Digital Services Tax - A feasible solution for Taxation of the Digital Economy?

Abstract: During the 21th century, digitalization is considered the most important development of the modern global economy. Tax avoidance is a growing issue for governments globally, that are loosing lots of tax money to finance public welfare systems supporting healthcare, educational institutions and infrastructures. Value creation in digital business models generates profits different than traditional business models and the current international tax rules are not fit for the digital era. Today’s rules facilitate the possibility for multinational enterprises to establish digital business models in various jurisdictions and are shifting their profits into low tax jurisdictions. A digital business can have minor or no physical presence in the state where the actual business activity takes place, which causes disagreements about which government has the right to tax. Multinational digital tech enterprises like Amazon, Google, Apple, Facebook etc., often with headquarters in third countries such as the US, are currently shifting their profits, generated from business activity in EU jurisdictions, into low tax countries such as Ireland or Luxemburg. A case that has brought a lot of public attention is the case between Ireland and the Commission in T-778/16, which illustrates the issues related to illegal state aid and EU competition law. The OECD and the EU are working on a solution on both international and European level. The EU has presented concrete measures and a proposed Digital Services Tax, that is the main focus of this thesis. The situation has brought unilateral action among member states within the EU, trying to solve the issue by implementing domestic regulations, causing potential threat to the internal market.