Research On The Tax Jurisdiction Rules Under The Digital Economy

The division of international tax jurisdiction usually includes the following two aspects,one is the nexus rule,the other is the profit distribution rule.The nexus rule is used to determine the scope of the countries enjoying the tax power,and the profit distribution rule quantified the respective tax rights of the countries within these ranges.The traditional nexus rule is based on the principle of economic allegiance and distributes the tax power to the residents and country of source.The typical embodiment of the principle of economic allegiance is the principle of permanent establishment.If a country has a permanent establishment in another country,it should pay taxes on the profits made by the permanent establishment.The traditional profit distribution rule is the Independent business principles,which determines the profits attributable to the permanent establishment by conducting a functional analysis of the permanent establishment and looking for comparable transactions.However,with the development of Internet technology,the digital economy equipped with information technology and digital tools has gradually taken shape and entered the public eye.From the ascendant to booming,digital economy gradually penetrated into all aspects of social life.In this context,the traditional tax jurisdiction division rules face great challenges,mainly reflected in the division and identification of residents’ tax jurisdiction and source tax jurisdiction,the classification and qualitative of cross-border exchanges,and the division of cross-border exchange ownership.In addition,with the transformation of supply relationship theory to supply and demand relationship theory,the breakthrough of the principle of economic allegiance and the promotion of the discourse power of developing countries,the reconstruction of tax jurisdiction rules is particularly necessary.The international community has made a series of explorations for the reconstruction of tax jurisdiction rules.The exploration of multilateralism deserves particular concern.In the early days of the digital economy,namely the period of e-commerce,the international community has been aware of the challenges that e-commerce brings to the traditional tax jurisdiction rules,and has put forward some plans.But since the digital economy had just started and the traditional tax rules had not completely failed,the impetus for reform was not particularly strong.In the new century and 1920 s,the digital economy is booming,and the international tax field urgently needs to establish a new set of connection and profit distribution rules to meet the demand of highly digital enterprises to exercise tax power.During BEPS1.0,in October2015,OECD released Addressing the Tax Challenges of the Digital Economy,Action 1-2015 Final Report,which proposed the proposition that profits should be taxed where economic activity occurs and value is created,and became the guiding concept for the change of tax jurisdiction.But OECD does not clearly define value creation in the report,just to avoid being too radical and to focus on value-driven factors.Later,the international community experienced the transition of Tax Challenges Arising from Digitalisation-Interim Report 2018,and entered the BEPS2.0 period.On January 29,2019,OECD released Addressing the Tax Challenges of the Digitalisation of the Economy-Policy Note,proposing the concept of two pillar,because pillar two does not involve the division of international tax jurisdiction,it is ignored.After the integration of national proposals,Public Consultation Document Secretariat Proposal for a “Unified Approach” under Pillar One published by OECD on October 9,2019 has formed a three-layer structure including amounts A,B and C.Among them,the new tax power formed by amount A needs to be discussed mainly.Amount A is for automated digital services and consumer facing businesses,among which automated digital services do not establish physical existence in the market country,and consumer facing businesses set up limited risk distributors in the market country.When business sales in market countries reach the threshold,the market country has the right to tax them based on the proportion of sales.Amount B only determines the simplified method of taxation on the basis of the original rules.Amount C refers to the amount beyond the amount B and needs to be determined through the dispute resolution mechanism.On October 12,2020,OECD released Inclusive Framework on BEPS Invites Public Input on the Reports on Pillar One and Pillar Two Blueprints,which adjusted the three-layer structure to 11 cornerstones,mainly taking into account the controversy of amount C.Therefore,as the "tenth cornerstone",that is,the prevention and settlement of disputes beyond amount A,weakening its sense of distributing profits,but it has not changed in essence.Two statements made in July and October 2021 have revised the previous rules,no longer distinguish between automated digital services and consumer facing businesses.Amount A should be applied for multinationals with annual global operating revenue of more than 20 billion euros and pre-tax sales profit of more than 10%,but the mining industry and regulated financial services are not included.From the process of multilateral exploration,it can be found that OECD may still want to solve the problem from the perspective of value creation theory at first,but then it is basically separated from the theory and turned into the discussion of technical solutions,hoping to reach a consensus to the maximum extent.In addition,the Model Double Taxation Convention between Developed and Developing Countries provides a template for bilateral programmes and is a possible option until Pillar one is implemented.In response to the unilateral exploration of the international tax jurisdiction division rules,pillar one has indicated that the multilateral convention implementing amount A will require Parties to cancel the digital services tax and other relevant similar measures applicable to all companies,and promises not to introduce them in the future.Some countries responded to the pillar one program requirements,but some still did the opposite.For example,the United States and Austria,France,Italy,Spain and the United Kingdom announced a compromise on the digital service tax dispute on October 21,2021,while Canada is actively pushing for the digital service tax legislation.Therefore,although the pillar one limits a pair of unilateral measures,but its future is uncertain.Under the digital economy,the international community is exploring the international tax jurisdiction division rules,which has a certain influence on China.Generally speaking,it has a great impact on giant enterprises,and its impact on small and medium-sized multinational enterprises is limited.China should actively take multi-faceted measures to deal with changes in the rules for the division of tax jurisdictions.Pay attention to the convergence of domestic tax rules and new international tax rules,pay close attention to the latest trends in the reform of international tax rules,and carry out tax coordination with countries that have taken unilateral measures,improve the intelligence exchange mechanism,innovate tax collection and management methods,and correctly guide enterprises.In view of this,this paper believes that China is not only a country with huge capital input and output,but also the largest trading country in the world in import and export volume.The pillar one program focuses on the distribution of profits generated by cross-border activities among different tax jurisdictions,involving China’s core interests,and must be highly valued.In the face of the pillar one,we should,for the initiative,put forward China’s attitude and countermeasures.By analyzing the reform path of tax jurisdiction division rules,grasp the strategic intention of all parties in the game,and clarify the essence and interest relationship of the scheme.Combined with China’s actual situation,active adaptation and overall planning,can minimize the impact of international tax reform.