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Internet taxation: challenges and policy recommendations

As the economy moves online, it becomes more difficult for national tax authorities to collect revenue. How great is the impact, and what should corpo


Francis Bloch

Professor of Economics, Université Paris 1 and the Paris School of Economics, France,

Dmitri Jegorov

Deputy Secretary-General for Tax and Customs Policy, Ministry of Finance, Estonia,

Caroline Edery

Head of Unit, Tax administration and fight against tax fraud, European Commission, DG TAXUD,


See below for video, audio recording and event materials

The digital economy is creating new challenges for taxation and there is still a low level of effectiveness of taxation for internet platforms in the US. This may partly be due the current rules, that are designed for the old industrial and manufacturing world, whereas in the digital era we now face different problems. Moreover, the various initiatives and projects of the OECD and several member states, addressing these challenges, are still in their infancy.

Professor Francis Bloch gave an academic view on alternative tax policies and their impact on social welfare. Internet taxation has some distinguishing features that change traditional intuitions, e.g. blurred geographic lines, two-sided platforms, data collection and large network effects. So far, several papers have been written for the French Prime Minister’s Think Tank with recommendations on internet taxation, leading to specific recommendations for France.

However, several unanswered questions remain: How to redefine the “Permanent Establishment” principle? How should profits be shared among countries? How do we quantify likely effects of industry-based taxation on fiscal revenues and welfare and what are the effects of the switch from origin to destination on (indirect) tax competition?

Helena Kiurusalmi, Senior Tax Manager at Zalando, outlined the challenges that corporates face in these times of taxation uncertainty. Challenges include new business models and how they fit traditional definitions of products and services, as well as what will happen to these definitions in the future. Taxation poses challenges in particular for small companies, as VAT registrations in countries can take two to three months. Tax compliance is also essential and another layer on the authority level should be there to help firms to comply.

Caroline Edery spoke mainly about VAT and the European Commission’s initiatives. It is important that all companies are treated in the same way and that they comply. The rules are different everywhere and a mini-one-stop-shop initiative has been launched to simplify VAT by allowing firms to file in one member state. Furthermore, the Commission supports the development and compliance at national level and is test cooperating with Norway and meeting with businesses to broaden the scope of cooperation.

Dmitri Jegorov underlined how the main issue here is the principle of establishment, as it relies on locations, people and outdated principles that are not as essential to the digital economy as to conventional business. The main suitable basis for where value is created seems to be where the consumers are. Transparency is crucial, both locally and globally. Especially with legalisation of Uber, Countries such as Estonia are seeking solutions for these new challenges with ambiguous rules.

Scott Marcus indicated that it is essential to determine how to address these challenges without creating distortions. Some business models may also be affected when taxation is changed and it is crucial to determine which risks this imposes. Different taxation rates for physical versus virtual goods can also create distortions.

Finally, transparency is crucial when addressing these challenges. For corporate income tax a destination principle could help define where value is created.

Event summary by Nuria Boot, Research Assistant


event materials

Presentation by Francis Bloch

Presentation by Dmitri Jegorov