Cloudy with a Chance of Taxation

55 Pages Posted: 5 Dec 2018 Last revised: 27 Apr 2020

See all articles by Rifat Azam

Rifat Azam

Harry Radzyner School of Law, Interdisciplinary Center Herzliya

Orly Mazur

Southern Methodist University - Dedman School of Law

Date Written: November 26, 2018


The growth of the digital economy, and, in particular, cloud computing, has put a significant strain on sales taxation and other consumption tax systems. The borderless, anonymous, and digital nature of cloud computing raises questions about the paradigm used to determine the character of the transaction and the location where consumption, and therefore, taxation occurs. From an American perspective, the effective resolution of these issues continues to grow in importance in light of the recent U.S. Supreme Court decision in South Dakota v. Wayfair and the growing number of U.S. businesses transacting overseas in jurisdictions that impose value-added taxes (VATs).

The cloud magnifies difficulties with VAT compliance and enforcement, as businesses increasingly are subject to VAT laws in multiple jurisdictions. Tax authorities therefore have to collect from remote vendors who have numerous opportunities for VAT avoidance and evasion. The outcome of these challenges is unfair competition, a burden on international trade, and a huge gap in VAT revenues.

In this important article, we closely analyze these cutting-edge challenges and contribute to the debate on how to tax the digital economy. We argue that while the approaches taken by both the Organisation for Economic Co-operation and Development, of which the United States is a member, and the European Union introduce some noteworthy improvements to the current system, more substantial measures are necessary. Thus, we propose a range of fundamental changes that include improving the existing registration-based VAT system through the enhanced use of new technologies, replacing the current system with a blockchain real-time basis VAT system, and shifting the VAT collection burden from suppliers to payment intermediaries. As the digital transformation of the economy accelerates, each of these changes will help adapt consumption taxation to the modern realities of our digital era.

Keywords: VAT, Cloud computing, Wayfair, OECD VAT Guidelines, GST Guidelines, European Union, digital economy, destination principle

Suggested Citation

Azam, Rifat and Mazur, Orly, Cloudy with a Chance of Taxation (November 26, 2018). Florida Tax Review, Forthcoming, SMU Dedman School of Law Legal Studies Research Paper No. 411, Available at SSRN:

Rifat Azam (Contact Author)

Harry Radzyner School of Law, Interdisciplinary Center Herzliya ( email )

P.O. Box 167
Herzliya, 46150
972-9-9527948 (Phone)


Orly Mazur

Southern Methodist University - Dedman School of Law ( email )

P.O. Box 750116
Dallas, TX 75275
United States


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