NOVA Tax Research Series

Lo que caracteriza a NOVA Tax Research Lab es que su organización y el desarrollo de su trabajo están anclados en una visión integrada e inclusiva de la tributación, con una impronta humanista y holística. Somos un centro de investigación que rechaza el trabajo individual impulsado por modas temáticas, así como no pretendemos seguir un camino de investigación individualizada. En lugar de ello, queremos contribuir a un reenfoque del sistema fiscal, identificando el panorama general, acercándolo y alejándolo, diseñando una escuela de pensamiento que sea capaz de innovar y revitalizar el edificio, reflexionando, repensando y, sobre todo, la señal de red necesaria de los sistemas fiscales contemporáneos. Es realista pero cierto que es necesaria una visión macroscópica del conjunto para reconfigurar la creación, aplicación, seguimiento y evaluación de las normas, procedimientos e impactos tributarios. Nuestro principal objetivo es crear valor social con un impacto relevante. Es imprescindible definir los ámbitos fundamentales de reflexión e investigación.

 

ÍNDICE

AUTHORS LIST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

PART 1: TAX & HAPPINESS

How the world should and can be

CHAPTER 1 - TAX & CITIZENSHIP: Tax Education Project

João Comenda António, Marta Carmo and Rafaela Cruz . . . . . . . . . . . . . . . . . . 25

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

1. Tax Education as a tool for Tax Morale, Tax Ethics and Citizenship: improving Voluntary

Compliance & understanding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

1.1. What motivates individuals to pay – or to not pay – their legally due tax liabilities? . . . . . . . . . 27

1.2. The weight of psychological compliance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

1.3. The role of States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

1.3.1. Confidence in the State and the administrative machine . . . . . . . . . . . . . . . . . . . . . . . 32

1.3.2. Cooperative compliance: relationship between the tax administration and taxpayers . . . . . . . . . 34

1.4. Tax fraud, tax evasion, aggressive tax planning and ethics . . . . . . . . . . . . . . . . . . . . . . . 36

2. Tax Education in the perspective of taxpayers’ rights: raise awareness of citizens’ rights

and obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

2.1. Tax Authorities and their role in tax education of the citizen: the principles of cooperation,

transparency, good administration, public service and information. . . . . . . . . . . . . . . . . . . . . . 38

2.2. Tax Education promoted by NGO, academics, and civil society. . . . . . . . . . . . . . . . . . . . . 42

2.3. Tax Education as a tool to raise awareness of taxpayers’ obligations but also taxpayers’ rights –

balanced view of the tax relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

2.3.1. The balance and the improvement voluntary compliance . . . . . . . . . . . . . . . . . . . . . . 44

2.3.2. Taxpayers’ rights as fundamental rights of citizens in democratic societies . . . . . . . . . . . . . . 46

3. Tax Education and its contribution to Democracy: the interlink between an active exercise

of the right to vote and the fundamental duty to pay taxes . . . . . . . . . . . . . . . . . . . . . 49

3.1. Taxation without representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

3.2. The link between tax education and tax compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 51

3.3. Drawing a bridge between the exercise of the right to vote and tax compliance . . . . . . . . . . . . 55

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

CHAPTER 2 – TAX & COLLECTIVE WELLBEING: Linking Public Finances,

Tax Management, Tax Communication and Sustainability

Ana Júlia Trindade, Pedro Ferreirinha and Sara Neto . . . . . . . . . . . . . . . . . . . . 65

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

1. State budget execution, control and transparency, & its impact on democracy perceptions . . 66

1.1. Beyond the balance sheet: exploring the philosophical relationship between state budget

and public trust in democracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

1.2. The role of citizen participation in budgetary decision-making and its impact on transparency

and accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

1.3. The impact of state budget execution on democracy and social welfare . . . . . . . . . . . . . . . . 72

1.4. Final considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

2. Taxes as instruments for implementing the fiscal principles of stability and sustainability . . . 75

2.1. Building a solid foundation: the role of taxes in achieving budgetary stability and sustainable

development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

2.2. Bridging the gap between tax law and economic policies: tools and strategies for sustainable

and equitable taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

2.3. Final considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

3. Tax, tech and equity: what universal basic income and robot tax mean for tax equity . . . . . 81

3.1. Opening remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

3.2. Towards a more equitable society: exploring the definition, relationship, and impact of universal

basic income on collective wellbeing and taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

