Place of Effective Management in the Digital Economy

Abstract

Tax residence is one of the essential elements of an international tax regime that is based on a network of tax treaties. In the traditional economy, the identification of the place of tax residence of companies usually does not create interpretative problems. However, the dynamic development of the digital economy raises questions as to whether the concept of the place of effective management (POEM) is also an appropriate instrument for companies. It is used as a tie-breaker rule and national residence test based on the axiom of one location of the place where major decisions are made that affect the functioning of the enterprise as a whole. However, due to the growing importance of data collection, processing, and monetization processes – with the intensive use of advanced algorithms and artificial intelligence – it changes hierarchical, linear management models and implements an approach based on decentralization and dispersion of decision-making processes. The considerations contained in this article also pertain to the issue of the desirability of developing a tax connector other than the POEM from the perspective of examining the nature of the economic relationships of ‘digital companies’ with the state for the purposes of tax law.