The Digital Platform Economy and Its Challenges to Taxation
Author | Thomas Fetzer and Bianka Dinger |
Pages | 30-56 |
2ARTICLE_TAX.DOCX (DO NOT DELETE) 2019-12-2011:48AM
2019] THE DIGITAL PLATFORM ECONOMY AND ITS CHALLENGES TO TAXATION30
THE DIGITAL PLATFORM ECONOMY AND ITS
CHALLENGES TO TAXATION
Thomas Fetzer
Bianka Dinger
Abstract
Digitalization is transforming many aspects of our everyday lives,
including the global business landscape. One of the most distinct
features of the digital economy is the rise of platforms. Digital
platforms not only change the supply chain in many industries but
also create fundamental challenges for established tax principles.
This paper will cover two of the most imminent challenges.
The first part of the paper is dedicated to the taxation of digital
platforms themselves. According to international tax law, income
taxation shall be linked to the source of the income. The current tax
system assumes that a company will only create taxable income in a
non-resident country, if there is some physical nexus with that
country (e. g. a permanent establishment). However, many platforms
in the digital economy offer their services to customers worldwide
without having any physical presence in countries where the
customers are located. This raises the question as to whether income
taxation of platforms should be linked to the country of residence of
the customers of a digital platform rather than the country of
residence of the platform operator. In this regard, the initiatives of
the European Commission on the digital services tax and the
significant digital presence will be evaluated.
The second part of the paper covers enforcement issues created by
the platform economy. As transactions between different user groups
of a platform, it is oftentimes difficult for tax authorities to
determine tax liabilities. The paper will, therefore, suggest
alternative mechanisms to ensure taxation. The focus will be on the
withholding tax system, which obliges platform operators to deduct
the tax on behalf of platform users. Whether and to what extent the
operator of sharing economy platforms can be held liable remains to
be discussed.
2ARTICLE_TAX.DOCX (DO NOT DELETE) 2019-12-2011:48AM
2019] THE DIGITAL PLATFORM ECONOMY AND ITS CHALLENGES TO TAXATION31
I.TAXATION OF DIGITAL PLATFORMS
A. Introduction
Following the ‘business goes global, taxes stay local’ principle,
deficits of international corporate taxation are exploited through
clever tax planning.1 Large multinational enterprises like Airbnb,
Alphabet, Apple, Facebook or Amazon are being criticized for not
paying adequate taxes. Their innovative digital business models are
challenging the established tax system.2
International taxation is based on the “taxation at source”
principle. According to this doctrine, international income flows are
subject to taxation in the country where income is derived from –
regardless of the country of residence of the person achieving that
income.3 Profits should be taxed where the value is created. 4 In
principle, however, according to the current tax law system income is
only taxed in the source state if the taxpayer has a physical nexus to
that state. Traditionally, the most important nexus for this limited tax
liability is a permanent establishment or appointment of a permanent
representative in a country. 5 In the digital world, the number of
cross-border transactions has been increasing significantly. A special
feature of digital business models is their global activity across
1See Norbert Herzig, Globalisierung und Besteuerung [Globalization and Taxation], 1998 DIE
WIRTSCHAFTSPRÜFUNG 280; Adrian Cloer & Cosima Gerlach, Die „virtuelle Betriebsstätte“: Ein
angemessenes Instrument zur Besteuerung der „digitalen Wirtschaft“? [The “Virtual Permanent
Establishment”: An Appropriate Instrument for Taxing the Digital Economy], 100FINANZRUNDSCHAU
[FR] 105, 106 (2018).
2See Stephan Eilers & Florian Oppel, Die Besteuerung der digitalen Wirtschaft: Trends und
Diskussionen. Überblick über die Arbeiten der OECD und EU mit kritischer Einordnung [Taxation of
the Digital Economy: Trends and Discussions. Overview of the Work of the OECD and EU with
Critical C lassification], 27 INTERNATIONALES STEUERRECHT[ISTR]361, 362 (2018); Joachim
Englisch, Seminar G: VAT and Direct Taxation of the Digital Economy, 25 ISTR717(2016); Marcel
Olbert & Christoph Spengel, International Taxation in the Digital Economy: Challenge Accepted?
WORLD TAX J. 3, 4 (2017).
3See DIETER BIRK &MARC DESENS &HENNING TAPPE,STEUERRECHT[TAX LAW]402 et seq.
(21st. ed. 2018).
4See European Commission: Co mmission Staff Working Document —Impact Assessment
Accompanying the Document Proposal for a Council Directive Laying Down Rules Relating to the
Corporate Taxation of a Significant Digital Presence a nd Proposal for a Council Directive on the
Common System of a Digital Services Tax on Revenues Resulting from the Provision of Certain Digital
Services, SWD (2018) 81 final/2, 8.
5See EINKOMMENSTEUERGESETZ [ESTG][GERMAN INCOME TAX LAW] § 49 (1) Nr. 2 a); Birk et
al.,supranote 3, at 410-11; KOLJA VAN LÜCK,STEUERRECHT UND DIGITAL ECONOMY.
LÖSUNGSANSÄTZE SACHGERECHTER BESTEUERUNG MU LTINATIONALER UNTE RNEHMEN DER
DIGITALISIERTEN WIRTSCHAFT [TAX LAW AND DIGITAL ECONOMY.SOLUTIONS OF PROPERTY
TAXATION OF MULTINATIONAL ENTERPRISES OF THE DIGITALIZED ECONOMY] 82 et seq. (2018).
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