Taxation strategies for the governance of digital business model—An example of China

Abstract

The digital business model emerges as a new business model and gradually penetrates global industries, and countries are putting in place various digital strategies to support their development. As one of the important tools, taxation strategies are highly expected by countries, which not only describe the economic development pattern of a country but also show the digital leadership of a country. Some countries have introduced their own unilateral digital services tax to govern their digital business models, while others have looked more to the global minimum tax, resulting in the current situation of both a unilateral digital services tax and a global minimum tax. However, both of them are of great reference value for the tax governance of digital business models. This paper compares the development history of digital tax strategies, categorizes, and analyzes the design logic of existing digital tax strategies, and takes China, one of the major digital economy countries, as an example to propose China’s digital tax strategies by drawing on international experience. We set an example for the design of digital economy tax strategies for countries around the world so that they can manage digital business models more efficiently.

Full text

Frontiers in Psychology 01 frontiersin.org
Taxation strategies for the
governance of digital business
model—An example of China
YiGuo
1, TingtingZou
2 and ZiweiShan
1
*
1 School of International Economics and Management, Beijing Technology and Business University,
Beijing, China, 2 School of Economics, Beijing Technology and Business University, Beijing, China.
The digital business model emerges as a new business model and gradually
penetrates global industries, and countries are putting in place various digital
strategies to support their development. As one of the important tools,
taxation strategies are highly expected by countries, which not only describe
the economic development pattern of a country but also show the digital
leadership of a country. Some countries have introduced their own unilateral
digital services tax to govern their digital business models, while others have
looked more to the global minimum tax, resulting in the current situation of
both a unilateral digital services tax and a global minimum tax. However, both
of them are of great reference value for the tax governance of digital business
models. This paper compares the development history of digital tax strategies,
categorizes, and analyzes the design logic of existing digital tax strategies, and
takes China, one of the major digital economy countries, as an example to
propose China’s digital tax strategies by drawing on international experience.
We set an example for the design of digital economy tax strategies for
countries around the world so that they can manage digital business models
more eciently.
KEYWORDS
tax strategy management, digital business model, operations, digital ecosystem,
digital technology
Introduction
e rapid development of information technology such as the Internet has spawned a
series of new business models that take data resources as key production factors, modern
information networks as an important carrier, and the eective use of information and
communication technology as an eciency improvement, and an important driving force
for economic structure optimization. ese new business models are gradually expanding
and penetrating into all areas of the national economy (National Bureau of Statistics, 2018),
beneting economic growth by their speed, increasing marginal benets, high penetration,
sustainability, and external economy compared to traditional economic activities (Polevoi
and Mamai, 2022; Wu and Yang, 2022), but their “no physical permanent establishment,”
high concealment of economic activities, huge protability and monopoly tendency. e
characteristics of “no physical permanent establishment,” highly secretive economic activity,
TYPE Original Research
PUBLISHED 22 September 2022
DOI 10.3389/fpsyg.2022.1013228
OPEN ACCESS
EDITED BY
Muhammad Kaleem Khan,
Liaoning University, China
REVIEWED BY
Zubair Akram,
Zhejiang Gongshang University, China
Umair Akram,
RMIT University, Vietnam
*CORRESPONDENCE
Ziwei Shan
shanzw@th.btbu.edu.cn
SPECIALTY SECTION
This article was submitted to
Organizational Psychology,
a section of the journal
Frontiers in Psychology
RECEIVED 06 August 2022
ACCEPTED 30 August 2022
PUBLISHED 22 September 2022
CITATION
Guo Y, Zou T and Shan Z (2022) Taxation
strategies for the governance of digital
business model—An example of China.
Front. Psychol. 13:1013228.
10.3389/fpsyg.2022.1013228
COPYRIGHT
© 2022 Guo, Zou and Shan. This is an
open-access article distributed under the
terms of the Creative Commons Attribution
License (CC BY). The use, distribution or
reproduction in other forums is permitted,
provided the original author(s) and the
copyright owner(s) are credited and that
the original publication in this journal is
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academic practice. No use, distribution or
reproduction is permitted which does not
comply with these terms.

Guo et al. 10.3389/fpsyg.2022.1013228
Frontiers in Psychology 02 frontiersin.org
huge protability, and monopolistic tendencies also bring a lot of
uncertainties for stable economic growth.
In order to better exploit the role of the digital economy in
the country’s economic growth, countries have introduced a
variety of policies in an attempt to eectively control it. Tax
policies are expected to beone of the most important tools for
governments to manage their economies. e traditional
taxation principle states that “prots are taxed where economic
activity occurs and where value is created.” Under this principle,
the intangibility of factors of production, the virtual nature of
permanent establishments, and the digital business model
makes it less likely that the “place of economic activity” and the
“place of value creation” are the same, making it more dicult
to tax their prots (Cui, 2019). At this point, there is a relatively
unanimous consensus in the international community on the
introduction of a digital services tax to address the challenges
posed by the digital economy to the traditional international
tax system.
However, the dierent levels of development of the digital
economy make dierent countries have dierent ideas on their
digital service tax bases, starting points, and tax rates.
