Is the DST a Coherent Response to Taxing Digital Services Under International Obligations and Norms? Comparative Analysis of DSTs Enacted in the United Kingdom and Türkiye

Abstract

Taxation of the digital economy has long been on the international tax agenda; the delay in the OECD-led multilateral solution on how to allocate income from digital business models motivated countries to take their own unilateral measures to tax revenue from digital services. According to existing international tax rules, digital services supplied in the market cannot be subject to tax in market jurisdictions due to a lack of nexus. This thesis starts from the question of whether users and consumers in the market create a legitimate nexus to allow a tax on the revenue of non-resident digital service suppliers. The Digital Service Tax (DST) is designed with the generic features of being an interim and unilateral tax on revenue from certain types of digital services. It is argued that these features of the DST led to complexity and uncertainty in the current international tax regime, in addition to being obstacles to long-term multilateral solutions. By placing principles of international taxation, which are discussed within the framework of current profit allocation rules, this thesis assesses the adherence of DSTs to commonly accepted tax principles beyond political concerns. The enactment of DSTs is also challenged in terms of international tax and trade norms and obligations. Common criticisms of DSTs concern their discriminatory nature and their adverse impact on businesses, due to the policy on which this tax is based. However, in the assessment of DSTs in terms of non-discrimination provisions of bilateral tax treaties and WTO GATS, it is concluded that DSTs are compatible with non-discriminatory provisions of bilateral tax treaties. Conversely, it is possible to challenge DSTs under the National Treatment provision of WTO GATs as being discriminatory.

The main contribution of this thesis is a comparative analysis between the DSTs of the United Kingdom and Türkiye, aiming to understand the extent to which legal and political differences between countries have influenced the development of national tax proposals and their respective DST design. In both countries, this tax measure is called a “Digital Service Tax”; however, the implementations of these measures show differences concerning the legal constraints, political motivation, and design of DSTs within the framework of domestic laws. In order to achieve the policy objectives of DSTs in both countries, it is essential to optimise their respective DSTs.

This study concludes that DST is an example of the primacy of national interest over international cooperation, thereby undermining the international solidarity necessary for reaching a multilateral solution to the taxation of the digital economy. This thesis contributes to the ongoing discussion of taxing the digital economy by providing an impartial examination of the extent to which the same tax policies and frameworks differ in their implementation across domestic laws, in particular offering a cautionary tale concerning the adoption of similar unilateral tax measures into domestic law.