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The rise of the digital economy: Rethinking the taxation of multinational enterprises

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  • Antony Ting

    (The University of Sydney)

  • Sidney J. Gray

    (The University of Sydney)

Abstract

The international tax regime in relation to multinational enterprises (MNEs) is ineffective and a rethink is required. We illustrate that the tax avoidance motive of MNEs can incentivize managers to locate profits in low-tax jurisdictions without affecting the locations of their real operations. We also argue that proposals to tax shareholders and consumers rather than corporate profits face significant theoretical and practical obstacles. Finally, we extend a recently proposed model to tax MNEs using a sales-based allocation of consolidated worldwide profits. This aims to prevent MNEs shifting profits to low-tax jurisdictions and reduces incentives for tax competition between countries.

Suggested Citation

  • Antony Ting & Sidney J. Gray, 2019. "The rise of the digital economy: Rethinking the taxation of multinational enterprises," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(9), pages 1656-1667, December.
    • Handle: RePEc:pal:jintbs:v:50:y:2019:i:9:d:10.1057_s41267-019-00223-x
    DOI: 10.1057/s41267-019-00223-x
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    References listed on IDEAS

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    Cited by:

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    2. Saskia Kohlhase & Jochen Pierk, 2020. "The effect of a worldwide tax system on tax management of foreign subsidiaries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(8), pages 1312-1330, October.
    3. Sinéad Monaghan & Esther Tippmann & Nicole Coviello, 2020. "Born digitals: Thoughts on their internationalization and a research agenda," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(1), pages 11-22, February.
    4. Lu, Dong & Zhu, Aiyong, 2024. "Quantifying adaptation costs in sequential FDI location choices: Evidence from German firms," Journal of International Money and Finance, Elsevier, vol. 143(C).
    5. David Hanrahan, 2021. "Digitalization as a Determinant of Tax Revenues in OECD Countries: A Static and Dynamic Panel Data Analysis," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 7(4), pages 321-348, October.
    6. Wu, Yan & Yang, Yong & Mickiewicz, Tomasz, 2023. "Corruption, the digital sectors, and the profitability of foreign subsidiaries in emerging markets," Journal of Business Research, Elsevier, vol. 161(C).
    7. Alan A. Ahi & Noemi Sinkovics & Rudolf R. Sinkovics, 2023. "E-commerce Policy and the Global Economy: A Path to More Inclusive Development?," Management International Review, Springer, vol. 63(1), pages 27-56, February.
    8. Teckshawer Tom, 2023. "Challenges and Solutions to Global Digital Firms' Exploitation of Small Economies," Technium Social Sciences Journal, Technium Science, vol. 43(1), pages 288-301, May.
    9. Miguel Viegas & António Dias, 2021. "Country-by-Country Reporting: A Step Towards Unitary Taxation?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 56(3), pages 167-173, May.
    10. Shuangying Chen & Qiyue Li & Bo Lei & Na Wang, 2021. "Configurational Analysis of the Driving Paths of Chinese Digital Economy Based on the Technology–Organization–Environment Framework," SAGE Open, , vol. 11(4), pages 21582440211, October.
    11. Klaus E. Meyer & Jiatao Li & Keith D. Brouthers & Ruey-Jer ‘‘Bryan’’ Jean, 2023. "International business in the digital age: Global strategies in a world of national institutions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(4), pages 577-598, June.
    12. Amar Gande & Kose John & Vinay B. Nair & Lemma W. Senbet, 2020. "Taxes, institutions, and innovation: Theory and international evidence," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(9), pages 1413-1442, December.
    13. Alain Verbeke & Hadi Fariborzi, 2019. "Celebrating 50 Years of JIBS: Anniversary Issue and Medal Awardees," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(9), pages 1441-1447, December.
    14. Xu, Kai & Hitt, Michael A. & Brock, David & Pisano, Vincenzo & Huang, Lulu S.R., 2021. "Country institutional environments and international strategy: A review and analysis of the research," Journal of International Management, Elsevier, vol. 27(1).
    15. Aleksi Eerola & Arjen H. L. Slangen, 2022. "A Review of International Management Research on Corporate Taxation," Management International Review, Springer, vol. 62(5), pages 643-680, October.
    16. Cooper, Maggie & Nguyen, Quyen T.K., 2020. "Multinational enterprises and corporate tax planning: A review of literature and suggestions for a future research agenda," International Business Review, Elsevier, vol. 29(3).
    17. Yang, Yong & Wu, Yan, 2023. "The digital economy, entry mode strategies, and the profitability of foreign subsidiaries: A global view," Economic Modelling, Elsevier, vol. 127(C).
    18. Hua, Wei & Mitchell, Ronald K. & Mitchell, Benjamin T. & Mitchell, J. Robert & Israelsen, Trevor L., 2022. "Momentum for entrepreneurial internationalization: Friction at the interface between international and domestic institutions," Journal of Business Venturing, Elsevier, vol. 37(6).

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