The allocation of taxing rights for highly digitalised business models: in search of a fair and neutral solution

La asignación de los derechos de gravamen en los modelos de negocios altamente digitalizados: en busca de una solución justa y neutral

Abstract

The aim of this article is to analyse the impact of highly digitalised business models on the distribution of taxing rights. The challenge encompasses the rules on the nexus and the allocation of profits, which require a modification to empower the source/market states and thus comply with the post-BEPS mandate of taxation in the territory where value is generated. Highly
digitalised business models take advantage of data and user-generated content to create value and obtain profits. In the  author´s opinion, the solution to this problem must be respectful with the OECD Ottawa Taxation Framework Conditions for e-commerce, especially with tax neutrality and fairness. Given the difficult scenario of implementing a concept of virtual ermanent establishment in the short and medium term, the author proposes three alternatives that respect tax neutrality and tax fairness, empowering the source/market states more:1. Creating a new income from the provision of advertising services in the Taxation Conventions 2. The expansive interpretation of the concept of royalties to include cloud-based services, and 3. A new Residual Profit Split Method that contains supply-side and demand-side factors.