Abstract
Digitalization is transforming many aspects of our everyday lives, including the global business landscape. One of the most distinct features of the digital economy is the rise of platforms. Digital platforms not only change the supply chain in many industries but also create fundamental challenges for established tax principles. This paper will cover two of the most imminent challenges.

The first part of the paper is dedicated to the taxation of digital platforms themselves. According to international tax law, income taxation shall be linked to the source of the income. The current tax system assumes that a company will only create taxable income in a non-resident country, if there is some physical nexus with that country (e. g. a permanent establishment). However, many platforms in the digital economy offer their services to customers worldwide without having any physical presence in countries where the customers are located. This raises the question as to whether income taxation of platforms should be linked to the country of residence of the customers of a digital platform rather than the country of residence of the platform operator. In this regard, the initiatives of the European Commission on the digital services tax and the significant digital presence will be evaluated.

The second part of the paper covers enforcement issues created by the platform economy. As transactions between different user groups of a platform, it is oftentimes difficult for tax authorities to determine tax liabilities. The paper will, therefore, suggest alternative mechanisms to ensure taxation. The focus will be on the withholding tax system, which obliges platform operators to deduct the tax on behalf of platform users. Whether and to what extent the operator of sharing economy platforms can be held liable remains to be discussed.

I. Taxation of Digital Platforms
A. Introduction

Following the ‘business goes global, taxes stay local’ principle, deficits of international corporate taxation are exploited through clever tax planning. Large multinational enterprises like Airbnb, Alphabet, Apple, Facebook or Amazon are being criticized for not paying adequate taxes. Their innovative digital business models are challenging the established tax system.

International taxation is based on the “taxation at source” principle. According to this doctrine, international income flows are subject to taxation in the country where income is derived from – regardless of the country of residence of the person achieving that income. Profits should be taxed where the value is created. In principle, however, according to the current tax law system income is only taxed in the source state if the taxpayer has a physical nexus to that state. Traditionally, the most important nexus for this limited tax liability is a permanent establishment or appointment of a permanent representative in a country. In the digital world, the number of cross-border transactions has been increasing significantly. A special feature of digital business models is their global activity across borders regardless of their locations. From the perspective of the source state principle, this leads to two challenges: First, there is an increase in the number of direct transactions in which foreign platforms like Airbnb derive income from doing business in a country but do not use a physical presence in this country for this purpose. The question is whether the source principle requires taxation in the state in which the customers of a digital company are located. If this is answered affirmatively, the question arises as to which connecting factor should be chosen for taxation in the source state.

In order to tackle this problem, the European Commission has published a proposal for a directive laying down rules relating to the corporate taxation of a significant digital presence rather than a permanent establishment and, as a short-term solution, has put forward a proposal for a digital services tax. Austria and France have already introduced digital services taxes unilaterally.