Multinational entities that provide online advertising services, sell consumer data or run online intermediary platforms should prepare for the imminent arrival of digital services taxes (DSTs) on their revenues from in-scope digital activities. Having failed to reach an EU-wide unanimous consensus on an earlier EU Commission proposal for a DST Directive, certain EU countries, including Austria, Czech Republic, France, Italy, Spain and the United Kingdom, have decided to introduce DSTs unilaterally into their own national tax systems.

The French DST is already in force. The Italian DST is in draft form and intended to go into force in January 2020, while other DST regimes, including that of the United Kingdom, are expected to come into force sometime during 2020. This article outlines some of the key practical challenges for businesses looking to comply with the French, Italian and UK DST rules.

En détails


These countries’ decisions to implement their own DST regimes were driven primarily by a perception that larger multinationals, many of which have highly digitalised operations, are not paying their fair share of taxes globally. A growing consensus has emerged in recent months that “market jurisdictions” should have the right to tax, because those markets (namely, the countries where the users and consumers are based) ultimately create value for the online businesses.

Although DSTs are intended as an interim measure pending an agreed solution to the broader international tax challenges exacerbated by digitalisation, the Organisation for Economic Co-operation and Development (OECD) takes a neutral view on the use of DSTs by its members, in that it neither recommends nor discourages them. If a member does decide to adopt a DST, OECD guidance directs that it should:

  • Comply with international obligations
  • Be temporary and narrowly targeted
  • Minimise over-taxation, cost, complexity and compliance burdens
  • Have minimal adverse impact on small businesses.

Thus far, domestic DST rules do not seem to have complied with these guidelines, particularly as DSTs are not covered by double tax treaties and may prove particularly burdensome for some business models.

The French DST

From 1 January 2019, each company belonging to a group that derives gross revenues from digital services exceeding EUR 750 million on a worldwide basis and EUR 25 million in France is subject to French DST at a rate of 3%. French DST is assessed at the company level only and must be paid in two instalments (April and October) based on revenues earned during the previous calendar year. A group may elect to designate a taxable member that will file consolidated French DST returns and pay the corresponding DST on behalf of all taxable group members.

The French tax authorities have yet to publish extensive guidelines on how the DST should apply in practice. Key challenges for affected businesses are as follows:

  • Identification of taxable revenues. French DST is assessed on the gross revenues derived from digital services deemed provided in France, i.e., the gross revenues derived from taxable digital services multiplied by the proportion of French users in the total number of users of the taxable digital services. Taxable DST services include:

    The provision of access to a digital platform enabling internet users to contact and interact with one another, especially for the purposes of selling goods or services

    The provision of targeted advertisement services on a digital platform based on individual users’ data or selling such users’ data.

    Digital platforms for the provision of payment services, communication services, crowdfunding services, or digital content, as well as self-operated digital platforms for the direct sale of goods and services, are out of the scope of French DST. This list is broad, and conflicts regarding dual-purpose platforms cannot be excluded (i.e., platforms including both taxable and exempt digital services).

  • Identification of French users. French users include any user who accesses the digital platform, or generates user data, from electronic devices located in France (based on IP address, wi-fi connection, GPS data, etc.) In practice, such information usually can be gleaned from data, but different data sources can provide conflicting evidence of a user’s location. A user’s location will often be determined by reference to that user’s personal data and place of residence, which may give rise to data protection issues under GDPR.
  • Potential double taxation. Double taxation could occur if the other jurisdiction imposes a DST on the same revenues, for example because of inconsistencies between the French domestic rules and those of the other DST jurisdiction regarding user location or taxing rights.
  • Transitional nature. French President E. Macron stated at the 2019 G7 that the French DST is of a transitional nature. He said that any excess of French DST over the new international DST being brokered by the OECD would be refunded, but did not include details as to how and under what limitations such refund will take place. By then , this rushed version may give rise to differences of treatment or to restrictions on certain freedoms, which may be contrary to EU law and the French Constitution.

The Italian DST

The Italian DST laid down under the provisions of the 2019 Italian Budget Law is currently not applicable. The implementing decree has not yet been issued, and this is a condition for the new provisions to come into effect. A recently circulated draft version of the 2020 Budget Law, however, provides for DST applicability from 1 January 2020.

Once in effect, the Italian DST would apply to resident and non-resident companies that earned during a calendar year, at the individual or group level:

  • Total worldwide revenues not less than EUR 750 million
  • Revenues derived from digital services provided in the Italian territory not less than EUR 5.5 million

The Italian DST would apply to revenues deriving from the following digital services:

  • Routing, on a digital interface, advertising targeted at users of that interface
  • Providing a multi-sided digital interface allowing users to get in contact and interact, and which may also facilitate the supply of goods or services directly between users
  • Transmitting data collected from users and generated through the use of a digital interface.

Services are relevant for DST purposes if they are supplied to users located in Italy. As a general rule, location is based on the place where the device used for accessing the advertising or the digital interface is located. The Italian DST expressly excludes from its scope services rendered between parties belonging to the same group where one party is the controller of the other or the parties are under common control.

