Workers Without Borders: Rethinking Taxation in the Age of Remote Work

18 Oct 2023

18 Oct 2023 by Luke Puplett - Founder

A new global tax treaty drafted by over 130 countries aims to update international tax laws for the digital age, according to a Financial Times article. The treaty looks to make large multinational corporations, especially tech giants, pay more taxes where they do business rather than just where their headquarters are located.

This effort is long overdue, given how outdated the 1920s-era international tax rules are for today's digital and remote work economy. The treaty represents an important step towards modernizing the global tax framework to catch up with how technology has transformed business.

The OECD tax treaty essentially codifies a landmark 2021 agreement reached by over 130 countries to update international tax laws. The key element is redistributing around $200 billion in multinational corporate profits annually to countries where sales occur rather than concentrating it where companies are headquartered.

Under the proposed rules, 25% of profits above a 10% margin would be taxed in countries where companies have sales. This is intended to give nations a fairer share of tax revenue from large global digital businesses that can operate within their borders despite having little physical presence there.

The outdated nature of existing tax laws highlights a broader theme: most rules and government policies around taxation, employment, social services, etc. were designed many decades ago in the pre-digital era when work was centered around physical offices and locations.

These frameworks fail to properly accommodate the new reality of remote work and rising numbers of digital nomads who may live and work while traveling between multiple countries and jurisdictions.

Tax Rules Impact Remote and Distributed Teams

For example, tax residency requirements typically depend on the number of days spent in a country, which becomes meaningless to nomadic remote workers. Similarly, tax nexus rules are based on physical presence rather than digital presence of multinational companies. Determining potential double taxation liabilities across different countries with varying tax treaties adds further complexity for globally mobile workers.

Accessing social services like healthcare across borders can also become challenging. Overall, the outdated policy infrastructure around 20th century concepts of work and residency creates major headaches for globally mobile talent.

Some nations are also getting creative and proactive in attracting digital nomads. For instance, Estonia has introduced a digital nomad visa providing tax incentives and streamlined residency. Over 50 countries now offer some version of a nomad visa program, indicating a growing recognition of the need for supportive policy environments.

Global Labor Marketplaces Enable Remote Talent Access

The increasing ease of remote work means talented individuals now have their pick of work opportunities across the globe. Nations are effectively competing to attract the best human capital. Progressive policies, incentives, and infrastructure for location-independent workers can become differentiating advantages in this global race for skills.

Emerging technologies like SpaceX's Starlink satellite internet are enabling broadband connections from anywhere in the world. This means remote work is no longer limited by geography – anyone could potentially live and work from even the most remote locations on the planet.

Such innovations will likely further accelerate the pace of change and adoption of location-independent work and living arrangements. Starlink and other universal connectivity technologies make it even easier to work and earn income from any corner of the globe.

These accelerating trends present new challenges for governments and regulators. With populations and incomes becoming much more fluid across borders due to remote work, how do countries adapt policies around taxation, social services, residency requirements, and more?

Nations will need new frameworks and likely increased collaboration with each other on regulating digital/remote work and its impacts. Otherwise, outdated policy infrastructure will keep causing friction.

Looking ahead, remote work combined with blockchain, cryptocurrencies, and decentralized autonomous organizations could potentially give rise to novel "crypto states" or "cloud countries" not tied to any physical jurisdiction. Such invented borderless communities organized on the blockchain could create regulatory situations without any historical precedent.

Future Remote and Hybrid Work Trends

Exponential trends like universal internet connectivity could enable formations of entirely new specialized hubs or cities optimized for the needs of digital nomads and remote workers. We may see previously unconventional places emerge as attractive centers for location-independent talent.

The pace of change and interconnectedness in the 21st century will likely continue testing the adaptability of systems conceived in the early 20th century for a vastly different world. Collaboration and creative thinking will be essential to allow societies and economies to thrive.

Conclusion

The OECD's tax treaty represents an encouraging step towards modernizing outdated international tax laws and bringing them into better alignment with today's global digital economy.

However, much work remains when it comes to updating the patchwork of policies, regulations, and legal frameworks that struggle to accommodate digital nomads and location-independent remote earning.

Nations will need to collaborate closely to reform tax rules, employment laws, social services access, and more to prevent friction for mobile remote workers while also addressing regulatory concerns.

The remote work revolution brings tremendous potential for human freedom and flourishing if enabled by supportive policy environments. But the pace of change also necessitates proactive reforms to 20th century systems unfit for the interconnected 21st century.

The OECD tax treaty provides a model of multilateral cooperation that could be applied across other policy domains. With vision and willingness to experiment, governments can modernize outdated frameworks to fully unlock the benefits of remote work for society.

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