Nevertheless, as far as the digital economy itself is concerned, its
unique cross-territory characteristics objectively require a
relatively unied global tax governance system, which requires a
consensus among dierent countries, otherwise, it is likely to give
rise to tax pits, tax havens, and other phenomena that intensify
bottom-up competition in international taxation and undermine
the fairness of the international business environment (Cassee,
2019). is has given rise to the coexistence of two tax governance
strategies for the digital economy in the international community.
One is the unilateral digital services tax, which reects the
dierentiated digital economy development characteristics of each
country, and is a tax imposed by each country on the digital
products and services provided by digital enterprises, including
direct unilateral digital services tax and indirect digital services
tax in the form of the original tax. e other is a global minimum
tax on the characteristics of the digital economy itself, which is
introduced as an important element of Pillar 2 of the two-pillar
proposal for a two-pillar framework on base erosion and prot
loss (BEPS), requiring member countries to levy at least a uniform
eective rate of corporate income tax on eligible multinational
companies in their territories (OECD, 2021a,b,c).
Several countries have publicly stated that they will repeal
their unilateral digital service tax proposals aer the global
minimum tax is introduced. As of November 2021, over 135
countries and jurisdictions, including China, have joined the
global minimum tax proposal (OECD, 2021a,b,c). e BEPS
Inclusive Framework announced a 15% global minimum tax to
beimplemented by the end of 2023 (OECD, 2021a,b,c), but the
exact timing of implementation and prot-sharing principles were
not claried and member states were unable to agree on the
obligations to beborne by the introduction of a global minimum
tax, particularly in countries with fewer parent companies such as
Estonia, Poland, and Sweden.
China has the second-highest level of digital economy
development in the world, and the country is introducing various
policies to improve digital infrastructure construction, support
digital technology innovation and the development of digital
enterprises, and strive to bea provider of digital products and
services (China Academy of Information and Communication
Research, 2021). e introduction of the global minimum tax is
closely related to this development goal, so China should actively
participate in the formulation of the global minimum tax as a
digital leader to exclude the threats that are unfavorable to the
development goals of China’s digital economy while maintaining
the trend of economic globalization. e real economy is the
lifeblood and core of our national economy, and the linking eect
and digital empowerment of the digital economy can greatly
improve the eciency of the industrial chain, which may become
a turning point for a new stage of our real economy (Li etal., 2022;
Liu etal., 2022).
Based on the wave of globalization and economic development
strategy, China should fully control the development of the digital
economy from both domestic and international aspects. e
domestic market should have a taxation scheme for digital services
that is in line with its national conditions to control the digital
economy promptly and maximize its impact on the real economy.
Overseas, as a player and rule-maker in the global digital economy
market, propose a global minimum tax that takes into account the
interests of the country while working to narrow the global digital
divide and promote sustainable development (SDGs). Based on
the development history of unilateral digital service tax and global
minimum tax, this paper categorizes and analyzes the design logic
of unilateral digital service tax and global minimum tax response
strategy of the international community, and proposes the reserve
of digital service tax and global minimum tax response plan in
China from the basic elements of the tax system.
e contribution of this paper contains the following three
main points. e rst point compares the development of digital
unilateral digital service tax and global minimum tax in various
countries so that readers can clearly understand the current status
of the global digital economy tax strategies. e second point is to
categorize and analyze the response schemes and the logic behind
the digital service tax and global minimum tax of each country, so
as to provide international experience for the digital service tax
schemes of countries that still have not introduced digital service
tax and to provide a reference for the response strategies of
countries to the global minimum tax. e third point, taking
China as an example, proposes a taxation scheme for China’s
digital governance and a response scheme for the global minimum
tax, which is conducive to the high-quality development of China’s
digital economy, and also serves as a reference for other countries
with similar situations.
e paper is structured as follows: the second part provides
the background information and describes the evolution of the
digital service tax, the third part summarizes and analyzes the
international experience of tax governance in the digital economy,
and the fourth part proposes recommendations for China to cope

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Frontiers in Psychology 03 frontiersin.org
with the development of the global digital economy, and the h
part concludes.
Background information
e use of taxation as a major scal policy to regulate the
development of the digital business has evolved from theoretical
exploration to the creation of a unilateral digital services tax to the
negotiation and promotion of a global harmonized taxation
scheme by international organizations, which can bedivided into
the following two stages.
