Traditionally, the taxation of business profits has been linked
to a physical presence-based nexus rule. While this was sufficient
in the brick-and-mortar economy, the rapid digitalisation of the
economy (with growth of digital platforms like Facebook, Amazon,
Netflix, Google etc) meant that the existing tax rules were not
sufficient in relation to taxation of digital economy. Businesses
no longer need physical presence to derive economic benefits from a
jurisdiction. This raised concerns for 'market
jurisdictions' having the customer / user base, which, in the
absence of a taxing right, were not getting their fair share of tax
revenues on the income earned by offshore businesses from their
territory. While this issue was first identified around two decades
ago and being deliberated on since then, efforts and concrete steps
in this direction have picked pace in the past few years.
