Taxing the Digital Economy

December 6, 2019

The growing prevalence of digital services taxes has motivated an international effort, led by the OECD, to rewrite the global tax rules, with the goal of addressing how to levy taxes in the digital economy. The current proposal has two pillars. The first pillar is based on a new method of allocating a portion of consumer-facing corporations’ profits based largely on sales, rather than on business location – abandoning the corporate tax’s connection to physical location. The second pillar proposes several changes working toward an international minimum tax on corporate profits. The OECD proposals would be a dramatic policy shift, with long-lasting effects that could lead to higher and less efficient business taxes worldwide.