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Several countries around the world have implemented a tax on digital services, commonly called Digital Services Tax DST. This policy brief takes a closer look at why some European countries have imposed DSTs but not others. The five tax-imposing countries here called DST5 have been losing trade competitiveness in digital services over the last 15 years.
On the many trade competitiveness indicators we compute, the DST5 score lower values and show lower growth rates compared to other non-DST countries in Europe. Moreover, the differences between the DST5 and non-DST countries are stark, suggesting that digital services markets for the latter group of countries are a lot more dynamic and globalized.
The difference between DST5 and other European countries in digital services competitiveness is striking. This is not to say that there should not be special taxes on digital services β that is a different issue β but it is important that the discussion about the DST starts from a better understanding of how such a tax relates to underlying patterns of digital service performance.
In recent years, several countries around the world have implemented a tax on many digital services, ranging from online advertising and digital platforms to search engines and the trading of data. In Europe, Italy, Austria, Spain, France, and the United Kingdom all apply a tax rate varying between just a few percentages up to 5 percent on these digital services.
Others have proposed a similar tax or are still considering it. In this policy brief, we take a closer look at why some European countries have imposed DSTs but not others. The argument from countries that have introduced these taxes are that firms supplying digital services are not paying enough in tax. Other countries may be waiting for the result of the OECD talks about broader changes to corporate income taxation β and perhaps they are prepared to introduce their variant of a DST in the future.