EU may revive Digital Services Tax proposal

EU alerts may rekindle DST on threat of US retaliatory tariffs

The European Commission President, Ursula von der Leyen, has raised the prospect of restarting discussions between the EU 27 member states on a pan-EU 3% Digital Services Tax. This follows further US reciprocal tariffs on EU goods, and the EU is looking for negotiating leverage in any trade agreement to reduce these tariffs.

US pulls out of global agreement on rights to tax digital service

The EU had put on pause in 2021 these plans subject to an OECD-led global agreement on the rights to tax digital services. But  on 20 January 2025, President Trump withdrew the US from the OECD Pillar 1 negotiations global digital tax reform negotiations. In 21 February US President Trump announced a DST reciprocal tariff review, looking to introduce potential tares.

A number of EU countries, including Italy and France, have already imposed a domestic DST, and other member states such as Belgium are planning to bring forward their own versions.

Check our global DST tracker for complete coverage of proposed and imposed taxes.

3% EU Digital Sales Tax Proposal

The digital levy is one of the proposals from the Commission in response to a request in July 2020 from the European Council for proposals for generating additional resources to support the EU’s borrowing and repayment capacity.

The proposed EU DST applied only to enterprises above two thresholds:

1. total annual worldwide revenues above EUR 750 million, and
2. total annual EU revenues exceeding EUR 50 million.

The proposed single rate was 3%, to be levied on gross revenues and applicable to both non-resident and domestic companies and to domestic and cross-border transactions.

The EU Commission had proposed an EU wide digital tax back in 2018 but this was opposed by countries such as Ireland, Luxembourg and the Nordic countries, who feared it would lead to a reduction in their revenues. EU finance ministers agreed in March 2019 to concentrate on the OECD’s project and to leave the EU proposal in reserve should the OECD not manage to secure timely international agreement.

July 2021: OECD agreement by almost 140 countries on reforms puts EU DST on pause

The EU’s European Commission has announced that it will pause its Digital Levy, a proposed Digital Services Tax, until at least October 2021. It will wait on the details of the OECD’s Inclusive Framework, which has developed two ‘pillar’ to implement the right to tax non-residents on local income and set a global minimum tax rate.

The EU Digital Levy would replace the initial Digital Services Taxes being introduced in Europe and beyond. VAT Calc’s global VAT and GST on digital services blog keeps a live update on how countries are imposing indirect taxes on non-resident providers and electronic marketplaces.

Inclusive Framework gains G7 and G20 approval

This follow the G7 and G20 (July 10) countries both approving the overall plan, requesting technical details by October. The two pillars aim to target digital services income earned by non-established companies that legitimately avoid the normal corporate income tax, and stop the damaging race to the bottom of national corporate tax rates.

• Pillar 1: opens the right to tax profits of foreign companies selling digital services to local consumers without a permanent establishment (offices; staff; warehouses etc) and so avoiding local income tax. The Inclusive Framework allows countries to tax profits above 10% at their tax rate
• Pillar 2: sets a global minimum corporate tax rate at 15%. If a country does not tax the income of a local subsidiary of a global multinational, then the home country of the group company can opt to top-up the effective tax rate to 15%.

Europe Digital Services Taxes (DST)