Source Countries Have the First Opportunity and Right to Tax, While the 1923 Report Suggested a Theoretical Preference for Residence Taxation, Later Discussions Were Far More Pragmatic

1.3.3 Reflections on the 1920s Compromise

1.4 Justifying Source and Residence Taxation

1.4.1 What Are the Benefit and the Ability to Pay Theories?

1.4.2 A Brief History of the Development of the Theories

1.4.3 The Ability to Pay Theory and Taxing Non-Residents

1.4.4 The Renaissance of the Benefit Theory

1.4.5 The Benefit Theory in the Digital Age: Does the Absence of Physical Presence in a Jurisdiction Nullify the Source Jurisdiction's Taxing Rights?

(a) The Wayfair Decision

(b) Is There a Requirement That You Can Only Recognise the Benefits Provided to Non-Resident Businesses Where They Have a Physical Presence in the Country of Source?.

(c) The Source Country Contribution to Digital Businesses

1.5 The Benefit Theory and Its Relationship to Value Creation

1.5.1 The Origin and Purpose of the Concept of Value Creation

1.5.2 As a Concept of Principle It Is Vague and Indistinct

1.5.3 Alignment with the Benefit Theory

1.5.4 Is Value Creation Different from the Existing International Tax Principles? Can It Be Constrained by the Pragmatism of the 1920s Compromise?

1.5.5 The Relationship between Value Creation and the Existing International Tax Framework

1.5.6 Conclusion

1.6 Observations about Source and Residence Taxation in the Context of Cross-Border Business

1.6.1 Residence-Based Corporate Tax Is Contestable but It Acts as a Backstop

1.6.2 Problems in the Justification of Residence-Based Taxation of Corporations: Because It Does Not Necessarily Represent Taxation of Shareholders and Therefore Has a Tenuous Theoretical Basis

1.6.3 This Leads to the Conclusion That Source-Based Taxation of Active Business Profits Is Likely to Continue to Be Preferred by Most Countries

1.7 Exploring the Limits of Domestic Source-Based Taxation

1.7.1 The Purpose of Source Rules

1.7.2 Different Types of Source Rules: Specific or Formal Rules

(a) Formal Source Rules

(b) Substantive Source Rules

1.7.3 The Development of the Law in Common Law Countries

1.7.4 Is There a Consistent View between Countries on the Concept of Source?

1.7.5 Conclusion

1.8 Base Erosion and Profit Shifting and the Emerging Threat of Digitalisation in Business

2 The Development of Digital Business

2.1 The Dynamic Information Age

2.1.1 A Background of Constant Change

(a) The Huge Benefits Arising from Digitalisation

(b) The Difficulty of Separating the Digital Economy from the Rest of the Economy

(c) The Relationship of Technology, Software and Users.

(d) The Conceptual View of the Layers in Information and Communication Technology

(e) Further Developments

2.2 The Defining Characteristics of Digital Markets

2.2.1 Understanding the Features of Digital Markets

2.2.2 New Business Models

2.3 Doing Business Using a Multi-sided Platform

2.3.1 What Are Multi-sided Markets?

2.3.2 Multi-sided Marketplace Business Models

2.3.3 Using Multi-sided Business Platforms in Other Ways to Generate Revenue

2.4 Using the Reseller Model

2.5 Using Vertically Integrated Firms

2.6 Using Firms That Are Input Suppliers

2.7 Observations about the Key Characteristics of Digitalised Business Models

2.7.1 Common Features of Digital Business and the Most Likely Business Model to Exploit the Feature

3 Challenges to the Tax System Posed by the Digitalisation of Business

3.1 Introduction to the Challenges

3.1.1 Allocating Taxing Rights

3.1.2 The Importance of Corporate Tax

3.1.3 Are the Rules ''Fit for Purpose''?

3.2 The Vanishing Ability to Tax Business Profits

3.2.1 Business Profits and Permanent Establishments

3.2.2 The Permanent Establishment Threshold

3.2.3 Examining the Adequacy of the Current PE Definition

3.2.4 Examining the Component Parts of the Test

(a) A Fixed Place of Business through Which the Business of an Enterprise Is Wholly or Partly Carried On

