Taxing Goods and Services in a Digital Era

Abstract

Taxing consumption in the digital economy poses unique challenges for fiscal authorities. Recent institutional reforms, such as states changing remittance rules for the sales and use tax following the Supreme Court decision in South Dakota v. Wayfair, were enacted in order to increase tax revenue collections and create a more neutral tax system. Although these reforms induced more remote vendors to remit taxes on a destination basis, the revenue gains were modest, consistent with most large online vendors remitting taxes prior to the reforms. Instead, following the recent large shock to online shopping from the Covid-19 pandemic, the shift to destination-based taxation has redistributed revenues between large and small local jurisdictions. Increased online shopping raises revenue growth in small jurisdictions while contracting revenues in large jurisdictions. But, Wayfair is not the end of the story: technological changes that induce new consumption patterns, promise new challenges for fiscal authorities. Critical challenges for the next decades include limiting administrative and compliance costs of enforcing taxes in a digital world, determining filing thresholds, dealing with online marketplaces and facilitators, and taxing the consumption of digital services from two-sided platforms. With respect to digital services, we discuss whether consumption taxes should be imposed on both monetized platforms and nonmonetized platforms such as social media, and the mechanisms for doing so.

Evidence Against the Undertaxation of Digital Companies from the Weighted Effective Tax Rate Method Analysis

“…Such dynamics ostensibly facilitate the migration of these entities to jurisdictions offering more tax-advantageous conditions. While it's acknowledged that traditional firms and multinational corporations also engage in market activities absent a significant physical or corporate footprint, digital-centric companies arguably possess greater latitude for such practices and tax optimization strategies (Agrawal & Fox, 2021;Klein et al, 2022;Cui, 2018). This paper endeavors to scrutinize this claim through an extensive analysis of tax contributions from a representative sample of the world's leading digital and traditional companies operating within the European Union.…”

Is corporate digital transformation a tax haven?

“…Commercial activities have the characteristics of invisibility, transferability, virtualization of transactions, and non-intermediation after CDT, and can conceal tax avoidance (Argil es-Bosch et al, 2020). In particular, the transaction process of digital products or services is intangible and difficult to identify (Agrawal and Fox, 2021). Enterprises can utilize digital virtual places and virtual entities to replace physical entities such as factories and branches.…”

“…Servitization is an important method of digital transformation for traditional enterprises (Lerch and Gotsch, 2015) that realizes business value by providing services remotely and creating new revenue streams for enterprises (Iansiti and Lakhani, 2014). However, it is difficult to determine the true and fair value of digital products/ services because they have the characteristics of intangible, non-substantive transactions, and a high degree of concealment (Agrawal and Fox, 2021). They involve multiple states, rules, and complex associations (Iqbal et al, 2018).…”

“…, 2020). In particular, the transaction process of digital products or services is intangible and difficult to identify (Agrawal and Fox, 2021). Enterprises can utilize digital virtual places and virtual entities to replace physical entities such as factories and branches.…”

EU TAX Strategy in the COVID-19 Pandemic

“…Остается спорной эффективность налогов на финансовые операции для сдерживания спекуляций и повышения качества рынка [Rodríguez, 2021;Thöni, 2020]. Признание юридических и фискальных преимуществ введения единого налога на цифровые услуги в ЕС [Noonan, Plekhanova, 2020;Geringer, 2021] сопровождается сомнениями по поводу Современная Европа, 2021, № 7 его эффективности в решении проблем цифровой экономики [Shokhin, Kudryashova, Shashkova, 2021;Agrawal, Fox, 2021].…”