The Challenges of Digital Economy

Moving from digitization to digitalization

In a world where Digitalisation is growing second-by-second, Digital Economy has been a challenge for tax authorities around the world. The first Report in regards to this topic that the OECD released was in 2015, the Action 1 Final Report.


One of the conclusions of this report was to start introducing key features of evolving digital business models that the OECD considered relevant for the overall BEPS analysis.


This Action 1 Final Report had a follow up in 2018 when the OECD released a document “Tax Challenges Arising from Digitalisation — Interim Report 2018”, setting out the Inclusive Framework jurisdictions, which agreed to undertake a comprehensible and concurrent review of the rules by 2020.


In 2019, the Inclusive Framework issued a Policy Note on Addressing the Tax Challenges of the Digitalisation of the Economy[1]. The work plan is divided into two pillars:


  • Pillar One: addresses the allocation of taxing rights between jurisdictions and describes proposals for new profit allocations and nexus rules.
  • Pillar Two: Global Anti-Base Erosion Proposal (“GloBE”) involves a set of rules to address ongoing risks from structures that allow Multinational Enterprises to shift profit to jurisdictions where they are subject to no or very low taxation. This pillar pursues to set a floor on competition over corporate income tax, through a global minimum corporate tax rate that countries can use to protect their tax bases[2].


2020 was a year full of challenges; without a doubt, it was a year where Digitalisation challenges in regards to taxation high-rise, hence the OECD continued realizing documents in order to progress in this topic – Big problems require big solutions –.


During that year it was released a Statement by the Inclusive Framework on the Two-Pillar, as well as more detailed documents, including an outline of the architecture and a Blueprint report on Pillar One.


In 2021 this topic gets stronger with the OECD’s Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy. This statement proposes companies to be defined as MNEs with global turnover above 20 billion euros and profitability above 10%. While the profit margin cut-off may seem reasonable, the one-size-fits-all approach is disheartening.


There are different questions about Digitalisation and its future in Transfer Pricing, as well as different postures about this topic. Sean Foley, Principal of Global Transfer Pricing Services at KPMG in the US refers to it as “disappointment” because Transfer Pricing has never had “the opportunity to see whether or not the problems were fixed under the other important changes and rules that were only just getting settled and affecting behavior”.[3]


I think it’s a bit premature to speculate what’s going to happen. Is it going to work? Well, countries are still implementing BEPS, so start talking about the implementation of new regulations is challenging. 


 Is this really going to benefit developing counties? To me, one of the first steps has to be some level of consensus between the OECD, Governments, and professional services companies first.


[1] Addressing the Tax Challenges of the Digitalisation of the Economy – Policy Note, as approved by the Inclusive Framework on BEPS on 23 January 2019, OECD 2019,

[2] “The global minimum corporate income tax under Pillar Two is estimated to generate around USD 150 billion in additional global tax revenues annually. Additional benefits will also arise from the stabilization of the international tax system and the increased tax certainty for taxpayers and tax administrations”.

[3] Podcast with Sean Foley, Principal of Global Transfer Pricing Services, KPMG in the US.