The increased implementation of modern information and communication technologies is leading to observable changes within the organizational structures of the economy. A "virtualization" can be observed in the internal organization of enterprises, in new forms of co-ordination between enterprises, as well as within the market organization.

Market transactions carried out by enterprises are being processed either completely or in part by information and communication technologies, thus creating electronic markets. Concerning the internal organization of an enterprise, the implementation of modern information and communication technologies can lead to regional decentralization, as the process of producing goods and services makes use of mobile production factors in various locations. Furthermore, an organizational decentralization can be observed within the enterprise where a modularization of the value-added chain is taking place. The application of modern information and communication technologies is also leading to the creation of hybrid forms of enterprise co-operation, such as virtual organizations. Thus, enterprise boundaries are no longer clearly distinguishable.

The goal of this project is to systematically compile the consequences for international corporate taxation resulting from organizational changes within enterprises and market structures. The difficulties for taxation result mostly from of the increasing regional independence of enterprises and their production factors. Also, previous tax basis are blurred, as there are generally no country borders within the worldwide data net. In addition, transactions are frequently carried out more anonymously so that that data required for taxation are not always available.

In a first step, the consequences for enterprise and market structures resulting from the implementation of modern infor mation and communication technologies shall be compiled. In the next step, the implications of the application of existing international tax regulations on the changed enterprise and market structures shall be analyzed. Emphasis lies on the stipulation of source and residence rules, the choice of methods to avoid double taxation, transfer pricing and the division of income among various states. There are several important principles for tax policy that underlie the system of international taxation. The generally accepted taxation principles which constiture normative criteria for an optimal taxation, as for example the neutrality-principle and the equity-principle, are used to evaluate the given tax regulations and to recommend possible reforms.

Given these basic principles, various problems result from the application of existing tax regulations on the changed enterprise and market structures. In this context, especially the definition of a permanent establishment and the correct division of income among different taxpayers pose problems. With the outcome of this analysis the question whether or not the currently valid international taxation regulations can be upheld, and to what extent several corrections need to be made, can be investigated. It may be that fundamentally different concepts have to be applied, such as a global formulary apportionment or an extended consumption taxation. Based on these questions the continuative goal of the project is to develop concrete approaches towards a possible reform of international corporate taxation. On the one hand, the reform concepts should be based on international taxation principles, on the other hand, they should include considerations developed in other states or supranational institutions such as the European Commission or the OECD.

The central developments in the international corporate taxation in the age of ICT which were acquired in this project are the change from a transaction based allocation of profits method to a formulistic allocation of profits, an adaptation of the definition of the criteria for the location of the management to forms of a management which is variously located and mobile as well as an enlargement of the permanent establishment term.

Selected Publications

Project duration

01.01.2002 - 31.07.2004

Project members

Prof. Dr. Dr. h.c. mult. Otto H. Jacobs (Coordinator)
Prof. Dr. Christoph Spengel (Coordinator)
Dr. Anne Schäfer


Digital Economy