Researches On New International Tax Base Allocation Rules Under Digital Economy

In recent years,digital economy has become a hot topic in the world.A separate chapter in the “14th Five Year Plan” shows the importance we attach to the development of digital economy.However,the price of digital economy is the loss of tax benefits and the imbalance of international tax base allocation results.In view of the diversity of tax base types,this paper focuses on the most important tax base allocation rules: business income.According to the traditional international tax base allocation rules of business income,the premise for the source country to get the tax right on profits of an enterprise is that there should be a permanent establishment.Then the source country calculates the business income belonging to the permanent establishment according to the arm’s length principle.However,especially with the development of digital economy,the transnational operation of an enterprise breaks through the necessity of the permanent establishment in the source country,so the traditional profit allocation rules with the permanent establishment and the arm’s length principle can no longer meet the needs of reality.Enterprises make use of the lag of international tax rules to carry out tax planning,which has seriously affected the normal order of international tax.The present international tax base allocation rules were established in the 1920 s.After a hundred years,the global economic model has undergone great changes,and the pace of the reform of international tax base allocation rules lags behind the reform of economic models.In this regard,more and more countries including China are beginning to realize the challenges of digital economy and carry out negotiations at the international level to form a plan to deal with the challenges of international tax base allocation rules of business income as soon as possible.In the process of exploring the new rules of international tax base allocation,the transactional profit split method,the residual profit allocation method and the formula allocation method are of profound significance to the formation of the new rules of international tax base allocation.After several years,under the leadership of OECD,through the summary of different tax base allocation rules and combination with the voices of many parties,the new international tax base allocation rules have been gradually formed.According to the new rules,the residual profits are distributed to the standard market jurisdictions with the sales index in the light of the formula method,so as to redistribute the global tax base of multinational enterprise groups.As a big country of digital economy,China must pay close attention to the impact of the reform of international tax base allocation rule when the “14th Five Year Plan” has emphasized the advantages of the digital economy.We must ensure the coordination between domestic rules and international rules,and prevent the loss of tax interests caused by the differentiation of rules.The construction of rules should not be blind,but should be guided by relevant principles.The OECD put forward the principle of value creation in the <Action Plan on Base Erosion and Profit Shifting> released in2013.The principle of value creation is that taxation should be consistent with economic activities and value creation.Focusing on the exploration and latest achievements of international tax base allocation rules of business income,according to the principle of value creation,the content of this paper can be divided into the following aspects:The introduction of this paper first introduces the concept and relevant backgrounds of digital economy,combs relevant literatures,helps to form a basic understanding of digital economy and profit allocation rules of business income.Meanwhile,the paper makes clear the necessity of studying profit allocation rules of business income under the background of digital economy.The first chapter introduces the causes of the reform of international tax base allocation rules of business income in digital economy.Firstly,the reasons for the reform of international tax base allocation rules of business income are multifaceted,mainly including the transformation of global business model,the increasing enrichment of value drivers and the imbalance of international tax base allocation results.Among them,the imbalance of tax base distribution results is the most direct factor that forces the reform of international tax base allocation rules.Secondly,the construction of rules must be supported by relevant principles.In the process of the reform,the guiding principle has also changed accordingly.The second part of this chapter will introduce the principle of economic loyalty and value creation.In the era of digital economy,the principle of value creation is not isolated from the principle of loyalty,regarded as the guiding principle of traditional economy.The principle of value creation can be regarded as the continuation of the principle of economic loyalty in the era of digital economy.The principle of value creation is not originated from the field of tax law,so there are some disputes in the process of application.The pro view is that the value creation principle has brought dawn to the reform of international tax base allocation rules,but the opposite opinions focus on the unclear concept of value creation,which leads to that all countries can advocate tax base based on the value creation principle.Starting from the purpose,this paper believes that the principle of value creation can help to solve the current dilemmas of tax base erosion in market countries or source countries,so this paper supports the principle of value creation.Through the introduction of the reform reasons and theoretical bases of the international tax base allocation rules,the paper wants to establish the theoretical backgrounds for the later discussions.The paper also wants to lead to later discussions on the exploration of the international tax base allocation rules under the background of digital economy.The second chapter of this paper takes the new rules of international tax base allocation as the basis.There are three proposals that play an important role in promoting the formation of new rules: "significant economic existence","user participation" and "marketing intangibles".After excavating and exploring the international tax base allocation rules contained therein,they are transactional profit split method,residual profit allocation method and formula allocation method.The transactional profit split method still follows the arm’s length principle,no longer relies on comparable transactions as in the past,but focuses on the contributions of all parties to profits.The residual profit allocation method allocates residual profits according to the formula and endows places with the right to tax where consumers are located.With regard to the formula allocation method,as the disadvantages of the arm’s length principle have been criticized by more and more scholars,the formula allocation method that abandons the arm’s length principle has attracted extensive attention,and the globalization of the formula allocation method has been pushed to a climax.Although these three types of allocation rules have not been directly adopted,they have important reference values for the formation of new international tax base allocation rules.The third chapter will introduce and evaluate the new international tax base allocation rules.The new international tax base allocation rules have been studied since 2013.After several years,they are in the final stage of forming the final Multilateral Convention.The new international tax base allocation rules are presented in the "Pillar I" scheme.The international tax base allocation rules,aiming at simplification,have been established in Pillar I according to the above three methods.The residual profits determined according to the proportion agreed in advance are distributed to the market jurisdictions according to the formula based on sales revenue.The new international tax base allocation rules have important value in dealing with the tax challenges of the digital economy and coordinating international tax equity.Some technical problems have been solved in many years of discussions,but there are still some problems.For example,the imperfection of the income source rules will directly affect the final international tax base allocation results;the pursuit of simplification will damage fairness.The fourth chapter discusses the impact of international tax base allocation rules on China and its countermeasures.In the first part,this paper first briefly analyzes the impact of the new rules on enterprises of China.At present,due to the limited overseas scales,the impact of the new rules on enterprises of China is finite.Secondly,the direct reflection of the new rules is the adjustment of rules in the field of international income tax,so this paper analyzes the differences between the new rules and current enterprise income tax norms of China in order to find the directions of revisions in the future.For example,after the reconstruction of the international tax base allocation rules,the permanent establishment will not be the only nexus,while<Enterprise Income Tax Law> still emphasizes the entity existence of institutions and places.The second part of this chapter will put forward some suggestions to deal with the new rules in combination with the development of digital economy.In the long run,in order to coordinate with the new rules of international tax base allocation,China must make adjustments in the relevant tax laws and their implementation regulations.For example,it is better to enrich the connotations of "institutions and places" in the implementation regulations of <Enterprise Income Tax Law>.In short,in order to play the role of the new engine of the digital economy,China must act positively,pay attention to the new rules in time,and gradually coordinate the new rules of international tax base allocation and enterprise income tax rules of China.