The proposal as conceived for the Roadmap responds in particular to the inability of developing countries to tax the digital giants (Amazon, Google, Meta and others) because the existing bilateral tax treaty network imposes a physical presence requirement on taxation. The result is that billions of dollars derived from consumers or users in the developing country escape taxation, even though the profits would not be possible without a market, and having a market imposes costs on the developing country. The core policy instruments proposed are digital services taxes (DSTs) and unitary taxation with formulary apportionment (FA). These instruments operate at different levels: DSTs provide an immediate and pragmatic response to current gaps in the taxation of the digital economy, whereas unitary taxation with formulary apportionment constitutes a systemic reform of international corporate taxation applicable across all sectors. DSTs are taxes imposed on the provision of goods and services by digital means, and they have been successfully implemented and raise significant revenue in several countries including the United Kingdom, France, and Spain. FA is a technique of dividing profits by the location of assets, employees, and sales, which has been proposed by India and successfully implemented for over a century by US states. Given its broader scope, formulary apportionment should not be understood as a sector-specific instrument, but as a general approach to allocating taxing rights over multinational enterprises, with the potential to significantly reduce profit shifting when applied globally. The proposal would overcome the tax treaty limitations because neither DSTs (which can be adopted immediately because they are outside the scope of treaties) nor FA (which requires a treaty override) depend on physical presence. In combination with a global minimum effective corporate tax, unitary taxation could form part of a comprehensive and more robust solution to current shortcomings in the international tax system. The resulting revenues can be used by developing countries to meet human needs without depending on GDP growth.
