Taxing Digital Services – Compensating for the Loss of Competitiveness

In recent years, several countries around the world have implemented a tax on many digital services, ranging from online advertising and digital platforms to search engines and the trading of data. The tax is commonly called Digital Services Tax (DST). In Europe, Italy, Austria, Spain, France, and the United Kingdom all apply a tax rate varying between just a few percentages up to 5 percent on these digital services. Others have proposed a similar tax or are still considering it.[1] Obviously, the tax is controversial.

In this policy brief, we take a closer look at why some European countries have imposed DSTs but not others. The argument from countries that have introduced these taxes are that firms supplying digital services are not paying enough in tax. That may be true, but there is surely a richer explanation behind the fact that Austria, France, Italy, Spain, and the UK have introduced DSTs – but not other countries in Europe.

Other countries may be waiting for the result of the OECD talks about broader changes to corporate income taxation – and perhaps they are prepared to introduce their variant of a DST in the future. Still, what might be the reason these countries did not join forces with other European countries that went for the DST? Indeed, why did many of non-DST countries take a sceptical view of the EU proposal to have a Europe-wide agreement on taxing digital services? Are there explanations that are anchored in the relative competitiveness of countries?

To read the full policy brief from the European Centre for International Political Economy (ECIPE), please click here.