Amanda Parsons


Digitalization has reshaped the relationship between companies and their customers and users. Customers and users increasingly serve a dual role. They are not only consumers but also producers, creating data and content. They are a value-creating workforce, functioning as “digital laborers.”

Digital laborers’ value creation highlights that there are two parts to the question of whether multinational companies are paying their “fair share” of taxes—one of amount and one of location. First, are companies’ total tax bills paid across all countries in line with their global income? Second, is taxing authority over multinational companies’ income being divided amongst countries in a coherent and fair way? Digital laborers’ value creation implicates the second. Under the current international tax system, the presence of digital laborers in a country does not grant that country taxing rights over income stemming directly from those digital laborers’ data and content creation. As a result, what are essentially the same activities— individuals creating products and performing services for a company— are taxed differently when they are performed by digital laborers rather than by a traditional workforce. This inconsistency and the accompanying outcome that countries cannot tax corporate income arising from extensive business activities within their borders have contributed to cries that the current system is unfair.

Recent reforms addressing this outcome share a common weakness. They do not recognize the function of digital laborers as producers in the modern economy. As a result, they overturn the theory of source-based taxation as a taxing right granted only to the country of production and introduce major structural changes to the international tax system that apply only to a subset of global companies. These changes are all to correct an unfairness that can be remedied under the system’s current theoretical framework and structure.

This Article rejects the notion that these major theoretical and structural changes are necessary or even appropriate methods to allow digital laborers’ home countries to tax income directly related to their data and content creation. Instead, the international tax system should recognize digital laborers’ role as a new type of workforce for companies and, accordingly, allow their home countries to tax income related to their work under the existing application of the source principle and with more incremental structural reforms. In addition to minimizing disruption in international tax law, this approach reinforces coherence and fairness by taxing equivalent economic activities equivalently.

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