The origin and development of the
unilateral digital services tax
e global development of the digital economy has made a
considerable contribution to world economic growth, but it has
also posed many challenges to existing economic principles and
structures. To address the challenges posed by the digital economy,
the Organization for Economic Cooperation and Development
(OECD) published its rst report on “Addressing the Tax
Challenges of the Digital Economy” in 2015 and pointed out that
resolving the “mismatch between where value is created and
where prots are taxed” is the core of resolving the contradiction
between the digital economy and the current tax rules. To resolve
the conict, the international community has successively
proposed three options. e rst option is to impose VAT or
withholding tax on digital economy activities, but this option
cannot fully cover the new business models of digital enterprises,
such as those non-direct sales that occur in the territory of
non-resident enterprises, and those economic activities that do
not generate capital ows but can generate economic income. e
second option is to reform the current taxation rules from
“taxation on the location of the enterprise’s physical permanent
establishment” to “taxation of source country income in the
source country.” is option has been unanimously accepted by
the international community, and the OECD is consulting with
countries as pillar Iof the two-pillar proposal,1 but no specic
implementation date has been set yet. e third option is to levy
a temporary unilateral digital service tax. e EU proposes to
allow member states to formulate a set of digital economy tax
1 The two-pillar solution is an international solution proposed by the
OECD to address the tax challenges posed by the digital economy, which
requires multi-country agreement and then global implementation. Pillar
Iaims to address the issue of profit sharing by multinational corporations
in the digital economy. Pillar II aims to reach a uniform tax administration
scheme for the global digital economy to alleviate the tax avoidance
problem of multinational corporations, i.e., to impose a uniform corporate
income tax at the lowest rate on global multinational corporations, but
the tax rate and other tax details have been delayed.
principles according to their conditions, which is also the advent
of digital service tax on the international stage.
Before the EU proposal, unilateral digital services taxes had
appeared in Iceland, South Africa, South Korea, Japan,
NewZealand, India, and Australia, but not all under the title of
“digital services tax.” In March 2018, the EU proposed a 3% tax on
the turnover of Internet giants to combat tax avoidance by
multinational companies, but it was opposed by Ireland, the
CzechRepublic, Sweden, Finland, and other low-rate countries.
But it was shelved for the time being due to opposition from
low-tax countries such as Ireland, the CzechRepublic, Sweden,
and Finland. However, this did not discourage the idea of
establishing a digital tax in EU countries, and in the same month,
the EU issued a proposal for unilateral digital services tax
legislation, which would have allowed individual EU member
states to tax the eective prots generated by Internet businesses
occurring within their borders. Subsequently, countries have
introduced digital service taxes in succession, depending on the
country, with France introducing the world’s rst digital service
tax bill on 11 July 2019, followed by Austria, Italy, and Turkey.
Also a sovereign country, the tax was strongly opposed by the
UnitedStates, which has the largest number of Internet businesses
in the world. But this has not stopped the global prevalence of
unilateral digital service taxes, with multinational internet
companies’ tax avoidance issues coupled with the impact of
COVID-19, and to help their economies recover as soon as
possible, countries such as the UnitedKingdom, Mexico, Chile,
Canada, and Italy have implemented their digital service taxes,
and Poland, Brazil, and Nigeria are working on digital tax plans to
beintroduced in due course.
The origin and development of the
global minimum tax
To recover the tax losses in the digital economy, countries
have started to impose unilateral digital service taxes, which has
led to the coexistence of multiple tax principles in the
international community (Cui, 2019). e coexistence of
multiple unilateral digital service taxes increases the risk of
double taxation of digital enterprises, and the lack of uniform
rules for the division of data benets undermines the fairness of
international tax principles, resulting in international disputes
that may undermine global economic growth goals. For
example, one of the main reasons for the trade friction between
the United States and the European Union is the introduction
of a unilateral digital service tax. erefore, in order to protect
the interests of domestic digital enterprises, the United States
proposed to replace the “digital service tax” with the “global
minimum tax.”
e global minimum tax is an “internationally harmonized”
version of the digital services tax. As an alternative to the
“unfair unilateral digital tax” of each country, the UnitedStates
proposed to the OECD to promote the global minimum tax

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Frontiers in Psychology 04 frontiersin.org
with a global minimum tax rate of 21%. However, considering
the interests of low-tax countries such as Ireland, the OECD
proposed a tax rate of 12.5%, which is the same as Ireland’s
domestic tax rate. In the end, the UnitedStates and OECD each
took a step back and jointly introduced the current 15% global
minimum tax rate tentatively set in Pillar II of the current
Statement on a Two-Pillar Solution to the Tax Challenges of a
Digitized Economy. On 14 December 2021, the Legislative
Template for Addressing the Tax Challenges of the Digitalization
of the Economy – Pillar II Global Anti-Base Erosion Rules,
jointly developed and adopted by the jurisdictional
representatives of all member countries of the BEPS Inclusive
Framework, agreed to introduce a 15% global minimum tax
domestically in a joint eort to regulate the development of the
global digital transformation. us, the global minimum tax is
a reection of the current sovereign state-centric global
governance model.
As the second-largest economy in terms of the digital
economy, China has joined the BEPS inclusive framework, and
the introduction of the global minimum tax concerns the
interests of our digital enterprises. In the face of the upcoming
implementation of the global minimum tax, China should
establish the principle of protecting the interests of its digital
enterprises as the priority with taking the responsibility of the
major participating countries in global governance and use this
principle as a guide to learn from the experience of similar
countries in collecting and responding to the digital service tax,
so as to complete the smooth transformation of China in the
digital economy era.
