Taxing Digital Economy - Applicability of Non-Discrimination Rules in International Agreements

Abstract

As part of the OECD/G20 Base Erosion and Profit Shifting (“BEPS”) Project, an interim report on Action 1 Digital Economy was released in March, 2018. The Report was inconclusive and did not recommend any measures. However, anticipating that countries may prefer to anyway introduce unilateral measures to combat BEPS issues in digital economy, the Report gives some guidelines for introduction of such measures. To add to the list of countries which have adopted or propose to adopt unilateral measures, the European Commission (the “EC”) came out with proposals on how to tax the digital economy by the members of the European Union (“the EU”) in March 2018. The Indian Finance Act, 2016 had introduced an equalisation levy on online advertising services with effect from June, 2016. This article examines whether or not this ‘EU digital tax’ is in accordance with the non-discrimination provisions in the WTO Agreements, more particularly, the General Agreement on Trade in services (GATS).

Keywords: Digital Economy, BEPS, EU Digital Tax, Equalisation Levy, Non-Discrimination, GATS