International Journal of Accounting Research

Corporate Tax Evasion in the Digital Age: A Comparative Study on Regulatory Frameworks

Plaxco Hans^* Department of Economics, University of Freiburg, Freiburg, Germany
^*Correspondence: Plaxco Hans, Department of Economics, University of Freiburg, Freiburg, Germany, Email:

Received: 01-Aug-2023, Manuscript No. IJAR-23-23124; Editor assigned: 03-Aug-2023, Pre QC No. IJAR-23-23124 (PQ); Reviewed: 18-Aug-2023, QC No. IJAR-23-23124; Revised: 25-Aug-2023, Manuscript No. IJAR-23-23124 (R); Published: 04-Sep-2023, DOI: 10.35248/2472-114X.23.11.349

Description

The rapid digitization of the global economy has reshaped the business landscape, allowing companies to engage in crossborder transactions and establish a substantial digital presence without a physical presence in a given jurisdiction. While this digital transformation has driven economic growth, it has also presented significant challenges for tax authorities. Corporations can manipulate their tax liabilities through aggressive tax planning and profit-shifting strategies, leading to concerns of corporate tax evasion.

Regulatory approaches

Digital permanent establishment rules: Some countries have introduced digital permanent establishment rules that redefine the criteria for establishing a taxable presence. These rules consider factors such as digital advertising, user data, and significant economic presence as indicators of taxable presence, regardless of physical presence. For example, India has implemented such rules to capture revenue generated by digital companies within its borders.

Multilateral agreements: To address the challenges of profit shifting, several countries have adopted multilateral agreements such as the Base Erosion and Profit Shifting (BEPS) project initiated by the Organization for Economic Co-operation and Development (OECD). These agreements aim to harmonize international tax rules and ensure that profits are taxed where economic activities take place.

Digital Services Taxes (DSTs): Some nations, including France and the United Kingdom, have introduced Digital Services Taxes (DSTs) to impose taxes on specific digital services and advertising revenue. DSTs are designed to capture revenue generated by tech giants and are often levied as a percentage of gross revenue.

Country-by-country reporting: Regulations requiring multinational corporations to provide detailed country-by-country reports of their operations and profits have been implemented in many countries. These reports enhance transparency and enable tax authorities to identify profit-shifting activities more effectively.

Effectiveness of regulatory approaches

The effectiveness of regulatory approaches varies from country to country. Digital permanent establishment rules have helped capture revenue from digital companies, but their implementation has faced challenges in defining the scope of taxable presence. Multilateral agreements like BEPS have made progress in harmonizing international tax rules, but enforcement remains an issue in some jurisdictions. DSTs have generated additional tax revenue, but they have also triggered trade disputes and concerns about double taxation. Country-bycountry reporting has improved transparency but may not fully address profit-shifting issues.

Challenges and future considerations

Challenges in combating corporate tax evasion in the digital age persist. These include the difficulty of defining the digital economy, keeping pace with rapidly evolving business models, and addressing international tax competition. The need for a global consensus on taxation in the digital age remains a priority.

Conclusion

Corporate tax evasion in the digital age is a complex and evolving issue that requires innovative regulatory solutions. The comparative analysis of regulatory frameworks highlights the diverse approaches taken by different countries to address this challenge. While progress has been made, significant challenges remain, including the need for international cooperation, enforcement mechanisms, and adjustments to tax rules.

To effectively combat corporate tax evasion in the digital age, a multifaceted approach that combines international cooperation, clear and adaptable regulations, and transparency measures is crucial. As the digital economy continues to evolve, tax authorities and policymakers must remain vigilant and adaptive to ensure a fair and equitable taxation system that reflects the realities of the digital age.