Author: Akshita Jadaun, Symbiosis Law School, Hyderabad
Abstract
The rapid digitization of the global economy has introduced new tax challenges, particularly as multinational corporations (MNCs) exploit tax loopholes to minimize liabilities. Tech giants like Google, Amazon, Apple, and Meta use sophisticated tax strategies to minimize liabilities, leading to significant revenue losses for governments. This phenomenon, known as Base Erosion and Profit Shifting (BEPS), distorts tax systems and threatens economic stability.
To address these concerns, international organizations like the OECD and G20 introduced the BEPS Action Plan and Two-Pillar Approach, aiming to ensure fair taxation of digital companies. However, enforcement remains a challenge due to political opposition, complex legal frameworks and corporate lobbying. In response, individual nations including those in Europe, India, and the UK have implemented Digital Services Taxes (DSTs), though these measures have triggered trade disputes, particularly with the United States.
This paper analyses corporate tax avoidance strategies from legal and policy perspectives, comparing international frameworks and enforcement mechanisms. Key case studies include Google’s "Double Irish with a Dutch Sandwich" scheme, Amazon’s Luxembourg tax structure and Netflix’s taxation in India. The paper also explores enforcement difficulties, concerns over overregulation harming startups and the lack of a globally harmonized tax framework.
To combat digital tax evasion, this paper advocates for enhanced international collaboration, closing tax loopholes and strengthening global treaties. Additionally, emerging technologies such as AI and blockchain can improve tax transparency, ensuring a fair and legally sound taxation model in the evolving digital economy.
Keywords: Digital Taxation, BEPS, OECD Two-Pillar Framework, Profit Shifting, Cryptocurrency Taxation, DST, AI in Taxation, Blockchain, CSR in Taxation.
INTRODUCTION
The digital revolution has transformed global commerce, challenging traditional taxation commerce. Companies can carry out businesses in different jurisdictions while not being physically present in them. This is innovation at its best; consumer access has grown and new economic opportunities are coming up. The changes have also revealed flaws in the conventional tax systems that enabled the MNCs to make use of legal loopholes to lighten their tax burden. In that regard, digital businesses may be different from the old brick-and-mortar entities that are taxed where they are located by virtue of paying little to no corporate tax there at all.
Tech giants such as Google, Amazon, Apple and Meta have built very innovative tax strategies, leveraging instruments like profit shifting, transfer pricing, and offshore shell companies. They are able to transfer profits to jurisdictions with little to no corporate tax by employing these levers, thereby legally lowering their overall tax rate. The term most commonly used for this practice is called Base Erosion and Profit Shifting (BEPS). Every year, this activity would cause huge losses to tax revenues by billions of dollars across the world. In its consequences, BEPS causes further damage than just loss of revenue; it undermines the national tax base, increases economic inequality and puts it on an uneven footing by favouring multinational corporations over domestic enterprises.
In response to this problem, tax policy changes have been adopted by governments and global regulatory agencies. The OECD, with the endorsement of G20 countries, accepted the Action Plan on BEPS to get rid of the loopholes that would enable tax evasion. Besides, other undertakings like the Two-Pillar Global Tax Framework suggest universally applying the 15% minimum corporate tax rate so that digital firms pay their fair dues. Meanwhile, unilateral tax policy measures have been put into force by countries, such as the Equalization Levy in India and the Digital Services Tax passed by the European Union, to seek and harvest revenues from international tech giants. However, such measures raise questions about the practical implementation of these unilateral tax policies along with corporate lobbying and global trade tensions, which can erode their effectiveness.
The paper critically engages the legal and policy problems with digital tax avoidance. It studies the principal tax avoidance schemes, appraises international attempts to regulate digital taxation, provides case studies on prominent tax avoidance schemes and discusses what the future holds on digital taxation in a dynamic economic landscape. It concludes that while the transitional frameworks may be a starting point, there is an exigent need for a better international model of taxation, more significant collaborative efforts and sophisticated technological enforcement to deliver a balanced global tax system.
THE RISE OF TAX EVASION IN THE DIGITAL ECONOMY
The quick anvil of the digital economy has drastically altered the way international business is conducted and opened doors for tax avoidance. Digital firms can operate in various jurisdictions without the restrictions of traditional taxes, as opposed to businesses taxed based on where they're located. This has punctured holes in conventional business models, allowing multinational corporations to draft better tax strategies that reduce tax payments without being dubbed illegal.
