Digital Services Tax and its Compliance with Double Taxation Treaties: An analysis of the compatibility of the Digital Services Tax with the U.K. and the U.S. Double Taxation Convention.

Abstract

Digitalisation has posed significant challenges to the current international taxing rules, contributing to the loss of 4-10% of the international corporate tax revenues. Since 2013 the Organisation for Economic Co-operation and Development (OECD) have worked with the Group of Twenty (G20) to reach a consensus-based solution to address tax challenges raised by the digital economy. However, the United Kingdom did not wait until an international solution to be reached and implemented. Instead, the U.K. enacted the Digital Services Tax (DST) to target the revenue of digital activities derived from the U.K. as an interim solution. This dissertation considers one legal implication raised by the DST, which is its compatibility with double taxation treaties, focusing on the U.K. and the U.S. Double Taxation Convention (the Convention). Two potential issues have been identified based on the primary purposes of three model tax treaties, which might be inconsistent with DST. These issues include the possibility of the DST to be subject to taxes covered in the Convention, and the inconsistency with the non-discrimination article in the Convention. Therefore, these issues were explored within the wording of the U.K. and the U.S. Double Taxation Convention. It has been established that DST is likely not violating the U.K. and the U.S. Double Taxation Convention. However, this result cannot be generalised to include the compatibility of the DST with all tax agreements. Considering the wording of every double taxation treaty remain crucial to examine the compatibility of the DST with double taxation treaties.