Rationales and Challenges for a Digital Service Tax:Focusing on Location-Specific Rent

Tetsuya Watanabe
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Tetsuya Watanabe: Professor of Law, Waseda University, Japan

Public Policy Review, 2021, vol. 17, issue 1, 1-17

Abstract: A discussion, focusing on the present-day OECD, is being carried out with regard to taxation that is compatible with the digitalization of the economy. Despite the efforts of the OECD, each country has been working on the introduction of a digital service tax through unilateral or interim measures. Such a tax has been criticized as an ambush, as not allowing coordination under treaty agreements, and as a system that targets specific companies. However, Professor Wei Cui has observed in relation to a digital service tax that digital platforms would earn Location-Specific Rents in conditions not unlike those that arise when mining natural resources, and contends that this has a rationale in the user’s country’s right to tax digital platform corporations. The present paper explores the rationale behind a digital service tax through Cui’s opinion and expert analyses responding to it. The important factors in this discussion include the fact that businesses that run digital platforms with controlling power in the market have a dual nature and indirectly network effects; the fact that marginal costs are currently low and that the revenue of takings has been shown to be very close to profits; and the fact that there is scope for the view that coordination under treaty agreements is not necessary.

Keywords: digital platform; allocation of taxing rights; location-specific rent; location neutrality; two-sided business; indirect network effect; avoiding double taxation. (search for similar items in EconPapers)
Date: 2021
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