International tax law has the potential to act as a powerful tool to mitigate the harms and inegalitarian outcomes flowing from informational capitalism. Unfortunately, that potential has not yet been realized, partly because international tax law has been slow to adapt to the realities of the digitalized and information-driven global economy.
Take the example of a search engine platform, such as Google. This hypothetical company has a large user-base in India. But it is a U.S. resident company, and all of its operations and assets are in the United States. The company earns income through advertising revenues from ads directed at its Indian user-base. These ads are tailored and targeted towards specific users, which allows the company to charge more than it would be able to for general advertising. The Indian user-base is producing for free a constant stream of data that allows the company to offer targeted advertising and earn increased profits. Despite the company profiting directly from the free labor of Indian users, the current international tax system does not allow India to tax the company. Because users of digital platforms are viewed only in their role as consumers and not in their role as producers, their home countries are not considered to have a legitimate claim to tax under existing international tax law.
The exploitative nature of this arrangement clearly violates the benefits theory of taxation. Under this theory, a country has a right to tax economic activities that occur within its borders because it provides the benefits and resources that enable those economic activities (infrastructure, education, etc). However, because the international tax system does not recognize the production role that users play when producing data, companies are able to come into countries, take advantage of government benefits and resources, extract wealth, and give back nothing.
This is not, however, merely a matter of fairness between countries (or between countries and companies). The current arrangement is also unfair to the users who supply companies with their data. Data commodification has been described as techno-feudalism, colonialism, and a reduction of humans to natural resources. Companies and their investors extract large amounts of wealth from people’s data, and these people receive no compensation in return.
This unfairness of this outcome is magnified when one considers the various harms caused by data commodification and informational capitalism. Data collection has facilitated a concentration of wealth and accompanying power within the hands of a few large digital companies, threatening equality and potentially jeopardizing self-governance within the democratic system. Privacy harms stemming from the data economy are also well-documented. Companies use data to not only predict but also manipulate people’s feelings and behaviors. The data economy also has the potential to exacerbate existing racial and gender discrimination. For example, advertising for degree programs in engineering could be targeted towards white male users. Importantly, the data economy is relational—it creates economic value by placing people into categories based on various characteristics and gaining insights based on that categorization. The relational nature of the data economy means that its harms occur on the population-level. This creates population-level interests in the legal response to the advent of informational capitalism.
How the law should respond to the harms and inegalitarian outcomes born of the data economy and informational capitalism is a topic of lively and ongoing debate. Among the reforms legal scholars have advocated are granting people property or labor rights in their data, imposing more comprehensive data privacy and protection regimes (such as GDRP), and creating data trusts and data commons. These reforms are ambitious and exciting, but I argue that tax law and, in particular, international tax law is an overlooked and promising means to mitigate the negative outcomes that we see flowing from the data economy and informational capitalism.
Tax law is a valuable mechanism to redistribute wealth and resources. In the context of the data economy, digital companies can directly compensate the government through tax payments for the government benefits and resources they take advantage of when conducting business activities. Tax revenues from digital companies can also indirectly compensate data subjects for the exploitation of their data—higher tax revenues at the country-level can flow through to citizens in the form of more government services or lower rates of individual tax. And this taxation and redistribution also combats the concentration of wealth and power in the hands of large companies and their investors.
On the domestic level, higher taxes on the excess profits of digital companies or increased capital gains rates for company investors have the potential to mitigate wealth concentration and compensate for the exploitation of individual data and government resources. But domestic-level reforms, which would disproportionately benefit higher-income countries where digital companies are based and where investors live, are an incomplete solution to advancing equity in the data economy on an international level. Exploitation of people’s data and its accompanying harms are a global phenomenon—redistribution to mitigate the harms of the data economy must, therefore, occur on the global level. This is where international tax law can play a role.
Certain reforms that adapt the international tax system to the digitalized and globalized economy also have the advantage of advancing equity within the data economy. The OECD/G20 Pillar One Blueprint grants taxing authority over certain income of the world’s largest and most profitable companies to the market countries. The market countries align with the location of the users and customers from whom companies are extracting and exploiting data. The Pillar One reform, therefore, redistributes tax revenues to data subjects’ home countries. Another possible reform involves treating data-producing users and customers in the same way as a traditional workforce when determining which country gets to tax a company’s income. This would allow data subject’s home countries to tax income stemming from the exploitation of their data. For example, India would be able to tax Google on the value that the Indian users’ data production contributes to Google’s targeted advertising income.
Both of these reforms help to mitigate the harms and inegalitarian outcomes stemming from the data economy. These tax revenues would directly compensate governments for the benefits and services they provide to digital companies. But they also would indirectly compensate the data subjects through increased government services or lower individual taxes. This does not completely correct for the inequities and harms of the data economy, but it is a step in the right direction.
Determining how our legal system should respond to the advent of informational capitalism and the data economy is a crucial undertaking. International tax law should not be ignored as a potential tool to advance global equity in this new economic environment. As global stakeholders discuss how to reform the international tax system in response to the digitalization of the economy, economic efficiency cannot be the only consideration. Equity needs to be center stage in these international tax policy choices.