Policy Brief - Taxation of the digital economy

The main features of the digital economy are the lack of a precise location for its activities, the key role played by the platforms, the importance of network effects and the processing of the collected data – which differentiate it from the non-digital economy, particularly in their effects on the value chains.

Such characteristics make it difficult to apply the standard taxation framework. Adjusting this framework requires an insight into the economic rationale of the digital companies and how they work. France Stratégie commissioned a research from high-level economists who carried out the study: ‘Taxing the digital economy: what lessons from theoretical models?’ that provides such analysis.

In the short term, it suggests that specific new taxation tools could be considered at a European level, or for a small core of countries, whilst waiting for an overhaul of the international tax framework. Such taxation could be based on an ad valorem tax on advertising revenue or on the collection of personal data, more easily linked to a specific territory. Because of its impacts, it would be necessary to ensure that no distortions would be introduced by applying it – an increase of data collection, the introduction of chargeable services, the exclusion of certain users, or a brake on innovation. Applying a relatively low tax rate and a threshold below which a company would not be taxed could avoid this.