Wednesday, December 1, 2021
Katherine E. Karnosh (J.D. 2021, Chicago), Comment, The Application of International Tax Treaties to Digital Services Taxes, 21 Chi. J. Int'l L. 513 (2021):
As digital services and electronic commerce have become more prevalent aspects of the global economy, there have been concerns over how tax systems will adapt to this change. International tax treaties in particular seem to be outdated and unprepared for the digital economy. Many international tax treaties provide that businesses are to be taxed on their income only in jurisdictions where they have a sufficient physical presence. By establishing their European headquarters and digital servers in countries with low corporate income tax rates (such as Ireland) and then using those headquarters to provide digital services to the rest of Europe, large, sophisticated, multinational digital businesses have been able to generate much revenue from most European countries without paying significant taxes in those countries.
The issues surrounding digital tax laws made news headlines in the summer of 2019 when France passed a law that imposed a 3 percent tax on revenue earned from digital services in France. Scholars have suggested that this tax may violate existing tax treaties, arguing that it provides for the taxation of the income of businesses without a significant enough physical presence in the country imposing the tax. This Comment analyzes this potential violation with regards to the French digital services tax and the U.S.–France Treaty for the Prevention of Double Taxation. This Comment concludes that the French tax does not violate the Treaty because the tax is a consumption tax that falls outside the scope of the Treaty.