For several years there have been efforts at international, EU and national levels to reform taxation to ensure that profits are taxed where economic value is created. Most recently this work has centred on the digital economy but it is rooted in the scrutiny of tax planning strategies used by multinationals operating across multiple jurisdictions.

OECD At an international level, work has revolved around the Organisation for Economic Co-operation and Development (OECD) which in 2013 launched its Base Erosion and Profit Shifting (BEPS) Action Plan. The purpose of BEPS was aimed at countering certain strategies used by multinationals to reduce their tax burden. Fast forward some years, and the OECD has now also become the focus for discussions relating to digital taxation through an OECD/G20 Inclusive Framework on BEPS. In May 2019 the Framework adopted a programme of work committing itself to reach an agreement on how to tax digital multinationals by 2020. On 9th October 2019 the OECD published its 'unified approach' for public consultation, with the aim of arriving at a consensus, so as to develop a solution for its final report to the G20 in 2020.

EU At EU level, the European Commission has also been trying to address the tax strategies of multinationals through a proposed harmonised set of rules to tax companies.  In 2018, due to slow progress at OECD level, the European Commission proposed two Directives for taxing the digital economy. The first proposed a short term measure that would impose a tax on revenues for companies with worldwide revenues over €750m and EU revenues over €50m; the second was a longer term proposal which sought to introduce the concept of ‘significant digital presence’ to determine EU tax requirements. It was envisaged that the first short term measure would be a filler initiative before the longer term and more ‘contentious’ proposal was agreed among Member States. Despite various attempts to reach agreement, EU Member States were unable to reach a compromise on either the short or long term proposals.The European Commission has since conceded that it will wait for progress at OECD level and revisit both proposals in 2020 if no progress is made.

This deadlock has led several EU Member States to introduce their own initiatives for national taxes on digital companies which would include ‘sunset clauses’ and expire if an agreement is reached at international or EU level.

Even though most of these unilateral measures are based on the previous EU proposal, differences in the applicable rules may lead to double taxation and differing views of the transactions covered.

Most EU Member States have been discussing some form of local measures which are in the public and political domain in all countries. Some countries have already implemented new rules, others are still drafting them. The introduction of the new legislation has also increased tensions at the global political level (e.g. between the USA and France).

There have been concrete recent developments in the tax systems of Austria, Belgium, Czech Republic, France, Hungary, Italy, Poland, Slovenia, Spain and the UK. Each these countries have either proposed, announced or implemented some form of digital services tax. The following analysis provides an overview of the measures that some key Member States are introducing.


In July 2019 the UK Government published its Finance Bill 2019-20, which included draft legislation for a 2% Digital Services Tax (DST) on the revenues of search engines, social media platforms and online marketplaces (financial and payment services are exempt) irrespective of how they monetise their platforms.

It is intended that the DST will apply from April 2020. It is projected to raise £275m in its first year rising to £370m thereafter, making it a relatively small contribution to the UK Treasury’s overall tax revenue. It is nevertheless an important consideration for companies whose activities fall in scope. The parameters for how the DST will work in practice follow::

  • Tax liabilities will be calculated at group level but charged to individual entities in the group whose revenues involving UK users contribute to the tax thresholds, in proportion to their contribution.
  • The thresholds mean that the DST will only apply to groups with global revenues over £500m and UK revenues over £25m, which includes an allowance so that a group’s first £25m of revenues derived from UK users will not be subject to the DST.
  • There are different criteria for what constitutes participation by a UK user depending on the activity in question:
    • Online marketplace transactions will be considered to involve UK users if at least one of the parties is UK based, however the tax revenue charged will be reduced by 50% if the other user is located in a country with a similar tax to the DST.
    • Advertising revenues will be considered to have derived from UK users when the advert is intended for UK audiences.
  • A ‘safe harbour’ principle will be available for in-scope companies who operate at low profit margins or losses. This allows such entities to use an alternative basis of charge in calculating their liabilities. This will effectively lead to a lower DST liability (or no liability if they are loss making).
  • DST will be deductible as an expense of business, provided it is incurred wholly and exclusively for the purposes of a trade. However it will not be creditable against any UK corporation tax liability. This may result in double taxation.  

