handbook-tb

Protecting the tax base in the digital economyinternational tax system was developed, developing countries were notat the table. In spite of the subsequent efforts to modify the system tomeet the needs of capital-importing countries, the system remains onethat is largely made by developed countries for developed countries.Recent international efforts in combating BEPS provides an historicalopportunity for developing countries, some of which are part of theG20, to actually have some real say in how international tax problemsare resolved.Because the digital economy brings about a fundamental shift inhow business is conducted and value is created, it is necessary to investigatewhether there should be a fundamental shift in thinking aboutthe basis for allocating taxing rights. Developing countries should playan active role in the process of reshaping the international tax system.The United Nations is the ideal institution to lead this important initiativeand to coordinate with the OECD.In developing appropriate international tax rules to allocatetaxing rights between countries in a fair manner, it may be helpful torevisit the fundamental theories and principles underlying the existingsystem. A digital economy may involve a shift in how business isdone and how value is created, but it does not necessarily remove theneed for an economic nexus between income and the taxing jurisdiction.Therefore, a digital economy may require new “tools” to allocatethe global tax base among nation States. It remains important to keepin mind the fundamental theories and policy justifications in designingthe new tools.Developing country concerns with BEPS and base cyberizationdiffer from those of OECD countries. To begin with, they are predominantlysource countries. The tax base of the source country is defineddifferently under the United Nations and OECD Model Conventions,especially in respect of royalties and services. The BEPS debates havebeen focused primarily on the use of legally sophisticated structures toavoid the tax base defined under the OECD Model Convention, suchas the use of commissionaire to avoid the classification of a dependentagency PE. The more common issue in developing countries is likelybase cyberization, where the income is not captured by the existingrules, due to the design of the rules (not due to the use of artificial legalstructures). Developing countries are thus advised to go beyond BEPS437