At present the international tax system is in need of reform so as to ensure that digital corporation pay taxes in countries where they operate. The search for a global solution has resulted in divergence in approaches adopted by countries. This paper delineates the fundamental economic challenges that the tax reform seeks to address, the historical evolution of tax laws and the best possible solutions given the discord between source and residence countries. The paper finds that digital services tax, with foreign credits, can offer a final global solution amenable to developing countries.

 

Key words: permanent establishment, digital tax, user participation, treaties, developing countries