As the digital economy progresses, there is growing concern regarding the issue of tax avoidance by multinationals. Since firms rely heavily on intangibles and yield profits without permanent establishments in the digital economy, the so-called Base Erosion and Profit Shifting (BEPS) phenomenon is likely to grow worse as such tax avoidance by multinationals becomes more prevalent and elaborate. Working within the OCED/G20 Inclusive Framework on BEPS, over 135 countries are collaborating to reach an agreement by the end of 2020, and many economies including European countries have been introducing digital services tax.
   This paper surveys the literature on the economic impact of tax avoidance by multinationals, reviews international discussions on the BEPS project and digital services tax, and provides, by suggesting directions for future research, references for government to prepare countermeasures for the introduction of the BEPS project and digital services tax by other countries. Chapter 2 covers recent discussions on the OECD/G20 BEPS project, the European Commission’s corporate tax reform, and introduction of digital services tax by many countries. The key points of the “Two-pillar approach” discussed at the OCED/G20 are profit allocation using a predetermined formula and ensuring a minimum level of effective taxation. Since the cessation of discussions on corporate tax reform at the European Commission, many European countries have been independently introducing digital services tax targeting digital enterprises with high profits. Chapter 3 surveys the literature on the magnitude and economic impact of BEPS. Previous papers find that an increase in corporate tax rates differentials between home and a tax haven would raise subsidiaries’ profits, but the magnitudes become lower as the quality of data and methodology improve. They also report the evidence of manipulation of transfer price and relocation of intellectual property to a tax haven based on tax rates differentials between home and a tax haven. According to papers that analyzed the impact of tax avoidance on price, output, and consumer welfare, welfare increases with tax avoidance in countries with a high tax rate, while it tends to decrease in countries with a low tax rate. An increase in corporate tax rate, however, generally has a negative effect on firms’ productivity, investment, and innovation. Chapter 4 reviews recent studies on digital tax and online platforms in two-sided markets. In two-sided markets, platforms react to taxation by taking account the indirect network effect, which refers to interaction between incentives of users on each side to participate in the platform. A platform would respond to tax by reducing price on one side if the market has large indirect network effect. Recent studies show that the impact on platform’s pricing and fiscal revenue of taxing a two-sided platform varies depending on the magnitude of indirect network effect. Based on this extensive literature review, this paper concludes with suggestions for future research direction. It will be worthwhile to explore avenues like tax incidence, investment effects of digital tax, impact analysis at industry level, trade conflicts arising from introducing digital services, and changes in international standards for the digital economy.