Combatting phenomena of evasion in the digital economy

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Consulenza tributaria e tax compliance

The growth, indeed spread, of the digital economy is putting the very structure of transnational taxation to the test. The notion of permanent establishment developed by the classical theory of international taxation requires a minimum material or personal link with the jurisdiction claiming taxation. The digital economy is able to establish relationships with consumers of a country without the need to establish links in that country which are recognisable as representing a classic permanent establishment.  

For this reason, in Deliverable Action 1, the OECD has drafted an amendment to the current conventional model definition of permanent establishment, introducing the concept of significant economic presence, a concept that is independent from material and personal presence and is based on the relevance of transactions made with counterparts in the country of source. An issue related to the difficulty of taxing profits earned in the country of source is that of digital tax. In the final analysis, proposals for revision of the taxation system by international and national institutions seek to concentrate taxation in the place where the consumers are found, regardless of the existence of a classically conceived fixed place of business. 

However, the phenomenon of the digital economy is difficult to capture without creating collateral damage (such as declines in investment or increases in prices) that nullifies the positive effects of taxation. Experience shows that those systems taking advantage of the digital economy are those that create framework conditions, including taxation on attractive companies, in order to encourage spontaneous settlement of digital economy businesses. 

Far from allowing itself to be captured by classic schemes of international taxation or new forms of taxation whose effects are difficult to ponder, the digital economy poses radical challenges to classical taxation and to nation states based on physical control of territory that concern the very concept of fiscal sovereignty and myths of the fight against tax competition as a negative phenomenon.

The author is a member of the Enrico Gustarelli Study Group on Company Taxation at the Bocconi University and a partner in the Morri Rossetti e Associati legal and tax firm. The author would like to thank Dr. Davide Vecchione for his contribution to the drafting of this paper. 

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