Tax administration of digital economy: Concepts, problems and directions of development

Abstract

   The article argues that the international business landscape has changed due to advances in information and communication technologies (ICT), which have led to digital transformation in all sectors of the economy. These processes have required legislators to urgently adapt traditional taxation methods to the digital economy. The author considers the concept of digital economy, its implications for tax systems. An attempt is made to analyze the main problems in the context of tax administration of the digital economy. According to the author, the current rules governing international taxation are designed to apply to enterprises physically present in the country and are not suitable for “digital” companies that do not have an identifiable physical presence in the states in which they conduct economic activities. The current proposed solutions to tax problems are analyzed: the concept of the Organization for Economic Cooperation and Development (OECD) within the framework of work on BEPS, unilateral introduction of digital service tax by countries or application of indirect taxes (VAT, WHT, etc.), the concept of “profit sharing”, changing the definition of permanent establishment by creating a new concept of “virtual (digital) permanent establishment”. It is concluded that the first component of the OECD concept and amending bilateral international tax conventions to include the definition of digital representation seem to be the most promising development options.