Like other Member States with their own tax initiatives the UK Government has committed itself to finding a solution at international level, yet the proposal itself does not include a specific ‘sunset clause’ that would automatically withdraw the legislation. Rather, the Government has given itself some flexibility by stating that it will dis-apply the DST ‘once an appropriate international solution is in place’ and carry out a review in 2025.

There are already factors which stand between the DST proposal and its coming into force. First, the UK will face international opposition: as noted below, the USA recently threatened France with retaliatory action if they moved forward with plans for a similar tax. . The USA is also putting pressure on the UK and the need to maintain close relations with the USA for trade purposes could leave the DST shelved. Second, domestic UK politics could come into play. Although the UK’s new Prime Minister Boris Johnson has previously supported a DST, uncertainty facing the UK economy over the UK’s withdrawal from the EU and a new Chancellor of the Exchequer may mean that the DST misses its April 2020 implementation date for political reasons.


Italy has been grappling with the digital economy for some time, trying to agree rules for the taxation of revenues deriving from online transactions.

In 2019 Parliament approved a provision in the Budget Law which introduced a DST.  This DST never entered into force: legislators were waiting for a common consensus at OECD level, with the aim of avoiding unilateral measures.

However, due to the delay in finding a common global solution and needing additional revenue, the Italian government is following the French example (below) by approving an Italian DST. The DST will be effective from January 1st, 2020. There is no need for a specific Decree for implementation unlike the previous version of the rule.

The revenues of the DST are expected to be in the range of 600 million euros ($684 million). 

The main features of DST include the following: 

1. DST will apply only to organisations which, individually or as a group:

  • Record total worldwide revenues equal to or greater than €750 million; and
  • Obtain total revenues from domestic digital services equal to or greater than €5.5 million.

The above parameters apply to both foreign and Italian entities.

2. Revenues subject to DST include those deriving from advertising services, intermediation and marketplace, and data transmission. “Advertising” refers to the placing of (an) advertisement(s) on a digital interface, targeting the users of that interface; “intermediation and marketplace” refers to those platforms that offer a multilateral digital interface allowing users to contact and interact with each other and facilitating the direct supply of goods or services; “data transmission” refers to the transmission of data collected by users and generated by the use of a digital interface.

DST also includes taxation of the transactions carried out in the marketplace, including the intermediation in the sales of goods, while transactions concluded directly with final consumers and pure e-commerce transactions still seem to be out of scope.

3. Business to business transactions relating to digital services are excluded from the scope of the tax.

4. Revenues that are subject to taxation are generally linked to the location of the users of the services: they are considered taxable if the user of a taxable service is located in Italy in a specific tax period. The localization rules vary depending on the type of services. In particular, based on the current wording of the DST legislation: (i) revenues deriving from advertising services will be taxed when they appear on the user's device where the device is used in Italy to access a digital interface in that tax period; (ii) in the case of intermediation or marketplace services, the localization of the user depends on whether the service involves a multilateral digital interface that facilitates the corresponding supply of goods or services directly between users. In the first case, revenues attract taxation in Italy where the user uses a device in Italy to access the digital interface and concludes a transaction on that interface during that tax period; failing that, the will be deemed to be located in Italy if they have an account that allows them to access the digital interface and this account has been opened using a device in Italy during that tax period; (iii) in the case of data transmission, the localization depends on whether the data transmitted was generated by a user who used a device in Italy to access a digital interface during that current tax period or a previous tax period.

5.  In accordance with the proposals made by the EU DST will apply at a rate of 3 percent and will be based on revenues generated in each quarter. The taxable base will not be reduced by any "costs" but it will be exclusive of value-added tax and other indirect taxes. There is no indication of whether non-deductible costs include traffic acquisition costs.

