1. Introduction

The OECD’s BEPS Action Item 1 Final Report (published in October 2015) recognizes that digitalization, and some of the business models facilitated by it, present important challenges for international taxation. Last month (March 2018), the OECD released a 218 pages long interim report outlining a number of areas where various jurisdictions hold divergent views, including on the need for future reform of the international tax system. That report included analysis of value creation across different digitalized business models. It also highlighted the limitations of the contemporary international tax system vis-à-vis the taxation issues related to the digital economy. For detailed analysis of that report, see the article dated 30 March 2018.

Around the same time when the OECD released the above-mentioned interim report, the United Kingdom released a position paper dealing with the UK government’s views on international tax issues concerning the digital economy.

 

This article analyzes the UK government’s views on allocation of the taxing right to ‘market jurisdictions’ (i.e. where a digital enterprise’s active users are located) on the basis of value creation through active participation of the users in those jurisdictions.