“Heading towards a 2020's digital taxation: a European compromise”

This thesis aims at analyzing, from a European perspective, the main challenges of designing a fair and efficient taxation of the, currently more than ever, mounting digital economy. In the first chapter, a theoretical framework is proposed, studying the main shortcomings of the present corporate international taxation system, which leave room for practices as base erosion and profit shifting. Therefore, the phenomenon of digitalization is examined in its several declinations and consequences on the existing and future business environment. Furthermore, the concepts of coordination and harmonization of fiscal policies in the European Union are analyzed, focusing on the concepts of fair tax competition and harmful tax competition, the existence of tax havens in the European Union, and the divisions among the Member States concerning the future development of fiscal policies’ coordination in the European Union. In the second chapter, the potential solutions are examined, respectively differentiating them in short-term and long-term oriented, and in source-based and destination-based. The considered source-based solutions are the reform of the definition of Permanent Establishment, and the introduction of the concept of digital Permanent Establishment. Successively, the destination-based solutions taken into consideration are the application of consumers and shareholders locations as taxing right defining criteria, and the use of formulary profit apportionment. Moreover, the potential implementations of equalization taxes and withholding taxes targeted to the digital sector are similarly discussed. Eventually, a general picture of the recent OECD-G20 proposal (OECD, 2021) is provided, observing the potential result of a 2020s compromise, 100 years after the 1920s’ compromise, one of the founding principles of the current corporate international tax system. In the third chapter, three European Commission’s proposals are scrutinized. Firstly, the Digital Services Tax is studied, being a proposal for a short-term oriented equalization tax. Secondly, the proposal for Digital Significant Presence is taken into consideration, in order to analyze the perspective of reforming the concept of Permanent Establishment. Thirdly, the Common Consolidated Corporate Tax Base (CCCTB), and the more recent project “Business in Europe: Framework for income Taxation” (BEFIT) are studied as proposals for implementing a formulary profit apportionment.