I'm still reading through the English report, but wanted to share an introduction to the report now. I refer to the report as "out-of-the-box" thinking because the authors raise some points that I have not heard discussed elsewhere. Also, an economic shift, such as from the industrial era into the digital or knowledge era, should lead to some rethinking of tax systems - are they are in need of modernization (hence the title of my blog - 21st century taxation). When we have bits and bytes moving across borders, perhaps the tax rules need to be different from the existing ones focused on moving widgets across borders.
I think the report will lead to a broader discussion of what international taxation should look like today. Certainly, there is a lot of discussion going on regarding this topic in Congress and the OECD. For example, Congressman Camp, chair of the House Ways and Means Committee, has a proposal to move to a territorial system. In February 2013, the OECD issues its BEPS report (Base Erosion and Profit Shifting) which should get further discussion by the G-20.
Well, back to the French report ... Three key themes/ideas:
- Today, some companies, such as Google, can gather lots of data from citizens and companies in a country, but do not have tax liabilities there, even though it looks like they are at least virtually present. So, consider redefining permanent establishment for the digital age. Perhaps places where data is generated for use by the company should be a PE.
- Alternatively or prior to a PE change, consider a Pigovian tax on use of resident’s data if the company does not “comply with stronger privacy and user empowerment requirements” (aim is also to encourage the company to so comply so they won’t owe the tax).
- Reform R&D tax rules and definitions to better focus on the digital economy and its growth.
I encourage you to review the report. It addresses issues that we will likely hear more about from Congress and the OECD and that are important for reform of the U.S. tax system.
What do you think? Any "out of the box" ideas you have for a sound tax system for the digital era?