The Space Law Review: Taxation

This article is an excerpt from The Space Law Review – Edition 2. Click here for the complete guide.


For companies in the space industry, taxation is an important factor in determining where to locate. This chapter examines the basic conceptual framework relating to the direct taxation of space companies, with a particular focus on the exploitation of satellites. Although UK business taxation is the author’s area of ​​practice, this chapter does not focus on any particular jurisdiction; rather, it highlights concepts and problems common to many jurisdictions.


i Basic concepts

Tax laws, both national and international, generally identify taxable persons or transactions based on physical presence or connection to a particular jurisdiction. Thus, extraterrestrial business activities do not always fit naturally into the current conceptual framework.

Direct taxes are levied on the income, profits or gains of a person, while indirect taxes are levied on transactions involving the production, consumption, sale, transfer or registration of assets, goods or services. Regarding direct taxation, commercial space enterprises are generally carried on through company vehicles, and therefore may be subject to corporation tax or corporation tax.

In domestic law, residence for corporate tax purposes is generally determined by a criterion relating to the place of incorporation of the company or the place from which it is managed or controlled, or both. The detailed mechanisms of the tax code then determine where a particular corporate tax system falls on the spectrum between global taxation (i.e. the taxation of resident companies on their worldwide profits, whether they are generated in this country or abroad) and territorial taxation (that is to say the taxation of companies only on their profits generated in this country). Non-resident companies, on the other hand, are generally only taxed on profits generated in the taxing state, whether through a permanent establishment or (in some cases) otherwise.

Double taxation can arise if two countries seek to tax the same profits of a business. This could be the case, for example, if a company were to be considered resident in two countries under their respective national laws. National relief may be granted in the event of double taxation. Tax treaties are also negotiated bilaterally to distribute the taxing rights between the signatory states and thus minimize double taxation. These conventions are often based on a historical version of the Model Tax Convention on Income and on Capital published and periodically updated by the Organization for Economic Co-operation and Development (OECD).

ii Application to commercial space activities

The boundary between airspace and outer space is not defined in international law. This is relevant because, while states generally claim rights over the airspace over their territories, the international community has rejected the notion of sovereignty over outer space.2 For example, the 1967 Outer Space Treaty, one of the founding texts of international space law, provides that outer space is not subject to national ownership by claim. sovereignty, by use or occupation, or by any other means.3

However, there are no clear and generally accepted definitions of “airspace” and “outer space”. This has left the door open to attempts to assert sovereignty over outer space in certain respects. For example, in 1976, seven equatorial countries made the Declaration of Bogotá, asserting their sovereignty over segments of the geostationary satellite orbit directly above their respective territories.4 The signatories argued that the geostationary orbit is not part of outer space, but is a “physical fact” resulting from Earth’s gravity, thus constituting a scarce natural resource that they were entitled to control.5

This context sheds light on the question of whether a satellite orbiting over a particular country generates a taxable presence in that country for its operator. The comments on the 2017 OECD Model Tax Convention clarify that a permanent establishment can only be considered to be located in a Contracting State if the establishment concerned is located in the territory of that State.6 Therefore, whether a satellite in geostationary orbit may constitute a taxable permanent establishment for the satellite operator depends on the extent of a State’s territory in space. However, the Commentary indicates that no OECD member country would accept that the location of geostationary satellites could form part of the territory of a Contracting State under the applicable rules of international law. It adds that the area over which the signals of a satellite can be received (the “footprint” of the satellite) cannot be considered as being at the disposal of the satellite operator in order to make this area a place of operator activity. At present, therefore, the position of the satellite itself and the area it serves are generally not significant factors from a direct tax point of view: the crucial factor is the tax residency of the operator. of the satellite.


While national governments and international organizations continue to devote considerable attention and resources to the burgeoning commercial space industry, rather less attention has been paid to ensuring that tax systems keep pace. However, if the industry continues to grow rapidly over the next few years and decades, it seems likely that the space tax will become more and more a topic of debate.

Parallels can be drawn with how the taxation of digital services has recently become a political battleground. Arguably, cross-border digital services have exposed shortcomings in tax systems based on physical presence. In response, the OECD, under the aegis of its extensive Base Erosion and Profit Shifting project, is leading efforts to fundamentally reshape the international tax landscape, to take due account of the location of clients of multinational companies when allocating taxing rights between different jurisdictions. The space tax could possibly follow a similar path; the risk, however, is that (as in the realm of digital taxation) individual countries adopt unilateral action, resulting in a tax landscape for space companies that is constantly changing and difficult to navigate.

Previous Analysis: Afghan Taliban have influential friend in China | Tom Roeder | Military
Next 4 ways businesses can avoid loan scams and predatory lenders