Conventional to Digital Model Transitioning
The Old Tax System vs. the Virtual Economy
Earlier the counselling on corporate taxation was under the 'permanent establishment' rule that involved taxation in a territory wherein the companies had a factory, office or any other infrastructure.
Virtual companies offered goods, provided services and collected ad revenue in all parts of the world without opening a brick-and-mortar office in the high-tax areas.
This loophole lets the companies operate in huge markets, such as India, Germany and Brazil without paying big corporate taxes there.
How Digital Firms Take Advantage of Tax Systems
Technology giants like Google, Amazon, Apple and Meta use international operations to funnel profits to low or zero-taxed nations.
Digital companies with business models such as Netflix, Spotify and TikTok earn money from customers all over the globe but book profits in low-tax countries like Ireland, Luxembourg and Singapore.
This causes an imbalance in global tax collection, where high-revenue nations see little to no corporate tax income from digital companies.
Example: In 2021, Netflix reported $1.5 billion of revenue from the UK but paid a mere £6 million in corporate tax as a result of profit shifting.
Common Tax Avoidance Techniques Employed by MNCs
Several legal loopholes are used by multinational corporations to minimize their tax bills. These include:
Profit Shifting Through Tax Havens
Firms use tax havens to register subsidiaries for reporting low-tax country profits over high-tax country profits.
Apple funnels billions of dollars into Irish subsidiaries to get an effective tax rate below 1%.
The "Double Irish with a Dutch Sandwich" Scheme
The method uses two Irish subsidiaries, a Dutch middleman and a tax haven such as Bermuda.
Example: Google employed this technique to reallocate more than $23 billion in profits to Bermuda, sidestepping enormous taxes in both the U.S. and EU.
Transfer Pricing Abuse
Companies manipulate prices of goods, services or intellectual property (IP) that are transferred among subsidiaries to redirect profits to jurisdictions with lower tax rates.
Example: Amazon organized its European sales in Luxembourg, so it could pay little amount in taxes in the EU.
The Effects of Digital Tax Evasion on the Economy and Society
Government Revenue Loss
Every year, governments lose billions of dollars in revenue from taxes as a result of profit shifting-induced erosion of the tax base.
Global business tax avoidance results in $240 billion in loss of tax income annually, according to OECD estimates.
MNCs' Inequitable Competitive Advantage
Due to their inability to transfer revenues to abroad, local companies and startups pay greater corporation taxes than digital behemoths, which creates an unfair playing field and makes it challenging for small enterprises to compete.
Increasing Individual Taxpayers' Burden
Middle-class taxpayers are disproportionately affected by tax avoidance in major firms, as governments frequently raise personal income taxes, VAT or other indirect taxes to make up for corporate tax losses.
INTERNATIONAL EFFORTS TO COMBAT TAX EVATION
With global digital businesses growing massively, the governments and international institutions need good taxation rules. Governments and international agencies have implemented these regulations for the world and have proven to be challenging. Other systems have been proposed to curb tax evasion, but those efforts are stymied by corporate defiance, political divides and loophole enforcement. Here are some examples:
The OECD's BEPS Action Plan
In 2013, the Organisation for Economic Co-operation and Development (OECD), in cooperation with the G20, introduced the Action Plan on Base Erosion and Profit Shifting (BEPS) to address tax avoidance strategies adopted by MNCs that exploit gaps and mismatches in the international tax rules. The plan consists of the 15 Action Points focused on addressing some of the most important mechanisms by which tax is avoided.
The most significant aspect of BEPS is Action 1: Addressing the Tax Challenges of the Digital Economy, which proposes
The new nexus provisions to taxable online business based on significant economic presence rather than physical presence.
Withholding taxes for digital transactions to prevent profits.
Stricter profit attribution rules to account for taxation for digital companies where they make their money.
BEPS came up with a legal framework to stop tax evasion in the digital era, but its enforcement remains uneven on average. Because corporations still use these cover structures to sneak through laws, the OECD adopted an even broader global tax reform -The Two-Pillar Framework.
The OECD Framework for Global Taxation- Two Pilar
Knowing that BEPS, the OECD and G20 recommended establishing a (Two-Pillar Global Tax Framework) which was aimed at allocating taxes more appropriately and preventing profit shifting in 2021.
One Pillar: Taxing revenues of MNCs where they are generated
It uses a tax principle that says the world's largest and most profitable digital companies are being taxed for the profit they make where their business is, and not just where they have to register.