Analysis and results
It is not dicult to nd out that the design of a national digital
service proposal or the choice of global minimum tax is not an
arbitrary decision, but a reasonable form of national digital service
taxation and global minimum tax response under the general
direction of international tax reform, following the logic of
international taxation principles and making timely and
continuous dynamic adjustment according to the national
economic situation.
International experience in the design of
unilateral digital service tax
e essence of digital service tax is to use taxation instruments
to regulate enterprises where data is a factor of production, in
order to satisfy the principle of tax neutrality based on better
utilization of its role in driving the economic growth of the
country (Rigó and Tóth, 2020). Wecan reect on the following
three existing digital service tax proposals in the international
arena by analyzing the logical mechanism of unilateral digital tax
settings in each country.
The first type of unilateral digital service tax
setting logic
A special digital tax is oen imposed, with two starting points,
one global and one domestic, and a digital services tax ranging
from 2% to 7.5% on income from online advertising, digital
interfaces, and sales of user data, which are the main forms of
presentation in the domestic digital industry. e setting logic is
mostly adopted by developed European economies such as the
UnitedKingdom, France, Italy, Austria, and the CzechRepublic,
which have low domestic industry chain integrity, no dominant
digital technology level, insucient capacity to provide digital
infrastructure, and the scale of the digital economy is mostly
located at the middle level in the world, so they mostly choose to
lay out the digital economy in the downstream of the value chain,
that is, mainly as consumers of digital products and services. ey
do not have a strong will to support the development of the digital
economy, and more oen hope to follow the EU digital tax
proposal to recover their tax losses while combating the
development of the digital economy in other countries, and
enhance their position of digital leadership internationally. In
addition, this paper nds that although they are all levied under
the EU digital tax framework, there is an unspoken logic in the
setting of tax rates and domestic starting points in these countries,
that is, the tax rates and domestic starting points of digital taxes
are decided according to the scale of their digital economy and the
degree of economic development, the larger the scale of the digital
economy, the lower the digital tax rate, and the more developed
their economies, the higher the domestic starting points, as shown
in Table1.
The second type of unilateral digital service tax
setting logic
Modifying the original tax to levy a digital services tax to
include the main forms of presentation of the domestic digital
industry in the scope of the original tax, which is usually levied
on foreign businesses, with only a domestic annual income
threshold. e representative countries of this scheme are Asian
countries such as Japan and South Korea, where the domestic
industry chain is more complete, the scale of digital technology
and digital economy is at the forefront of the world, and the
country vigorously supports digital technology research and
development and infrastructure construction, so the
introduction of digital service tax is very cautious and prefers
to explore digital service tax in the form of existing taxes, and
use tax policies to better assist traditional industries in the
transition period of their transformation to digitalization. In the
transition period of traditional industries, tax policies can
beused to better support the eciency of the industry chain
and achieve economic growth goals (Sun etal., 2016; Li etal.,
2022). As shown in Table2, the coverage of digital service tax
in these countries is relatively narrow at this stage, and the
minimum tax rate of existing taxes is usually extended, e.g.,
Japan’s digital tax rate is set at 8% when the consumption tax
rate on imports is 8% (generally applicable to food and beverage

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Frontiers in Psychology 05 frontiersin.org
products), and Korea’s digital tax rate is set at 10% when the
VAT rate is 10%.
The third type of unilateral digital service tax
setting logic
e initial levy is in the form of a pre-existing tax, which is
then reformed to a “new tax” logic. India is a typical representative
country of such a scheme. In recent years, India’s digital market
has been expanding, coupled with its years of OEM for the
UnitedStates, its digital technology has been enhanced, and the
scale of the digital economy has been growing rapidly. It wants to
recover the taxes of being a “market country” and move to a
“resident country.” erefore, its rst “equalization tax” is based
on the practice of Asian countries to explore the taxation of online
advertising at a rate of only 6%. Later, when India encountered the
impact of COVID-19 and was in dire need of tax revenue to help
its economy recover, it chose to follow the practice of most
international countries, that is, to improve its digital tax under the
logical framework of European countries’ digital service tax
settings, expanding the scope of taxation to include e-commerce
and sales of user data, etc. In addition, the tax rate has been
reduced and the threshold has been raised, as shown in Table3.
The logic enlightenment of China’s
unilateral digital services tax
Summarizing the above three options, we can conclude
Figure1 from three dimensions: digital consumption market size,
digital technology R&D and investment capacity, and value chain
layout. Countries that choose the rst option to levy digital
services tax prefer to lay out the digital economy in the
downstream of the value chain with their economic characteristics,
and countries that choose the second option prefer to lay out the
digital economy in the upstream of the industry chain, while India
in the third option prefers to upgrade the digital economy from
the downstream of the value chain to the upstream of the
value chain.
