Summary of the “International Tax Governance and Digitalization of the Economy in a Broader Perspective Kick-off Seminar”

By Juliana Cubillos


On the 16 October 2019, the GLOBTAXGOV (A New Model of Global Governance in International Tax Law Making), European Research Council (ERC) funded project carried out at Leiden Law School (Grant Agreement 758671) in cooperation with another ERC Project TRICI-Law (the Rules of Interpretation of Customary International Law) at University of Groningen, and the Leiden University Grotius Center for International Legal Studies organized a kick-off seminar to discuss the International Tax Governance and the Digitalization of the Economy in a Broader Perspective. This seminar was organized at the Wijnhaven Building, Faculty of Global and Governance Affairs at Leiden University.

The speakers were Irma Mosquera Valderrama Associate Professor at the Institute of tax Law and Economics and Lead Researcher GLOBTAXGOV, Prof. Panos Merkouris, Lead Research TRICI-LAW, Peter Hongler Professor of Tax Law at the University of St. Gallen (Switzerland); Dr. Ricardo García Antón Assistant Professor of Tax Law at the University of Tilburg; and from the Institute of  Public  Law  and  the  Grotius  Centre  for  International  Legal  Studies  at  Leiden  University: Dr. Anna Marhold Assistant Professor and Ms. Paula Baldini Miranda da Cruz PhD candidate.  The speakers’ presentations are available here.

Dealing with the tax challenges of the digital economy today is as much a technical as a governance issue. Many different organizations (among them OECD, EU, IMF, UN) are working on proposals to deal with these challenges and there is a constant tension between initiatives of individual countries or small groups and large-scale multilateral cooperation. In light of the current developments to tax the highlight digitalize business,  the presenters of the seminar analyzed the landscape for global governance and assessed it through the lens of public international law, trade law, investment law and tax law. They further discussed how the issues of taxing the digital economy relate to and can be embedded in previous initiatives on harmful tax competition and fair taxation. In addition, the digitalization of the economy has implications for trade and investment relations between states and regional blocs and affects the structure of markets. At the same time, important policy documents such as the Agenda 2030 for Sustainable Development affirm the importance of policy coherence in dealing with the challenges of our time.

In light of the above, the main objective of the seminar was to find synergies between different disciplines of law towards the digitalization of the economy. In this case the seminar was focused on finding synergies between public international law, international tax law, trade and investment law, in order to use them to encourage discussions on “how to tax highly digitalized businesses?”.

The setting of this discussion was initiated by Irma Mosquera Valderrama that addressed the different actors that engage in the creation of international rules for investment, trade, taxation and public international law. She explained that the international arena is populated with actors of all categories, which defend their own thinking and modulate the perspectives of the stakeholders guiding the adopted trade, investment and tax policies. Therefore, many interactions need to be regarded, without limiting the analysis to state’s interplay. For instance, the statistics and recommendations provided by the International Monetary Fund (IMF) or the analyses conducted by the United Nations Conference on Trade and Development (UNCTAD) shall be considered when defining future measures to be adopted in trade, investment and tax matters.

One of the common elements in this discussion is the different interactions in the model of governance resulting in multilateral and regional fora. The study of such governance models will provide for good practices that could be shared among the different areas of law. An enrichment of the concept of governance could be reached by investing in finding commonalities between the topics addressed by each one of the investment, trade and tax practices when dealing with governance issues.

Continuing with the discussion about international interactions in different areas of law. Ricardo García Antón advised the seminar’s attendants to look deeper into the consensus actually achieved in interactions between states, at a bilateral and multilateral level. In his opinion, more relevance should be assigned to the decision-making process, especially in multilateral contexts.

For example, the idea of equal footing is controverted in the case of the Multilateral Instrument (MLI) by the continuous references to already known milestones agreed under the convenience of a limited number of countries. As a concrete example of this feature García Antón identifies that there is a constant predominance of the concept of residence taxation in the MLI, which avoids to provide for a more inclusive consensus, but preserves the conditions already stated in the double taxation agreements (DTAs).

Hence, his proposal is to address international tax law in motion. This implies that the beholder will observe the evolution of the multilateral agreement and as well the interplay between states and related actors. The former to identify which is the interpretation given to the agreement through the years and which are the new commitments achieved between actors. Such action will provide for a more comprehensive insight of the actual multilateral consensus reached.

From a trade and investment perspective Anna Marhold and Paula Baldini explored the current developments in international taxation including the digital economy and the link with trade and investment developments. For investment law, Paula Baldini addressed the carve-outs in International Investment Treaties (IIAs), which depend highly on the drafting selected by the agreeing states as well as on the interpretation provided by the courts or ad hoc tribunals receiving the investors claims.

This is particularly problematic because IIAs enable foreign investors to request protection of their investments via Investor State Dispute Settlement (ISDS) by pleading before an ad hoc court. Such intervention might even affect the locally taken decisions towards taxation. Specially, when the IIAs provide for such intervention, including a weak carve-out or expressly endorsing a carve-out that provides for such intrusion.

On the side of trade Marhold explained that the topic of digitalization of the economy has been approached in the past by introducing a moratorium for imposing customs duties on electronic transmissions. Despite this moratorium, several Preferential Trade Agreements (PTAs) have been agreed including open ended terminology such as “electronic transmissions” and “digital products transmitted electronically”. These terminologies are not defined in the agreement and require to be interpreted in order to apply the regulations.

When we start questioning the meaning to be given to unclear terminology included in international treaties, it is obvious that we need to resort to articles 31 – 33 of the Vienna Convention on the Law of Treaties (VCLT). Among the options available for interpretation one will start by invoking the meaning of the term interpreting it in good faith, reverting to the context, and if not clear yet resorting to subsequent agreements/practices or providing for an special meaning to be given to the term if the parties so intended.

However, what should we do with the terminology that does not belong to treaties but is also relevant for disentangling the states practices and the opinio juris so relevant when discussing trade affairs? Indeed, the study of the previous elements gives rise to the consolidation of customary international law (CIL), which Panos Merkouris considers to be present in the jurisprudence of international tribunals when solving international disputes.

Merkouris, defends that a serious study upon the rules for CIL interpretation needs to be conducted, in order to reinforce the interpretations offered by courts around the world on commonly discussed matters throughout individual cases. This could only benefit the effective enforcement of positive regulations and to gain awareness on pattern shifts arising from the customary international practice.

One last point to mention, would be to emphasize that throughout the history of international taxation and trade there has been a constant plea for equality, parity or in essence an attempt to preserve equal treatment for all interested actors. We can see this by the inclusion of most favored nations (MFN) regulations to be found in both tax and trade agreements. In parallel, the renewed aim of multilateral interaction and arriving at a level playing field for developed and developing countries.

However, this consideration might be challenged if we try to respond to the questions formulated by Peter Hongler when requesting the audience to respond whether the international tax system needed to be just? Thus, should the revenues obtained worldwide be shared equally to accomplish this aim of fairness? Could we point out a clear understanding of what being fair means for international taxation? Should even try to respond to these questions?  All these issues can be consulted in the book “Justice in International Tax Law”, launched during the seminar.

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