Transfer Pricing In The Digital Economy

With the in-depth development of economic globalization, more and more multinational companies are avoiding tax obligations through complex globally integrated business model, which results in the erosion of national tax base. The digital economy brings new challenges on the tax base erosion and profit transfer. In the digital economy, the product is a digital form existing on the server. It can be transferred in the fast speeds through the world. Intellectual property, patents and technology are the main source of this economic system to create value. Based on the transfer of intangible assets, royalties and fees for technical services, transfer pricing has become the primary means of distribution of digital economy business profits in each country with tax planning.For the current study, this problem is still in an early stage in the world. In September 2014 the Organization for Economic Co-operation and Development(OECD) Digital Economy Research Group has just released a report on the tax challenges facing the digital economy. Based on the existing basis for discussion, according to the characteristics of the digital economy, the main analysis is on the transfer pricing of intangible assets, royalties and cloud services. Besides, analysis of the applicability of existing methods are also included.In the final part, some suggestions on the server permanent establishment, punitive tax system, cost-sharing agreements and digitization of the tax system to tax authorities are addressed.