China is still among the developing countries, with a
relatively complete domestic industrial chain and a real economy
that is the lifeblood of the national economy, and for many years
China has been committed to the road of high-quality
development of the real economy. e rapid development of the
digital economy provides an opportunity for China’s industrial
chain to improve eciency and the prosperity of the real
economy. As the country with the second-largest number of the
world’s top100 enterprises and the leading digital economy in
terms of scale and development speed, China has been committed
to shiing from digital consumption to digital technology
research and development and digital infrastructure construction
and has absolute international competitive advantages in
supporting domestic economic growth through the digital
economy, but because of the “big trees attract wind,” it is easy to fall
into However, it is prone to international trade disputes due to its
large size, so it should bemore cautious in the introduction of
digital service tax. In this paper, based on the strategic goal of digital
economy development and international trade pattern, China’s
digital service tax can learn from India’s experience and refer to the
TABLE1 First option unilateral digital taxation scheme for major economies.
Digital ranking GDP/person Tax type Tax base and taxation scope Tax rate Taxation threshold
EU – 22.8 DST Targeted advertising, digital interface, and
sales of user data revenues
3% Global revenue of 750 million, 40 Euros
EU-wide
France Top16 27.1 DST Digital interface, targeted advertising, and
transmission subscriber data service
revenues
3% Global revenue of 750 million, 25
million Euros domestically
Italy Top16 22 DST Targeted advertising, digital interface, and
subscriber data transmission revenues
3% Global revenue of 750 million, 5.5
million Euros domestically
Spain Top16 20.1 DST targeted advertising, multi-terminal digital
interfaces, and transmission of user data
revenues
3% Global revenue of 750 million, 3 million
euros domestically
Austria 16–32 33.7 DST Online advertising business in B2B mode
revenues
5% Global revenue of 750 million, 25
million Euros domestically
Czech 16–32 15.9 DST Targeted advertising, subscriber data
transmission, and multi-terminal digital
interface revenues
5% Global revenue of 750 million, 100
million kroner domestically, and more
than 200,000 users
Poland 16–32 10.8 DST Online advertising revenues 5% 750 million Euros worldwide, 5 million
Euros domestically
Tur k ey 16–32 6 DST Targeted advertising, social media, and
digital interface services revenues
7.5% 750 million Euros worldwide, 20
million Turkish Lira domestically
World ranking of the digital economy is from “White Paper on Global Digital Economy – A New Dawn of Recovery under the Impact of the Epidemic” released by the China Academy of
Information and Communications Technology in 2020, with the top 16 being the top and 17–32 being medium; GDP per capita data is from the IMF release in 2020 and is measured in
RMB 10,000. e dollar to the yuan exchange rate is set at 7.

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third option, which is to rst tax only a small percentage of the
digital industry in the form of original tax to explore its digital
service tax policy and then follow the international digital tax
setting rules to expand the tax scope and adjust it dynamically
according to the evolution of the digital economy.
International experience of global
minimum tax response
As an internationally harmonized version of the digital
services tax, the Global Anti-Base Erosion (GloBE) rules aim to
address the legacy of base erosion and prot loss that has been
exacerbated in the digital economy. According to the Pillar II
Legislative Template, the GloBE rules require multinational
corporations with annual consolidated group revenues of EUR
750 million to pay at least 15% of their eective corporate income
tax and to comply with the Income Inclusion Rule and the
Undertaxed Payment Rule. Since it is under the BEPS Pillar II
proposal framework, it is also subject to the Switch-over Rule
2
and
the Subject To Tax Rule.3 Compared with the unilateral digital
service tax, the global minimum tax has more obvious political
attributes and is an important part of the international tax reform,
2 The SOR is a subsidiary rule of the IIR that applies when the local
eective tax rate on profits or gains derived from a foreign permanent
establishment or foreign real estate (real estate owned by a non-resident)
is lower than the minimum tax rate and allows the resident country to
convert the exemption in the tax treaty to a credit.
3 The STTR rules are a supplemental application of the UTPR. It provides
that the source country is entitled to withholding tax at the minimum STTR
rate on cross-border payments of interest, royalties and other specified
payments.
which is related to the goal of stable growth of the world economy
and the economic interests of each country, and dierent
countries have dierent attitudes and response strategies toward
its introduction.
The first response strategy
Agree to introduce a global minimum tax domestically to
benet domestic multinational enterprises from the tax rate. e
UnitedStates is the representative. e UnitedStates is an opponent
of global governance, but to solve the dilemma of “unreasonable”
taxation faced by its multinational companies, it has introduced a
global uniform tax system instead of unilateral measures of each
country, and at the same time proposed that the development of
the global digital economy and tax avoidance by multinational
companies should beregulated at a higher rate (21%). is is
mainly for two reasons. On the one hand, the Biden administration
intends to raise the UnitedStates domestic corporate tax rate from
21% to 28% due to the new infrastructure plan, which will, to a
certain extent, weaken the international competitiveness of the
UnitedStates tax rate and cause UnitedStates domestic companies
to shi their prots, osetting the positive impact of the new
infrastructure plan on the long-term economic development of the
UnitedStates. On the other hand, the global minimum tax rate of
21% is exactly the same as the current UnitedStates domestic tax
rate, which can play a good role in maintaining or even improving
the competitiveness of international tax rates and thus reducing tax
avoidance losses, regardless of whether the new infrastructure plan
is passed by Congress.
