Significant/minimal digital/human involvement/intervention/presence – the never/ending tax/story
Fairness is one of the most challenging words in the tax world. At the same time, it is one of the most indeterminate due to its diverse perceptions. It is difficult to estimate what is fair both from objective and subjective perspective. Fairness is symbiosis of many social factors, of the development of society, of the interaction between the different states at international level. It changes over the years to be in line with the practical needs.
In recent years, we have witnessed many international initiatives by the Organisation of Economic Development and Co-operation (OECD), the United Nations (UN) and the European Council (EC), whose main goal is to combat profit shifting and to find the balance. This is particularly noticeable through the prism of the digital economy. Not only is it no longer a novelty in our daily lives, but it can even be defined as an integral part. Despite the many proposals, it is difficult to reach a final decision on the taxation of the digital economy. OECD addressed this issue in its Action Plan 1 of the Base Erosion and Profit Shifting (BEPS) project. This is also reflected in the EC’s proposal for “significant digital presence”. Pillar 1 can also be included as relevant. UN has proposed an entirely new art. 12B on income from automated digital services. Digital services taxes have already been introduced in the legislation of several states. Nowadays, however, their nature may be construed as disputable and even controversial. From VAT perspective, EC has made a number of proposals for new place of supply rules services relating to virtual activities. All these initiatives are welcoming ideas on this issue.
For the purposes of this paper, attention will be paid to specific aspect that is particularly important (or not) for the digital economy – the human presence. In this regard, it is necessary to consider what is its function through the prism of direct and indirect taxes.
At EU level, the proposal for significant digital presence, known as the “digital PE”, may be mentioned. Also, Art. 12B, para 4 UN-MC is intriguing. It contains the expression “minimal human involvement”. From VAT perspective, Art. 7, para 1 VAT Implementing Regulation the “minimal human intervention” is used.
In this regard, it is interesting to consider the role of the expressions used, as well as their similarities and differences. Therefore, the author will try to answer the following questions. First, what is the “minimum” and where is the “maximum” of the human presence (if any) and the determination of their threshold (if any)? Second, is it always necessary to talk about humans in the digital economy? Third, is there a difference between human “involvement” and “intervention” or are they synonyms? Last but not least, it is intriguing to consider whether a criterion that is universally valid for both direct and indirect taxes can be used. This is especially important for some key concepts such as the permanent establishment and the fixed establishment. At this stage, in both cases, their digital manifestation is unlikely for various different reasons. However, this topic will be subject of further analysis in the future.
Finally, conclusions will be drawn about the real impact of humans and their intervention. If they are not “applicable” at all for the purposes of the digital economy, then do we need their further tax analysis? Conversely, if they have a definite role, then where is the line between the physical and the digital aspects?
The author has chosen this issue because it is vital for the digital economy both from direct and indirect taxes perspective and from theoretical and practical point of view. His analysis will provide guidance on what awaits us in the future on this issue, as well as whether common approaches for the interpretation of the above mentioned terms can be found. It would also answer the more philosophical question of how much humans will influence the proper tax treatment. This is becoming an increasingly significant topic due to the increasing use of robots and space.