The Role of Data Localisation in International Taxation: Data Sovereignty, Cross-border Flows, and Taxation Rights

AMIT GUPTA; RAVI KUMAR

The Role of Data Localisation in International Taxation: Data Sovereignty, Cross-border Flows, and Taxation Rights

Author(s)	Dr. AMIT GUPTA, Dr. RAVI KUMAR
Country	India
Abstract	The 21st century has witnessed the emergence of data as the most valuable economic asset, driving innovation, competitiveness, and global interconnectedness. With the proliferation of digital platforms, e-commerce, cloud computing, and artificial intelligence, data now transcends geographical boundaries, creating new challenges for taxation systems that were originally designed for tangible goods and physical presence. Against this backdrop, the concept of data localisation—the requirement that data generated within a country must be stored and processed within its territorial boundaries—has assumed significant prominence in debates on international taxation. This paper seeks to examine the evolving landscape of data localisation and its profound implications for tax policy, sovereignty, and global economic governance. The study begins by situating data localisation within the broader context of data sovereignty, recognizing the right of nations to exercise control over data generated within their borders. While data localisation is often justified on grounds of national security, privacy, and economic development, its intersection with taxation introduces complex legal and economic questions. By restricting cross-border data flows, localisation policies may alter the allocation of taxing rights, raising concerns over fairness, efficiency, and double taxation in a highly digitalized economy. Furthermore, the paper analyses the impact of data localisation on cross-border data flows, which are the lifeblood of digital trade and global economic integration. While unrestricted data flows facilitate innovation, investment, and scalability for multinational enterprises (MNEs), localisation requirements can fragment the digital ecosystem, impose higher compliance costs, and affect the ability of countries to tax profits where value is created. This tension between global business models and national tax jurisdictions has significant implications for base erosion and profit shifting (BEPS), as companies may exploit regulatory arbitrage to minimize tax liabilities. The research also explores the existing international legal frameworks and bilateral agreements governing taxation in the digital economy, including the OECD’s initiatives, the Inclusive Framework on BEPS, and emerging proposals for digital services taxation. These mechanisms attempt to balance the taxation rights of market jurisdictions with the global mobility of digital enterprises. However, the paper highlights the inadequacy of current frameworks in addressing the unique challenges posed by data localisation, especially for developing economies seeking to safeguard both revenue and sovereignty. In addition, the paper investigates the policy dilemmas and opportunities that data localisation presents. On one hand, localisation may strengthen domestic tax bases, ensure fairer allocation of taxing rights, and curb aggressive tax planning. On the other, excessive restrictions risk undermining international trade, discouraging foreign investment, and triggering retaliatory measures. The dual-edged nature of localisation underscores the need for a balanced, coordinated approach. Finally, the paper advances a set of policy recommendations for governments, international organizations, and stakeholders. These include fostering greater multilateral cooperation through the OECD and UN platforms, harmonizing data and tax regulations, adopting clear nexus rules for digital taxation, and promoting transparency in cross-border reporting. By addressing these challenges, policymakers can ensure that data localisation contributes to a fairer, more resilient, and sustainable global taxation regime. In conclusion, the paper argues that data localisation lies at the heart of the evolving debate on international taxation. As nations grapple with issues of data sovereignty, cross-border flows, and taxing rights, the resolution of this debate will determine the future of both digital trade and global tax governance.
Keywords	Keywords: Data Localisation; International Taxation; Data Sovereignty; Cross-Border Data Flows; Taxation Rights; Base Erosion and Profit Shifting (BEPS); Digital Economy; OECD; Tax Governance; Global Tax Reform.
Field	Business Administration
Published In	Volume 7, Issue 2, March-April 2026
Published On	2026-03-31

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The Role of Data Localisation in International Taxation: Data Sovereignty, Cross-border Flows, and Taxation Rights

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