6. DST is not, in principle, deductible from income (for the application of Corporate Income Tax).

7. Non-resident entities, which in the course of a calendar year fall within the scope of DST, but which lack a permanent establishment in Italy or a VAT number will have to request a DST identification number from the Italian Revenue Agency. If a non-resident has an affiliate company in Italy, the affiliate will be jointly responsible for compliance with the group's DST obligations.


France is the first EU Member State to have implemented a DST.

This “tax of the 21th Century”[1] entered (retroactively) into force on 1st January 2019.

The DST has been dubbed the “GAFA tax” (an acronym of the main US targets: Google, Apple, Facebook and Amazon). However, contrary to what this acronym suggests, the French GAFA tax does not only target US groups but also other international groups including French, Chinese, German Spanish and English groups. Indeed, the French tax administration has estimated that around 30 international groups could be impacted by this tax.

The scope of the French GAFA tax relates to the value of digital services supplied in France. The business activities falling within the scope of the DST are: the supply of a digital platform allowing users to interact with other users and notably in order to facilitate the direct provision of goods or services between users; and the supply of services to advertisers which aim at placing on a digital platform targeted advertising content generated by personal data collected on digital platforms.

The supply of a digital platform relates to the location of users. Where one of the users of a platform is located in France during the relevant tax year, the service will be considered to have been provided in France.

The French GAFA tax does not apply to platforms for which collection of the users' data is not a main objective.  Provided the businesses principally use the digital interface to supply users with the following services, the supply of the digital platform should not be taxable:

  1. digital content such as e commerce, video services, music on demand;
  2. communication services;
  3. regulated payment services.

Where the digital interface is used to manage specific regulated financial systems and processes such as payment settlement, the supply of the digital platform should not be taxable.

Furthermore, where main purpose of the digital platform is to facilitate the purchase or sale of services to place adverts, the supply of the digital platform will not be taxable but the supply of these services to advertisers will be taxed.

These services will be deemed to be supplied in France during the relevant tax year if the following conditions are met:

  • where the digital platform allows the provision of supplies of goods and services directly between users: a transaction is concluded during the relevant tax year by a user located in France
  • for other kinds of platform: at least one user opens an account from France during the relevant tax year allowing the user access to all or some of the services available on the digital platform

In terms of services to advertisers: these services may include acquisition, storage and delivery of adverts, advertising control and advert performance measurement as well as user’s data transmission and management.

These services will be deemed to be supplied in France during the relevant tax year where the following conditions are met:

  • where the service relates to the sale of data generated or collected from users activities on digital platforms: when the data sold during the relevant tax year are derived from the consultation of one of these digital platforms by a user located in France
  • in the other cases: when an advert is placed on a digital platform during the relevant tax year which relates to data derived from a user consulting this digital platform while located in France

Intercompany transactions are excluded from the GAFA tax.

The GAFA tax sets out two key thresholds, both of which must be met by businesses for the DST to apply: €750 million annual worldwide turnover for digital services, and €25 million domestic turnover on digital services localized in France.

France adopted the rate suggested in EU’s proposals, applying a 3 % tax on the revenues derived from any digital services meeting the criteria set out above.  The person liable to pay is deemed to be the company which receives payment for the relevant digital services.  The taxable sum will therefore depend on what proportion of the payments is related to France, the type of services and the type of platform.

Any payments received in relation to the supply of a digital platform facilitating the sale of manufactured goods should not be taken into account.

Unlike the UK tax, the French GAFA tax is not deductible from corporate income tax. It is, however,  deductible from another French tax named C3S (formerly known as “Organic tax”).  This deduction mechanism has prevailed over deduction of the DST from Corporate Income tax, because French legislators wanted to avoid a requalification of this tax under bilateral treaties.  However, the French Association of Internet Community Services (ASIC) has recently suggested that this tax deduction mechanism should be considered State aid and that the EU Commission should be notified.

