- Concerns with Current Tax System: The existing international tax framework is criticized for inadequately addressing the digital economy, as multinational companies often pay corporate income tax based on production location rather than where consumers or users are situated. This allows businesses to generate income from foreign users without a physical presence, avoiding tax obligations in those countries.
- OECD’s Pillar One Proposal: To tackle these issues, the OECD has been negotiating with over 140 countries to implement Pillar One, which would require large multinationals to pay taxes where their consumers are located. This initiative aims to replace existing norms and potentially repeal DSTs, which have been adopted by numerous countries as interim measures to tax digital companies.
- Current Landscape of DSTs: Despite the OECD’s efforts, many European countries have implemented or proposed DSTs, primarily targeting US companies. The lack of a global agreement has led to retaliatory tariff threats from the US, with ongoing discussions about the EU’s DST proposal and the UN’s efforts to enhance tax cooperation, highlighting the complexity and contention surrounding digital taxation.
Source Tax Foundation
