Digital Service Tax: Overview of the progress of implementation by EU Member States

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 has its roots in the scrutiny of tax planning strategies used by multinationals that operate across multiple jurisdictions.

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 with a process  aimed  at  countering  certain  strategies  used  by  multinationals  to  reduce  their  tax  burden.  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.

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 rather than leaving it to individual EU Member States.

Despite attempts to reach agreement, EU Member States have been unable to reach a compromise on its own proposals and the European Commission has since conceded that it will wait for progress at OECD level and revisit its 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. Such initiatives may, potentially, lead to double taxation and differing views of the transactions covered and have 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 UK. All these countries have proposed, announced or already implemented some form of a digital services tax. Our analysis is aimed at providing an overview of the measures that some key Member States are introducing.

Country	Rate	Status	Brief overview
EU	3%	On hold (12 March 2019)	Targets businesses with annual worldwide revenues of €750 million and EU revenues of €50 million derived from the selling of advertising space, digital intermediary activities like online marketplaces, and sales of user collected data.
OECD		Consultation	The OECD is focusing on delivering a longer-term “consensus-based” international solution addressing the fundamental issues
UK	2%	Proposed	Targets  businesses  that  generate  at  least  £500m  of  global  revenue and  over  £25m  of  UK  revenue  from  social  media  platforms,  search engines and online marketplaces

France	3%	Approved	Targets businesses that make €750m of global revenue and €250m of domestic  revenue  from  online  marketplaces,  digital  advertising  and transmission of personal data
Italy	3%	Proposed	Targets businesses that would make €750m in global revenue and €5.5m in domestic revenue from online advertising, transmission of user data and provision of a digital interface allowing users to interact
Austria	5%	Proposed	Tax  on  internet  advertising  revenue  for  all  businesses  with  global revenues of at least €750m and domestic revenues of at least €10m. Additional   measures   relating   to   VAT   on   imports   from   non-EU countries  and  taxation  of  online  sharing  platforms  are  envisaged  to complement the tax
Czech Republic	7%	Announced	Targets businesses with global revenue of €750m or more, and that meet a certain yet to be established domestic revenue threshold from targeted advertising on a digital interface, use of multilateral digital interfaces, and sale of data collected about users of digital services
Poland	3%	Indicated	Taxation based on virtual permanent establishment or taxable digital presence in Poland established based on three thresholds - revenue, users, and digital contracts. The tax is expected to target revenue from online advertising, sale of data generated from user-provided information, and from other digital services
Spain	3%	Proposed	To apply as an indirect tax to businesses with an annual worldwide revenue of €750m or more during the previous calendar year and domestic revenue of at least €3m from online advertising, intermediation, and transfer of user data
Belgium	3%	Proposed	Targets businesses with a global revenue of €750m or more and a total taxable revenue in the EU of €50m or more. Taxation of revenues from three main activities: publishing online advertisements directed at users of a digital platform; selling of user data; offering digital platforms that expedite the interaction between users and the transfer of goods and services between users.
Hungary	7.5%	Implemented	Targets  media  content  providers  with  a  global  tax  revenue  of  100m HUF (€305.326). Taxation of digital advertising revenues from three categories:  the  entity  publishes  advertisements  for  others,  for  itself, or the entity obtains advertising from a media content provider based in Hungary.
Slovenia	-	Announced	The   Slovenian   Ministry   of   Finance   announced   a   proposal   to introduce tax on digital services.  The Ministry of Finance will initiate the preparation of regulations for implementation of digital services tax.  The  presentation  of  the  legislative  proposal  is  expected  to  be before  April  1,  2020,  and  the  adoption  by  September  1,  2020.  No further details have been published yet.