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Digitalization is not the first challenge to the PE concept, but it is the latest challenge and the response has been that for digital companies we need to go beyond physical presence to identify where the “value” is “created”, though there is no clear global consensus on identifying that value, putting a price on it, and identifying where the value is “generated” – especially with increasingly complex global value chains.

Much of these debates have focused on how to treat intangibles since these are today the main drivers of the wealth and profits of companies (it is what you know rather than buildings and plants and payrolls that generate profits).

Linked to this is the broader debate on “source” versus “residence” country taxing rights. With global value changes and new technologies such as 3D-printing it is more difficult to have a clear distinction between source and residence countries. Economists would query what tax lawyers regard as the “source country” for income, and it tends to depend on “deeming provisions” in treaties and laws to give some clarification in an unclear area. The matter is complicated for developing countries, as capital importers, tend to prefer source country taxing rights, while developed countries tend to prefer limiting source country taxing rights, as capital exporters. The challenge is that many of the latter countries see themselves as capital importers of highly digitalized services, and seek strong source country taxing rights, while preferring, including for the benefit of their companies abroad, a more residence country-based taxing model internationally. The additional challenge is the difficulty and questionable nature, of any attempt to ring-fence the digital economy from an increasingly more digitalized economy general.