In terms of the compliance burden on impacted business, the administrative reporting and compliance framework of the DST tax will be aligned with the existing VAT framework.  For most of the affected companies, the 2019 instalment (based on the payments received in 2018) will need to be declared on their 2019 October VAT return (to be filed in November 2019) when declaring monthly VAT returns. Otherwise, the instalment will need to be paid on the 25 November 2019 at the latest.

Recently, President Trump had indicated that there would be retaliatory action on certain French wine imports if the French DST was implemented.

Following their Summit in Biarritz, France in August 2019, the leaders of the G7 group of nations issued a brief declaration on the International DST.  Emmanuel Macron stated that if an international agreement on DST is agreed, the French DST tax will be repealed.  The French president also mentioned that if any tax rate adopted by the international DST is lower than the tax rate adopted by the French DST, the difference would be refunded to businesses.

The tax is expected to raise €600 million euros annually.


In January 2019 the Spanish Government published its draft DST Bill. However, due to the current political situation in Spain (i.e. lack of government) the Bill has not yet been approved, and there is uncertainty as to how and whether this legal initiative will progress.

The Spanish Government has projected that it will raise €1.200m per year through DST.

The main features of this draft bill are as follows:  

  • DST is acknowledged to be an indirect tax and as such it would not fall within the scope of Double Taxation Treaties signed.
  • Entities which meet the following requirements: (i) net revenues during the prior calendar year exceeding €750 million, and (ii) the total value of revenue derived from the development of the activities subject to DST in Spain exceeds €3 million.

The entities are not required to be established in Spain.

In the case of corporate groups these requirements would be assessed at the group level. Thus if both requirements are met on a group level, every group company providing the relevant digital services in Spain would be liable to DST regardless of the individual amounts of revenue.

  • Taxable revenues are those arising from the following activities: (i) online advertising services; (ii) data transmission services; and (iii) intermediation services.
  • Location of the users of the services: digital services are deemed to have been carried out within the Spanish territory whenever the user is located in Spain. Particular localization rules have been set for each type of taxable digital service.
  • Taxable base: overall revenues obtained from the aforementioned activities, exclusive of VAT, constitute the DST taxable base.
  • Tax rate: Spain has also decided to adopt the rate suggested by the EU proposal and the DST will apply at a rate of 3 per cent.
  • Tax returns/forms: DST returns would be filed on a quarterly basis.

The Spanish DST Bill acknowledges that the foregoing rules are aimed at covering an intermediary period until the European DST Directive is finally approved, in which case local regulations would be amended accordingly.


At the beginning of March 2019, the Prime Minister's office announced that the Polish budget would benefit from the introduction of a digital tax with a projected value of approx. PLN 1 billion per year. However in May, the Ministry of Finance postponed a further announcement to this effect.

In July, the Ministry of Finance announced that it was working on a draft bill for the taxation of certain digital services, the starting point of which would be the draft EC directive adopted in March 2019.

The plan to introduce a digital tax was also included in the Official Financial Plan of Poland for 2019-2022. The tax was scheduled to come into force from 1 January 2020. This document projects that the digital tax is expected to bring about PLN 217.5 million to the budget next year.

At the end of August, the government presented a draft budget for 2020, which did not include a digital tax.

At the beginning of September during his visit to Poland, Vice President Pence said at a press conference that the US "deeply gratefully accepted the rejection" of Poland's proposal for a digital service tax in another demonstration of the geopolitical impact of such a tax. The following day, the head of the Prime Minister's office, Mr Michał Dworczyk, stated that there is currently no work being carried out in Poland regarding this tax.

Subsequently, the Ministry of Finance said that, although no receipts from this tax were recorded in the draft budget for 2020, the Ministry will continue to engage in discussions at the EU and OECD forums. 

On 5 September, the Prime Minister said that the Polish government would implement a harmonised digital tax that would apply in the European Union. "We are waiting for solutions proposed by Brussels and the OECD" and "at the political and implementation level works were ceded at this stage to the EU level".

Currently, it seems that the Polish government will not implement a digital tax, but will wait for the EU initiative.

Annex I

Overview of the progress of implementation by EU Member States