Taxation, Data and Destination

The digitalization of the economy raises various new legal questions. International corporate taxation encounters situations it has not known before, being traditionally based on a physical nexus of businesses in their States of residence or source. In the past years and in the framework of the BEPS project, the OECD and its “Inclusive Framework” of 140 countries extensively discussed potential modifications of existing tax rules to adapt these rules to the economic reality of digitalized business models.

The book contributes to this discussion by analyzing two destination-based corporate tax models and their application to different types of digitalized business models as well as their compliance with EU and international tax and data protection law frameworks. On the one hand, it provides an extensive analysis of the model tax of a “destination-based cash-flow tax” as developed by economists already long before the discussion about “taxing the digital” arose. On the other hand, the author develops a “digitalized destination-based corporate tax”, which should replace corporate income tax for covered taxpayers and combines elements of the much-discussed digital services taxes and traditional corporate income tax.

The legal analysis provided in this book focuses on the conformity of these two model taxes with double taxation conventions based on the OECD and UN Model Conventions, EU fundamental freedoms and state aid provisions as well as relevant EU secondary law, and WTO law. Moreover, the author analyses the compliance of a corporate tax nexus based on the location of the corporate taxpayer’s users or clients with the EU Charter of Fundamental Rights, the European Convention on Human Rights and the General Data Protection Regulation.

The principal insights of this work concern the viability of destination-based taxation as a solution for the tax problems arising from digitalized business models and the exact definition of “destination” in this context. Furthermore, the new tax proposal of a digitalized destination-based corporate tax comes as a compromise between more radical solutions and can be adopted in compliance with the analyzed legal frameworks, where taxation source rules remain linked to user’s residence rather than more precise locational data.