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The Economics of the Digital Services Tax

Author

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  • Wolfram F. Richter

Abstract

The use of digital services is largely non-rival. This paper argues that vanishing marginal costs of supply change policy incentives. Small countries are incentivized to tax the import of digital services. In fact, various countries have already moved towards expanded source taxation of online business activities. If such practice spreads, the quality of digital services will be negatively affected. This paper argues that countries exporting digital services have reason to respond by promoting an international tax regime in which the profit earned on remote supplies of digital business services is split between the countries involved.

Suggested Citation

  • Wolfram F. Richter, 2019. "The Economics of the Digital Services Tax," CESifo Working Paper Series 7863, CESifo.
    • Handle: RePEc:ces:ceswps:_7863
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7863.pdf
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    References listed on IDEAS

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    1. Ligthart, J.E., 2004. "Consumption Taxation in a Digital World : A Primer," Other publications TiSEM 46537bf7-4822-4dbe-b3fa-f, Tilburg University, School of Economics and Management.
    2. Clemens Fuest, 2008. "The European Commission's proposal for a common consolidated corporate tax base," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 24(4), pages 720-739, winter.
    3. Brander, James A. & Spencer, Barbara J., 1984. "Trade warfare: Tariffs and cartels," Journal of International Economics, Elsevier, vol. 16(3-4), pages 227-242, May.
    4. McLure, Charles E, Jr, 2003. "The Value Added Tax on Electronic Commerce in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(6), pages 753-762, November.
    5. Olbert, Marcel & Spengel, Christoph, 2019. "Taxation in the digital economy: Recent policy developments and the question of value creation," ZEW Discussion Papers 19-010, ZEW - Leibniz Centre for European Economic Research.
    6. Wei Cui & Nigar Hashimzade, 2019. "The Digital Services Tax as a Tax on Location-Specific Rent," CESifo Working Paper Series 7737, CESifo.
    7. Wolfram F. Richter, 2019. "Aligning profit taxation with value creation," CESifo Working Paper Series 7589, CESifo.
    8. Alan J. Auerbach & Michael P. Devereux, 2018. "Cash-Flow Taxes in an International Setting," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 69-94, August.
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    Cited by:

    1. Liudmila V. Polezharova & Aleksandra M. Krasnobaeva, 2020. "E-Commerce Taxation in Russia: Problems and Approaches," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 6(2), pages 125-143.

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    More about this item

    Keywords

    digital services; remote supply; import tax; alleviating double taxation; profit splitting;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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