As MNCs increasingly digitalise their operations, taxing their incomes is proving a challenge. Primarily since economic activity is no longer pre-conditioned on physical presence. As a result the existing international tax rules are proving insufficient. In response to this challenge, policy experts around the world are deliberating the basis for taxing profits arising from digitalised operations. The alternative measures being considered include withholding tax, equalisation levy and the test for significant economic presence. Each of these measures is being critically assessed and a more uniform approach has not yet been adopted owing to concerns that there may be reallocation of taxing rights. This paper presents evidence of base erosion and profit shifting by digitalised businesses. Using such evidence the paper discusses the adequacy and utility of the suggested tax measures and conjectures on the tax consequences for source countries. The paper finds that the test for significant economic presence may be a useful measure however its wider acceptance hinges on consensus.

https://www.ibfd.org/IBFD-Products/Journal-Articles/Asia-Pacific-Tax-Bulletin/collections/aptb/html/aptb_2018_06_in_1.html