The second response strategy
Agree to introduce a global minimum tax domestically,
and ght for the benets of domestic multinationals in terms
of other levy rules. e vast majority of BEPS Inclusive
TABLE2 Digital taxation scheme for major economies in the second scenario.
Tax type Tax base and scope of taxation Tax rate Taxation threshold
Japan Consumption tax Digital business owners import digital sales 8% Annual 10 million yen
Korea VAT Value-added B2C digital services of foreign companies, such as online
advertising and cloud computing
10% Korea VAT threshold.
ailand VAT Value-added foreign e-commerce, online advertising, and digital platforms 7% over 1.8 million baht domestically
Indonesia VAT Value-added from streaming services, apps, and digital games 10% Rp600 million domestically or 12,000 annual users
TABLE3 Third scenario digital tax scenario for major economies.
Digital ranking GDP/person Tax type Tax base and
taxation scope
Tax rate Taxation threshold
e rst equalization tax
of India
– – Sales tax Foreign online advertising 6% Extremely low
e second equalization
tax of India
Medium 1.3 Sales and service tax Online advertising,
e-commerce, and sales of
user data revenues
provided by foreign
companies
2% 20 million rupees
domestically

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Framework members are represented by global governance
leaders.4 Among these countries, those with higher domestic
corporate income tax rates, such as the UnitedKingdom, oen
propose to retain the “safe harbor” principle in their original
tax systems, as proposed in the Pillar II proposal, which has
now been adopted in the Pillar II Legislative Template as an
exclusion mechanism from the GloBE rules. Unlike these
countries, countries with lower corporate income taxes look
more to the OECD to take the initiative and propose a more
reasonable response for their interests. Ireland, for example,
has a domestic tax rate of 12.5%, and the introduction of a
global minimum tax would deprive it of its main means of
attracting foreign investment, and its proposal to join the
global minimum tax is more due to pressure from international
organizations. Since the global minimum tax would have a
greater uncertain impact on their domestic economies, the
more consideration they would need to give to the details of
the global minimum tax, the more they would look forward to
a global minimum tax that “takes into account their
circumstances” when they join the two-pillar proposal.
The third response strategy
Do not agree to introduce a global minimum tax at home.
Most of the countries/regions in this part are very small
economies, which play more of a follower and beneficiary role
4 From the database of the World Bank’s Worldwide Governance
Indicators.
in global governance shown in Figure2. A low tax rate is their
main means to attract foreign investment, and the
introduction of a 15% global minimum tax will affect their
low-tax advantage and squeeze domestic tax revenue. That is
why they have not joined the global minimum tax
agreement so far.
The response strategy enlightenment of
China’s global minimum tax
To address the tax challenges of the digital
transformation, China should not only consider its tax
management strategy for the digital economy but also
actively respond to the global tax reform for the digital
economy. Adhering to the attitude of actively participating
in global governance, China has joined the global minimum
tax proposal and agreed to implement the global minimum
tax domestically by 2023. Currently, our domestic corporate
income tax rate is 25%, which is lower than the global
minimum tax rate of 15%. Therefore, according to our global
minimum tax response strategies derived above, China
should hold the second type of attitude, learn from the
practice of countries with high tax rates, measure and list the
impact of the global minimum tax on our country, formulate
corresponding solutions, and propose mechanisms to retain
or exclude the global minimum tax rules that fit both our
economic development strategy and our position as one of
the main advocators in the global governance system.
FIGURE1
Three logics of unilateral digital service tax design.

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Discussion
From the summary above, wecan see that tax governance
policy for the digital economy is not only an economic
instrument but also requires multiple considerations at the
political level. Whether it is a unilateral digital service tax or
a global minimum tax, countries that subsequently introduce
and join it tend to formulate it within the framework of
international design and response logic, taking into account
their economic characteristics. The existing provisions of the
unilateral digital services tax are instructive for China’s tax
management of the digital economy, while the international
response to the global minimum tax is a valuable reference for
China’s strategies to safeguard its interests in the context of
international tax reform while strengthening its position in
the global governance system.
China’s tax governance strategies for the
digital economy
Initial reliance on VAT for taxing digital
products and services
Unlike traditional enterprises, digital enterprises are “virtual
enterprises” that rely on digital technology to map tangible
enterprises into the network and can partially or globally simulate
the behavior of tangible enterprises, and they have certain
vulnerabilities as new types of enterprises. Based on China’s
strategic goal of giving priority to supporting the development of
the digital economy, taxing digital enterprises at the initial stage
of their growth will, to a certain extent, increase their operating
costs and discourage their owners from establishing and
developing digital enterprises, especially in the absence of
appropriate tax rules, which is a threat to the long-term
development of China’s digital economy. Secondly, the high time
cost of the initial introduction of the digital services tax not only
requires consideration of its friction with existing taxes from the
perspective of dierent digital products but also places higher
demands on the digital skills of tax practitioners and
tax authorities.