(b) Operating Using a Dependent Agent

(c) Operating in the Country of Source under Any of the Relevant Temporal Tests

3.2.5 Sufficient Nexus for Digitalised Business with an Economic (but Not Physical) Presence in the Source State?

3.3 The Use of Data, the Contribution of Users and the Measurement of Their Value

3.4 The Reliance on, and Mobility of, Intellectual Property

3.5 The Characterisation of Transactions and Income.

3.6 The Failure of Transfer Pricing with Certain Multinational Enterprises and Their Transactions

3.7 The Inadequacy of Residence-Based Taxation

3.7.1 The Mobility and Ease of Establishing Corporate Residence

3.7.2 The Ability to Separate Shareholder Taxation from Corporate Taxation

3.8 Competition by States

4 Responding to the Challenges: Legal Constraints on Any Changes to the Current Framework

4.1 Introduction

4.2 International Tax at the Crossroads

4.2.1 Digitalised Businesses and BEPS

4.2.2 More than BEPS

4.2.3 The Brave New World

4.3 Interim Measures

4.3.1 Concerns about Interim Taxes

(a) Economic Concerns about Investment, Innovation, Adverse Growth and Economic Incidence

(b) Taxation Concerns

(c) Implementation, Compliance and Administration Costs

4.4 Constraints Imposed by the Scope of Double Tax Agreements (DTAs)

4.4.1 Do DTAs Prevent the Imposition of Interim Taxes?

4.4.2 The DTA Does Not Apply

(a) What Type of Taxes Are within the Scope of the DTA?

(b) Article 2(1) and (2)

(c) Article 2(3) and (4)

(d) Tax Is an Undefined Term: What Rule of Interpretation Should We Apply?

(e) Conclusion

4.4.3 What Are ''Taxes on Income and on Capital''?

(a) Text to Be Given a Broad Interpretation

(b) Taxes That Are ''In Substance'' Income Taxes or Taxes on Capital: Case Law

(c) Guidance from the OECD

(d) The Approach from Jurisdictions Contemplating (or Implementing) Interim Taxes

4.4.4 Conclusion on the Ability of DTAs to Constrain Interim Taxes

4.4.5 Restrictions within the DTA: The Interim Tax Is within the Scope of the DTA, But the Business Profits Article Does Not Prevent the Interim Tax from Having Effect

(a) What Are Business Profits?

4.4.6 Restrictions within the DTA: Application of the Non-Discrimination Article in the DTA

(a) Scope of Article 24.

(b) Article 24(1)

(c) Indirect Discrimination against Non-Residents

(d) Conclusion on Article 24(1)

4.6 Constraints Imposed by the Membership of the WTO

4.6.1 Contrasting the Economic Purpose of the WTO Rules to International Tax Arrangements

4.6.2 Goods or Services? The GATS Provisions That Affect Direct Taxation

4.6.3 The GATS Provisions That Affect Direct Taxation: MFN Obligations

(a) Specific Member Exemptions

(b) General Exemptions

4.6.4 Observations on the Applicability of the MFN Provisions

4.6.5 The GATS Provisions That Affect Direct Taxation: National Treatment (NT)

(a) Specific Exemptions

4.6.6 Cases on GATS and Tax

4.6.7 Observations on the Applicability of the NT Provisions

(a) Consultation and Dispute Settlement

Part II

5 The OECD Secretariat's and Inclusive Framework's Proposals for Multilateral Reforms

5.1 Introduction

5.2 Pillar One: Allocation of Taxing Rights and Nexus

5.2.1 The Unified Approach to Seek to Achieve a 2020s Compromise: A Brief History

5.2.2 The ''User Participation'' Proposal

(a) Policy Rationale

(b) Profit Allocation Rules

5.2.3 The ''Marketing Intangibles'' Proposal

5.2.4 The ''Significant Economic Presence'' Proposal

5.3 Pillar One: What Is Proposed in the Unified Approach Proposal? Three Components of Income: Amount A

5.3.1 Amount A: The Conceptual Relationship between Amounts A, B and C

5.3.2 What Is the Policy Rationale behind Amount A?

(a) A Focus on Value Creation Associated with the Marketing Intangibles?

(b) What Are the Types of Businesses Included within the Scope of Amount A?

5.3.3 Scope of Amount A: Highly Digitalised Businesses

(a) Examples of Automated Digital Services.

5.3.4 Scope of Amount A: Consumer-Facing Businesses.

Notes:

Title from publisher's bibliographic system (viewed on 27 Apr 2021).

ISBN:

1-108-61791-3

1-108-62079-5

1-108-75069-9

OCLC:

1198990300