EXECUTIVE SUMMARY 2

ACRONYMS 5

1. INTRODUCTION: COMPLEXITIES SURROUNDING TAX REFORMS 6

2. THE ECONOMICS OF SPECIAL TAXES ON DIGITAL SERVICES (DSTS) 8

2.1 Emerging Forms of Digital and Transaction-Based Taxation 12

2.2 The Incidence of DSTs and Taxes on Corporate Income 17

3. TAX CODE COMPLEXITY AND THE FLAWS OF GLOBAL CORPORATE TAX INITIATIVES 20

3.1 Pillar One – Reallocating Taxing Rights in the Digital Age 22

3.2 Pillar Two – the Global Minimum Tax 25

4. THE SIMPLE, EFFECTIVE AND EFFICIENT SOLUTION: VAT AS EUROPE’S DIGITAL AND INDUSTRIAL TAX BASE 28

5. IMPLICATIONS FOR EU AND NATIONAL TAX REFORM INITIATIVES 38

REFERENCES 41

ANNEX I FISCAL PERFORMANCE OF DIRECT DIGITAL SERVICES TAXES 48

ANNEX II– KEY DRIVERS OF THE EU’S SUBSTANTIAL VAT POLICY AND COLLECTION GAP 49

ANNEXII–KEYELEMENTSOFTHEVATINTHEDIGITALAGE (VIDA) PACKAGE 51