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The international tax regime is almost a century old, and it is showing its age. In recent decades, the regime could be maintained despite increasing evidence that some of its key components, such as the arm’s-length standard or permanent establishment threshold, were unfit for a 21st-century economy. However, starting with the U.K. diverted profits tax (2015), Australia’s multinational anti-tax-avoidance law (2015), and India’s equalization levy (2016), it has become clear that many countries are unwilling to live with a situation in which large U.S. technology companies (such as Amazon, Apple, Facebook, Google, and Netflix) earn billions in profits by exploiting their consumer base and paying little tax. More recently, the digital services taxes adopted by Italy (2018) and France (2019) and proposed in the United Kingdom and the EU have threatened to undermine the entire system. The United States has threatened to impose retaliatory tariffs on France, and an escalating trade war could ensue.


Reprinted with the permission of Tax Analysts.

Working paper version available at SSRN:

Available for download on Sunday, August 26, 2029