The digital economy and its implications: does the OECD’s Pillar One Proposal challenge the principles of law within International and EU tax law?

Sammanfattning: Change is the only constant; yet, as we step into the brave new world of taxing the digital economy, it might seem like the need and development of principles and rules for adequate profit allocation has only begun. This thesis discusses the profit allocation rules under the Unified Approach of the OECD Pillar One Proposal Amount A in relation to three identified principles of law in international and European tax law. In this cross- disciplinary approach, the principles of ability-to-pay, territoriality, and State Aid rules are qualified through review of their development in both realms of law. These principles of law are consequently used as benchmarks to review the objective of fair profit redistribution within the digital economy. As such, the study relies on the OECD Report on Pillar One Blueprint 2020 and the OECD Progress Report on Amount A of Pillar One 2022 to guide the discussion on the applicable rules. In review of the first principle, the progressive turnover tax of the Proposal is scrutinised as it largely deviates from the traditional qualification of the ability-to-pay principle based on adjusted corporate income tax. However, this qualification is contrary to the novel formulation of the Court of Justice of the European Union to both expand not only the ability-to-pay principle but also the principle of extraterritoriality to accommodate market state taxing rights and growing digital business structures. A domino effect occurs as the development of the ability-to-pay principle and extraterritoriality indirectly affects the EU State Aid rule regarding selectivity and taxing rights of states. Therefore, the thesis argues that the proposed tax measure is questionable in practice as there are conflicting outcomes with the although this direction is seen as an ongoing progressive step towards equalised distribution in the international and EU legal realm in the eyes of the Court.