Posted by An Janssens

The basic principles of international law


It is a widely recognised fact that states possess “sovereignty“. Sovereignty implies that states possess a plenitude of power within their territory. By this is meant that sovereignty in the territory includes constitutional, legislative, administrative and judicial powers. This jurisdiction extends territorially to the entire territory and also to all persons within the territory of the State concerned.

Territory refers to the territory within the country’s borders.┬áIn principle, land borders are defined by treaties, which define the imaginary lines on the surface of the earth that separate the territory of one State from the territory of another State.

But land borders are not limited to the ground and subsoil. The sea and airspace are also part of sovereign land borders. The Convention on International Civil Aviation, signed in Chicago on 7 December 1944, stipulates that each State has full and exclusive sovereignty over the air space over its territory. And the Montego Bay Convention on the Law of the Sea of 10 December 1982 stipulates that the sovereignty of a coastal State extends over a contiguous 12 nautical mile strip, defined as the territorial sea, and also provides that this sovereignty also extends over the airspace above the territorial sea and over its bed and subsoil.

And international agreements on sovereignty were also made for space. Among other things, the Space Treaty of 19 December 1966 provides for rules to which States are subject when exploring and using outer space, including the Moon and other celestial bodies.

And what about sovereignty in the virtual world?


Now that the technological revolution has also given theworld a virtual dimension, the question naturally arises as to who controls and regulates this virtual world and whether states can also assert their sovereignty here. This questionis not purely academic.

One of the most important aspects of having sovereignpower, for example, is the power to introduce taxes. Some tax practitioners are now openly questioning whether transactions that take place in the metaverse can be taxed, now that no state has jurisdiction over the virtual world. Indeed, to determine whether a state has tax jurisdiction over a transaction, tax domicile has to be determined, and that is not so easy in the metaverse. For example, how are you going to determine the tax residence of a Decentralised Autonomous Organisation ( DAO ), which is an organisation that has no real owner, is run by its members and is managed by computer software running on blockchain technology.

Virtual sovereignty therefore needs serious thought. Indeed, in today’s technological world, a huge amount of data is collected daily by the tech companies that citizens and businesses interact with. This data is stored on these companies’ cloud servers, which are often located abroad. Actually, this way, people are going to largely relinquish control over their own data, and the question is whether this is wise. It is also strategically important, as technological dependence on foreign companies makes the home economy quite vulnerable.

Consequently, more and more voices are calling for agreements on digital sovereignty as well. In an ideal scenario, this would be regulated in a global international treaty, just as for land, sea, airspace and space, but this does not seem to be on the cards yet.


And what about Europe?


The fact that there is not yet a global international treaty to regulate sovereignty in the virtual world does not mean that initiatives are not being taken. For example, in July2020, the European Parliament proposed a paper entitled “Digital Sovereignty for Europe”. This paper proposes a strategy to make Europe digitally independent. This mainly involves initiatives around boosting innovation, privacy and data protection, cybersecurity and competition. In this area, Europe has since recently taken a number of legislative initiatives.

The Digital Markets Regulation, for instance, came intoforce on 1 November 2022. This regulation targets the “gatekeepers” of the digital world. These are large online platforms that have a decisive market position in the digital world. The Digital Markets Regulation aims to ensure that these platforms behave fairly online. For instance, thesecompanies are prohibited from placing their own servicesand products on the platform higher or treating them more favourably than similar products or services from third parties. They also cannot prohibit consumers from contacting companies outside the platform.

On 16 November 2022, the Digital Services Regulation came into force. This regulation aims to ensure better online protection and more legal certainty for businesses and consumers to make digital commerce easier. These include obligations to inform consumers, transparency in online advertising and the ban on targeted ads for children.

Finally, from 1 January 2023, the European DAC7 Directive provides for an automatic and mandatory exchange of intelligence regarding information reported by digital platform operators. This concerns intelligence on sellers’ revenues from their commercial activities such as property rentals and the sale of goods through digital platforms.


Towards a global international treaty for the metaverse?


Europe may take initiatives to create more digital sovereignty, but this has been and remains quite limited to date. As in the past for maritime and aviation law, it will take some time before the international community can reach a global consensus to also regulate the rules of the game in the virtual world. But that this is necessary is certain.


#metaverse #digitalsovereignty #taxes

Intrested to know more?

Contact us via