However, tax collection is benecial to further consolidate
and build digital infrastructure and further establish the
foundation for the development of the digital economy.
erefore, China should actively explore but cautiously try out
a taxation scheme for the digital economy. e rst
introduction of a digital service tax can refer to the third
design scheme, which rst draws on the experience of Asian
countries and attaches to existing taxes to tax digital
enterprises. For the choice of existing taxes, VAT can
beconsidered as an alternative tax following the logic set by
Asian countries. VAT is currently the largest tax in China, and
there is already a relatively mature VAT collection and
management system in China. For digital products and
services with a higher degree of concealment, it is more in line
with the principle of eciency to tax the digital economy in
the form of VAT. From the perspective of VAT’s characteristics,
VAT has a broader coverage and is a behavioral tax, which has
the feature of non-duplication of taxation, which ensures the
principle of tax fairness to a certain extent to mitigate the
negative impact of digital tax. In terms of implementation, a
digital VAT can beimplemented on a pilot basis to observe the
impact of tax shocks on digital enterprises in the pilot areas,
so as to limit the adjustment to a manageable extent and pave
the way for nationwide digital tax reform.
Gradually expand the scope of the tax from a
small percentage of the digital industry to
include the major digital industries
e volume of China’s digital economy industry is expanding
day by day, and the tax levy is favorable to China’s industrial digital
economy penetration rate of 21% and service industry penetration
rate of 40.7% in 2020, according to the China Academy of
Information and Communications Technology (2020). If a tax is
imposed on digital products and services on a large scale, it will
accompany a considerable amount of tax revenue while also
throwing the control of the digital tax policy eect out of the
hands, and subsequently failing to achieve hedging or guiding the
industry chain to improve eciency by adjusting monetary and
scal policies, which risks endangering the economy. erefore, it
is important to set the tax scope of the rst digital tax.
Drawing on the third design option, a certain industry with
obvious digital characteristics but not a high proportion of the
economy is rst used as a pioneer industry, such as the online
advertising industry. Internet advertising is a typical representative
of the digital economy industry, and its market scale in China is
rising year by year, accounting for about 0.9% of China’s GDP. e
trial implementation of digital service tax with the advertising
industry can explore the perfect tax legislation rules while not
having a large adverse impact on the development of China’s
digital economy. Aer reforming the digital service tax, the main
presentation form of China’s digital economy into digital platforms
and Internet search engines will also beincluded in the scope of
taxation, striving to maximize the fairness of the business
environment. e platform economy is the main presentation
form of the digital economy, which completes all kinds of
economic activities through data-driven, platform-supported, and
network collaboration, and is the general name of various
economic relationships on digital platforms, both which and
Internet search engines account for a considerable proportion of
China’s digital economy industry, and both of which have opened
up new paths of economic growth by improving the matching of
supply and demand (Milovanov, 2022). e inclusion of them into
the scope of digital service tax for reasonable regulation is in line
with their own “digital” characteristics and their digital scale in
China, reducing the vicious competition caused by their disorderly
development and the squeeze on traditional industries due to the
lack of fairness, and is an important channel to protect consumer
information security in the digital era.

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Rely on the existing VAT system to set the tax
rate and starting point, and follow the
international law to reform after expanding the
scope of taxation
e tax rate and the starting point are important components
of the tax, which not only determine the depth of impact on digital
enterprises but also concern the goal of optimizing the tax
business environment. According to international experience,
China can rst tax the subject digital products and services under
the existing VAT system. e online advertising industry is
currently included in the scope of VAT in China and the applicable
tax rate is 6%. erefore, China can consider raising the applicable
tax rate to the basic rate of 13% and refer to the “Rules for the
Implementation of the Provisional Regulations of the People’s
Republic of China on Value-Added Tax” to set the
starting threshold.
After the timely reform to expand the scope of taxation,
the new digital tax rate and the starting point will be set
according to the level of development of the digital economy
and the international ranking of the degree of economic
development. According to international experience, the
larger the scale of the digital economy in the country, the
lower the tax rate can be. For China, the reformed tax on
digital products and services can belower than the lowest level
of the existing unilateral digital service tax rate of 2%. On the
one hand, to protect the development of the country’s digital
economy, the initial trial digital tax minimizes the tax rate to
suppress the negative impact of the digital tax. On the other
hand, the UnitedStates, as the first country in the digital
economy, has not introduced a digital service tax, and China,
as the second-largest country in the digital economy, should
have the right to set the lowest tax rate. On the choice of the
starting point, international law requires that the more
developed the country’s economy is (the higher the GDP per
capita), the higher the starting point. Therefore, China can set
the starting point between the digital tax thresholds of
countries with similar economic development levels as ours.
According to IMF statistics, China’s (mainland China) GDP
per capita in 2020 is 82,600 yuan, which is located between
Poland and Turkey (Table1), so our reformed digital tax
threshold can belocated between the thresholds of these two
countries, that is, in the range of 20–35.5 million yuan. No
FIGURE2
Three response strategies of the global minimum tax.

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matter whether it is the tax rate or the starting point, the final
plan needs more consideration in light of the digital economy
and national economic development stage and specific
characteristics of China at that time.
