The digitalization of the economy is considered as a key driver of innovation, economic growth and societal change, and is a major challenge for the international tax system. The OECD has addressed this challenge in its extensive Action 1 Final Report as part of its BEPS project. This article critically depicts the OECD’s view and reform proposals on taxing businesses in the digital economy. Further, recent literature contributions on the matter are synthesized. While taxing profits according to value creation is detected as the new paradigm in international taxation, this review reveals that the understanding of the digital economy and corresponding reform proposals for taxation are premature. The authors show that the OECD has systematically missed the opportunities to define the paradigm of value creation and to analyse digital business models accordingly. Considering the current challenges, the key pressure area for taxing digital businesses in the near future is transfer pricing. Drawing from practical case studies and research in industrial economics, accounting and management science, this article derives a concept for value creation in digital businesses. Based on this concept, the authors propose a framework to refine transfer pricing guidance in order to come closer to the goal of aligning profit taxation with value creation.