1. Towards a (corporate?) international tax reform for pure digital transactions
Drs. Dina Scornos
K.U. Leuven
8th Doctoral Seminar on International and EU tax – Johannes Kepler University Linz

2. Context
Significant increase in digitalisation in the last 30 years (use of the Internet)
Digitalisation has had 2 major consequences for businesses:
Facilitation of transactions e.g. use of websites to provide information on products or even conduct sale (e.g. Amazon’s retail business)
Development of new types of transactions that are essentially digital, e.g. cloud computing (e.g. AWS), sale of digital content like software over the Internet, social media platforms, etc.
Currently no general definition of the “digital economy” or “digitalised economy”  need to further refine for the purposes of conducting research
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3. Scope of transactions covered by the research
Distinction between
Transactions that occur online but whereby the online element is only incidental to the main business: Examples:
Amazon’s retail business: digitalisation has not changed the main business of Amazon (i.e. sales of tangible goods) but has only facilitated it
Platform economy (e.g. Uber/Airbnb): Although platforms would not have achieved such a large scale without the Internet, their core business is in essence ‘intermediation’ which is highly facilitated by the Internet but as such not dependent thereof (at least not in theory)
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4. Scope of transactions covered by the research
Transactions that occur online where the online component is the essential part of the business (i.e. without the Internet, no business) Examples:
Cloud computing, online gaming, sale of digital content (e.g. app), social media platforms (a bit more complicated – triangular situation between platform, users and advertisers)
Scope of research: Only 2nd type of transactions (further referred to as “pure digital transactions”):
More of this type of transactions to come in the future
Most challenging from an international tax perspective
Reasons for differentiation
Second type of transactions do not have any counterpart in the traditional economy  perhaps “ring-fencing” is therefore justified?
Consideration of the CJEU case Uber Spain: Service provided by Uber is “inherently linked to any physical act of moving persons of goods from one place to another by means of transport”
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5. International corporate tax challenges with respect to pure digital transactions – why conduct the research
Lack of physical presence in the State where the activities are taking place
Pure digital transactions are carried out to consumers located in a market without requiring any physical presence there
Profit allocation
Even if taxing powers could be allocated to the market jurisdiction, current international tax rules are not suited to determine the amount of profits to tax
Characterisation of income
It is not always clear how to characterise new types of digital transactions – relevant for taxation purposes (e.g. royalty vs. business income)
Data as a new source of income
New element to take into account for purposes of taxation – does it provide for nexus? How to value? Etc.
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6. Reform proposals Recent proposals by the EU:
Short-Term: “Digital Services Tax”
Long-Term: Digital PE (“Significant Digital Presence”) and eventually incorporated in the CCCTB
Withholding tax/Equalisation levy on digital transactions
Destination-based cash-flow tax – more fundamental reform proposal not only targeted at the “digital” or “digitalised” economy
Current proposals vary and go in different directions, no uniform approach has yet been designed
Not always clear what the normative framework is behind the proposals: e.g. fairness? (if so, what does it mean and from whose perspective?)
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7. Main research question and sub-questions
What is an appropriate international corporate tax framework for pure digital transactions?
How do pure digital transactions work from an IT perspective and which business models can be identified?
How is the current international corporate tax system applied to pure digital transactions?
How are taxing powers allocated amongst States in the case of pure digital transactions under the current international corporate tax system?
How do current profit allocation rules apply to pure digital transactions?
What are the relevant criteria to assess the appropriateness of the current international corporate tax system for pure digital transactions?
How could the current international corporate tax rules be improved or amended in light of the relevant criteria (under 3)
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8. Limitations and Methodology
General limitations
The research has a limited scope and focusses only on digital transactions whereby the digital component is essential (i.e. without it no business would exist)
The research focusses only on international corporate income tax – Other taxes (such as VAT) will be examined only to the extent that they are relevant in providing an answer to the main research question
It is not the purpose to do extensive comparative research between different national legislations – national law will only be researched if relevant (e.g US, Canada, Australia, Japan)
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9. Limitations and Methodology
First sub-question (descriptive)
Analysis of IT and economic literature/data: multidisciplinary character of research
No intention to do interdisciplinary work at this stage – Idea is to understand how processes work in practice and how businesses operate (supply/value chains)
Second sub-question (descriptive)
Analysis of international instruments (e.g. OECD MC/UN MC/MLI; OECD TP Guidelines/UN Manual on TP for developing countries) but also case law/legal doctrine etc.
Analysis of national legislation/doctrine/case law etc. if relevant: e.g. US and formulary apportionment
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10. Limitations and Methodology
Third sub-question (descriptive & normative)
Development of a normative framework: An ‘appropriate’ international corporate tax framework is one that is perceived as ‘fair’ by policy stakeholders, society members and taxpayers
How should ‘fairness’ be assessed? Potential combination of the following criteria (WIP) – Relevance of NGO reports/societal behavior
Neutrality (economic)/Equity
Legal certainty
Benefit theory/Economic allegiance
Efficiency (narrow)
Profits should be taxed where value is created
Single tax principle
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11. Limitations and Methodology
Fourth sub-question (evaluative & normative)
Evaluate current international corporate tax rules in light of ‘fairness’ as determined by a predetermined set of criteria
Analyze ‘fairness’ of common reform proposals: CCCTB, Digital PE, WHT/Equalization levy and Destination-based cash-flow tax
Ideally, the outcome of the analysis would be that one of the proposals would be considered as appropriate (and thus fair). If not, a different proposal would be formulated
Faculteit, departement, dienst …