The digital economy presents growing challenges for tax systems as online services highlight the limitations of current frameworks.
Virtual ventures, such as Meta or Alphabet, notably have large customer bases in countries where they have no physical presence, generating profits from advertising or subscription services.
Because tax rules still assume a physical presence, profits from digital activities often bypass contributions where consumers are located. Instead, multinationals usually pay corporate levies where production takes place.
“It is important that all sectors of our economies pay their fair share of taxes and contribute to the functioning of our societies,” says the European Commission.
To address this, the OECD has been hosting negotiations involving more than 140 countries to update the international tax system.
The proposal, known as Pillar One, would require some of the world’s largest multinationals to pay part of their tax in countries where their consumers are based.
Where in Europe are DSTs in place?
Several European countries have expressed interest in implementing a digital services tax (DST), particularly while a OECD-wide deal makes slow progress.
France, Spain, Italy, Austria, Denmark, Hungary, Poland, and Portugal have introduced a DST within the EU. The UK, Switzerland, and Turkey have also implemented such taxes.
Belgium, Czechia, Latvia, Slovakia, Slovenia, and Norway have announced plans or signalled intentions to introduce a DST.
DST rates and the exact nature of the taxes vary across Europe, according to data compiled by Cristina Enache of the Tax Foundation. DST rates average around 3% to 5%, and Hungary currently has the highest rate at 7.5%.
Turkey, which previously shared the top spot with Hungary, saw its DST rate fall to 5% in 2026 — and this will fall to 2.5% in 2027.
The rate is 2% in the UK and Denmark, while Poland has a 1.5% tax on streaming and audio-visual services. It is 3% in Belgium, France, Italy, Latvia, and Spain. Portugal and Switzerland apply a 4% rate. Austria and Czechia have introduced a 5% DST.
In some countries, rates vary depending on revenue thresholds and the type of services taxed.
Digital services taxes mainly apply to online advertising. Some countries also tax the sale of data, digital intermediation services that facilitate the exchange of goods or services, and on-demand audio-visual media service providers.
For example, in the UK, social media platforms, internet search engines, and online marketplaces are taxed.
DSTs could equal 19% of EU budget
A 2025 report by the Centre for European Policy Studies (CEPS) estimates that a 5% digital services tax would have raised about €11.9bn across the EU in 2020. This equals 5.3% of corporate income tax revenue and 7.1% of the EU budget that year.
By 2026, the figure could rise to €37.5bn. That would equal about 7.8% of corporate income tax revenue in 2023 and 18.8% of the EU budget in 2025.
“These figures highlight the potential of a DST to provide a substantial source of revenue for the EU at a time of heightened fiscal pressure,” according to the report.
The report shows that DST revenues are rising across the EU. In 2023, France collected €680mn, an increase of more than 80% compared with 2020. In 2023, Italy raised €434 million, Spain €345 million, and Austria €103 million.
DSTs mainly impact US companies
The US is home to most of the companies affected by DSTs, meaning that the measures have been poorly received by the Trump administration.
In February 2024, the president ordered an investigation into countries that levy digital taxes on US tech companies, threatening extra tariff measures.
To ease tensions with its neighbour, Canada dropped its digital services tax last summer, although EU nations have expressed reluctance to change their digital regulations.
The US has already managed to negotiate its way out of the OECD’s Pillar Two tax reform, with US-based multinationals now exempt from a 15% global minimum levy.