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Digitalization has transformed everyday life. Routine functions are performed by using assorted digital applications and the online consumer is at the center of modern business models. Many of the world’s largest companies are highly digitalized, including Google, Amazon, Facebook, Apple, and Microsoft. The digital economy offers great benefits to society, yet its unique attributes have produced considerable tax challenges. This is primarily because highly digitalized business models often do not conform with traditional international tax characterizations. Most notably, highly digitalized businesses can earn profits in foreign economies without creating physical permanent establishments that give rise to taxing rights. As a result, significant profits remain untaxed by market jurisdictions despite the sustained involvement of highly digitalized enterprises in those market jurisdictions. International efforts are underway to address the tax challenges arising from digitalization. The OECD is working through an inclusive framework comprised of 137 countries, large and small, to achieve a long-term consensus-based solution on new taxing rights and profit allocation norms. Meanwhile, as of January 2021 approximately 38 jurisdictions have announced, proposed, or already adopted unilateral measures to tax revenues from digital services provided within their jurisdictions.

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