GOVERNING THE TAXATION OF DIGITIZED TRADE

The paper highlights the challenges for international taxation due to
digitized trade. Digitization makes it easy to penetrate foreign markets
without the need for physical presence in the buyer’s country. This
phenomenon has generated debates on the salience of source versus
residence-based taxation, the definition of permanent establishment, and, the
administration of consumption taxes. The WTO has not been able to engage
effectively in this area. The paper notes both the inadequacy of unilateral
approaches and the need for an international organization for setting and
monitoring global standards. It commends the vitality of source-based
principles and the traditional conception of permanent establishment. It
pleads for increased international cooperation for administering consumption
taxes. Digitized trade without globally acceptable standards is likely to lead
to double taxation or tax evasion or both.