From Rust: Seeking Common Ground on Unilateral Taxation

RUST, DDTCNews – Rust, the smallest autonomous town in Austria, is a fascinating historical anomaly. Since 1681, when it was still part of the Habsburg Empire, Rust has held the status of a Statutory City, or ‘Statutarstadt’, having been able to pay a substantial tribute to the emperor in the form of gold and fine wine.

Centuries later, this town has once again become the birthplace of an important discussion: the rise of unilateral tax policies and the challenges they pose for international tax cooperation.

Renowned for its natural beauty and vineyards, this town, as part of the Burgenland province, hosted the Rust Conference from 2–4 July 2026. This year, the event, attended by representatives from 34 countries, addressed a major theme: Turnover Taxes in the Light of Treaty Law.

On the first day, presentations and discussions opened with a tax research workshop conducted by doctoral candidates from various universities. The main spotlight then turned to the issue of double taxation arising from differences in place of consumption rules under VAT and digital services tax (DST).

Tax academics from various countries discussed the development of unilateral tax policies in response to the challenges of the digital economy. Amidst the variety of approaches taken, one overarching question emerged: how far can a country extend its taxing rights without eroding legal certainty within the international tax system?

Varied Strategies for Extending the Jurisdiction to Tax

Australia offers one particularly instructive example. Rather than choosing to impose a DST as several other jurisdictions have done, Australia opted to broaden the scope of its Goods and Services Tax (GST).

The aim was for this expanded scope to capture digital goods and services consumed domestically, including those supplied by foreign providers. To this end, the government sought to maintain neutrality in consumption taxation without creating a new category of levy.

This approach was also underpinned by the view that GST is a tax on consumption and therefore falls outside the scope of tax treaties. This distinguishes it from a DST, which is deemed closer in nature to a tax on income, since it substantively burdens profits through a turnover base.

Further, Australia's position is that if a country wishes to tax profits derived from cross-border digital services, the more appropriate solution is to renegotiate tax treaties rather than introducing a levy that could potentially circumvent the limitations established therein.

Peru, on the contrary, has taken a different path. Rather than introducing a DST, it has strengthened the mechanisms for collecting VAT on digital services. Since 2024, foreign digital service providers have been required to register, collect and remit VAT on transactions with consumers in Peru. Should they fail to fulfil this obligation, payment system operators assume the role of collection agent.

This measure illustrates how the Peruvian government has leveraged existing instruments to capture digital economic activity. The policy is expected to generate a significant increase in government revenue.

However, to date, no unilateral mechanism exists to address the issue of double taxation on turnover taxes. In other words, the extension of the jurisdiction to tax has not yet been fully matched by cross-border dispute resolution mechanisms.

The Czech Republic offers a perspective shaped by European Union tax harmonisation. VAT remains the primary source of revenue within the turnover taxes category, whilst sectoral levies, such as gambling taxes and levies on solar electricity, serve only as a complement. Notably, although the government had at one point proposed a DST, it ultimately did not proceed to enact it as a law.

As a member of the European Union, the Czech Republic relies more heavily on the harmonised VAT framework, including the VAT refund mechanisms for foreign businesses. Nevertheless, the country's report also highlights that no specific procedure exists for resolving indirect tax disputes across jurisdictions comparable to the mutual agreement procedure (MAP) available for income tax. Inter-governmental coordination, therefore, remains a decisive factor in avoiding double taxation.

Session I of the Rust Conference 2026, on the topic of Unilateral mechanisms and soft-law coordination, Friday (03/07/2026).

Common Threads from Rust

From the varied strategies outlined above, it is evident that each country is endeavouring to strike a balance between domestic fiscal interests and the demands of the digital economy. Some have chosen to broaden the scope of VAT, others have constructed new collection mechanisms and others have relied on administrative instruments. These differing policy designs demonstrate that unilateral responses remain the primary option when global consensus has not yet been fully achieved.

Discussions in this corner of the world serve as a reminder that the challenge of international taxation today is no longer merely a matter of determining the party entitled to levy tax, but of ensuring that these various domestic policies can continue to coexist without generating legal uncertainty or double taxation.

As the digitalisation of the economy accelerates, the need for international coordination appears to be growing ever more urgent, even as individual countries' policies continue to move in a unilateral direction. (rig)

*This article is based on reporting by Senior Specialist of DDTC Consulting, Dawud A. Q Lubis, and Specialist of DDTC Fiscal Research & Advisory, Abiyoga S. Wiyanto.