International Tax Issues Concerning The Cross-border Royalties In The Digital Economy Era

The 21 st century is the era of the digital economy. The digital economy is the result of a transformative process brought by information and communication technology(ICT). Improved telecommunications, information management software, and personal computing have significantly decreased the cost of organizing and co-ordinating complex activities over long distances. As a result, businesses are increasingly able to manage their global operations on an integrated basis from a central location that may be removed geographically from both the locations in which the operations are carried out and the locations in which their suppliers or customers are located. The process of economic globalization is greatly accelerated.In the era of digital economy, Intangible assets are involved in the economic activities as a basic factor of production, and intangible assets generate royalties. Therefore, royalties taxation has become the most frequent international taxation issues in the international community. But the digital economy caused great impact on the traditional taxation rules of cross-border royalties, which have been unable to fully apply to the digital economy. The taxation challenges of royalties aroused by the digital economy include the questions of characterization of income, territorial tax rights and recognize of permanent establishment.The article, by starting with these challenges, introduces rules of the OECD Model Convention and UN Convention of royalties implied in the international practice, and detailedly sort out the question of characterization of income. Then, focusing on the second challenge, this paper analyze the legal problems in the international taxation jurisdiction, which are raised by the new business models of digital economy. Finally, the article sums up current relevant tax policies in China so as to inspect their adaptabilities to digital economy and makes some suggestions about how to complete them. Eventually, to Safeguard the interests of our tax, I hope I could contribute my limited strength to our tax legislation revolution under the background of digital economy.