Digital Services Taxes (DSTs) and Unilateral Measures
- Graziano Stefanelli
- Aug 15
- 2 min read
Digital services taxes apply gross-revenue levies on certain online activities in market jurisdictions, targeting multinational groups with significant local digital user bases even without physical presence.
Scope and thresholds vary across jurisdictions.
DST regimes typically apply to groups exceeding global and local revenue thresholds—often €750 million worldwide and €25–50 million from in-scope digital services in the taxing country. Covered activities may include online advertising, digital marketplaces, streaming services, and sale of user data.
Tax base focuses on gross revenues, not net profit.
Unlike corporate income tax, DSTs apply to total revenues from in-scope services sourced to the jurisdiction, without deductions for costs. This structure often produces higher effective rates for low-margin businesses. Rates range from 2 to 7.5 percent depending on the country.
Example:
Local digital services revenue: €40 million
DST rate: 3%
Liability: €1.2 million, due quarterly.
Sourcing rules tie revenue to user location.
User IP addresses, billing details, or device geolocation data determine where revenue is taxed. For marketplaces, the location of buyers and sellers may both be relevant. For online advertising, jurisdiction is tied to the viewer’s location at the time of impression.
Interaction with corporate income tax and treaties.
DSTs are generally not creditable against income tax in the U.S. and many other countries, as they are considered extraterritorial gross-revenue taxes rather than covered taxes under treaties. This creates potential double taxation when MNEs pay DST and corporate income tax on the same revenue.
Compliance and administrative burden.
DST returns often require transaction-level reporting, segregation of in-scope from out-of-scope revenue, and documentation of sourcing methodology. Many regimes impose penalties for late filing and underpayment, with interest accruing from the due date.
Unilateral measures and OECD negotiations.
Several jurisdictions have agreed to suspend collection or adjust rates pending implementation of OECD Pillar One. However, others continue to apply DSTs, creating overlapping obligations that will need reconciliation when multilateral rules take effect.
Journal entry — recognizing DST liability.
Dr DST Expense €1 200 000
Cr Accrued DST Payable €1 200 000
Payment reduces accrued liability and does not offset corporate income tax expense unless domestic law provides relief.
Planning levers for DST exposure.
Revenue mapping: Identify in-scope revenue streams and sourcing mechanics early.
Product structuring: Segment services or platforms to isolate out-of-scope revenue.
Jurisdictional timing: Shift launch dates or revenue recognition to align with DST rate changes or suspensions.
Monitor OECD transition: Adjust compliance systems for expected replacement by Pillar One Amount A.
Clear revenue segmentation, robust sourcing evidence, and early alignment with evolving OECD frameworks help limit the financial impact of DSTs while maintaining compliance in overlapping unilateral regimes.
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