Law and Technology Legal Articles Taxation


The OECD launched its project (BEPS Project) to tackle BEPS in 2013 with a beautiful-looking collection (or should I say arsenal) of fifteen (15) Action Plans. The first of the Action Plans (Action Plan 1) has to do with Digital Technology. The excerpt below captures the background upon which Action Plan 1 is based:

“The digital economy is characterised by an unparalleled reliance on intangible assets, the massive use of data (notably personal data), the widespread adoption of multi-sided business models capturing value from externalities generated by free products, and the difficulty of determining the jurisdiction in which value creation occurs. This raises fundamental questions as to how enterprises in the digital economy add value and make their profits, and how the digital economy relates to the concepts of source and residence or the characterisation of income for tax purposes.”
– Action Plan on BEPS, 2013 by OECD

Action 1 basically identifies and addresses the difficulties the digital economy poses in the application of existing international tax rules and developing viable options to solve these difficulties. It is important to note that despite the institutionalizing of Action Plan 1 specifically targeting the digital economy, there is still a vacuum; there has not arisen, a consensus recommendation to address the issues inherent in this unique sector. The closest that has been arrived at in terms of recommendation is the European Commission’s proposition on a permanent solution to the taxation of the digital economy from the viewpoint of “SIGNIFICANT DIGITAL PRESENCE” while also proposing a 3% tax on turnover for certain digital services of large digital companies.

In the midst of the current storm of globalization and digital economy, Action Plan 1 is a growing global urgency. In the absence of a consensus recommendation among world countries on taxation of digital activities and entities, countries may resort to enacting their respective national laws. The likelihood of double-taxation, the dread of golden-egg multinational enterprises, becomes sky-high as countries would now pay attention to the enforcement of national laws rather than the overall interest of the global community in advancing healthy digital activities.

The above is a short exposition of what Action Plan 1 deals with. Readers must be cautious here. The diminutive appearance of this exposition is no match for the raging issues with respect to Action Plan 1 itself. However, as time goes on, these issues would be projected in their proper perspectives for smooth comprehension and seamless flow of ideas.

For now, this piece pauses by echoing the crux of the instant issue. When you hear or come across Action Plan 1 in the context of BEPS, international taxation and/or Transfer Pricing, an image would spontaneously appear in your head – TAXATION OF THE DIGITAL ECONOMY.

Olukolade Ehinmosan

Lead Partner

Law Axis 360°

Invitation for Comments
How do digital establishments add value? How do they create wealth? How do they make profits?
Send your comments on any or all of the questions above, and a formal picture of yourself to

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