Taxation of personal data : an analysis of current tax treatment, EU regulation, and the OECD action plan

Abstract

The digital economy has brought about significant changes in the way companies transact and interact between themselves and with their consumers, warranting an overhaul to outdated tax principles traditionally catered for brick-and-mortar businesses. The Organisation for Economic Cooperation and Development (OECD) and European Union (EU) presented successive proposals, each conceiving more developed answers to questions as to the manner in which data should be taxed, concluding that data it is a massive value creator for digital enterprises. Thus, it is the monetisation of this data by virtue of increased revenue which needs to be taxed. Developments commenced with the OECD Action 1 Report ‘Addressing the Tax Challenges of the Digital Economy’ immediately highlighting the fact that the digital economy relies heavily and predominately on use of intangibles, data (namely users’ personal data), as well as the significant increase in multi-sided business models. Harmonised tax rules are, therefore, vital considering the role personal data plays in increasing tech firms’ income. The OECD aims to implement a common international tax framework, where 137 countries would agree to the proposals which have most recently been presented as Pillar 1 and 2 Blueprints, ensuring fair taxation. Although projections were for a global consensus to be reached by the end of 2020, different stances taken by jurisdictions who must accede to the proposals for them to come into effect as well as the need of further changes to the original proposals, have resulted in a postponement of decisions to June 2021. Failure to reach consensus at OECD level is likely to lead to adoption and implementation of EU directives proposing an interim Digital Services Tax (until modifications are made to physical presence nexus rules to be based primarily on a Significant Digital Presence principle), as well as unilateral measures by different countries. This will possibly create greater turmoil in the context of the existing challenges.