Allison Christians (McGill; Google Scholar) & Tarcísio Diniz Magalhães (Antwerp; Google Scholar), Why Data Giants Don't Pay Enough Tax, 18 Harv. L. & Pol'y Rev. 119 (2023):
Data giants are often in the headlines for failing to pay enough taxes, both in the United States and around the world. Since most of the world’s data giants originate in the United States but earn profits by operating across borders, are there legal constraints on when and how much the United States and other countries can tax them? This paper examines a large-scale cross-country tax reform initiative that is testing the limits.
Conclusion
A vigorous debate has arisen among legal practitioners, scholars, and other commentators regarding the existence and scope of legal prohibitions on the right of countries to tax the data giants. Since most of the world’s largest data giants are based or headquartered in the United States, this question comes down to whether the United States has a say in whether and to what extent it must share the profits of its locally grown data giants with other jurisdictions through the mechanism of taxation.
When the OECD drafted a tax reform initiative that presented novel possibilities for such redistribution, it is no surprise that novel counterarguments arose in response, especially from practitioners whose client base includes exactly the kind of companies targeted by the reform. Among the arguments offered in opposition to the proposed reforms, some of the most surprising have been loose appeals to general international law. An analysis of these purported barriers to taxation yields few persuasive arguments in either the scholarship on international tax law or the official sources of public international law.
The main takeaway is that neither general international law nor legal or economic theory are capable of objectively delimiting, with scientific precision, where the tax jurisdiction of one state ends and that of another begins. As such, whether other countries can tax U.S.-based data giants (a question that can be inverted to ask whether the United States can tax data giants that are based elsewhere in the world) comes down not to a legal question but a political one. The political question is simply whether lawmakers in each affected country are willing to cooperate with each other as they navigate mutually agreeable solutions to shared problems, or instead whether they will choose a path of resistance and obstruction.
This question can only be answered if we first accept that the core subject of inquiry involves profits that can only come into being if most of the world’s nations actively facilitate the unique business models of the data giants, most of which originate in the United States. That being so, we submit that understanding why data giants do not pay enough tax requires moving past imprecise claims regarding the legal boundaries of the U.S. or any other state’s jurisdiction to tax. Finding legal constraints beyond those imposed by the state itself requires a far more rigorous undertaking than appeals to common tradition can provide. Priority should therefore be given to approaches that try to solve structural, administrative, and distributional problems related to designing a mutually advantageous scheme for taxing the data giants and sharing revenue streams between all the affected countries.
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