DIGITAL ECONOMY AND TAXATION
AUTHOR – YATIN BANSAL, STUDENT AT AMITY LAW SCHOOL
BEST CITATION – YATIN BANSAL, DIGITAL ECONOMY AND TAXATION, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 5 (7) OF 2025, PG. 824-831, APIS – 3920 – 0001 & ISSN – 2583-2344.
ABSTRACT
The rapid expansion of the digital economy has fundamentally altered global commerce, challenging traditional taxation frameworks that rely on physical presence and source-based taxation. Digital businesses, including multinational technology firms, operate across multiple jurisdictions without a significant physical footprint, making it difficult for tax authorities to allocate taxing rights effectively[1]. As a result, international tax laws have struggled to adapt to new business models, leading to concerns over tax avoidance, base erosion, and profit shifting (BEPS). In response, global institutions such as the Organisation for Economic Co-operation and Development (OECD) and the United Nations (UN) have introduced various initiatives, including the OECD’s two-pillar solution, to address the challenges of taxing the digital economy[2].
The OECD’s two-pillar approach aims to establish new profit allocation rules and a global minimum tax rate, ensuring a more equitable distribution of tax revenues among jurisdictions. However, the implementation of digital services taxes (DSTs) by individual nations has sparked tensions, particularly between developed and developing economies, due to concerns over trade retaliation and compliance burdens[3]. Developing countries argue that current global tax reforms disproportionately benefit wealthier nations, limiting their ability to tax digital transactions effectively. As the digital economy continues to evolve, achieving a consensus on international taxation remains a complex yet critical task for ensuring tax fairness and economic stability[4].
[1] OECD “Addressing the Tax Challenges Arising from the Digitalisation of the Economy”, 2021
[2] United Nations “Taxation of the Digital Economy: Options for Developing Countries”, 2022
[3] IMF “Corporate Taxation in the Global Digital Economy”, 2020
[4] European Commission “Digital Taxation in the EU: Policy Proposals and Challenges”, 2021.