Taxing Capital in the Age of Intangibles

The rise of the intangibles economy has led to a significant erosion of corporate tax revenue in the innovation-intensive advanced economies, even as the share of national income flowing to capital rose. For developing countries, the erosion is worse and comes on top of substantial erosion of corporate tax revenues from the tangibles economy due to weak tax administration and corruption. In this paper, we take up the questions of how big is the taxing problem that the intangibles economy has raised, and whose problem is it. Further, we consider how well the proposed OECD/G20 Inclusive Framework measures up in responding to this problem. We conclude that the importance of tax reform in the modern digitalizing economy goes beyond preventing base erosion and profit shifting for it is about sustainable development and future prosperity. And whether we are there yet is a matter of wait and see.