EU and WTO Law Limits on Digital Business Taxation

This chapter addresses the challenges and limits posed by two sets of supranational law for any reform of international tax systems aimed at capturing profits made in specific digital business models. By way of background, it first analyses the policy challenges arising from digitalization and lists a few policy responses that have been proposed or implemented recently (§3.02). Specifically, it will focus on specific withholding taxes (WHT) tailored to ‘digital transactions’, new source rules (‘digital nexus’, ‘virtual permanent establishment’ (VPE), ‘significant digital presence’ (SDP)) and specific new taxes directly targeting ‘digital business’ (‘equalization levies’ (EL) and ‘digital services tax’ (DST)). As these ideas are all subject to more detailed review in other chapters in this volume, they are described here only to the extent necessary to perform a generic analysis of potential incompatibilities with supra- and international law. The chapter then reviews well-known limits imposed by European Union (EU) law for tax policy- making with specific reference to such proposed policy responses, distinguishing between limits imposed on EU Member States (§3.03[A]) and on the EU as an independent actor (§3.03[B]). It then follows a less well-trodden path, discussing limitations on reforms arising from World Trade Organization (WTO) law (§3.04), before offering a brief concluding summary of the insights gained from the chapter (§3.05).