Taxation of Cloud and Digital Transactions

Summary

This practice note discusses recent developments in the area of taxation of cloud and digital transactions. Provided is an overview of the size and scope of digital transactions as part of the overall global economy. Also included is a discussion of digital service taxes which have been a popular response from countries looking to impose tax on digital transactions as they have watched their tax revenues deteriorate from traditional business activities. While such taxes may solve one country's fiscal needs, they do not promote uniformity and create incentives for multinational businesses to seek to structure their activities in a way to minimize such liabilities as well as compliance headaches. Also, the work of the Organization for Economic Cooperation and Development (OECD) to confront this problem and to develop a uniform system is explored, and the view of the U.S. to the problem and the proposed cure is examined.