Artificial intelligence (AI) is transforming the global economy, blurring borders in how business is conducted. A startup in South Africa can deploy an AI service globally without a physical footprint abroad. A multinational tech firm can leverage algorithms to generate enormous profits from users on every continent, all managed from a few servers. This digital revolution offers tremendous economic opportunities but also poses a challenge: how do we ensure this new wealth is taxed fairly across nations? 

AI is transforming the global economy 

The rapid digitalisation driven by AI means value creation is increasingly intangible and borderless. Traditional international tax rules were built for a brick-and-mortar era. They rely on taxing companies where they have a physical presence, which is often not the case for digital services and AI-driven businesses. This gap has enabled many tech giants to legally minimise taxes by shifting profits to low-tax jurisdictions. The OECD estimates profit-shifting by multinationals costs up to $240 billion annually in lost tax revenue. Developing countries, in particular, feel the strain as they struggle to tax digital economic activity occurring within their borders through foreign platforms. 

Global tax rules in the digital age 

Policymakers are responding. The G20, through the OECD Inclusive Framework, has spearheaded a historical global tax reform effort. Over 140 countries have agreed to implement a 15% global minimum corporate tax on large multinationals to end the ‘race to the bottom’ and ensure big companies pay a baseline level of tax wherever they operate. Recent developments show significant progress, with many jurisdictions announcing plans to introduce Qualified Domestic Minimum Top-up Tax and the OECD releasing compilations of qualified legislation to support implementation. 

Countries are also negotiating new rules to allocate taxing rights for digital services, updating the century-old tax system so market countries can tax a share of the profits of digital businesses, even without a physical presence. These efforts align closely with South Africa’s G20 presidency agenda under Task Force 5, which includes building a fairer international tax system. 

AI is part of the solution

AI isn’t just a challenge for tax policy — it’s also part of the solution. Tax administrations worldwide are beginning to harness AI to improve compliance and taxpayer services. Under Task Force 3, Digital and Technological Transformation, there is an opportunity to leverage AI to modernise tax collection, especially in developing economies. 

Policy recommendations

To ensure that the AI revolution and international tax policy advance hand-in-hand, I propose the following policy measures for G20 leaders: 

• Empower tax administrations with AI: Launch a G20 initiative to share knowledge and funding for AI-driven tax systems. This would help tax authorities adopt AI solutions for compliance and customer service. Alignment: Modernises public sector capabilities, supports the digital transformation (T20 TF3) agenda. 

• Implement and expand global tax reforms: Rapidly implement the 15% global minimum corporate tax and finalise a fair framework for taxing digital services and AI-centric businesses. Alignment: Advances global financial architecture reform (T20 TF5) and reinforces the G20’s commitment to a fair international tax system. 

• Future-proof tax policy for AI: Establish a G20-led study group to examine long-term tax policy in an AI-driven world. This group would explore innovative ideas such as taxing extreme automation to offset potential losses in labour tax revenues. Alignment: Bridges TF3 and TF5 by integrating digital transformation foresight into financial policy reform. 

• Encourage inclusive international cooperation: Ensure developing countries have a strong voice in shaping new tax rules for the digital age. The G20 should coordinate to assist poorer nations in implementing global tax standards. Alignment: This is consistent with South Africa’s G20 emphasis on inclusive growth and capacity building in global governance. 

The G20 can align technological innovation with a more equitable global financial architecture by pursuing these recommendations. South Africa’s G20 presidency offers a timely platform to drive this agenda, uniting the digital transformation and international finance tracks toward a common goal.