It covers all the groups whose revenues exceed €20 billion on a global level and whose profitability rating is above 10%.
The Second Pillar: Global Minimum Tax (GMT)
It ignores a minimum corporate tax, a 15% rate that allows the movement of no-shift profits of multinationals to no-tax havens.
To achieve this provision imposes a minimum tax on all the states engaged in business through the multinational firms.
Over 140 countries have backed the establishment of the Two-Pillar Framework; however, operationalizations are not without problems.
US Objections: USA believes that the overall framework attacks the whole of the American technology companies in the lines of Google, Apple, Facebook, Amazon, etc.
Other detractors: Countries with low-income tax systems such as Ireland, the Cayman Islands and Singapore on grounds they will see less investment in countries other than their own.
Corporate Compliance Gaps: A few multi-national corporations have begun to reorganize their operations intentionally to minimize the impact of the tax reforms on the enterprise, a move that can be expected to draw enforcement conundrums.
Digital Services Taxes (DSTs) National Responses to BEPS
Since international taxation agreements are moving slowly, a number of nations have implemented Digital Services Taxes (DST) to guarantee that multinational corporations (MNCs) operating in their markets are taxed immediately.
India's Equalization Levy
India had imposed its Equalization Levy in 2016, initially targeting revenue from digital ads by foreign technology firms. India expanded the tax to e-commerce transactions in 2020, ensuring like Google, Facebook, Amazon and Netflix pay the tax on their revenue that originates in India.
But American companies have criticized the DSTs as discriminatory against American technology companies. This led to the trade friction between USA and India, revealing the difficulty of unilateral tax policies in a highly integrated digital economy.
European Union (EU) Digital Tax Proposal
A 3% of Digital Services Tax (DST) on digital advertising and online platforms has been proposed by the European Union. Many EU countries including France, Italy and Spain have already established some form of DST, the French one being the "GAFA Tax”.
Key points of the GAFA Tax:
Applied to companies with global revenue over €750 million and revenue in France over €25 million.
Concentrates on e-commerce services, online advertising and data capture revenue.
The UK also enacted a 2% digital services tax (DST) aimed primarily at digital advertising, e-commerce marketplaces and streaming services.
U.S. Response: Trade Retaliation Against Digital Service Taxes
The U.S. has vigorously opposed imposed DSTs by India and the EU on the basis that such taxes discriminately target American tech behemoths.
In 2020, the US announced countervailing tariffs on French luxury goods and wines for GAFA taxes.
U.S. Trade Representative (USTR) initiated probing on DSTs across the world, signalling that unilateral digital taxes are not in compliance with international trade rules.
France suspended its collection of its GAFA tax temporarily, after agreeing and awaiting an OECD-backed solution.
Case Studies: Well-Known Tax Evasion Methods
Apple's Irish Tax Structure
Apple took advantage of Ireland tax regulations to keep European corporate taxes at a minimum. The company employed two Irish subsidiaries, Apple Sales International (ASI) and Apple Operations Europe (AOE), to channel its profits to an effective tax rate of just 0.005% in 2014.
In 2016, the European Commission ruled that Apple gained illegal state support from Ireland and asked Apple to refund €13 billion in taxes. Apple has argued the legality of its actions under compliance of tax legislation. The legal twists went all the way through to 2020 when an appeal by Apple reversed the ruling of the EU.
The 'Double Irish with a Dutch Sandwich' Scheme by Google
Google employed a tax system that enabled it to shift profit from Ireland to the Netherlands and then to Bermuda, so that the total tax burden was minimized. Referred to as "Double Irish with a Dutch Sandwich", Google was able to shift over $23 billion offshore. But later, following global criticism Google abandoned the tax scheme in 2020.
Amazon's Luxembourg Tax Arrangement
Amazon has to route its European profits through Luxembourg and then pay less corporate tax. The EU had concluded that Amazon gained illicit tax advantages; therefore, it had to return €250 million in back taxes.
CHALLENGES IN ENFORCEING DIGITAL TAX REGULATIONS
Despite the introduction of global tax frameworks such as the OECD’s BEPS Action Plan and the Two-Pillar Global Tax Framework, enforcing digital tax regulations remains one of the most complex challenges in international taxation. Multinational corporations (MNCs), particularly in the digital sector, exploit regulatory loopholes, while national governments struggle to coordinate enforcement across jurisdictions. This section explores key barriers to effective digital tax enforcement.
