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Taxing One Side Hurts the Other: DSTs, BEPS, and Platform Competition

Author

Listed:
  • Hans Jarle Kind
  • Dirk Schindler
  • Guttorm Schjelderup

Abstract

Digital Services Taxes (DSTs) and the OECD/G20 BEPS reforms are central pillars of current efforts to tax multinational digital platforms, yet their joint effects remain poorly understood. We develop a model of a platform that sells hardware to consumers and advertising to firms, with the two markets connected through cross-group network externalities. We show that a DST can have counterproductive effects: it may lower tax revenue in the implementing country, weaken downstream price competition, and reduce consumer surplus by inducing the platform to shift activity toward the untaxed side of the market. We further show that stricter transfer pricing regulation - a core element of BEPS - can paradoxically increase profit shifting when network effects are strong.

Suggested Citation

  • Hans Jarle Kind & Dirk Schindler & Guttorm Schjelderup, 2025. "Taxing One Side Hurts the Other: DSTs, BEPS, and Platform Competition," CESifo Working Paper Series 12302, CESifo.
    • Handle: RePEc:ces:ceswps:_12302
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    References listed on IDEAS

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    1. Nielsen, Søren Bo & Raimondos-Møller, Pascalis & Schjelderup, Guttorm, 2010. "Company taxation and tax spillovers: Separate accounting versus formula apportionment," European Economic Review, Elsevier, vol. 54(1), pages 121-132, January.
    2. Bond, Eric W. & Gresik, Thomas A., 2020. "Unilateral tax reform: Border adjusted taxes, cash flow taxes, and transfer pricing," Journal of Public Economics, Elsevier, vol. 184(C).
    3. Tetsuya Watanabe, 2021. "Rationales and Challenges for a Digital Service Tax:Focusing on Location-Specific Rent," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 17(1), pages 1-17, January.
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    Keywords

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    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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