3.3. The rise of a new tax payer? Balancing arguments for taxing robots and promoting a collective

well-being . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

3.4. Revolutionizing tax law and policies: implications of universal basic income and robot taxation . . . 89

3.5. Final considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

CHAPTER 3 – THE IMPORTANCE OF PAYING THE FAIR SHARE FOR

THE FULFILMENT OF ECONOMIC, SOCIAL, AND CULTURAL RIGHTS

AND TO ACHIEVE THE SUSTAINABLE DEVELOPMENT GOALS

Lara Silva, Mariana Passos Beraldo and Sara Vitorino . . . . . . . . . . . . . . . . . . . 99

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

2. Economic, Social, and Cultural rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

2.1. What are the Economic, Social, and Cultural rights? . . . . . . . . . . . . . . . . . . . . . . . . . . 102

2.2. The role of taxation for ESC rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

2.3. The 4 R’s of Tax Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

a. Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

b. Redistribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

c. Repricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

d. Representation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

2.4. The importance of progressive taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

3. The Sustainable Development Goals - SDGs . . . . . . . . . . . . . . . . . . . . . . . . . . 109

3.1. The 2030 Agenda and the 17 SDGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

3.2. Taxation and SDGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

3.3. Structuring tax systems and tax policies to finance SDGs . . . . . . . . . . . . . . . . . . . . . . . 116

4. Fair Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

4.1. Seeds of the concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

4.2. Many shades of fair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

4.3. The Importance of fair share to the implementation of ESCRs and SDGs . . . . . . . . . . . . . . . 126

4.4. Now what? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

5. Final considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

CHAPTER 4 – THE ROLE OF TAXATION FOR THE SOCIAL CONTRACT

& PUBLIC GOVERNANCE OF TAX REVENUE AND THE SEARCH FOR

A SUSTAINABLE SOCIAL STATE

Alice Ferraz de Andrade, Iara Maçarico and Catarina Gomes Correia . . . . . . . . . . 137

1. The social contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

A. The political foundations of the social contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

B. Domestic Fiscal Social Contract: assumptions and dimensions . . . . . . . . . . . . . . . . . . . . . 139

2. The importance of Representation and Redistribution to the State’s accountability and

sustainability and to the social contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

3. Recent challenges to the fiscal social contract and the State’s tax sustainability . . . . . . . . 148

A. Necessity to re-think the fiscal social contract model: the crisis of the current fiscal social contract

and the globalization phenomenon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

B. Recent challenges: windfall taxes and taxation of crypto assets . . . . . . . . . . . . . . . . . . . . . 153

i) Taxation of crypto assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153

ii) Windfall taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

PART 2: TAX & GLOBAL GOVERNANCE

How the world is working

CHAPTER 5 – INTERNATIONAL TAX LAW PRINCIPLES: past, present and future

Luís Castilho, Inês Vale de Amorim and Telmo Soares . . . . . . . . . . . . . . . . . . . 165

1. Declaration of intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

2. The allocation principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

2.1. Benefit principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

Benefit principle as a favoured allocation rule (customary practice test) . . . . . . . . . . . . . . . . 168

Benefit principle as a fair allocation criterion (distributive justice test) . . . . . . . . . . . . . . . . . . . 172

Benefit principle as a solution to the digital economy challenges (obsoleteness test) . . . . . . . . . . . . . 174

2.2. Value creation principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

Value creation principle as a source for faulty assumptions (clearness test) . . . . . . . . . . . . . . . . . 177

Value creation and the underlining problems of global value chains (awareness test) . . . . . . . . . . . . 180

3. The efficiency principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

3.1. Single tax principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Rethinking the importance of the avoidance of double taxation and of double non-taxation . . . . . . . . 184

Single taxation and BEPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

Full taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

Single Tax Principle and the taxation of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

Where we stand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

3.2. Neutrality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Pareto efficiency in the allocation of capital resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

The many faces of the neutrality principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

How is neutrality achieved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

To compete or not compete? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

4. Are we at a cross-road? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

CHAPTER 6 – TO THE BASICS (OR NOT THAT MUCH): Why an International

Tax Regime, what are the BEPS Actions and the Future Ahead. A critical analysis

Disha Shah, Mariana Rodrigues Brito and Teresa Bouza Serrano . . . . . . . . . . . . . 207

