Fair Taxation in the Digital Age: Can the OECD Two-Pillar Solution Replace Digital Services Taxes?

Abstract

Since the emergence of the digital economy at the turn of the 21st century, multinational companies have exploited the inadequacy of international tax regulations to avoid taxation. So far, states and international organisations have been unable to remedy the situation. In recent years, the former have taken the lead in introducing digital services taxes, allowing them to recoup some of the lost tax revenue, at the cost of unilateralism that is damaging to the international tax environment. Meanwhile, the OECD has put forward a multilateral solution aimed at preventing tax avoidance and ensuring a fair international tax system. This article aims at showing how profound an impact a digitalising economy has had on international taxation and to assess the respective merits and prospects of national as well as international solutions presented. Such an assessment is to be made in terms of both tax certainty as well as compatibility with constitutional and treaty provisions. It concludes that digital services taxes, despite serious shortcomings, have proven a necessary step until a multilateral agreement becomes enforceable. The latter remains nonetheless essential in ensuring multinational enterprises contribute their fair share of taxes.