China’s global minimum tax response
program
Active participation in global minimum tax
development
As one of the digital leaders, China should sort out the
contradictions between the existing tax system and the global
minimum tax, actively formulate solutions, and propose to the
OECD Chinese proposals on the details of the global minimum
tax from the perspective of the exclusion mechanism or the
retention mechanism, to protect its interests rst and foremost to
reect the role of a major country.
On the one hand, the government should actively organize
the calculation of the domestic impact of the global minimum
tax, sort out the list of conicts between the global minimum tax
and the existing economic policies of the country, and think of
solutions for each “conict.” Some of the “conicts” can beoset
by actively adjusting domestic policies, for example, for those
enterprises that enjoy China’s tax support with an eective tax
rate lower than 15%, a set of VAT tax incentives can beset up to
hedge their impact. For those “conicts” that cannot beoset,
they can be proposed to the OECD as exclusion clauses or
reservation mechanisms, such as the expiring bilateral tax
agreements in the “One Belt, One Road,” the exemption system
for equity participation in Hainan Free Trade Port and various
tax incentives.
On the other hand, as an advocate of the community of
human destiny and the country with the largest contribution to
the world’s major economic growth rates, China’s global
minimum tax proposal also needs to take into account the
world economic landscape. e global minimum tax rate is
temporarily set at 15%, which is much lower than our corporate
income tax rate of 25%, but close to our tax rate in Hong Kong
and higher than the tax rates of many small economies in the
world. In other words, countries are allowed to set their own
global minimum tax rates within a certain tax range to ease the
sudden pressure of tax increases on their domestic
foreign investment.
Actively improve the domestic layout of the
global minimum tax levy
e taxation department has formed a global minimum tax task
force, made a good division of labor within the group, formulated a
global minimum tax collection and management path, and deployed
tax collection and management arrangements in advance to ensure
the ecient implementation of China’s global minimum tax.
First, follow up on the progress of the global minimum tax in
real-time, analyze the tax collection and administration
arrangements of the countries that have already introduced it,
learn from international experience, and study a reasonable tax
collection and administration system.
Secondly, to improve the digital technology level of the tax
department, accelerate the digitalization process of the tax
department, and prepare for the layout and implementation of
the global minimum tax collection system. As a resident country,
the digitalization of the taxation department is a future
development trend, and the convenience of the digital system can
largely compress the time and reduce the cost of tax collection
and administration, which is a feasible way to improve the
eciency of our taxation department. As a source country, due
to the “uniqueness” of production factors and the “hidden” nature
of economic activities of digital enterprises, China needs to do
some upgrading and transformation of the original oshore
taxation system. ese include improving the data transmission,
sharing, and verication system, updating the list of oshore
enterprises subject to taxation in China, adding an eective tax
rate and tax burden estimation system based on GloBE rules, and
improving the security of the tax payment system and
monitoring system.
Furthermore, a global minimum tax task force will beset up
to educate Chinese digital enterprises, advise them to make
reasonable tax planning and economic activity arrangements as
early as possible, understand the impact of the global minimum
tax on dierent types of digital enterprises, and the diculties
they encounter through regular seminars, and listen to their
suggestions on how to cope with the global minimum tax so that
the government and enterprises can work together to safely
survive this international tax reform in the digital economy.
We also seize this opportunity to promote the international
competitive advantage of China’s digital enterprises to a
new level.
Conclusion
e digital transformation has brought opportunities for
economic growth and at the same time posed direct challenges
to traditional tax principles, with traditional and digital
businesses facing a lack of fairness and an inecient business
environment. Taxes are expected to bean important economic
tool in addressing these challenges. Countries have introduced
temporary digital service tax plans and the international
community has negotiated global minimum tax development
strategies, all of which aim to solve the problem of
incompatibility between traditional tax principles and the
digital economy. e global minimum tax provisions scheduled
to beimplemented by the end of 2023 have rendered bilateral
tax agreements and tax incentives in many countries ineective.
erefore, before the international taxation scheme for the
digital transformation is nalized, countries should actively
participate in the formulation of international taxation rules to
reduce the impact of unilateral digital service taxes on

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Frontiers in Psychology 11 frontiersin.org
multinational enterprises in other countries, and at the same
time actively reserve their tax management strategies for the
digital business models, to make full use of the digital economy
as a powerful tool to improve the eciency of industrial chains
and vigorously promote economic prosperity during the digital
transformation period.
Data availability statement
e datasets presented in this study can befound in online
repositories. e names of the repository/repositories and
accession number(s) can be found in the article/
supplementary material.
Author contributions
All authors listed have made a substantial, direct, and
intellectual contribution to the work and approved it
for publication.
Funding
anks to the support of the key project of the National Social
Science Foundation of China (21AGL012).
Conflict of interest
e authors declare that the research was conducted in the
absence of any commercial or nancial relationships that could be
construed as a potential conict of interest.
Publisher’s note
All claims expressed in this article are solely those of the
authors and do not necessarily represent those of their aliated
organizations, or those of the publisher, the editors and the
reviewers. Any product that may be evaluated in this article, or
claim that may be made by its manufacturer, is not guaranteed or
endorsed by the publisher.
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