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

2. Why an International Tax Regime and How Did It Emerge? . . . . . . . . . . . . . . . . . . 209

3. The Role of International Organizations and the OECD BEPS Project. . . . . . . . . . . . . 210

3.0. Achievements and Shortcomings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

3.1. BEPS 01 – Tax Challenges Arising from Digitalization . . . . . . . . . . . . . . . . . . . . . . . . . 213

3.2. BEPS 02 – Neutralising the Effects of Hybrid Mismatches Arrangements . . . . . . . . . . . . . . . 215

3.3. BEPS 03 – Controlled Foreign Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

3.4. BEPS 04 – Limitations on Interest Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

3.5. BEPS 05 – Harmful Tax Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

3.6. BEPS 06 – Prevention of Tax Treaty Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222

3.7. BEPS 07 – Permanent Establishment Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225

3.8. BEPS 08, 09, 10 and 13. Transfer Pricing Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226

Action 8. Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

Action 9. Risk and capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

Action 10. High-risk transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

Action 13. Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

3.9. BEPS 11 – BEPS Data Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234

3.10. BEPS 12 – Mandatory Disclosure Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

3.11. BEPS 14 – Mutual Agreement Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236

3.12. BEPS 15 – Multilateral Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

4. Multilateralism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

4.1. Will the MLI open the pave to a Multilateral order? . . . . . . . . . . . . . . . . . . . . . . . . . . 241

5. Developing Countries effective participation . . . . . . . . . . . . . . . . . . . . . . . . . . 243

6. Final Remarks. The Future Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

CHAPTER 7 – GLOBE RULES: Current status and issues

Carla Valério, Eduardo Raposo and Rita Campos Pereira . . . . . . . . . . . . . . . . . 255

Part 1: Analysis of the GloBE rules: the search for an international framework . . . . . . . . . 255

1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

2. General Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

2.1. Object . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

2.2. Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

3. Income Inclusion Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

3.1. Application of Income Inclusion Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

3.2. Allocation of the IIR top-up tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

3.3. Offset mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

3.4. The IIR in scholarly literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

4. Undertaxed Payments Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264

5. Computation and Allocation of Qualifying Income or Loss . . . . . . . . . . . . . . . . . . . 267

5.1. Computation of GloBE Income or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267

5.2. Adjustments to determine GloBE Income or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

6. Computation of Adjusted Covered Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

7. Computation of the Effective Tax Rate and the Top-Up Tax . . . . . . . . . . . . . . . . . . 270

7.1. Determination of the jurisdictional effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . 270

7.2. Computation of the top-up tax payable in a jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . 271

7.3. Substance-based Income Exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

7.4. De minimis exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

7.5. Minority – Owned Constituent Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

8. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

Part 2: Implementation of the GloBE in the European Union: the search for compatibility . . . 276

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276

2. GloBe Rules and EU law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

3. The choice of instrument: A Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

4. Compatibility with EU law: Which Freedom? . . . . . . . . . . . . . . . . . . . . . . . . . . 278

5. Compatibility with EU law: specific issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280

5.1. Can IIR + substance-based carveout = CFC’s out-of-jail card? . . . . . . . . . . . . . . . . . . . . . 280

5.2. Interaction between Model Rules and EU law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

6. Implementation – Proposal for a Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

6.1. Introductory remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283

6.2. Main differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284

6.3. Are the differences innocuous? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286

6.4. Alternative proposals: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287

7. Forward look . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289

Part 3: Implementation of the GloBE rules in developed and developing countries: the search

for asymmetries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290

1. Developed and developing countries - main differences . . . . . . . . . . . . . . . . . . . . 290

2. Sharing (but not dividing) the minimum tax pie: GloBE rules for developed and developing

countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291

2.1. Income Inclusion Rule (IIR): which countries will be entitled to implement the top-up tax? . . . . 292

2.2. Undertaxed Payments Rule: a way for developing countries to obtain tax revenues? . . . . . . . . . 292

3. Developing countries and tax incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294

3.1. An overview of the tax incentives adopted by developing countries to attract foreign investment . 294

3.2. Can GloBE Rules affect existing tax incentives? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

3.3. Will the Subject to Tax rule respond to the developing countries’ current concerns? . . . . . . . . . 297

4. Are there any other options? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298

5. Final remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301

CHAPTER 8 – THE SPREAD OF INTERNATIONAL REMOTE WORK:

