Tax In A Digital Economy: Giving Shape To The Invisible

It's a common piece of dinnertime conversation, nowadays, to mention that big tech companies ought to pay their fair share of taxes. Especially given the crisis ten years ago, especially given public controversies from the likes of Google and Amazon, especially given the world's inequalities. Not that anybody ever wanted them not to—but as momentum gathers for a fairer and more transparent system of taxation, bolstered along by work at governmental levels, the vocabulary is in people's mouths, the arguments are in the op-eds, and fervour for tax equality is not a bold thing to express.

As a result, quite rightly, the EU and the OECD have eagerly set sail on these new waters, trying to turn a rising tide into intelligent draft laws—but this is the step of change where it becomes less clear how precisely to proceed. Tech giants must pay their fair share in taxes, but what makes a share fair? Simply upping tax percentages for tech companies would be a bandage solution that fails to address a complex, changing economy. So should these companies pay taxes in new places, i.e. the countries where their customers live (as some have proposed)? Or continue in a system that most respects where the company is headquartered? Or a combination of both? In the grand landscape of tax philosophy, digital companies and the way they operate are new beasts.

If we are to focus on the digital economy, it needs to be mentioned early on that there isn't really any such thing. By that I mean that there are fewer and fewer aspects of the economy that are not digital, at least partly. Facebook or Apple are your clear proponents of a digital economy, but what about physical retailers whose online sales are robust and border-crossing, or consultancies giving advice via digital channels, or traditional companies whose back-end operations use technology extensively? All of these must be considered in the discussion as well.

For example: compare a brick-and-mortar shop to a digital retailer. The former can easily be located but the latter, by the traditional criteria of today's tax thinking, is invisible. Its only visible element, really, is its customers. So the question becomes, where is it? And how should tax be tied to its location—wherever that location is determined to be?

Consider how banks and investment funds (for example) might be implicated by new digital-minded taxes despite simultaneously being seen as part of the "old" economy and its "traditional" tax model...

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