Can Sales Destinations Reclaim Taxing Rights on Profits from Cross-Border Sales of Goods on Digital Platforms?

Sales for a price exceeding the cost of production is the third and essential factor responsible for profit, alongside the inputs of labour and capital needed to generate goods and services offered in the marketplace. Sales destination taxation of a portion of profits from cross-border supplies was a feature of some early income tax law, but this largely disappeared with the widespread adoption of double tax treaties that stripped sales destination jurisdictions of the right to tax gains from sales unless the vendor operated through a permanent establishment or subsidiary. The growth of remote service providers exploiting
user-provided data on social media prompted a revival in interest by sales destination jurisdictions in taxing a share of the profits of non-resident sellers. They were blocked, however, by treaty provisions based on art.7 of the OECD Model Tax Convention on Income and on Capital (OECD Model), which
strips sales destinations of taxing rights unless the sales have been made through a local permanent establishment or subsidiary. Many jurisdictions have reclaimed those taxing rights through surrogate taxes, such as digital services taxes. Only one, however, extended the new taxes to profits from the sale
of goods supplied by remote vendors. This article explores the options for wider taxation of the profits of digital marketplace sellers.