Global tax has long been a tag-a-war in the international policy battleground for competing economic interests, but the rise of digitalization has intensified these tensions. The international tax system was designed for an economy built on factories and physical assets, not one where trillion-dollar businesses derive profits from digital services that transcend borders. As governments struggle to capture fair tax revenues from multinational companies like Google, Apple, and Amazon that generate billions in revenue across borders without physical presence, traditional tax rules—rooted in the early 20th century—are increasingly inadequate.

In this Article, Harpaz delves into this evolving conflict unpacking the “tax wars” between the Global North and Global South. He argues for a fundamental shift in how global tax rights are allocated toward source-based taxation and proposes a significant economic presence doctrine to modernize the rules governing international tax. 

He examines how digitalization challenges traditional tax principles, unfairly favors wealthier nations, and exacerbates global economic disparities and offers a timely analysis of international tax governance in the digital economy. This is a particularly relevant contribution at a moment when policymakers are grappling with issues of tax fairness, corporate tax avoidance, and the outsized influence of multinational enterprises (MNEs) and digital companies operating across borders without needing a physical footprint. These MNEs house their corporate headquarters in developed countries thus disadvantaging developing nations that argue they should be able to tax profits generated within their borders. At the center of this conflict also lies institutional dynamics and a growing divide between the OECD, which has led to global tax policymaking, and the UN, which has emerged as a new challenger advocating for a more inclusive approach.

Harpaz sets the stage by tracing the historical development of international tax rules, particularly the long-standing tension between residence-based and source-based taxation. International tax rules have been shaped by a century-old framework that prioritized taxing rights for the country where a business is headquartered (residency-based taxation) over the country where the revenue is generated (source-based taxation). This system was designed when businesses relied on physical offices, factories, and distribution centers. As a result, international tax treaties, largely influenced by the OECD, require a company to have a permanent establishment in a country before it can be taxed there. This approach made sense in the industrial era but is now outdated in an economy where companies generate profits from digital services without a physical presence. Yet, the digital revolution has made it possible for companies to operate across borders without ever setting up an office or hiring local employees. Large multinational enterprises, particularly tech giants, now take advantage of these outdated tax rules by shifting profits to low-tax jurisdictions while avoiding taxes in the countries where they have millions of users. Because tax treaties still rely on physical presence as the threshold for taxation, many governments, especially in the Global South, struggle to collect taxes from these companies. This structural imbalance favors developed economies that host corporate headquarters, while developing countries, where much of the economic activity actually takes place, lose out on tax revenue.

Harpaz explains that the rise of digital business models has exposed serious weaknesses in the current tax system. Unlike traditional businesses, tech companies generate revenue from intangibles—user data, digital ads, and cloud services—without needing physical infrastructure in every country where they operate. Under current tax laws, profits from these activities often go untaxed or are taxed at extremely low rates. This creates a major disparity, as developed countries continue to collect revenue from corporate headquarters while developing nations, where much of the digital consumer base is located, struggle to tax profits generated within their borders. To make matters worse, multinational corporations employ a range of tax avoidance techniques for shifting profits to subsidiaries in tax havens, exploiting loopholes in tax treaties, and manipulating transfer pricing rules. While the OECD has attempted to address these issues through reforms, many developing nations argue that these efforts have been slow, limited in scope, and designed to preserve the economic advantages of wealthier countries. The UN, in contrast, has proposed a framework that would give source countries greater taxing rights, but implementing these changes remains an uphill battle. By grounding this discussion in historical context, Harpaz effectively demonstrates how today’s tax disputes reflect broader economic and geopolitical inequalities. The discussion of the colonial underpinnings of international tax treaties is particularly illuminating, helping to explain why the current system remains so resistant to change.

Harpaz next turns to the competing roles of the OECD and the UN in shaping global tax policy. For decades, the OECD has functioned as the de facto “World Tax Organization,” setting the rules that govern international taxation. While initiatives like BEPS 1.0 and BEPS 2.0 have sought to address tax avoidance, Harpaz critiques the OECD’s efforts as insufficiently inclusive and overly protective of Global North interests. The introduction of the Two-Pillar Solution under BEPS 2.0 was an attempt to rebalance tax rights, particularly by allowing market jurisdictions to tax a portion of MNEs’ residual profits. However, as Harpaz notes, the initiative has faced significant political resistance, particularly from the U.S. The OECD’s continued preference for residence-based taxation, combined with its historical exclusion of Global South voices, has fueled calls for a more inclusive approach.

