Tax and Technology

S. 253Article 12B of the UN MC and Digital Service Taxes: The Answer to the Challenges of Digitalisation?

Fatimah Sa'id Ahmed

1. Introduction

1.1. Background

The international tax rules designed in the 1920s were based on a traditional economy whereby business enterprises operated within a brick-and-mortar system. For a business enterprise to conduct its activities in another country, it was a requirement to have a physical presence. However, more than a century later, business enterprises have evolved through new technologies that have enabled them to conduct their activities remotely. The implication of this shift from the traditional (brick and mortar) to the digital (remote) is that business enterprises no longer need to have a physical presence in a country to conduct their commercial activities. Thus, due to the absence of a physical presence requirement under the international taxation rules, source countries cannot tax business enterprises that generate huge profits in their jurisdictions.

This obvious deficiency enabled business enterprises to avoid taxation, which caused an outburst from political leaders, civil society organisation and the media. In response, the G20/OECD initiated...