Address new challenges to taxation in the digital economy: Separate Accounting or Formulary Apportionment?

Details

Supervisors

Gérard, Marcel

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

Although digitalization is the key to economic development, it comes with serious challenges to international taxation. Digital taxation has been put high on the political agenda in many other countries, including the OECD and the EU. The OECD generally remains in favor of separate accounting and the arm’s length principle. In contrast, the EU has made bold moves to endorse a Digital Tax Package with two separate solutions: first, an interim turnover tax on certain income categories of digital businesses, and second, a long-term solution with a new digital permanent establishment concept and an ultimate integration into the Common Consolidated Corporate Tax Base (CCCTB) project. This implies that unlike the OECD, the EU supports the adoption of a formulary apportionment method. Remarkably, for the first time, the EU proposes to include the data factor in the formula to reflect the contribution of data and user participation to value creation in the digitalized economy. The inclusion of the data factor may secure the tax base for the high-taxed Member States with a large user base.