Permanent Establishment Representing Business Activities for a Computerized Economy

• In Event: International Issues

Abstract

According to 2015 BEPS Action 1 Report, owing to pervasiveness of low-cost high- performance computers and communication networks, the whole economy is digitalizing and, as a result, it would be difficult, if not impossible, to ring-fence the digital economy. Everyone easily finds that businesses participate in the economic life of a jurisdiction without an associated physical presence. Value is created by a business activity through physically remote but virtually local participation in that jurisdiction. The purpose of this paper is to examine a nexus rule for highly digitalized business models accompanied with high degree of user participation.
The term “market jurisdiction” refers to the jurisdiction where the customers of the business are located. In the context of many digitalized business models, this definition would cover the jurisdiction where the user is located either because the user acquires goods or services directly from the on-line provider or because the on-line provider provides services to another business (such as advertising). This is just one side of user participation. On a multi-sided platform, users provide license to data in consideration for services they receive. For example, Facebook Terms of Service indicate that when users share or post content that is covered by intellectual property rights on or in connection with Facebook products, users grant Facebook a non-exclusive, transferable, sub-licensable, royalty-free and worldwide license to host, use, distribute, modify, run, copy, publicly perform or display, translate and create derivative works of their content. Users receive Facebook services in exchange for the license. Twitter Terms of Service more clearly indicate that in consideration for Twitter granting users access to and use of the Twitter services, users agree that Twitter may place advertising on the Twitter services or in connection with the display of content or information from the services whether submitted by users or others. As a new nexus rule for a highly digitalized multi-platform business, this paper proposes the residence of users who provide license to data in exchange for receiving services. Using the traditional cost plus method by comparing the traditional data brokers and data marketplaces, profits allocated to market jurisdiction can be determined. This paper has also pointed out that highly digital businesses should recognize license to user data and content as intangible assets which is source of value and is acquired in consideration of providing their competitive services.

Author

• Aki Tomita, Toyo University