Technological progress has made space exploration a reality, in what is known as the new “Space Economy” [1]

With missions planned to the Moon, Mars and other celestial bodies, and the growing space race, with greater involvement of the private sector: How will taxation be established in Space?

This topic is not only novel and relevant [2], but also essential to ensure that the exploitation of space resources is sustainable but also beneficial for all humanity. It is also presented as a new and diverse source of income for the States.

The current legal framework

The current legal instruments that regulate a possible economic activity (exploitation of resources, satellites, tourism, launches, etc.) in Outer Space are:

The Outer Space Treaty (1967) [3]

This treaty considers that outer space is not subject to appropriation or claim of national sovereignty, establishing that outer space and its resources are the common heritage of humanity and should be used for the benefit of all countries; however, States are responsible for the space activities conducted by their respective entities. It also promotes international cooperation and the peaceful use of space.

Convention on International Liability for Damage caused by Space Objects (1972)

It establishes the responsibility of States for the damage that their space objects may cause.

Agreement to govern the activities of States on the Moon and other celestial bodies (1979)

Although it has not been ratified by the major space powers, it establishes specific guidelines for activities, insisting on their exclusively peaceful use. It reiterates that space resources are the common heritage of humanity and should be managed based on the creation of an international regulatory regime.

Declaration on international cooperation in the exploration and use of Outer Space (1982)

Stresses the importance of international cooperation to ensure that the exploration and use of outer space is conducted for the benefit of all States, especially developing Ones. This is crucial for the development of a fair and equitable regulatory and fiscal framework for the exploitation of space resources.

This legal framework aims to ensure that commercial exploitation must be conducted peacefully, responsibly and for the benefit of all human beings. It is not clear how the profits would be distributed and even less clear what would be a possible taxation rule to ensure that this would be done.

Exploration of space resources

A business plan of a company resident in a certain country that intends to develop an economic activity, for example, exploiting resources in Outer Space, could include:

Research and development

• ⦁ Initial technical and economic feasibility studies to identify the most promising resources and technologies.
• ⦁ Partnerships with space agencies and universities to access specialized knowledge and innovative technologies.
• ⦁ Investment in the development of mining robots and space transportation systems.

Obtaining permits and regulatory compliance

• ⦁ Compliance with international treaties.
• ⦁ Obtaining the necessary permits from the competent national – and, where appropriate, international – authorities.
• ⦁ Ensure that operations are sustainable and minimize environmental impact.

Exploration and prospecting

• ⦁ Prospecting mission launches: probes and robotic missions in search of valuable resources.
• ⦁ Using advanced technology to map and analyze the composition of celestial bodies, identifying deposits of valuable minerals such as helium-3, as precious metals, water and industrial minerals can be used to support life in space, produce energy and facilitate long-term exploration.

Exploitation and extraction

• ⦁ Mining infrastructures, including mining robots and processing platforms, able to operate in extreme environments.
• ⦁ Efficient transport systems to take the extracted minerals back to Earth or to space stations.

Marketing and sales

• ⦁ Identification of markets for the extracted minerals, such as high-tech industry on Earth or use in space missions.
• ⦁ Long-term contracts with technology companies and space agencies to ensure the sale of the extracted resources.

Financial management

• ⦁ Identification of financing interested in space mining.
• ⦁ Financial strategies to manage the high initial costs and risks associated with space exploration.

Some known cases, the development of which shows that space business is an ongoing reality:

1. Asteroid mining
   • ⦁ Planetary Resources and Deep Space Industries: they are investigating the feasibility of extracting minerals from asteroids.
2. Lunar exploration
   • ⦁ NASA’s Artemis mission: with the planned return of humans to the Moon comes the interest in the exploitation of lunar resources such as water and rare metals.
3. Commercial space stations
   • ⦁ Axiom Space: the first commercial space station, Axiom Station, plans to offer facilities for space research and tourism.

The greater participation of the private sector, since NASA privatized certain services in orbit, highlights the need to establish how the applicable tax treatment would be and, if applicable, if the current rules are sufficient and adequate or, on the contrary, a new tax framework applicable in this new frontier is required.

