Are Digital Services Taxes Consistent with Double Tax Conventions? A critical assessment of a comment by Philip Baker (Japanese)

This paper examines the background of the Digital Services Taxes (DSTs) and the recent debate on the DSTs. The first half of the paper points out the critical impact of the digitalization of the economy, especially in terms of the widespread presence of transactions in which domestic consumers purchase goods and services directly from foreign businesses, and on income taxation and consumption taxation as a background for the emergence of the DSTs, as we must consider various kinds of taxes, rather than just traditional taxes (income, consumption, and property). In the second half, we critically examine Philip Baker’s view that the DSTs may be consistent with double tax conventions. He concludes that a tax based on the gross amount of payment is not an income tax and therefore exempt from treaty discipline. However, we believe that his argument is unpersuasive and that the DSTs should be considered a violation of tax treaties, and the fact that the United States disagrees with Pillar One of the international agreements on digital taxation (allocation of tax resources to market countries) is therefore unsurprising.