Frustrated by the OECD’s dominance, developing countries have begun rallying around the UN as a potential alternative for shaping global tax policy. While the UN has historically played a secondary role in international taxation, recent developments suggest a shift in power. In 2024, a UN General Assembly resolution laid the groundwork for a Framework Convention on International Tax Cooperation, backed by countries in the Global South. This initiative aims to create a more inclusive tax system that prioritizes the rights of source countries, allowing them to tax corporate profits generated within their economies. However, Harpaz mentions that major hurdles still remain. Developed nations are unlikely to give up control over tax policymaking without a fight. Additionally, political instability—including the possibility of another U.S. withdrawal from international agreements—makes it uncertain whether a UN-led tax framework will gain enough traction. While the push for tax reform continues, real change will require overcoming institutional resistance and reaching a consensus on how digital taxation should be structured in the 21st century. In spite of these challenges, Harpaz makes a strong case for the UN’s involvement, pointing to its history of advocating for source-country taxing rights.

One of the article’s notable contributions is its proposal to expand source-country taxing rights through the doctrine of Significant Economic Presence (SEP) or Virtual Permanent Establishment. Under this model, a company would be subject to tax in a country if it derives substantial revenue or user engagement there, even in the absence of a physical presence. A coordinated, multilateral approach—such as the UN’s proposed tax framework—would be more effective, in Harpaz’s eyes, in ensuring fair taxation across borders. Harpaz’s proposal builds on unilateral measures already adopted by some jurisdictions, such as digital services taxes (DSTs) in Europe and India. By formalizing SEP at the multilateral level, he argues, international tax rules could become more equitable and better aligned with digital business models. He thereafter provides a thoughtful outline discussing how SEP thresholds could be structured, whether through revenue benchmarks, user engagement metrics, or other digital footprints.

However, there are practical challenges to implementing SEP that merit further discussion. Indeed, Harpaz acknowledges these obstacles, counterarguments and potential resistance from MNEs and capital-exporting countries. Critics argue that defining what constitutes a substantial digital presence could be complex and subject to disputes. Other opponents of source-based taxation often argue that it could lead to double taxation, discourage investment, and create administrative complexities. Additionally, implementing a new tax standard on a global scale would require extensive negotiations and cooperation among countries with competing interests—an undertaking that could face serious political roadblocks. Despite these challenges, Harpaz claims that the need for reform is urgent. Without changes to the international tax system, multinational corporations will continue exploiting outdated tax rules, depriving many countries of much-needed revenue. While resistance from developed nations is expected, the push for source-based taxation is gaining momentum, particularly as the digital economy continues to reshape global commerce. The success of the UN’s proposed framework will depend on whether policymakers can navigate these challenges and build a more equitable tax system for the future.

Harpaz provides a normative framework that addresses fundamental challenges of digital taxation while thoughtfully addressing implementation barriers. The proposed SEP doctrine offers a substantive solution to current jurisdictional limitations, effectively balancing theoretical rigor with practical considerations. A potential challenge that could be explored in greater detail in this Article is SEP valuation and the reliance of SEP on economic indicators that may be difficult to measure consistently. Determining whether a company has a significant economic presence in a given jurisdiction requires reliable data on user engagement, digital transactions, and revenue attribution. Similarly, elaborating on the practical implementation of SEP—especially in terms of enforcement and dispute resolution—would make the proposal more actionable. Harpaz acknowledges these challenges but could delve more into potential solutions, such as standardized reporting requirements or international arbitration mechanisms.

While Harpaz addresses these concerns and emphasizes the need for multilateral coordination and standardized rules to prevent tax disputes, the Article could also benefit from a deeper engagement with the political and institutional challenges facing such tax initiatives. Given the entrenched influence of member states in global financial institutions, the ability of international organizations such as the UN to implement meaningful tax reforms remains an open question. While the UN framework is presented as a fairer alternative to the OECD, its capacity to enforce tax agreements remains uncertain. The UN lacks the institutional authority of the OECD, and without strong political backing, its tax initiatives may struggle to gain traction. A more robust discussion of how the UN could navigate these challenges would further strengthen the article’s argument. Perhaps considering alternative approaches, such as hybrid models that incorporate both residence- and source-based taxation, could provide greater feasibility and a more nuanced view of the available policy options.

Overall, Harpaz’s article makes important contributions to the ongoing debate over international tax reform pointing out that the current international tax system is no longer fit for the digital age. As technology companies generate vast revenues across multiple jurisdictions without a physical presence, existing tax rules allow them to avoid paying their fair share. The growing divide between the OECD and the UN highlights the struggle between developed and developing nations over global tax governance. Despite the inevitable challenges of reform, implementation of the SEP standard could bring a meaningful advancement toward more equitable taxation principles that align corporate tax obligations with actual economic value creation. By establishing a more balanced allocation mechanism, this approach could address the fundamental disconnect between economic activity and tax liability that has allowed digital enterprises to accrue significant untaxed profits in markets where they maintain no physical presence but substantial economic engagement.