The digital transformation of commerce has exposed critical weaknesses in traditional tax regimes. Multinational enterprises (MNEs) can generate substantial revenues in jurisdictions where they have no physical presence, undermining the principle that profits should be taxed where value is created. To address this, many countries have introduced Digital Services Taxes (DSTs) levies on gross revenues from digital transactions such as online advertising, intermediation, or user data monetization.
However, DSTs suffer from major drawbacks: they tax revenue rather than profit (disfavoring high-investment firms), risk double taxation, and trigger trade tensions, especially with countries hosting large tech firms.
To overcome these limitations, the OECD/G20 Inclusive Framework has proposed a two-pillar global tax solution.
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Pillar One seeks to reallocate part of the residual profits of large MNEs to the jurisdictions where consumers or users are located—even absent physical presence.
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Pillar Two establishes a global minimum tax (e.g. 15 %) to prevent harmful tax competition and ensure that MNEs pay a baseline level of tax regardless of jurisdictions’ rates.
The Inclusive Framework has already enabled a multilateral convention for digital taxes (drafting of Amount A rules) and initiated mechanisms like the Subject to Tax Rule (STTR) to prevent intra-group payments from escaping taxation.
Nonetheless, implementation remains complex. Issues include defining the profit reallocation formula, coordinating with existing DSTs, addressing compliance burdens, and securing consensus among diverse jurisdictions.
In conclusion, digital taxation is at a pivotal moment. The success of the OECD’s framework depends on political will, technical solutions, and balanced enforcement. For businesses, timely adaptation and robust tax planning are now essential in navigating this evolving landscape.
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