Abstract

The rapid expansion of the digital economy has exposed fundamental weaknesses in traditional tax regimes, particularly regarding cross-border transactions and multinational digital corporations. Many digital businesses operate globally without a significant physical presence, enabling them to minimize tax liabilities through profit shifting and regulatory arbitrage. This paper examines the challenges of digital economy taxation and explores how India can learn from global best practices to create a fair and efficient tax system. A major issue in taxing digital businesses is the difficulty in defining economic nexus and profit attribution in an increasingly borderless market. While the Organization for Economic Co-operation and Developments (OECD’s), Base Erosion and Profit Shifting (BEPS) framework and the Global Minimum Tax initiative offer partial solutions, their effectiveness depends on broad international cooperation. Many countries, such as the European Union with its Digital Services Tax (DST), the United States with its targeted taxation on tech giants, and Australia’s stringent anti-avoidance laws, have developed unique approaches to digital taxation. This paper advocates a comparative analysis of these models to identify best practices that India can adopt. India, with its burgeoning digital economy, can benefit from a hybrid model that incorporates elements from leading jurisdictions. For instance, India can draw lessons from the EU’s revenue-based DST while ensuring compliance with OECD guidelines to avoid trade disputes. The United States’ focus on technology-driven compliance and Australia’s anti-tax avoidance mechanisms offer additional insights. By leveraging AI-driven tax compliance and block chain for transparency, India can modernize its digital tax framework while maintaining competitiveness. This study ultimately proposes a harmonized taxation policy that balances national interests with global cooperation, ensuring a level playing field for digital enterprises while securing public revenues in the digital age.

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