When International Trade Law Meets Tax Policy: The Example of Digital Services Taxes

Abstract

With the rise of digital services taxes (DSTs) all over the world, questions have arisen regarding their compatibility with international trade law. Between 2019 and 2021, the United States initiated investigations into several DSTs and published observations on the DSTs adopted by Austria, France, Italy, India, Spain, Turkey and the United Kingdom. In addition to the argument that these taxes violate international tax principles, the US considers that they are discriminatory. This article uses this claim as a basis to analyse the likelihood for DSTs to be incompatible with World Trade Organization (WTO) law. First, it provides an overview of the unilateral, regional and multilateral tax proposals to mitigate the challenges of the digitalized economy. Second, it discusses the main legal issues that could arise under the law of the WTO, focusing on legal issues under the General Agreement on Trade in Services (GATS). While recognising that there may be good tax policy reasons to oppose DSTs, this article concludes that arguments based on WTO law provide, if at all, a weak justification to oppose such taxes. Digital Service Taxes (DST), GATS, Unilateral taxes, Digitalized economy, Destinationbased taxes, National treatment, Most-favoured-nation principle, Non-discrimination of services and service providers