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Diverse set of countries pushing for international framework on tax to curb unfair effects of digitisation on fragile economies

Author: Marcello Estevão, The World Bank (writing for World Economic Forum), Published on: 22 November 2019

"Pushing for tax fairness in a digital world", 20 November 2019

[M]any…[startups]…are built on innovative business models [and]…tend to be physically located in tech hubs such a Silicon Valley, London, or Beijing, although their users…are global. These companies can bring real poverty-reducing benefits…[b]ut they also generate complicated questions…around taxation. Facebook [is]…based in California and [has its] largest user base…in India. Who should get the tax revenues resulting from those users’ data and activities? Governments around the world are missing out on anywhere from $100bn to $600bn each year because of a form of legal tax avoidance…base erosion and profit-shifting (BEPS)…the “[startup] boom” has brought this issue to the forefront…

[70%] of fragile and conflict-affected countries collect taxes that amount to less than 15% of national GDP…, barely enough for governments to carry out…basic state functions. This coincides with…pressure to invest in achieving the UN Sustainable Development Goals…[and] mobilising domestic resources…is crucial…to the development equation. [A] diverse…set of countries are beginning to take unilateral actions to address the tax challenges of digitalisation…, [with] [n]ew taxes…popping up on things like the sale of advertising and data...

[U]nilateral actions…can result in…retaliation. [Taxes] could be…passed on from companies to consumers, generating unexpected consequences…[like]…in Uganda, where millions…quit using digital services…after the imposition of the digital tax. A globally consistent approach is needed [and]…the [OECD] recently released their proposal for coordinating international tax standards. [The]…proposal should go further in order for…reforms to be effective in developing countries…[and] data on the global activities of multinational enterprises need to be more transparent…

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