The New Taxing Right and Its Scope Limitations: A Theoretical Reflection

Qiang Cai, Fang Wu, Xiaorong (Sharron) Li

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While the Unified Approach reallocates taxing rights to market jurisdictions irrespective of the existence of any physical presence therein, such new taxing rights are subject to various qualifications and carve-outs. Concerns have already been raised that these scope limitations may complicate the reform and lead to double taxation. Ultimately, the issue of the scope limitation boils down to the policy rationale of the new taxing right for which this article submits a narrowly-construed benefit theory as a conceptual basis. Based on this benefit theory and relevant market theories, the authors argue that the scope limitations of the new taxing right should be based on the nature of transactions rather than the nature of products (services). In this way, various carve-outs proposed in the Unified Approach documents can be simplified to one business type, specifically, most of business-to-business (B2B) sales. Accordingly, a positive delineation of in-scope business can be drawn: business-to-consumer (B2C) sales and sales through routine-function intermediaries. Franchise arrangements also accord with the purpose of the new taxing right, however, franchise fees can be dealt with through the provisions of royalties in income tax treaties.
Original languageEnglish
Pages (from-to)210-222
Number of pages13
Issue number3
Publication statusPublished - 21 Feb 2021


  • unified approach
  • benefit principle
  • user participation
  • significant economic presence
  • consumer engagement
  • digitalization of the economy


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