Digitalization is everywhere: it changed our communication and it changed our businesses and it basically changed our ability of applying theories to practically relevant challenges. Many benefits of our 21st century welfare are strongly connected to digitalization. But there are also new legal challenges arising out of the nearly limitless use of digital possibilities in our lives. Purchases are made on virtual marketplaces; advertisement gets individually targeted and geographic movement gets tracked online. All this is based on data, more detailed based on data collection, data processing and data analytics. The potential for data-driven businesses to gain serious turnovers and profits is high. As the 5 most valuable companies worldwide (Alphabet, Amazon, Apple, Microsoft, Berkshire Hathaway) show, 4 out of 5 are data- or at least high-tech-related companies. One of the reasons for such high profits is at least the tax avoidance strategy of some of these companies. Since the famous “Double Irish with a Dutch Sandwich”-strategy of some US-Multinational Corporations and the supranational BEPS-reaction it is clear, that taxation in business sectors with high intellectual property proportions leading to low logistical efforts and costs is a question of immense relevance. Conventional businesses are established at a defined place, produce their goods and products there or have clearly defined venues where their service takes place while digital businesses have only some manufacturing sites but are mostly generating their profits and turnovers by intangibles which are not connected to one permanent establishment anymore. With other words: It is clearly definable, where turnover and profits are made in conventional economies. This led to a basic assumption valid for years, stating that taxation of businesses of every kind is connected to kind of a geographic element to allocate the taxation rights to tax authorities. This became law in countless DTTs all over the world as based on the OECD-MC on Double Taxation, according to the meaning of Art. 5 OECD-MC.

As this work will show, current international taxation faces various challenges when it comes to taxation of digital economies which already got tackled by several tools of either international or more nationalistic approaches. The work shall point out the need for a global taxation model for digital economies that is compatible to the fast- changing processes in the digital economy’s world. Additionally to the assessment of the given approaches to tax conventional economies in the light of the particularities of digital economies, this work shall evaluate the international and nationalistic approaches expressed by the OECD, G20 and EU as well as some states within the EU that are pushing forward a national digital tax (e.g. Austria) and shall show detailed approaches and the possible effects on this challenge that are currently not part of the popular approaches but should be at least considered by authorities.

The work shall describe the economic and practical particularities of digital industries compared to conventional industries and their relevance to taxation as well as pointing out the various value creation mechanisms that are used by the actors in order to define the area in which taxation needs to be developed in the view of these challenges. Furthermore, this work shall describe the approaches of the OECD and the EU and take nationalistic and other elements into account when evaluating the effect of those approaches on the challenge of taxing digital economies.

The aim of the work is to give a critical evaluation on the current approaches. This should be based on the detailed description of such approaches trying to create higher hurdles for the highly profitable digital industry combined with forum shopping of multinational corporations in low tax countries and setting the spotlight on the background of the problem of taxation in digital economies, where permanent establishments are practically not decisive any longer.

On the basis of these preliminary considerations the academic hypothesis for this work shall be the following: “Are the common taxation procedures and approaches meeting the requirements of a digitalized and globalized world or is there a need for fundamental renewals and if so, which measures could be seen as appropriate?”

Also the aim shall be reached by describing the multi-layered options digital economies offer to companies, connecting it to the problem of base erosion and profit shifting and then showing the approaches of OECD and EU on tackling this problem in the relevant context of digitalization with giving an outline on subsequent detailed descriptions of nationalistic digital tax approaches and other tools.