Rapidly changing technology and societal change present a relentless challenge to tax legislators across the globe. As with other laws, tax rules will tend to lag behind technological developments. Until recently, few if any tax laws were developed with specific application to or contemplation of the modern digital economy.
The main body of tax law applies (as originally intended) to traditional 'bricks and mortar' businesses - with difficult and sometimes convoluted application to digital businesses.
The need to address the gap between the modern digital economy and the tax legislative framework is an important focus of the European Commission's Digital Single Market (DSM) project, and is also recognised by the UK authorities which have expressed impatience (also felt within the Commission) at the slow pace of progress of current digital tax reform under the OECD's Base Erosion and Profit Shifting (BEPS) initiative.
The EC recently commented that "today's international corporate tax rules are not fit for the realities of the modern global economy and do not capture business models that can make profit from digital services in a country without being physically present", also noting that the effective tax rate for digital companies (such as social media companies) "is around half that of traditional companies". Having recognised the issues, what exactly is it suggesting by way of solution?
