The Ability to Pay and Economic Allegiance: Justifying Additional Allocation of Taxing Rights to Market States

Louise Fjord Kjærsgaard*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


The OECD/G20 Inclusive Framework and the UN are working intensively on how to change the allocation of taxing rights to cross border income and to adapt the international tax regime to the digitalization of the economy. A stated aim is that more taxing rights should be allocated to the market states. However, during the process it has become clear that it remains uncertain why the allocation of taxing rights should be changed. In this article, it is argued that the allocation should continue to be justified by the principle of economic allegiance in accordance with the ability of the MNEs to pay taxes. On this basis, it is analysed whether the following three measures are justifiable: the new nexus under the Pillar One Blueprint, the inclusion of software in the definition of royalties in the UN Model Tax Convention and the implementation of a shared taxing right for automated digital services in the UN Model Tax Convention.
Original languageEnglish
Issue number8-9
Pages (from-to)636-655
Number of pages20
Publication statusPublished - 2021


  • Allocation of taxing rights
  • Ability to pay principle
  • Economic allegiance
  • Single tax principle
  • Inclusive framework
  • Pillar one blueprint
  • OECD model tax convention
  • UN proposals on shared taxing rights
  • UN model tax convention
  • Automated digital services

Cite this