The Italian DST is largely modelled after the proposed EU DST Directive. Because the Italian DST is currently not applicable, the Italian Revenue Agency has not published any interpretative guidance. In the DST’s current form, its key challenges for affected businesses are as follows:

  • Identification of taxable services. Because the language of the 2019 Budget Law provisions is quite general, further guidance regarding taxable services is necessary. Even if the Italian DST largely resembles the EU DST Directive, it is not clear whether the Directive’s specifications would apply also in respect of the Italian DST. For example, the EU DST excludes from its scope the rendering of payment processing and factoring services (Art. 3, para. 4, let. a)), but the Italian DST contains no such carve-out. The draft 2020 Budget Law would offer some clarification by extending the EU DST Directive specifications to the Italian DST, including the rule regarding supply of payment services.
  • Territorial scope. The location of the device used to access the advertising or the digital interface is relevant for determining the territorial scope of the Italian DST. Even though the 2019 Budget Law provisions are not specific in this respect, the Italian legislator could mirror the approach adopted by the EU DST Directive—namely, using the IP address of the device or another method of geolocation. This is the approach taken by the current draft 2020 Budget Law. Both the European Economic Social Committee and scholars have criticised this form of location criteria, pointing out that IP addresses can be easily manipulated.
  • Deductibility and potential double taxation. While the Italian DST should be deemed an indirect tax and thus generally deductible for corporate income tax (CIT) purposes, the 2019 Budget Law provisions did not include any specific rule on this topic. If the Italian DST was deemed non-deductible for CIT purposes, a double taxation would arise. The EU DST Directive may be of little help in this respect, as no. 27 merely recommends (but does not oblige) Member States to allow such a deduction. The draft 2020 Budget Law is silent on this point.
  • Sunset clause. The draft 2020 Budget Law would adopt a sunset clause, according to which the Italian DST would be automatically repealed when an agreement at the international level (i.e., at the OECD level) on taxation of the digital economy enters into force. This provision is similar to that of the French DST except for a major point: while in France there seems to be room for a retroactive reimbursement of the difference (if any) between the applicable DST and the still-to-be-adopted tax on digital economy laid down at OECD level, the Italian legislation does not provide for such a reimbursement, at least in the current draft of the 2020 Budget Law.


The UK draft Finance Bill provided that from 1 April 2020, each member of a large accounts-consolidated group will be subject to a 2% tax on its proportion of UK revenues from the provision of a social media platform, a search engine, any online (non-financial) marketplace or any associated online advertising business (DST activities). Only groups with annual worldwide revenues above £500 million and UK revenues above £25 million would be affected, with the first £25 million of such UK revenues being exempt. The DST would be calculated on a group-wide basis and apportioned pro rata to each member. Groups with low operating margins may opt for a “safe harbour” alternative DST calculation.

Under the same draft bill, DST would become due and payable on the day following the end of nine months after the relevant accounting period end. Should any DST remain unpaid for three months after the DST due date, HMRC may issue a DST payment notice to any group member within three years and six months from the DST due date, which may be in excess of what is lawfully due. Groups therefore should nominate a responsible member ahead of time to prepare and file DST returns, and should pay the DST on time.

HMRC has published draft guidance on how it anticipates the DST applying in practice, but the guidance does not cover every situation. If the DST comes into force as currently planned, the key challenges for affected businesses will be threefold:

  • Identification of taxable revenues. Taxable revenues will be revenues attributable to UK users and will include advertising fees, commissions and subscription fees. This is not an exhaustive list, however; the DST will apply to all UK revenues received in connection with a relevant DST activity. This broad scope will require an analysis of the nature of the revenue streams and the activities from which they are generated, and each case will turn on its own facts.
  • Identification of UK users. A UK user will be any person whom it is reasonable to assume is normally located or established in the United Kingdom. In practice, such information can usually be gleaned from data such as delivery addresses, payment details, IP addresses, contractual evidence, or the address of property or location of goods being rented out. However, different data sources may provide conflicting evidence of a user’s location, in which case businesses will need to come to a reasonable evidence-based conclusion on the likelihood of that user being in the United Kingdom. A user’s location will often be determined by reference to that user’s personal data and place of residence, which may give rise to data protection issues under the EU General Data Protection Regulation.
  • Potential double taxation. Although the draft UK DST rules disregard 50% of UK revenues from cross-border transactions between a buyer and a seller through an online marketplace where the non-UK party is in another DST jurisdiction, this does not fully resolve the issue of potential double taxation if the other jurisdiction imposes a DST on the same revenues—for example, due to inconsistencies between the UK domestic rules and those of the other DST jurisdiction regarding user location and/or taxing rights. The double taxation issue is not helped by the fact that the UK DST will not be creditable against corporation tax, ORIP income tax or diverted profits tax. The UK DST should generally be deductible for corporation tax purposes as a trading expense, however. Neither the draft legislation nor HMRC guidance mentions the possibility of a retroactive reimbursement of the UK DST once the OECD’s long-term solution has been agreed and implemented.

What’s Next for DST?

The US legislature takes a hostile view of DST proposals generally, as evidenced by a recent investigation into whether the French DST discriminates against US businesses. This investigation could lead to retaliatory US tariffs on imports from France and punitive US tax charges on French companies doing business in the United States. Other DSTs, including those of the United Kingdom and Italy, can probably expect similar responses from the United States.

UK Prime Minister Boris Johnson has indicated his support in principle for a UK DST or a similarly targeted tax, although he has also indicated that the structure of this tax would be on the table in any trade negotiations with the United States. However, the United Kingdom’s decision to hold a general election in December 2019 means that the draft Finance Bill will be shelved—and with it, the UK DST—unless and until a newly elected Parliament decides to take it up again. If the Conservatives win the election, a “no deal” Brexit scenario is more likely to occur. In that case, it would be no surprise if the UK DST plans were quietly abandoned as a “quid pro quo” concession to the United States in any trade negotiations, mainly on the pretext that they will be superseded by an internationally agreed approach in the near future. Conversely, a UK government formed or supported by the main opposition parties following this election would be likely to negotiate a softer Brexit or no Brexit at all, and may be more inclined to proceed with the UK DST. In the meantime, affected businesses should assume that all DSTs will take effect as planned and prepare accordingly.