The penetration of digitalization in every sector of the economy is a challenge from taxation perspective. Given the global nature of operations, it is possible for multi-national enterprises (MNEs) fragment their production and supply chain across various low tax jurisdictions. They park and manage the Intellectual Property (‘IP’) in one tax jurisdiction, to carry out production and delivery systems from multiple tax jurisdictions. In a digital era determining the ‘situs’ of an IP embedded in a product sold internationally is the biggest challenge. The final products pass through many tax jurisdictions and may not be taxed either due to the arrangement of activities and business models in line with the treaty provisions and domestic law of each jurisdiction.
The benefits that MNEs get are
(a) reduction in tax burden and
(b) low risk by creating multiple tax presence.
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Situs of IP for taxing rights
by Lakshmi Pavan