Taxation in the digital economy: How Should Digital Service Taxes be Implemented?

Abstract

          The digitalization of the economy has presented profound challenges to the traditional international tax framework, which is predicated on the principle of physical presence through a 'Permanent Establishment'. This long-standing concept has proven inadequate for capturing the economic activities of multinational enterprises operating within the digital sphere, leading to significant tax base erosion in market jurisdictions and raising fundamental questions of fairness in the allocation of taxing rights. This article aims to synthesize and analyze the multifaceted legal issues arising from this paradigm shift. Through a documentary research methodology, it conducts a comparative legal study of the approaches adopted by various jurisdictions, namely, unilateral Digital Services Taxes and adaptations of indirect tax systems. The study further dissects the principal legal challenges,including compatibility with double taxation conventions and World Trade Organization law. Ultimately, this article proposes a desirable hybrid policy approach for Thailand, advocating for long-term alignment with emerging global standards while implementing prudent and contextually appropriate transitional measures.