The spread of the digital economy poses challenges for international taxation. This
report sets out an analysis of these tax challenges. It notes that because the digital
economy is increasingly becoming the economy itself, it would not be feasible to ring-fence
the digital economy from the rest of the economy for tax purposes. The report notes,
however, that certain business models and key features of the digital economy may
exacerbate BEPS risks, and shows the expected impact of measures developed across
the BEPS Project on these risks. The report also describes rules and implementation
mechanisms to enable efficient collection of value-added tax (VAT) in the country
of the consumer in cross-border business-to-consumer transactions, which will help
level the playing field between foreign and domestic suppliers. The report also discusses
and analyses options to deal with the broader tax challenges raised by the digital
economy, noting the need for monitoring developments in the digital economy over time.
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.