When Digital Taxes Face Discrimination Concerns
RUST, DDTCNews – Discussion on the second day of Rust Conference 2026 shifted from issues of tax treaty scope to an equally crucial matter: the non-discrimination principle. Participants sought to answer one fundamental question: when does a turnover tax truly constitute discrimination?
The debate has become increasingly relevant amid the proliferation of digital taxes and turnover taxes in recent years. Although designed to capture digital economic activity, these new instruments are frequently perceived as affording differential treatment to foreign businesses.
As a result, the non-discrimination principle enshrined in both the Organisation for Economic Co-operation and Development (OECD) and UN Model Conventions has once again come into the limelight.
When Digital Taxes Are Called into Question
India has been one of the most widely discussed examples. Through its equalisation levy (EL), India imposed a charge of 6% on digital advertising services in 2016, before expanding it to 2% on e-commerce services in 2020.
That policy triggered a Section 301 investigation by the United States Trade Representative (USTR). The USTR considered the imposition of the equalisation levy to be discriminatory towards digital companies originating from the United States (US).
However, the Indian government rejected that assertion. According to a report presented in Rust, the equalisation levy was applied to all foreign e-commerce operators without distinction as to their country of origin.
India also emphasised that the equalisation levy was not retrospective, had no extraterritorial effect and was intended to establish a more level playing field for businesses deriving economic benefit from India's digital market.
Nonetheless, India ultimately repealed EL 2.0 in 2024 and EL 1.0 in 2025. This demonstrated that allegations of discrimination carry implications not only for tax law but also for trade relations and economic diplomacy between countries.
The debate on non-discrimination does not always concern digital services taxes (DST). Spain offers an example drawn from value added tax (VAT) refund mechanisms.
A ruling by Spain's Supreme Court affirmed that resident taxpayers and non-resident entrepreneurs are not always in comparable positions. Accordingly, additional requirements imposed on taxpayers outside the European Union (EU) do not automatically constitute discriminatory treatment.
A similar approach emerged from Peru. Through two case illustrations, Peru explained that restrictions on VAT refunds and VAT registration thresholds for non-resident entrepreneurs are grounded more in differences in their economic relationship with the taxing jurisdiction than in nationality.
Provided that differential treatment has an objective basis and is not grounded in nationality, such provisions are considered not to be in breach of Article 24 of the OECD Model Convention.
Photo caption: A presentation by one of the Rust Conference 2026 participants on the topic of non-discrimination, Saturday (04/07/2026).
Meanwhile, Hungary has added a further dimension through its experience of implementing a progressive turnover tax. A number of disputes before the Court of Justice of the European Union have shown that progressive rates are not, in principle, contrary to EU law.
However, issues arise when the design of such a tax is accompanied by consolidation rules that impose a greater burden on foreign business groups than on domestic companies.
Interpreting the Non-Discrimination Principle
It appears that the measure of discrimination is not determined solely by the existence of differential treatment. Differences arising from supervisory requirements, administrative effectiveness or the characteristics of an economic relationship may remain justifiable. Conversely, treatment that, in substance, targets a particular group of taxpayers risks conflicting with the non-discrimination principle.
The discussion, moderated by Alexander Rust and Moritz Scherleitner, ultimately demonstrated that the growth of turnover taxes will be accompanied by increasingly complex disputes concerning non-discrimination.
The challenge, therefore, lies not merely in designing new taxes, but in ensuring that every fiscal instrument continues to provide equal treatment without impeding a country's jurisdiction to tax cross-border economic activity. (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.
