The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.
Digital Services Taxes:
Do They Comply with International Tax,
Trade, and EU Law?
• With respect to international tax law, companies can challenge the DST based on bilateral
income tax treaties. The applicable tax treaty and available claims depend on the challenging
company’s country of residence.
• Although the DST is most likely not a “tax covered” by the most relevant tax treaties, it can
still be challenged based on the non-discrimination clause of these treaties.
• With respect to international trade law, there are three legal instruments relevant to
an analysis of the digital services taxes: (1) The WTO moratorium on customs duties on
electronic transmissions; (2) The WTO General Agreement on Trade in Services; and (3)
Individual bilateral or plurilateral free trade agreements.
• A digital services tax like the one implemented by France likely violates both the General
Agreement on Trade in Services and a model U.S. free trade agreement. However, it is
uncertain whether meaningful relief could be obtained under either regime.
• With respect to EU law, there are three potential areas for challenge: (1) Article 401 of
the VAT Directive; (2) The freedom of establishment and the freedom to provide services
provisions; and (3) The state aid rules laid down in the Treaty on the Functioning of the
It is most likely that the DST is not subject to the prohibition laid down in Article 401 of the
VAT Directive. On the other hand, it is possible that the DST violates both the fundamental
freedoms and the state aid rules.
BY CHRIS FORSGREN, SIXIAN (SUZIE) SONG, AND DORA HORVÁTH
This analysis was prepared by a select group of J.D. and L.L.M. candidates at the Institute of International Economic Law
(IIEL) at Georgetown University in conjunction with TradeLab. All research and analysis was supervised by Georgetown facul-
ty, Tax Foundation experts, and outside tax professionals.
The Tax Foundation would like to thank the report authors for an exceptionally thorough,