Taxing the Digital Economy: Bridging the Gap between the European Union and Africa

This research paper examines the alignment and divergence between the European Union and African nations regarding the OECD's two-pillar solution for taxing the digital economy. It highlights the specific concerns of African states and regional bodies—such as the African Tax Administration Forum (ATAF) and the G24—concerning profit reallocation, dispute resolution, and the impact of minimum taxes on investment incentives, while suggesting areas where the EU could provide technical and diplomatic support.

• The OECD's two-pillar solution, agreed upon by 136 countries, aims to address digital taxation through two mechanisms: Pillar One reallocates taxing rights to market jurisdictions where Multinational Enterprises (MNEs) earn revenue above EUR 1 million for larger economies or EUR 250,000 for smaller ones, redistributing 25% of residual profits. Pillar Two introduces a non-compulsory 15% minimum tax for MNEs with global revenues exceeding EUR 750 million.
• While most African countries in the Inclusive Framework (IF) support the OECD proposals, Nigeria and Kenya have expressed dissent. Nigeria specifically cited concerns regarding the limited scope of 'Amount A', binding arbitration, and the requirement to withdraw unilateral tax measures for companies lacking a physical presence in the country.
• The African Tax Administration Forum (ATAF) and G24 countries advocate for several modifications to the OECD plan, including basing profit redistribution on total profits rather than residual profits, increasing the reallocation of non-routine profits to 30%, and implementing a higher minimum tax.
• A significant risk for developing countries is the conflict between the proposed global minimum tax and existing fiscal stabilization clauses in investment treaties. These clauses freeze tax terms, meaning countries cannot easily repeal incentives to meet minimum tax rates, potentially allowing home states to tax the revenue instead.
• The European Union and African nations share the goal of taxing digital MNEs without a physical presence. The author suggests the EU could support Africa by advocating for transparent, regionalized arbitration centers and providing technical assistance to manage the administrative burdens of the undertaxed payment and subject to tax rules.

APA

Wamuyu, R. (2021). Taxing the Digital Economy: Bridging the Gap between the European Union and Africa. Africa Policy Research Institute. https://afripoli.org/taxing-the-digital-economy-bridging-the-gap-between-the-european-union-and-africa

Chicago

Wamuyu, Ruth. Taxing the Digital Economy: Bridging the Gap between the European Union and Africa. Africa Policy Research Institute, 2021. https://afripoli.org/taxing-the-digital-economy-bridging-the-gap-between-the-european-union-and-africa.

Wikipedia

{{cite report |last1=Wamuyu |first1=Ruth |title=Taxing the Digital Economy: Bridging the Gap between the European Union and Africa |publisher=Africa Policy Research Institute |date=23 November 2021 |url=https://afripoli.org/taxing-the-digital-economy-bridging-the-gap-between-the-european-union-and-africa |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{wamuyu2021taxing, author = {Wamuyu, Ruth}, title = {{Taxing the Digital Economy: Bridging the Gap between the European Union and Africa}}, institution = {Africa Policy Research Institute}, year = {2021}, month = nov, url = {https://afripoli.org/taxing-the-digital-economy-bridging-the-gap-between-the-european-union-and-africa}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }