University of Georgia School of Law Professor Assaf Harpaz presented his draft paper “Global Tax Wars in the Digital Era” at the Hebrew University of Jerusalem’s Tax Law Forum during December.

Below is an abstract of the paper:

International tax debates often center on how to fairly allocate taxing rights on the profits of multinational enterprises, carrying significant global economic implications. When a business earns income abroad, the country of residence (where the taxpayer resides) and the country of source (where income is generated) both have legitimate, competing claims to tax that income. The international tax system favors residence-based taxation. The source country has the right to tax business profits only if the enterprise carries on a permanent establishment in its borders, which typically requires physical presence. The permanent establishment standard becomes flawed in a digital economy where profit shifting practices are abundant and businesses no longer require a physical presence in the location of their online consumers.

These enduring norms are poised to change with an upcoming United Nations (UN) Framework Convention on International Tax Cooperation – an initiative overwhelmingly supported by Global South economies. The Global North has historically dominated the international tax regime through the Organisation for Economic Co-operation and Development (OECD), informally known as the “World Tax Organization”. A UN framework convention could introduce new standards to address the tax challenges of digitalization, though it would need to bridge the underlying North-South divide.

This article explores the “tax wars” surrounding the leadership for global tax governance, contrasting the taxing powers and interests of the OECD-led Global North with those of the UN-backed Global South. It argues for a shift toward source-based taxation by revisiting the permanent establishment standard. This transition will address longstanding inequities and is increasingly warranted in a digital economy that does not rely on physical presence.

 Assaf Harpaz joined University of Georgia School of Law as an assistant professor in summer 2024 and teaches classes in federal income tax and business taxation. Harpaz’s scholarly focus lies in international taxation, with an emphasis on the intersection of taxation and digitalization. He explores the tax challenges of the digital economy and the ways to adapt 20th-century tax laws to modern business practices.