By the end of the 20th century, international tax law was a dinosaur: outdated, outmoded, and inadequate at collecting and allocating the taxing rights to the activities of multinational enterprises (MNEs), particularly activity associated with the digital economy. Scholars often observed that the basic structure and conceptual apparatus of international taxation were roughly a hundred years old and had mostly undergone only modest tweaks and adjustments in the intervening century. But the diagnosis of the system’s ills by tax scholars was never enough to trigger a re-evaluation of the fundamentals of international tax by lawmakers, and it took the global recession and financial crisis beginning in 2008 to motivate that reconsideration.

In a history well-told by Professor Ruth Mason, the social, economic and budget stresses of the Great Recession placed corporate tax avoidance under heightened scrutiny, and a series of sensational public hearings and investigations helped mobilize public opinion to provide the political impetus for international tax reform. The result was a multilateral effort to combat corporate tax avoidance coordinated thorough the Organization for Economic Cooperation and Development (OECD) known as the “Base Erosion and Profit Shifting” (BEPS) project. In the United States, the influence of BEPS can be seen in the 2016 version of the U.S. model income tax treaty and in the dramatic changes made in 2017 to the Internal Revenue Code, changes that introduced tax practitioners to a slew of new tax concepts with now familiar acronyms such as the Base Erosion and Anti-Abuse Tax (BEAT), Global Intangible Low-Taxed Income (GILTI), and Foreign-Derived Intangible Income (FDII).

The BEPS project focused on how gaps and mismatches across national tax regimes created opportunities for corporate income tax avoidance, but it did not deal with some of the most fundamental and growing grievances with the international tax system. Specifically, BEPS did not address discontent— particularly in Europe—with the effects of international tax competition and with the longstanding rules for allocating tax rights over the enormous profits of large digital platforms such as Google, Facebook, and Amazon. These companies had been able to enjoy low rates of taxation overall and to pay almost no tax in countries where they had no physical presence, even if they had many users in those countries.

With these issues still unresolved as of 2018, the European Commission, along with the United Kingdom and national governments in Europe and around the world, began to unilaterally announce novel taxes—digital services taxes or “DSTs”—on the revenue of digital platforms derived from the platforms’ users in those jurisdictions. Many of the taxes have deferred effective dates and, in the case of the EU tax proposals, were adopted to provoke a multilateral solution to the problem of allocating taxing rights. And the European DSTs have spurred action by the OECD and G20 countries, which are currently managing a “BEPS 2.0” process designed to coordinate a global effort to implement a global minimum tax on corporate profits and allocate some income from large multinationals to jurisdictions where their users are located.

The most important tax issues facing digital platforms have to do with the outcome of BEPS 2.0, whether a multilateral agreement that includes the United States will be reached or if, instead, a global patchwork of DSTs will apply to digital platforms’ activities. We provide more detail about what is at stake in Part I. But, for tax law scholars, there is another interesting aspect to the appearance of DSTs too. As the other essays in this Symposium illustrate, the rise of big tech has generated a set of regulatory and political challenges of which tax is only one. The adoption of DSTs is not only about the fair allocation of taxing rights, but also economic competition between the U.S. and the EU, anxiety over the effects of digital platforms on society, and antitrust/competition concerns about the economic power of the tech giants.

Emerging as they have from such a diverse set of regulatory and political concerns, and from the minds of politicians rather than tax scholars, it is unsurprising that DSTs do not easily fit within the existing international tax architecture. DSTs provides an interesting illustration of how tax scholarship grapples with a novel tax, oscillating between trying to shoehorn the tax into existing legal categories and providing familiar justifications from within the dominant tax theory discourses, or allowing the tax to introduce new concepts and new justifications.

Andrew Hayashi & Young Ran (Christine) Kim, Taxing Digital Platforms, 26 Virginia Journal of Law and Technology, 1 (2023).