Taxing One Side Hurts the Other: DSTs, BEPS, and Platform Competition

Hans Jarle Kind, Dirk Schindler and Guttorm Schjelderup

No 12302, CESifo Working Paper Series from CESifo

Abstract: Digital Services Taxes (DSTs) and the OECD/G20 BEPS reforms are central pillars of current efforts to tax multinational digital platforms, yet their joint effects remain poorly understood. We develop a model of a platform that sells hardware to consumers and advertising to firms, with the two markets connected through cross-group network externalities. We show that a DST can have counterproductive effects: it may lower tax revenue in the implementing country, weaken downstream price competition, and reduce consumer surplus by inducing the platform to shift activity toward the untaxed side of the market. We further show that stricter transfer pricing regulation - a core element of BEPS - can paradoxically increase profit shifting when network effects are strong.

Keywords: digital platforms; digital services tax; BEPS; profit shifting (search for similar items in EconPapers)
JEL-codes: F23 H25 H26 (search for similar items in EconPapers)
Date: 2025
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