Why is the taxation of digital services so difficult?

Two key general principles of the current international tax system are that:

• Firstrly, foreign companies don't become subject to a country’s corporate income tax until they have created a permanent establishment (PE) there; and 
• Secondly, income should be taxed wherever the value of a good or service is created.

As such, most countries require some form of permanent establishment (PE) in their jurisdiction in order to give rise to a right to tax the income.  In addition, double tax treaties, which overlay the domestic law, generally require a PE.

This means, the concept of a permanent establishment, doesn’t really apply to the digital sector. If taxing rights are computed from the profit collected from a fixed presence within a country, the business model of most tech and digital companies means can generate large revenues with little to no actual physical presence in a country. Defining a taxable presence, is therefore much more difficult.

Additionally, the intangible nature of the goods and services sold makes it difficult to both define value creation, and then link this value creation to a specific tax jurisdiction. For instance, in the case of the usage of user data, how do you calculate the  value that arises from the generation, storage and use of the data?