Julien Chaisse is professor of law at City University of Hong Kong and president of the Asia-Pacific FDI Network. X: @jchaisse

The prospect of an artificial intelligence (AI) tax, as advocated by European Commission special advisor Marietje Schaake among others, is a forward-thinking response to AI’s rising impact on the global economy and society. Motivated by the need to manage the socioeconomic ramifications of AI, particularly in terms of job displacement and resulting economic disparities, this tax would aim to recalibrate the balance between technological advancement and societal well-being. 

The idea is that a special tax levied on AI companies would not only generate revenue that governments could use to offset some of the technology’s societal impacts, but also encourage responsible AI development and deployment to mitigate disruption to labour markets and promote inclusive economic growth. The expected effect is technological advancement, where the economic gains are channelled towards broader societal benefits, thereby ensuring a sustainable and equitable future. This discussion is timely, given governments increasingly intertwine technological innovations with economic development strategies. 

Double-edged sword

An AI tax raises formidable questions about the future regulation of technology-related investments, and would change the environment for domestic and foreign direct investment (FDI) in technology. Investors traditionally seeking stability and predictability might find themselves recalibrating strategies in light of such fiscal changes. The tax could act as a double-edged sword: it signals a progressive approach towards managing AI’s societal impacts, but potentially deters investment by adding layers of complexity and cost. Countries implementing such a tax would need to ensure they continue to attract FDI, while addressing the broader implications of AI.

Many economies rely on FDI for technology transfer and local development, which could be significantly influenced by an AI tax. The concern for these countries is straightforward: if the tax is perceived as a hindrance, it may dissuade companies from investing in AI development within these jurisdictions. This would not only affect technology transfer, but also slow local technological advancements. Policy-makers must, therefore, ensure that the AI tax structure encourages, rather than impedes, investments in AI, thereby supporting local development goals.

Global solutions

The concept of a harmonised approach to AI taxation, akin to the global minimum corporate tax, cannot be overlooked. This would require international co-operation and co-ordination, providing a standardised regulation that prevents a competitive race to the bottom.

Such harmonisation would have major implications for international investment law, necessitating updates to existing rules. But a unified approach would provide a more predictable legal environment for multinational enterprises and potentially streamline the global response to AI’s economic impact. An AI tax that is strategically implemented aligns well with several of the UN’s sustainable development goals, particularly those focusing on economic growth, employment, and reducing inequalities. 

This tax could be utilised as a tool to redistribute AI’s economic benefits, ensuring they benefit more than the companies deploying the technology, and foster a more inclusive and sustainable development pathway. The AI tax proposal is necessary to address the urgent need to align the technology’s economic benefits with societal well-being. However, its successful implementation requires political reflection, comprehensive research and innovative legal solutions. It presents not only an opportunity to pioneer technology taxation, but also a new frontier in the intersection of law, economics and technology.

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This article first appeared in the June/July 2024 print edition of fDi Intelligence.