OECD countries and stakeholders gathered in Paris on March 13-14, 2019 for a \u201cpublic consultation on the tax challenges of digitalization.\u201d\u00a0 The countries at that meeting reaffirmed their commitment to finding a long-term solution to the digital tax question by 2020. In this context, it is worthwhile making two points. First, the OECD itself uses the term \u201ctax challenges of digitalization\u201d because it wants to get away from the idea that the international tax conversation is just about digital services or \u201chighly digitalized business models.\u201d\nIt is a much broader question affecting companies in all sectors. Second, the OECD came out with a recommendation in 2015, which posited that the right way to tax digital services was to extend the VAT to cover them. A number of countries are implementing this approach.\nThe question of digital taxation is complicated fundamentally because we are really reconceiving how the international tax system should work for all companies. After all, why should there even be a conversation about digital taxation?\u00a0 Presumably the goal is not to discourage digitalization per se such as excise taxes on tobacco and alcohol are designed to do. If not, then what would justify a sector-specific tax?\nThe UK and the EU consider that the digital economy has created a new source of value \u2013 \u201cactive user participation\u201d \u2013 that entitles the countries where users reside to a share of any above-normal profits of digital companies. But it is not clear that user engagement with digital platforms is qualitatively different from their use of other media in a tax relevant way.\nThere is also no way to distinguish between users that provide value and users that do not, which makes the concept of user participation fundamentally flawed as a tax concept. As the OECD said in 2015, since the entire economy is digitalizing, it would be difficult, if not impossible, to ring-fence the digital economy for tax purposes. In this context, it is worthwhile recalling that in 2014, the EU\u2019s panel of experts argued against creating a special tax regime for digital companies. See below.\n\n\u201cFirst: there should not be a special tax regime for digital companies. Rather the general rules should be applied or adapted so that \u201cdigital\u201d companies are treated in the same way as others.\u201d\n\nCountries are reportedly reverting to the idea that international tax reform should, as originally envisaged when the OECD tax reform process started, involve all sectors of the economy. As countries prepare for the G20 June 28-29, 2019 Fukuoka, Japan summit where digital taxation will be discussed, it is again important for countries to strive for consensus, which is not impossible to achieve. This is possible, at least in part because U.S. thinking about taxation of intangibles \u2013 especially minimum taxation \u2013 has shifted in a way which arguably makes it possible to strike a deal.\nDetermining value of B2C digital services is a challenge\nThere is no broadly accepted methodology for determining the value creation and consumption value of digital services that consumers do not pay for. The European Commission articulated its rationale for digital taxation in a March 21, 2018 release entitled: \u201cFair Taxation of the Digital Economy":\n\n\u201cIn the digital economy, value is often created from a combination of algorithms, user data, sales functions and knowledge. For example, a user contributes to value creation by sharing his\/her preferences (e.g. liking a page) on a social media forum. This data will later be used and monetised for targeted advertising. The profits are not necessarily taxed in the country of the user (and viewer of the advert), but rather in the country where the advertising algorithms has been developed, for example. This means that the user contribution to the profits is not taken into account when the company is taxed.\u201d\n\nSo even though the R&D cost associated with the development of an algorithm may not take place in the EU, the EU considers it reasonable to have a tax take of the economic activity generated by that algorithm. However, as the IMF noted in a March 29, 2019 report entitled: \u201cIMF Policy Paper: Corporate Taxation in the Global Economy,\u201d it is very difficult \u201cto distinguish cases where users create value from those in which they just consume.\u201d\nThere is today simply no principled and widely accepted methodology for determining how much is value creation and how much is consumption in transactions involving consumers accessing Internet services without paying for them.\nThe EU approach also contradicts the \u201cpatent box\u201d tax regimes that exist in a number of EU member states, including the UK and France. The underlying policy behind a patent box is to incentivize (through a reduced corporate rate) domestic activities related to IP generation. But one of the main arguments in favor of a Digital Services Tax is that tech companies do not pay enough tax. That position appear to be inconsistent for countries such as the UK and France, which provide for a reduced rate of IP related income through patent boxes.\nThe concept of consumption is further complicated for cloud firms because it is not clear where consumption occurs and what constitutes consumption. Moreover, there is the question of how to allocate costs between countries the cost of developing algorithms, user data, sales functions and data.\nThis helps explain why many observers consider the EU digital tax proposal (which is not proceeding at this time), the UK proposal and the French plan to be really veiled (and sometimes not so veiled) measures to tax mostly the large U.S. tech firms. For example, the French Ministry of Economy and Finance refers to the French digital tax as the \u201cGAFA\u201d tax in its March 5, 2019 press release.\nBesides, unilateral digital services taxes not considered by anybody to be a long-term viable option\nThe UK Digital Services Tax (DST), scheduled to go into effect in April 2020 is described as \u201ctemporary\u201d in this UK consultation document. However, taxes denoted as temporary often have a way of remaining in effect for a long time, particularly when they do not have a set date of expiration. In the meantime, they can contribute to undermining the stated purposes of international tax reform. Again, as the IMF puts it in its policy paper: \u201cPolitical pressures to introduce some form of digital service tax are strong in many countries \u2013 but their uncoordinated proliferation creates complexity and jeopardizes tax cooperation.\u201d\nMoreover, there is the beginning of an emerging consensus on international taxation\nIt is clear that there is broad concern about profit shifting. That is why it might make sense to work with minimum taxation proposals as long as they are not sector specific. For instance, the German Federation of Industries reportedly considered a minimum corporate tax in lieu of the EU\u2019s proposed digital tax. The 2017 U.S. Tax Cuts and Jobs Act (TCJA) imposes a 10.5% minimum tax on global intangible income.\nGoing forward, there is also an emerging consensus that some measure of reapportionment, i.e. country allocations of taxation rights, might be warranted. Moreover, the OECD process has already led to increased tax collections for governments. The OECD reports that over 3 billion Euros have been collected in the EU as a result of implementation of the new International VAT\/GST guidelines.\nSo let that consensus emerge\nMainstream thinking in OECD member countries (including in the United States) has evolved in the direction of significant reform. Reforms should be sector neutral; accommodate developing country equities such as ease of tax administration; acknowledge that consumption is not a straightforward concept; and, ensure that there is a realistic accounting of costs, and not just revenue, in a single country.\nIn this context, it worthwhile remembering that OECD tax recommendations often do lead to substantive changes in OECD member countries. In the United States, for example, on December 20, 2018 the U.S. Treasury Department released new rules limiting the use of so-called hybrid financing arrangements to take advantage of different rules in different countries. The limits on interest deductions in the 2017 TCJA also reflected OECD recommendations.\nAll this suggests that countries should let the OECD tax reform process play out with reform leading to a rational treatment of profit shifting that is applicable to all sectors of the economy.