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Domestic digital services taxes put pressure on OECD proposals

2 December: The French Government confirmed on 25 November that it would be issuing notices for payment of its digital services tax, having previously suspended them while the OECD sought to reach a multilateral agreement on the taxation of the digital economy.

Pressure is mounting on the OECD to reach agreement by its extended deadline of July 2021 on its proposals for a worldwide coordinated digital services tax (DST) arrangement, as countries push forward unilateral approaches.

France imposes a 3% DST on resident and non-resident digital companies providing advertising services, selling user data for advertising purposes, or performing intermediation services. The tax applies to such businesses with a global annual turnover above €750m, and turnover derived from French users of above €25m. It was signed into law on 24 July 2019, but collection was suspended while the OECD continued to consult on its proposals. However, France has now issued notices for instalment payments of the tax for 2020, with the balance due next year.

France is not alone in bringing forward its own measures to tax digital services provided to users in its territory. At the time of writing, Austria, Hungary, Italy, Poland, Spain, Turkey and the UK have all implemented a DST. Belgium, the Czech Republic and Slovakia have published proposals to enact one and Latvia, Norway and Slovenia have either officially announced or shown intentions to implement such a tax.

The UK imposes a 2% DST on the revenues of search engines, social media services and online marketplaces which derive value from UK users. It applies to revenue earned above an annual £25m threshold from 1 April 2020 by businesses with worldwide group revenues of more than £500m and more than £25m of revenue derived from UK users. The revenues charged will be reduced by 50% where a user in respect of a marketplace transaction is normally located in a country that operates a similar tax to the DST. DST payments are due nine months and one day after the accounting period to which the liability relates.

The EU is also set to debate a new digital levy early in 2021. It is proposed that the levy on Europewide digital revenues would become a direct contribution to the EU’s own budget by January 2023.

It is expected that if OECD members can reach an agreement and implement a multilateral arrangement to taxing the digital economy that this will replace the plethora of unilateral measures being put in place, but the more entrenched these measures become, the more difficult it becomes to reach an agreement that satisfies all parties.

The major targets of DSTs (Google, Amazon, Facebook and Apple being the most prominent) are primarily US-based corporations. Such taxes have therefore been perceived as discriminatory and the US has responded with retaliatory threats, such as applying tariffs on goods entering the US from the countries concerned. 

The transition to a new administration under President-Elect Joe Biden may soften the US’ stance on unilateral and multilateral digital services taxes, given his campaign focus on corporate tax avoidance. However, it will take some time (perhaps until April) for new appointments to be made to the US Treasury Office, which would leave very little time for meaningful input into the OECD proposals.

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