Difficulty in Tracking Digital Transactions
One of the biggest obstacles in enforcing digital taxation is the invisibility of digital transactions in traditional tax structures. Unlike physical businesses, digital companies operate through online platforms, cloud computing, and decentralized financial networks, making it difficult for tax authorities to monitor revenue flows.
Key Issues:
Cross-Border Transactions: Digital businesses generate revenue across multiple countries without requiring physical presence, making tax liability unclear.
Cryptocurrency & Decentralized Finance (DeFi): Transactions using Bitcoin, Ethereum, and other digital assets often bypass traditional banking systems, complicating tax enforcement.
Use of VPNs & Proxy Servers: Many companies route transactions through offshore data centres to obscure their true revenue origins.
Example: Facebook’s Ad Revenue Model
Facebook (Meta) generates billions in ad revenue from countries like India and Germany, yet much of this profit is reported in low-tax jurisdictions such as Ireland and Singapore. This makes it difficult for local tax authorities to claim tax on revenues generated within their borders.
Exploiting Legal Loopholes
MNCs use sophisticated legal strategies to minimize their tax burdens, often staying within the technical boundaries of the law while still avoiding taxation.
Common Strategies:
Base Erosion and Profit Shifting (BEPS): Shifting profits to low-tax jurisdictions while allocating expenses to high-tax countries to reduce overall tax liability.
Intellectual Property (IP) Holding Companies: Registering IP rights in zero-tax jurisdictions and charging excessive licensing fees to subsidiaries in high-tax countries.
Hybrid Mismatch Arrangements: Using differences in tax laws between countries to claim double deductions or tax exemptions.
Case Study: Amazon’s Luxembourg Tax Scheme
Amazon structured its European operations through Luxembourg, reducing its effective corporate tax rate to nearly zero. The European Commission ruled this as illegal state aid, ordering Amazon to repay €250 million in back taxes.
Lack of International Coordination
Many governments hesitate to fully implement global tax agreements, fearing that it will harm national economic interests. This lack of coordination makes it easier for corporations to exploit regulatory differences.
Key Problems:
Conflicting National Policies:
The U.S. opposes OECD’s digital tax framework, arguing that it disproportionately affects American tech firms.
China resists Western tax norms, preferring state-controlled taxation.
Tax Haven Protections:
Countries like Cayman Islands, Bermuda, and Singapore offer near-zero corporate tax rates, attracting MNCs.
MNCs shift intangible assets (patents, trademarks) to these tax havens, escaping taxation.
Example: Ireland’s Tax Policy Dispute
The EU accused Ireland of offering illegal tax benefits to Apple, leading to a €13 billion tax dispute.
Opposition from Tech Giants & Tax Havens
Multinational corporations (MNCs), particularly in the digital sector, strongly resist tax reforms that threaten their low-tax strategies. In many cases, corporations lobby against digital tax regulations, delay enforcement through legal challenges, and even threaten to withdraw services from certain markets.
A. Corporate Resistance Tactics
Legal Challenges Against Tax Reforms
Tech giants frequently sue governments to overturn digital tax regulations.
Example: In 2021, Amazon challenged an EU ruling ordering it to pay €250 million in back taxes, arguing that the tax was unfair and discriminatory.
Threats to Shift Operations
Some MNCs warn governments that they will relocate headquarters or investments if stricter tax laws are enforced.
Example: Google threatened to withdraw services from Australia in response to new tax and content-sharing regulations.
Investment Withholding
Companies may reduce investments in countries that impose higher digital taxes, impacting local economies and job markets.
B. Example: U.S. Trade War Over DSTs
France introduced the GAFA Tax (Google, Apple, Facebook, Amazon), imposing a 3% tax on digital revenues.
The United States threatened retaliatory tariffs on French luxury goods and wine in response.
France paused enforcement after the OECD intervened to negotiate a global solution.
This corporate-government conflict demonstrates the difficulty of enforcing digital tax regulations on powerful MNCs that dominate the global economy.
Weak Enforcement Mechanisms & Compliance Challenges
Even when digital tax regulations are enacted, governments struggle to enforce compliance due to:
Insufficient tax auditing tools to track digital revenues accurately.
Loopholes in existing laws that allow corporations to delay or manipulate reporting requirements.
Jurisdictional conflicts—disputes over which country has the right to tax a company’s digital profits.
Case Study: Netflix’s Tax Avoidance Model
Netflix, a streaming giant, generates billions in subscription revenues worldwide but pays minimal corporate tax in many countries.
