Taxing Cross-Border Services

IMF Working Papers, July 17, 2026

Source details

Authors: Shafik Hebous, Brendan Crowley, Rasmi Das, Tibor Hanappi, Cory Hillier, Adam Jakubik, Eric Robert, Christophe J Waerzeggers
Published: July 17, 2026
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798229055048.001

Faced with limitations of existing tax frameworks for cross-border trade in services—particularly the lack of taxing rights over certain income from highly digital business models and the continuing scope for profit shifting through payments for cross-border services—countries and scholars have adopted or proposed a wide range of tax measures.
This paper brings these measures together in a coherent framework and examines them from both an economic and a legal perspective.
The paper documents how cross-border services trade has:
- grown,
- become more digital in composition, and
- become increasingly concentrated across sectors, firms, and jurisdictions.
The paper develops a comparative synthesis covering:
- destination-based consumption taxes such as VAT,
- gross-revenue taxes—notably digital services taxes,
- income-based instruments such as nexus and withholding rules, and
- anti-avoidance rules aimed at limiting profit shifting through deductible cross-border payments.
The paper argues:
- that the economic incidence of each instrument is central to policy assessment, and
- that evaluating these instruments in isolation obscures their interaction.
Main conclusion:
- Broader reliance on destination-based taxation can address many of the core problems raised by digitalized services trade more effectively than narrower, more distortionary alternatives.

Trade has grown and shifted toward more digital composition.
Activity has become increasingly concentrated across sectors, firms, and jurisdictions.
Existing tax frameworks have limitations in taxing certain income from highly digital business models and in preventing profit shifting through payments for cross-border services.

Destination-based consumption taxes:
- VAT and similar destination-based consumption taxes are examined for their role in taxing cross-border services.
Gross-revenue taxes:
- Digital services taxes and other gross-revenue approaches are analyzed.
Income-based instruments:
- Nexus rules and withholding rules are compared as mechanisms to allocate taxing rights and collect tax on cross-border services income.
Anti-avoidance rules:
- Measures aimed at limiting profit shifting through deductible cross-border payments are evaluated.

Emphasis on economic incidence:
- The paper stresses that understanding who ultimately bears the tax burden (economic incidence) is central for assessing each instrument.
Interaction effects:
- Evaluating instruments in isolation is insufficient; their interactions can alter effectiveness and distortions.
Policy implication:
- A shift toward broader destination-based taxation is argued to be more effective and less distortive than narrower alternatives like some gross-revenue taxes.

Title: Taxing Cross-Border Services
Authors: Shafik Hebous, Brendan Crowley, Rasmi Das, Tibor Hanappi, Cory Hillier, Adam Jakubik, Eric Robert, Christophe J Waerzeggers
Date: July 17, 2026
Series: IMF Working Papers
Working Paper No.: 2026/152
Volume: 2026
Issue: 152
Pages: 59
DOI: https://doi.org/10.5089/9798229055048.001
ISBN: 9798229055048
ISSN: 1018-5941
Subjects: Imports, Income, Income and capital gains taxes, International trade, National accounts, Taxes, Trade in services, Value-added tax
Keywords: Digital Economy, Digital Service Taxes (DST), Global, Imports, Income, Income and capital gains taxes, profit-attribution rule, profits tax, services tax, Services Trade, tax analysis, tax implication, tax instrument, tax measure, Tax Policy, tax profits, Trade in services, Trade Policy, Value-added tax

IMF Working Paper "Taxing Cross-Border Services", Working Paper No. 2026/152, July 17, 2026.