NERA Managing Directors Emmanuel Llinares and Harlow Higinbotham, Director Sébastien Gonnet, and Associate Director Vladimir Starkov provide comments on the Australian Department of Treasury Discussion Paper published in October 2018 titled “The Digital Economy and Australia’s Corporate Tax System.” The paper poses these questions:

• Is user participation appropriately recognized by the current international corporate tax system? If not, how should value created by users be quantified and how should it be taxed? 
• Is the value of intangible assets, including “marketing intangibles,” appropriately recognized by the current international corporate tax system? If not, how should value associated with intangibles be quantified and how should it be taxed? 
• From a tax perspective, do you consider that the digitalized economy is distinguishable from the traditional economy? If yes, are there economic features of the digitalized economy that present special challenges in the context of taxation? How are these features relevant for assessing the costs and benefits of various models of taxation?
• Can and should any changes to the international nexus and profit attribution rules be ring-fenced to apply only to highly digitalized businesses? If so, how?
• What indicators could be used to identify businesses that benefit most from user-created value? Would an interim measure applied to digital advertising and/or intermediation services accurately target that value? How broadly or narrowly should “digital advertising” and “intermediation services” be defined?

Our team answered some questions posed by the Australian Treasury Department and ultimately recommend against implementing the interim measure as outlined in the Discussion Paper.