Example: In 2021, Netflix paid only £6 million in UK corporate tax despite generating over £1.5 billion in revenue from UK subscribers.
This is because Netflix declared most of its profits in the Netherlands, which has more favourable tax policies.
Netflix’s case illustrates how digital platforms structure their businesses to lower tax exposure, making enforcement a global challenge.
The Future of Digital Tax Compliance: Strengthening Enforcement
To close these enforcement gaps, governments are turning to technology-driven tax compliance solutions, including:
AI-Powered Tax Monitoring
AI-driven tax compliance tools can analyze financial transactions in real time, flagging suspicious tax avoidance patterns.
Example: India’s GST Network (GSTN) uses AI to detect tax fraud in e-commerce and digital services.
Blockchain for Transparent Tax Reporting
Blockchain-based tax ledgers can make financial transactions tamper-proof, ensuring accurate tax reporting.
Example: Estonia’s e-Tax System integrates blockchain for real-time tax reconciliation.
Stricter Global Regulations
Countries are collaborating through the OECD to close loopholes and increase transparency requirements for digital companies.
Future tax frameworks may require real-time profit disclosures to prevent aggressive tax avoidance.
THE FUTURE OF DIGITAL TAXATION: EMERGING TRENDS
As the global digital economy continues to evolve, tax authorities are adapting to new technologies, financial systems, and business models. The rise of cryptocurrencies, artificial intelligence, and decentralized finance (DeFi) presents both challenges and opportunities for digital taxation. Additionally, global tax policies are shifting toward greater transparency, automated tax compliance, and stricter regulations.
Artificial Intelligence (AI) in Tax Enforcement
Governments are increasingly deploying AI-driven tax systems to detect and prevent tax evasion in the digital economy. AI enhances tax enforcement by analysing massive datasets, identifying suspicious transactions, and predicting corporate tax avoidance behaviour.
AI-Powered Tax Compliance Systems
Big Data Analytics: AI tools analyze financial transactions in real time to detect profit shifting and tax avoidance patterns.
Machine Learning Models: AI predicts which companies are likely to underreport profits, allowing authorities to conduct targeted audits.
Automated Tax Filing & Reporting: AI systems assist businesses in accurate tax reporting, reducing human errors and fraudulent declarations.
Example: India’s AI-Based Tax Compliance System
India’s GST Network (GSTN) uses AI-powered analytics to detect tax fraud and fake invoicing in e-commerce.
The system has successfully flagged thousands of fraudulent transactions, improving tax collection efficiency.
AI technology advances, governments worldwide are expected to integrate AI-driven tax monitoring, ensuring greater transparency and compliance.
Blockchain for Transparent Tax Reporting
Blockchain technology is emerging as a powerful tool for tax transparency and fraud prevention. Unlike traditional financial systems, blockchain records transactions permanently and securely, making it harder for companies to manipulate tax data.
Benefits of Blockchain in Taxation
Immutable Financial Records: Transactions stored on a blockchain cannot be altered or deleted, ensuring accurate tax reporting.
Real-Time Tax Auditing: Governments can use blockchain to monitor digital transactions instantly, preventing tax evasion.
Smart Contracts for Tax Collection: Tax payments can be automated using smart contracts, ensuring that companies pay the correct amount in real time.
Case Study: Estonia’s E-Tax System
Estonia has implemented blockchain-based tax reporting, allowing businesses to submit tax returns digitally with real-time verification.
This system has significantly reduced tax fraud and improved efficiency in tax administration.
As more governments recognize the potential of blockchain, its adoption in tax systems is expected to increase in the coming years.
The Growth of Cryptocurrencies & DeFi: Tax Challenges
The rise of cryptocurrencies and decentralized finance (DeFi) has created new obstacles for tax authorities, as these digital assets operate outside traditional banking systems. Many companies and individuals use cryptocurrencies to store wealth offshore, making tax enforcement more difficult.
Crypto Tax Avoidance Techniques
Untraceable Transactions: Cryptocurrencies allow companies to move funds across borders anonymously, avoiding traditional banking regulations.
Offshore Crypto Holdings: Businesses and individuals store assets in crypto wallets instead of bank accounts, bypassing standard tax reporting.
DeFi Lending & Yield Farming: Companies invest in DeFi platforms, earning income that often goes unreported to tax authorities.
Government Crackdowns on Crypto Tax Evasion
The U.S. IRS now requires crypto exchanges (Coinbase, Binance) to report transactions over $10,000 for tax purposes.
