Digital Services Taxes

DSTs typically apply to revenues from digital advertising, online marketplaces, and the sale or transmission of user data. They are levied on gross revenues rather than profits, distinguishing them from traditional corporate income taxes.

The policy rationale centers on the perception that digital businesses can generate significant value in a jurisdiction without having a taxable physical presence there — a gap that existing treaty rules based on permanent establishment were not designed to address.

Several jurisdictions have implemented their own DST regimes, each with distinct rates, thresholds, and scoping rules.

Under the OECD/G20 Inclusive Framework, jurisdictions that have adopted DSTs committed to removing them upon implementation of Pillar 1 Amount A — a new multilateral nexus and profit allocation rule for large multinational enterprises.

Until Pillar 1 enters into force, existing DSTs remain operative. The timeline for phase-out depends on the ratification and implementation progress of the Multilateral Convention on Amount A.

Because DSTs are imposed on gross revenues rather than net income, they interact poorly with existing income tax treaties. Most treaties only cover taxes on income and capital, and many jurisdictions do not consider DSTs to fall within the scope of their treaty network.

As a result, DSTs generally cannot be offset through foreign tax credits against corporate income tax in the taxpayer's home jurisdiction. This creates a risk of genuine economic double taxation — the same underlying activity is taxed twice without relief.