The post-pandemic era has seen rapid development of the digital economy worldwide. At the same time, many countries, including the United States and China, have significantly intensified their anti-monopoly investigations of internet companies. Under such circumstance, the discussion on digital tax for large internet companies has also been heating up in recent years. Many countries, such as France, have taken the lead in introducing digital taxes, and the Organization for Economic Co-operation and Development (OECD) is also promoting international cooperation on digital tax mechanisms. In China, the discussions about tax system reform and digital governance have continuously promoted the researches on digital tax.
The establishment of China's digital tax system and its relevant discussions however, are still in the stage of policy research and theoretical exploration. As it stands, the digital tax is not a simple issue of the tax levy, but involves a series of other issues, such as the standardization and the development of digital industry, internet anti-trust issues, government budget allocation, industry coordination, and so on. Digital tax will also bring about fundamental changes to the conventional industry-based taxation and fiscal systems. The design and imposition of digital tax is the beginning of the construction of a new fiscal system and digital governance under the basis of the digital economy.
Digital tax, also known as digital service tax, is a kind of tax levied by a country's government on the business activities of digital service companies in areas such as social networking platforms, online advertising, search engines, e-commerce, and mobile payments. As far as the attribute of the digital tax itself is concerned, there is no unified understanding internationally. The rationale for a digital tax is mainly twofold: one is to maintain market equity between digital businesses and other conventional businesses, which is also within the tax sovereignty within the country; the second is to prevent tax avoidance by multinational companies through global tax cooperation, which involves transnational tax cooperation, being a part of the international trade rule system. The discussions and negotiations on digital taxes within the OECD framework are intended to address the tax challenges in the digital economy, which is to prevent the use of low-tax countries by multinational companies in tax avoidance, and to resolve the issue of the failure of local governments in receiving adequate tax revenue from technology companies.
The latter issue is controversial mainly because of the old issue of cross-border tax avoidance, which is part of international trade disputes. There are 30 countries, including France, Germany, India, that have levied digital tax on digital services provided by large transnational internet companies in their territories. In particular, France's digital tax, which is levied at 3% of the turnover, is akin to tariff. In this context, digital taxes have caused dissatisfaction in countries like the United States, who enjoy advantages in their internet companies. It is therefore not surprising that the U.S., home to a large number of internet companies, strongly opposes the imposition of digital taxes and has previously retaliated with tariffs on countries such as France and the United Kingdom. The Biden administration, however, has reversed the policy stance of the Trump administration and is open to negotiations on tax avoidance issues. The United Nations also revised its Model Double Taxation Convention between Developed and Developing Countries in August last year, adding a digital tax clause to allow member states to reach consensus on the imposition and management of digital taxes through bilateral tax treaties. As a result, the issue of cross-border digital tax has gradually become a new "battleground" for all parties involved in the game under the changing international trade environment.
In the global context, digital tax is a symbol of "digital sovereignty", and the formulation and establishment of relevant rules is an important part of the post-pandemic global digital trade situation under the pattern of anti-globalization. In this regard, China should step up research to aid its internet companies expanding their business abroad and participate in global digital trade and competition. Zhou Xiaochuan, former governor of the People's Bank of China, pointed out that it is difficult to ascribe digital tax revenue to some countries. He suggested that tax distribution system and financial ideas of some major powers can serve as a reference for China, where it can consider to design the digital tax into a global central tax, which can deal with global public expenditure to some extent and avoid trade conflicts that may be brought about by redistribution of tax revenue. Zhou's view indicates that the role of global and regional international organizations has been greatly enhanced, and they are in fact pushing for the development of globalization.
For domestic digital taxation in China, whether it is direct or indirect digital tax, it will involve the issue of data ownership. The imposition of a digital tax implies that data itself is considered to have public attributes. Therefore, in order to maintain the market's fair competition, user data should not be exclusive to certain platforms, even if the data is their source of value. ANBOUND's researchers have pointed out that at the current stage of development of the digital economy, the public attribute of data has become more and more prominent. As such, the imposition of digital tax is of practical significance in anti-monopoly efforts, as well as for the maintenance of market vitality and balanced economic development.
For China, digital tax is a new attempt to transform its tax management and fiscal system in this era of digital economy. Some scholars have said that China's 18 tax categories have been affected by the digital economy, and it is time to discuss and study related tax system reform. According to Liu Shangxi, president of the Chinese Academy of Fiscal Sciences, the digital revolution will have a profound impact on the economy and society, as it not only affects the organizational structure of companies, but will also potentially bring about disruptive changes to relevant laws and systems. Currently, the main tax categories are based on the industrial economy. In the future, whether it is tax collection and management, tax categories, tax base, etc., all of these aspects will have to be reformed in order to adapt to the changes.
Of course, the construction and design of the digital tax system should not be detached from the existing tax system. Zhou stressed that the issues brought about by digital tax should be clarified, so as to prevent the key issues falling into ambiguity. In fact, cross-border tax avoidance, cross-border tax collection, and management issues involved in the current digital tax dispute have actually been long existed in the conventional tax system and practice. Zhou believes that taxing the digital economy from the perspective of income is still a feasible method. Hence, designing a digital tax system requires an innovative solution to the problem, but at the same time the jurisprudential basis should not be neglected. The new model of the internet platform does make it more difficult to identify the attribution of income, yet it does not fundamentally overturn a century-old tax system. In this case, the establishment and improvement of the digital tax system should be properly carried out under the framework of China's domestic fiscal and taxation system reform.
Final analysis conclusion:
Under the changing international trade environment, the issue of cross-border digital tax is gradually becoming a new battleground of digital sovereignty for all parties involved. In China, the design and imposition of digital tax signify the commencement of a new fiscal system and digital governance. With this in mind, the comprehensive reform of fiscal and tax system should be taken into consideration by the relevant authorities.