Tax challenges

Fernando Serrano Antón (2021) identifies tax challenges associated with the exploitation of resources in Space, including the determination of tax jurisdiction, the allocation of benefits and the prevention of double taxation. Samsul Sameera (2023) highlights unique tax challenges associated with asteroid mining and space tourism.

On this occasion I will address the Income Tax, raising the case of a company with residence in some country, conducting the activity of space exploration. This company could contract financial, infrastructure and logistics services with other companies, and the song “Space oddity”

The company would obtain business benefits that would be taxed in the State of residence. In certain cases, doubts could be raised about the jurisdiction with tax authority, when they involve the provision of services in Space, although the OECD stated that there would be no special risk of double taxation, when a tax agreement is in place.

The possible challenges are:

• • ⦁ Absence of clear tax rules: appropriate and agreed at the international level.
  • ⦁ Proper tax management: it is essential to provide tax administrations with sufficient technology.
  • ⦁ The need for cooperation: it is essential that countries collaborate to establish coherent and fair tax rules that regulate the exploitation of space resources and their management, as well as to provide transparency regarding what is done with these resources.

Some proposals

The particular aspect here would be that there is no outer tax power, which as a source jurisdiction[4] can reach the income generated in its field, for example, by the configuration of a Permanent Establishment (PE) or by activities developed or funds placed and used in that space field that qualify as an outer space source income (withholdings).

However, to ensure tax compliance and make it possible for the benefits of this exploitation to reach all of humanity, the creation of “space taxes” could be considered, as follows:

• Development of an international framework for space taxation
• ⦁ Multilateral treaties on taxation in Space, promoting that the tax powers of countries are applied in a coherent way, avoiding double taxation.
• Implementation of “space taxes
• ⦁ Taxation on the exploitation of space resources, creditable or not in the jurisdictions of residence.
• ⦁ Establish criteria – agreed – for the distribution of tax revenues generated between countries, which in part could be used to finance space exploration and development.
• Use of advanced technology
• ⦁ Using technologies such as AI, B…ig Data and the Internet of Things, among many others, to track and monitor economic activities, ensuring transparency.
• ⦁ Platforms for cooperation between tax authorities.

An internationally coordinated taxation of space activities, on the other hand, entails a relevant list of benefits:

• Promotion of innovation
  • ⦁ King & Wood Mallesons (2024)[5] highlight the tax initiatives in Australia – R&D incentives and import duty exemptions for space projects – and their effectiveness in attracting investments and promoting the development of this industry in that country.
• Tax stability and predictability
  • ⦁ It facilitates genuine planning and long-term investment.
  • ⦁ Avoid a “race to the bottom” in tax rates.
• Equity and global inclusion
  • ⦁ Ensures that the revenues generated are distributed equitably among countries, with emphasis on developing countries.ㅤ

Conclusion

The new space economy presents itself as an opportunity to establish new tax rules that ensure that the exploitation of space benefits all of humanity and thus promote sustainable, equitable and inclusive development, with emphasis on developing countries.

[1] With more private participation, this “new” economy is characterized by benefiting from great multiplier factors by relying increasingly on new services and information through the web (“The new Economy of Space”, UNESCO 2024).

[2] The space economy is projected to reach US$1.8 trillion by 2035 as space technologies advance, according to the World Economic Forum (04/12/2024).

[3] Adopted by the United Nations General Assembly (Resolution 2222 (XXI)).

[4] At some point, perhaps, it may also be appropriate to consider it as a jurisdiction of residence for people.

[5] “Taxation of space activities: How tax policy is growing the space industry” (Lexology)

[6]“International Complexities in Space Technology Taxation”.

[7] Paragraph 4 of the Comments to Article 7 (EP) as of 17/07/08 regarding developments in space activities – rocket launching and the presence of satellites – indicated that no country has extended its tax sovereignty into space, so activities there do not pose double taxation risks. Where appropriate, he said that Articles 15 and 19 on the taxation of remuneration and Article 4 on tax residency would provide an adequate framework to resolve any problems and any further difficulties could be resolved by a mutual agreement procedure.

[8] At some point, perhaps, it should also be considered as a jurisdiction of residence of persons.

[9]“Taxation of space activities: How tax policy is growing the space industry” (Lexology)

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