As the digital economy becomes the global economy, historically non-digital businesses are developing innovations and creating new business offerings never seen before. In the active arena of digital taxation, companies unfamiliar with the digital tax trends of the past decade may be caught in the crossfire during their digital transformation.

Below, we offer you selected extracts from our Special report, Digital revolution: transfer pricing in the global tax battlefield. These snippets highlight digital technology trends that all non-digital businesses are embracing, which interact with key tax trends that businesses need to actively navigate. In our special report, we develop the extracts below and:

  • present case studies in the healthcare, consumer goods and retail, as well as industries and manufacturing sectors to describe how these digital tax issues affect businesses in the regular economy;
  • provide an overview of development trends in international taxes and digital-specific transfer pricing; and
  • discuss the evolution of future tax disputes and, perhaps more importantly, how these disputes can be most effectively resolved.


Digital transformation is at the confluence of three trends:

(1) cheaper computing power and ubiquitous digital infrastructure; and

(2) more company-specific information collected by machines, sensors and data providers; and

(3) easier access to service providers or talent who can leverage (1) and (2).

All of these help reduce operating costs and potentially monetize a company’s existing assets, revealing profit potential like never before.

Many businesses in non-digital industries may have felt isolated from the impact of the digital economy – simply comfortable building an occasional app or web service offering to meet customer expectations. However, competition comes from several directions. Well-funded digital companies are now starting to use their portfolios to identify unexpected returns and enter markets historically not considered digital. Existing competitors are rethinking old playbooks and making small digital investments that reap substantial benefits from increasingly sophisticated customers.

Finally, start-ups or adjacent incumbents in different regions or sectors can now access existing customers with new low-capital offerings that disrupt existing business contracts or long-standing practices. Ultimately, digital transformation is closely tied to business agility. Just as outsourcing was a critical trend in the 1980s to compete against cost and overseas competitors, leading to the global supply chain and just-in-time delivery, the digital revolution is even more disruptive, facilitating entering new sectors and international markets to succeed in the new global economy.

Figure 1: Industry Sector Perspectives on Digital Transformation (DT)

Strengthening existing supply chains or creating more robust supply chains has become a priority in 2020. After several years of a deteriorating geopolitical context for trade, the shifting epicenter of the pandemic has made it clear that chains procurement had to become significantly more resilient. Digitization of supply chains has been reported as a solution through the use of streamlining their supplier selection process, facilitating and managing supplier relationships and logistics and shipping processes, and l ‘automating. We noted in our flagship report, Permit to be daring: Transforming industrialists, however, that in early 2020, 72% of executives surveyed agreed that their company’s historical footprint left them exposed to trade volatility.

Just as the trade war was a shock to supply chains, the Covid-19 pandemic was a shock exacerbating the need to be more digital. In the same survey, 58% of those polled in all industries who had yet to start a digital transformation program said Covid-19 had accelerated their plans. The most successful companies in the ‘K’ recovery are those that have a strong digital business presence, that could operate remotely, and were resilient and isolated from the disruption to human or physical assets resulting from the pandemic, namely those that had already embarked on a digital transformation or were predominantly digital.


The move to digitalization, especially for companies that are not in the tech sector, raises universal transfer pricing questions, which companies must be prepared to answer. These questions include:

  • Who owns the valuable intangibles created as a result of digitization and the operation of the business after digitization?
  • How has the “digital switchover” changed the company’s value chain and existing business-to-business agreements?
  • Are the company’s transfer pricing positions still defensible and, if so, are they properly documented and substantiated?

In essence, all these questions are linked to the essential question introduced by BEPS of whether the evolving relocation of taxable income across the countries in which the company operates is aligned with that where value is created through digitization.

In this section, we discuss the many strengths of digital transformation; the control of transfer pricing data, analysis and the potential creation of intellectual property associated with non-digital companies “going digital”. See our Special report for case studies on transfer pricing considerations for three historically non-digital industries.

Strengths of digital transformation

The digital transformation has been driven by various technological forces that have fundamentally changed the behavior of businesses and consumers.

Below, we identify some forces of digital transformation that have impacted the global economy. In our Special report we explore their respective impact on businesses.

Figure 2: Digital transformation forces by sector

How digitization is forcing a shift in mindset about intellectual property creation and data control

Digitization has the potential to fundamentally change the way traditionally non-digital businesses create value. As these businesses transform, they should re-evaluate their transfer pricing to identify new ways the business creates value, and ensure that business-to-business transactions and pricing, as well as the distribution of income. tax between jurisdictions, are structured to align with value creation.

For example, manufacturers and energy companies that increasingly rely on automated machines monitored by connected to the internet The devices, with a remote workforce monitoring the process and remote engineers designing the monitoring machines and software, will need to determine where the value-added functions are performed and how much of the resulting profits should be left in the process. jurisdiction where manufacture or extraction takes place.

As companies begin to collect more and more data about customers, users, their supply chain or manufacturing processes, there are a host of new questions to consider. For example, how will they use this data? If someone analyzes the data, where is it? Who designed algorithms or programs to analyze and use the data? If AI or machine learning is combined with data to create valuable information, which jurisdiction should get credit?

Tax authorities may claim that value is created within their borders due to local data collection. However, the real questions are: where is the data turned into a usable dataset, who (or what) finds information in the data and how is that information leveraged to create value? Additionally, some jurisdictions could become centers of excellence in data mining and AI training, with China and the United States currently leading the pack. If the expertise developed in these jurisdictions is leveraged globally, should it be remunerated and how?

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Author Info

Martin Bell is Head of Transfer Pricing at Baker McKenzie in Singapore. Tamara Levin is Partner in San Francisco, Carlos Linares-Garcia is Senior Economist in Monterrey, Andrew O’Brien-Penney is Director of Economics in Chicago, and Gene Tien is Senior Economist in Palo Alto.

Bloomberg Tax Insights articles are written by seasoned practitioners, academics, and policy experts who discuss current tax developments and issues. To contribute, please contact us at

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