India introduced a 30% tax on crypto profits, aiming to regulate crypto-based tax evasion.
The EU’s Crypto-Asset Reporting Framework (CARF) mandates stricter disclosure requirements for crypto transactions.
As governments tighten regulations on crypto markets, the future of digital taxation will depend on how well tax authorities adapt to decentralized finance.
Will the Global Minimum Tax (GMT) Succeed?
One of the most ambitious tax reforms in history, the 15% Global Minimum Corporate Tax (GMT), aims to eliminate tax havens and ensure fairer taxation of digital companies. While the OECD’s proposal has received global support, its success depends on effective implementation and enforcement.
Challenges Facing the GMT
U.S. & China’s Reluctance: Both countries have expressed concerns that the GMT could harm domestic businesses and lead to trade tensions.
Developing Nations’ Criticism: Many emerging economies argue that the GMT primarily benefits developed nations, as high-revenue countries will collect most of the taxes.
Corporate Workarounds: Some companies are restructuring their operations to minimize the impact of the GMT, such as shifting assets to less regulated jurisdictions.
Future Outlook of the GMT
Experts predict that governments will introduce stricter compliance mechanisms, including automated tax reporting and AI-driven enforcement.
The OECD is expected to expand the GMT framework by closing loopholes that allow tax avoidance.
While the GMT marks a historic step toward global tax fairness, its long-term effectiveness will depend on cooperation among governments and regulatory bodies.
POLICY RECOMMENDATIONS
Global tax reform gained momentum, but more work needs to be done to guarantee equitable taxation of the digital economy. According to Salves, these issues can be resolved by global cooperation, technical advancements and ethical business practices.
Bolstering Global Collaboration
Promote international tax cooperation, not only within but also beyond the multilateral context to set an example of how governments should coordinate tax policies through international platforms like the OECD, G20 and BRICS, take action to discourage businesses from exploiting loopholes.
Automate establishing agreements between countries concerning exchange of tax data for greater transparency.
Digital Services Tax Reforms
Standardized global digital taxation structures should be established, rather than unilateral DSTs and ensuing trade wars.
Establish progressive digital taxes that give a higher tax burden on those companies gaining favourable changes to their profits.
Taxation for the Gig & Creator Economy
Tax systems need to be easy enough that freelancers, YouTubers and other digital creators find it easy to follow.
Regulate the platforms Ano Upwork, Fiverr, etc. so that such platforms can be transparent in the tax reporting compliance.
Exploring AI & Blockchain
Governments should adopt and deploy AI systems for tax compliance, enabling them to monitor, stop and prevent fraudulent activity in real time.
The risk of tax evasion can be reduced through auditing transparency mechanisms of blockchain-based tax reporting tools.
Taxation act in developing countries
Establish a measure for the redistribution of digital taxes so that a portion of the tax revenues collected from MNC will be used in the developing countries.
Reinforce domestic legal tax frameworks.
Corporate Social Responsibility (CSR) and Ethics of Tax
Beyond legal necessity, a company has an ethical responsibility to generate a fair return on the economic investment in which it operates. Should extend to trust-ship and tax contributions and not aggressive tax avoidance.
Example: Microsoft engages in responsible tax behaviour and reports out transparency in the global tax reform. Applies this in case of any other society that has the same tax policies for ethics and should make sure that they pay their fair share.
CONCLUSION
Through the digital revolution, conventional tax systems have lagged behind and loopholes have resulted in multinational companies being able to relocate profits and lower their tax liabilities. OECD's BEPS Action Plan, Two-Pillar Global Tax Framework and DSTs are moving in the right direction, but enforcement and compliance issues have negated equitable taxing.
First governments are urged to improve international coordination to guarantee the tax equity; second, they need to adopt AI‑based tax supervision mechanisms and third they should regulate among the new financial technologies such as cryptocurrencies and decentralized finance (DeFi) in order to construct an equitable and sustainable taxation system for the community. In the meantime, companies should embrace ethical taxation wherever they do business, not from loopholes of the law.
The taxing environment of digitalization will largely be shaped by international coordination, technological progress and corporate responsibility. Tax misalignment among nations will always be taken advantage of by MNCs resulting in economic imbalance. However, if digital taxation follows the requirements of the global economy, it has the potential to restore fairness in the tax structure and thus contribute to sustainable economic growth in all countries. A unified global tax policy is no longer an option but a necessity for economic fairness in the digital era.
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