Why now, a proposal to tax digital activities?

Mathew, B.

The paper “Why now, a proposal to tax digital activities?” (Mathew, B.) will be presented at the 8th Conference on the Regulation of Infrastructures (20-21 June, 2019).


Over the past several years, multinational bodies like the Organisation for Economic Co-operation and Development (OECD), United Nations (UN), European Commission (EC) and tax jurisdictions independently have proposed and/or implemented tax regulation for digital services. Some examples of proposals and discussions include Base Erosion and Profit Shifting (BEPS) Action 1 by the OECD and the ‘digital services tax’ in Italy, for which an implementing decree is expected by 30 April 2019 (Ernst & Young, 2019) .

The terms digital services or digital activities may include a variety of business models. Digital platforms being one of the types of value network business models, have been perceived to disrupt competition and fairness in regulation within the economy. This raises questions such as ‘Is there something new about the digital platforms?’ or ‘Are they a new way of doing old things?’.

Hence this paper first explores the needs that fuel tax reform in relation to digital platform businesses. It then evaluates whether a select few proposed reforms to tax regulation are justified.

Reasons behind the proposed changes to tax regulation are important because the underlying motivation would justify the effects that the changes have on users, consumers and platform providers. The focus of the reform could be based on (a) improvements to tax revenues where governments can have a share of value created from digital activity within their jurisdiction, (b) regulation of platforms through the application of tax law, such as recognising business activity within a jurisdiction through VAT registration, from which a platform may obtain a business incentive or subsidy, (c) enabling the current international network of tax regulation to work more closely in line with the key principles (which include neutrality, efficiency, certainty and simplicity, effectiveness, fairness and flexibility) against BEPS, or (d) attempt to change the behaviour of ‘prosumers’ and platform providers to help authorities meet the above identified principles. Justification (d) could help towards a better respected and optimised allocation of tax revenue across jurisdictions. Further, reform in tax regulation need not affect policy directly through new rates or new policy clauses. Dynamic regulatory changes can encourage and recommend specific participants and concerned activities to meet the tax regulation currently in effect, giving power to what is considered as obsolete regulation.

Digitalised business models could make base erosion of taxable income worse for some governments, however, may not be a significant propeller for BEPS on its own. Nevertheless, for purposes of fairness, policymakers may not single out specific types of businesses or activities. Tax reform focussed on digital value network businesses may affect the performance of platform providers and in the long term could help advance or negatively affect the expedition of the global economy to become a more interconnected and efficient business community.

Presentation is available here.


Benita Mathew is a Ph.D. student at the School of Law, University of Surrey. She completed her MSc. in Accounting and Taxation at the University of Exeter, prior to which she studied to become an ACCA Affiliate (Association of Chartered Certified Accountants) and ACGP Affiliate (Association of Corporate Governance Practitioners) with PwC Academy. She is an Advanced Level candidate for the ACA (Associate Chartered Accountant) with the ICAEW (The Institute of Chartered Accountants in England and Wales).

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