Could we tax LEO activities, could we move towards the taxation of LEO activities? We thought that this could be a good point of focus for this new Space Law article on Space Legal Issues. In preamble, it is important to recall that Article I of the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies (entered into force on October 10, 1967) states that “The exploration and use of outer space, including the Moon and other celestial bodies, shall be carried out for the benefit and in the interests of all countries, irrespective of their degree of economic or scientific development, and shall be the province of all mankind. Outer space, including the Moon and other celestial bodies, shall be free for exploration and use by all States without discrimination of any kind, on a basis of equality and in accordance with international law, and there shall be free access to all areas of celestial bodies. There shall be freedom of scientific investigation in outer space, including the Moon and other celestial bodies, and States shall facilitate and encourage international cooperation in such investigation”.
As human expansion into outer space continues to develop, the obstacles arising could be an amplification of issues already present in taxing the digital economy. According to that principle, access to outer space should be “free”. Private entities can freely use outer space only if they have been authorised by their State (Article VI of the 1967 Outer Space Treaty declares that “States Parties to the Treaty shall bear international responsibility for national activities in outer space, including the Moon and other celestial bodies, whether such activities are carried on by governmental agencies or by non-governmental entities, and for assuring that national activities are carried out in conformity with the provisions set forth in the present Treaty”).
According to the first article of the Magna Carta of space law, the majority of authors believe that no State can effectively and rightfully deny access to outer space to another State. This principle is enshrined as one of the funding principles of Space Law and can be considered being well established in the minds. Moreover, this concept is often put forward by States wishing to use space as a source of strategic information on State activities. Thus, overflight of the territory of a State by a reconnaissance satellite is, in principle, free and allowed. It raises one question that, with the acceleration of the New Space era, might become a true dilemma: f space activities are completely free, how can total saturation of orbits (especially the LEO one) be avoided?
Taxation of LEO activities seems to be a solution. The appropriate model could be the following one: if a State A wants to launch a satellite or a constellation of satellites, it will have to pay X depending on the orbit (and how already saturated and used the orbit is), the size of the space object or the number of space objects, and finally and why not, depending on its intended purposes (whether scientific, commercial, military…). Thus, two main principles collide, the first being that of the freedom to use outer space with that of the taxation of LEO activities. The use of satellites is the most prominent example of space technology from which issues arise for tax authorities. The nebulous nature of these services makes it difficult to determine the appropriate measures for taxation.
Faced with such an important problem, the general interest should first be concerned. Doesn’t Humanity have an interest in using outer space, and should it not be allowed to do such according to the principles enacted in the Public International Space Law of the 1960s and 1970s? But how to concede that freedom with the multiplication of orbital activities? Indeed, the taxation of LEO activities could allow a better control, a better regulation. Today, space is beginning to be in a critical situation to the point of being qualified as a landfill by some specialists. Satellites must change paths to avoid collisions with airspeeds. In April 2019, the International Space Station (ISS) itself had to change course due to the destruction of a satellite by an Indian missile (ASAT).
This saturation threatens exploration missions, and there is a non-zero risk that one day, it may not be possible anymore to consider the use of the Moon or Mars, or any other destination in outer space. However, and this is the second important principle, a major problem appears on the question of who will tax space activities and what will that money be used for?
It is possible to envisage a supra-state organisation, like the United Nations, grouping together the States capable of using outer space. A tax would then be created and apply to any outer space activity, or maybe in a first time to LEO activities only. This tax could be seen as a tool used to both regulate and control. This tax could concern both public and private entities and only apply to commercial activities. The money generated by the taxation of LEO activities could be used for example to finance research and “clean” Earth orbits from space debris.
Economic theory identifies relatively restrictively the so-called “market failures” cases where the market left to itself does not allow to reach the optimal situation and where the intervention of the public authorities is then justified: the existence of barriers to entry, natural monopoly, external effects, public goods, guardianship goods, or even information asymmetries. In France, public intervention has historically resulted in the direct production of public goods by the administration, then by companies owned by the State, particularly in the network sectors (post, telecommunications, rail transport, electricity…). However, government action can itself lead to shortcomings (notably due to information asymmetries), bureaucratic red tape or capture by pressure groups. Since the 1980s, public action has gradually shifted from direct production to sector regulation; at the same time, the sectors previously characterised by public monopolies have been opened up to competition. Although reduced, the State shareholder had to, to avoid conflicts of interest, entrust the regulation to more or less independent authorities: Telecommunications Regulatory Authority (ART), created in 1997, which became Electronic Communications Regulatory Authority and Posts (ARCEP) in 2005, when the postal sector opened; Railways Regulatory Authority created in 2009, which became Railways and Roads Regulatory Authority (ARAFER) in 2015, following the opening of passenger road transport to competition; Energy Regulatory Commission (CRE), created in 2010 when the energy market opened up; Online Gaming Regulatory Authority (ARJEL), created in 2010 to support the liberalisation of online games. The State is also involved in the regulation of certain goods and services markets such as those served by the regulated professions (price regulation, market entry…).
A wide variety of public interventions of a generally sectoral nature are often called “regulation”, ranging from strictly economic actions (prices, quantities) to the rules of ethics that apply to a profession or the protection of privacy. All of these interventions, whether economic or not, can affect the functioning of markets. It could be interesting to work on a system for the taxation of LEO activities operated by an international organisation such as the United Nations (U.N.).