Source: The Tax Specialist Journal Article
Published Date: 1 Apr 2021
The current international taxation regime caters only to traditional business models. In doing that, it falls short of being accurate and efficient in taxing digital businesses. The Organisation for Economic Co-operation and Development has been working on a solution to modify the international rules to rectify this. Meanwhile, eighteen countries have implemented a digital services tax. Analysing the rationale relied on by these countries, is it fair to say that value creation happens where the user is located? To answer this, it is pivotal to understand what role user data and participation play in value creation. Digital companies such as social media platforms, online marketplaces and search engines are based on the value network model where user data plays a central role in value creation. However, this does not discount the crucial importance of the value cycle that such data undergoes in order to generate revenue for these companies. Often, the user data in itself has little value without conversion into marketable information. Therefore, it is difficult to pinpoint where the value is actually created. Therefore, a solution which aims to allocate profit among jurisdictions is necessary to meet legal and equitable ends.
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