Taxing Tech: Risks of an Australian Digital Services Tax under International Economic Law

Abstract

Along with many other countries, Australia is considering implementing a tax on digital services to try to capture more of the revenues of digital businesses, which may operate without a substantial physical presence in the country. Although traditional approaches to tax may need wholesale revision to adjust to the digitalisation of the global economy, these changes are best pursued through a multilateral process, which is already ongoing through the Organisation for Economic Co-operation and Development and the G20, and in which Australia is participating. An interim Australian digital services tax risks breaching Australia’s obligations under international economic law: namely international trade law and international investment law. The relevant trade and investment rules contain certain flexibilities, including some specific references to taxation, that might assist in justifying such a tax. However, the overarching problem that may lead to a breach of at least some of the relevant treaties is that an Australian digital services tax is likely to burden United States businesses disproportionately, particularly if smaller businesses are exempt as is envisaged. In the current global economic and political climate, provoking retaliation of the United States or further closing of national economies through the imposition of an Australian digital services tax is undesirable.