Briefing Document: Global Digital Services Tax Landscape
Subject: Review of Current Trends and Updates on Digital Services Taxes (DSTs) and Value-Added Tax (VAT) on Digital Services
Executive Summary:
This briefing document summarizes the current state of Digital Services Taxes (DSTs) and Value-Added Tax (VAT) on digital services around the world. It highlights key trends, including the increasing adoption of VAT on digital services, the challenges and controversies surrounding DSTs, particularly concerning their impact on US tech companies and potential trade retaliation, and the global pursuit of a multilateral agreement through the OECD’s Pillar One and Pillar Two initiatives. Several countries are implementing, considering, or retracting DSTs, reflecting the dynamic and often contentious nature of digital taxation.
Here’s a summary of digital service tax and VAT developments around the world:
Europe:
- European Union: The EU is considering a 3% Digital Services Tax to counter US tariffs and strengthen trade negotiations. A study reveals that an EU digital tax could generate €37.5 billion annually. The European Commission released its Annual Report on Taxation, providing a detailed analysis of tax trends across EU Member States.
- Czech Republic: The Czech Republic has proposed a 7% digital services tax targeting large multinational digital firms. It is intended as a temporary measure until an international consensus is reached at the OECD or EU level.
- France: France’s tax authority has become a Peppol Authority in preparation for mandatory e-invoicing and e-reporting in 2026. France’s Constitutional Council is expected to rule on the legality of the Digital Services Tax.
- Germany: Germany is considering a 10% tax on digital services from tech giants like Google and Facebook.
- Italy: Italy has issued guidance on a 3% Digital Services Tax for the online gaming and betting industry. Italy and the U.S. have agreed on the need for non-discrimination in digital services taxation.
- Poland: Poland is considering a 3% digital services tax targeting large multinational tech companies. The revenue generated from the digital tax is intended to support the development of Polish technologies, innovations, and quality media content.
- Romania: Romania will raise its standard VAT rate from 19% to 21% effective 1 August 2025, expecting to generate €1.2 billion annually.
- Slovakia: Slovakia introduced deferred import VAT for resident businesses from 1 July 2025 and will extend it to non-residents from 1 January 2026. Slovakia is also considering a Digital Services Tax on global tech giants.
- Sri Lanka: Sri Lanka will implement 18% VAT on cross-border digital services from October 2025.
- Ukraine: Ukraine has tabled legislation for the introduction of the Model Reporting Rules prepared by the OECD for the reporting by digital platforms.
- United Kingdom: The UK is maintaining its Digital Services Tax amid US trade tensions.
North America:
- Canada: Canada has announced it will withdraw its planned 3% digital services tax. This is to ease tensions with the US and secure a new agreement.
- Maryland (US): Maryland will implement a 3% sales and use tax on various digital and IT services starting 1 July 2025, with exemptions for pre-July contracts and certain bundled software.
Africa:
- Ethiopia: Effective 17 March 2025, non-resident digital service providers and platforms must register, collect, and remit 15% VAT if annual sales exceed ETB 2 million. Ethiopia has delayed VAT registration and collection obligations for foreign providers of B2C digital services.
- Mauritius: Mauritius is to introduce VAT on foreign digital services starting January 1, 2026.
- Rwanda: Rwandan Parliament approves new tax laws, including a 1.5% Digital Services Tax.
- Uganda: Uganda is proposing to end Digital Services Tax amid US trade tariff threats, effective July 2025. Uganda replaces the 5% Digital Services Tax with a 15% Withholding Tax on Non-Resident Providers.
Asia:
- Bhutan: Bhutan will replace its Sales Tax and Excise Tax with a unified 5% GST.
- Malaysia: Malaysia has expanded its service tax scope and increased sales tax on luxury items such as imported fruits, racing bicycles, and antique art.
- Philippines: The Philippines enforces VAT on digital services from non-resident providers. The Philippines introduces VAT on foreign digital services, effective June 2025, for sales over PHP 3 Million. The Philippines rolls out new VAT rules for digital services effective June 2025.
General Trends & Observations:
- OECD’s Pillar One Proposal: The OECD is negotiating with over 140 countries to implement Pillar One, which would require large multinationals to pay taxes where their consumers are located.
- Global VAT Implementation: Over 125 countries have implemented VAT, GST, or sales taxes on non-resident providers of digital services to their consumers.
- US Concerns and Retaliation: The US is showing concerns that digital services taxes disproportionately target U.S. technology firms. The U.S. may retaliate against foreign digital taxes on tech giants.
- Digital tax revenue purpose: The revenue generated from the digital tax is intended to support the development of Polish technologies, innovations, and quality media content.
- The need for a Multilateral Approach: Highlighted the need for a multilateral approach to tax cooperation.
Implications:
- Increased Compliance Burden: Businesses, especially those operating globally, face an increasingly complex landscape of digital tax regulations, requiring careful monitoring and adaptation.
- Potential for Trade Disputes: The US’s aggressive stance against DSTs could lead to further trade disputes and retaliatory measures, impacting international trade relations.
- Need for Multilateral Solutions: The long-term solution to digital taxation lies in reaching a global consensus through initiatives like the OECD’s Pillar One and Two, which would provide a more stable and predictable framework for taxing the digital economy.
- Impact on Consumers: The implementation of VAT and DSTs on digital services can increase costs for consumers, potentially widening the digital divide, particularly for low-income households.
Recommendations:
- Monitor developments in digital tax regulations closely, particularly regarding the implementation of VAT and DSTs in key markets.
- Assess the potential impact of these taxes on business operations and develop strategies to mitigate compliance costs and minimize trade risks.
- Engage with industry groups and policymakers to advocate for fair and equitable tax policies that support innovation and economic growth.
- Stay informed about the progress of the OECD’s Pillar One and Two initiatives and their potential impact on the global tax landscape.
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