Twesha Karnani*

Keywords: National Appropriation – Outer Space Treaty – Residential Status – Sovereignty


Private space exploration is becoming common, and opportunities for extraterrestrial operations have grown considerably. A glimpse of the issues arising from taxing outer space activities is seen in taxing the activities conducted in digital space. The space sector generates an income of $350 billion and it is expected to jump to $1 trillion by 2040. It is important to tax those involved in this sector especially if such activities are for personal benefit and not for the advancement of mankind and science. On this issue, US Congressman Earl Blumenauer had planned to introduce the Securing Protections Against Carbon Emissions (SPACE) Tax Act. He believes that “space exploration isn’t a tax-free holiday for the wealthy. Just as normal Americans pay taxes when they buy airline tickets, billionaires who fly into space to produce nothing of scientific value should do the same, and then some”.

Typically, the levy of tax has been based on the place of residence of the individual, a company’s place of operation or where a property is situated. However, when it is difficult to prove an individual’s or entity’s existence physically, assessing taxes becomes challenging. Even though, while assessing taxes in such scenarios, the basic principles of taxation law must be kept in mind, the present regime might be insufficient to provide for the rapid growth that is taking place in this sector. 

The levy of tax in the space sector can be on a variety of operations such as services of satellites, astronauts staying aboard the International Space Station (ISS) and space tourism. It has been opined that future legislation in this area must be based on the laws that govern the high seas.

This write-up discusses how the levy of taxes on the services provided by satellites, the income of astronauts or other outer space activities pose to be an issue. Furthermore, a prospective suitable tax regime is also briefly discussed. 

The issue with levying tax on satellite services

The most notable instance of space technology that causes problems for tax officials is the usage of satellites. It is challenging to establish a proper way of taxing because of the ambiguous character of such services. The primary issue with satellites is that since they orbit the Earth, they will be over more than one country while providing their services to a third country. The “footprint” of the satellite cannot be considered the place of business of the satellite operator. From the point of view of direct tax, the residential status of the satellite operator is a critical component and not the satellite’s actual location.

Article II of the Outer Space Treaty states that outer space “is not subject to national appropriation by claim of sovereignty”. This doctrine of non-appropriation places restrictions on those who want to profit from space activities. Since States cannot claim sovereignty over outer space, the question which arises is whether imposing and collecting taxes could possibly violate the non-appropriation doctrine as taxes are based on the sovereign territorial rights of the States. This is something which needs to be determined in order to decide whether outer space activities could be taxed. 

In Communications Satellite Corporation v. Franchise Tax Board, satellites were operating in the geostationary orbit. The owners of the satellites, who were located outside of California, established an earth base that gathered signals for transmission to other carriers. Claiming the satellite was utilised within the state, the California Court of Appeal supported the incorporation of the satellite’s worth in the property for allocating California income tax. Nevertheless, this was reliant on the earth station’s presence because, without it, California wouldn’t be connected to the satellites’ functions in space.

In Asia Satellite Communications Co. Ltd. v. DITthe Court held that an important component in determining how to tax such situations is through thoroughly analysing the technical operations of the satellites.

Where do Astronauts pay taxes?

Scott Kelly, the astronaut, lived in space for almost a year. Does this mean he didn’t have to pay taxes since he was not a resident of the United States or for that matter even the Earth? Even though he orbited the Earth every 90 minutes, he didn’t visit any country since the sovereign airspace does not stretch out to outer space. In such scenarios too, due to the lack of laws, the traditional principles of taxation need to be adhered to. This situation is identical to seafarers rendering their services on a ship. However, one must establish the nature of employment abroad, whether the International Space Station falls under the ambit of a “ship” or a “vessel”. In the Indian scenario, hypothetically, the residential status of the astronaut will be considered based on the number of days they stay aboard the ISS and physically outside the boundaries of India.

How should outer space activities be taxed?

The method of taxing outer space activities can be like taxing activities in digital space. It’s possible to argue that the inadequacies of tax regimes based on residential status have been made apparent by cross-border online services. To combat this, the Organisation for Economic Co-operation and Development (OECD) is spearheading initiatives to fundamentally redefine the global tax regime. Space taxes may eventually follow an identical course. However, this does entail a risk since individual nations would implement unilateral measures, creating an unstable and challenging tax environment for the space industry. Using residential status for calculating the amount of tax to be levied is not the right step in the case of space activities even though it is considered to be of central importance to this sector.  This is due to the fact that firstly, space does not have boundaries and the Outer Space Treaty prohibits states from claiming sovereign power in outer space. Secondly, there are many ambiguities when it comes to applying the same residence-based tax system in this scenario which will lead to more problems. 

An alternative model for taxing outer space activities would be through the existence of a voluntary tax system between participating nations. These nations can choose to invest in the advancements of space technology in order to be able to reap the benefits that arise out of it. This could make it possible for new countries to engage and profit from space activities while also taking into account the legitimate interests of those countries and commercial players who currently fund these activities solely. Nevertheless, it is crucial to note that a voluntary tax system for space activities could generate issues of equity, as certain nations will gain from such activities even if the investment made by it is low in comparison with others. For such a framework to prosper, there must be the existence of a universal organisation administering space tax. This function can also fall under the functions of the World Bank. 


Through this write-up, it can be understood that outer space is not an outlet for tax evasion. The lack of a proper tax regime does not imply that taxes need not be paid appropriately. Although governments and organisations, both domestic and global, continue to commit a significant amount of money and time to the expanding space sector, there has been less focus on making sure that tax regimes keep up with it. In complex situations such as these, the basic principles of taxation law must be kept in mind. However, it is challenging to do so since space does not have any boundaries and nations are prohibited to establish sovereignty in outer space. Even though outer space lies outside the boundaries of any country, individuals are liable to pay taxes for the income earned in space. It can be concluded that there are many gaps and a lack of a proper tax system when it comes to outer space activities.  Therefore, a multilateral approach must be adopted to tackle this issue. There shouldn’t be a zero-tax system being followed in zero gravity. The lack of adequate laws can allow people to find loopholes to reduce their tax liabilities. However, the space sector is in no way a sector that is a channel for tax evasion.

*Student at Symbiosis Law School, Hyderabad.


Diane Riordan, ‘The Challenge of Taxing Business in Outer Space’, Challenge , Vol. 47, No. 6, 2004, pp 109-116.


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