Impacts on taxation

Rita Campos Pereira . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

Introduction – is it still “another day at the office”? . . . . . . . . . . . . . . . . . . . . . . . . 307

2. Corporate Income Tax for the Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

2.1. Deemed existence of a permanent establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308

2.2. Additional registration requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310

3. Personal Income Tax for the Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

3.1. Double taxation issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311

3.2. Tax competition between states and redistribution of the personal income tax base . . . . . . . . . 313

4. Final remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314

CHAPTER 9 – CITIZENSHIP TAXATION AND EXIT TAXES: Fairness or Tyranny?

Luís Castilho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

1. Declaration of intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317

2. Citizenship taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

2.1. How it works? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Types of citizenship taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Purpose of citizenship taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

2.2. Arguments in favour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321

2.3. Arguments against . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

3. Exit taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

3.1. How does it work? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

Types of exit taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

Purpose of exit taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

3.2. Arguments in favour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326

3.3. Arguments against . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327

4. Final balance and future debate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

4.1. Citizenship taxation: friend or foe? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329

4.2. Exit taxation: paywall or fair trade? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

4.3. Citizenship taxation vs Exit taxes: pick your poison . . . . . . . . . . . . . . . . . . . . . . . . . . 333

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334

CHAPTER 10 – THE RISE OF SPACE TAXATION: A Tale of Foresight

Telmo Soares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

1. Declaration of intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337

2. A brief introduction to International Space Law . . . . . . . . . . . . . . . . . . . . . . . . 339

3. Outer space activities: from international law to international tax law . . . . . . . . . . . . . 347

3.1. General considerations – “How far can we tax?” . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348

3.2. Current space endeavours – “How far have we gone?” . . . . . . . . . . . . . . . . . . . . . . . . . 353

Operating satellites in the international context: from old queries to new challenges . . . . . . . . . . . . . 353

Space Tourism: from trips to a jurisdictional void to other accessory hurdles . . . . . . . . . . . . . . . . 361

Space Employment: from lessons learnt to new questions to be uncovered . . . . . . . . . . . . . . . . . 369

3.3. Future space endeavours – “How far will we tax?” . . . . . . . . . . . . . . . . . . . . . . . . . . . 374

Private Space Stations: from multilateral cooperation to the concept of “modular” jurisdiction . . . . . . . 374

4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379

PART 3: TAX, TECH & DIGITAL ECONOMY, SOCIETY AND PERSONALITY

How the world is and still is progressively and rapidly becoming

CHAPTER 11 – ZOOMING OUT - WHY DO WE NEED TO TAX

THE DIGITAL ECONOMY

José Miguel Anjos, João Gabriel Gonçalves and Francisco Dias . . . . . . . . . . . . . . 387

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387

2. The issue at hand and underlying reasons - between fairness, equality and social pressure . . . 391

3.Key features of the digital economy: from intangible assets to new business models lacking

physical presence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392

3.1. Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394

3.2. Reliance on data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394

3.3. Network effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395

3.4. Multi-sided business models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395

3.5. Tendency toward monopoly or oligopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395

3.6. Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396

3.7. Cross-jurisdictional scale without mass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396

3.8. Reliance on intangible assets, including IP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396

3.9. Data, user participation and their synergies with IP . . . . . . . . . . . . . . . . . . . . . . . . . . 396

3.10. Relationship between digitalised business models and value creation . . . . . . . . . . . . . . . . 397

4. The foundations of the modern tax systems at a dangerous crossroads: the classic “nexus” and

“profit allocation” rules as inadequate tools to ensure contemporary tax fairness . . . . . . . . . 397

4.1. Taxation of cross-border income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398

4.2. Tax challenges arising from the digitalization of the economy . . . . . . . . . . . . . . . . . . . . . 401

5. Approaches to address the tax challenges arising from the digital economy . . . . . . . . . . 402

5.1. Alternative application of PE threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405

5.2. Withholding taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406

5.3. Turnover taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

6. BEPS 2.0 – the “state of the art” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408

6.1. Tax Design: Brief Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411

6.2. Digital Services Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421

7. Pillar I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422

7.1. Value creation worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423

7.2. Pillar One: Technical Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426

General Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

List of abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 431