There is no single EU digital services tax. The European Commission proposed a unified 3% levy in 2018, but the Council never adopted it because tax directives require unanimity. What exists instead is a patchwork: France, Italy, Spain, Austria, and Hungary each run their own digital services tax, with different rates, different revenue thresholds, and slightly different definitions of what counts as a taxable digital service. If your company earns advertising, marketplace, or user-data revenue from users in any of those countries and clears both a global and a local revenue floor, you owe tax there directly, on a country-by-country basis.
Which Countries Tax and at What Rate
Rates across Europe generally run from 2% to 7.5% of gross digital services revenue. The rate you pay depends entirely on which country’s users generated the revenue.
- France: 3%, in force since July 2019, covering digital interface services and targeted advertising.
- Italy: 3%, effective January 1, 2020.
- Spain: 3%, effective roughly a year after Italy.
- Austria: 5%, limited to online advertising revenue.
- Hungary: 7.5% on digital advertising, resuming July 1, 2026, with the first 100 million HUF of the tax base exempt.
- Turkey (non-EU): 7.5%, the broadest rate among comparable European economies.
Every one of these national laws contains a sunset or repeal clause tied to an international agreement. Italy’s statute, for example, says the tax will be repealed once agreements reached in international fora on digital economy taxation take effect. France and Spain use similar language. In practice, none of those triggers has fired, so the taxes remain in force.
Who Has to Pay: The Two Thresholds
Each national tax uses a dual-threshold test to keep the burden on the largest multinationals. The first threshold is the same everywhere: €750 million in global consolidated revenue, matching the OECD standard for country-by-country reporting. The second threshold is local digital revenue, and this is where countries diverge sharply.
- France: €25 million in French digital services revenue.
- Italy: €5.5 million in Italian digital services revenue.
- Spain: €3 million in Spanish digital services revenue.
- Austria: €25 million in Austrian online advertising revenue.
The gap between Spain’s €3 million floor and France’s €25 million floor means an identical business can owe tax in Spain and not in France. Revenue is measured gross, before expenses. Consolidated groups are aggregated, so splitting a business into smaller subsidiaries does not get you under the line.
What Counts as a Taxable Digital Service
Most national laws follow the three categories the original EU proposal identified.
Targeted online advertising. Revenue from placing ads on a digital platform is taxable when those ads are directed at users in the country based on data collected about them. Austria’s tax is limited to this category alone.
Digital marketplace services. Platforms that connect users to transact with each other are covered: ride-sharing apps, accommodation booking sites, e-commerce platforms with third-party sellers. The taxable revenue is the fees, commissions, or subscriptions the platform charges to enable those connections.
Sale of user data. Revenue from selling data collected through a digital platform is taxable where the users are located.
Several activities are explicitly outside the scope. A retailer selling its own goods through its own website is not running a digital marketplace. Standard communication tools like email or messaging that don’t monetize user data fall outside. Regulated financial services are exempt, and online marketplaces where more than half of revenue comes from facilitating trades in financial instruments, commodities, or foreign exchange are exempt entirely. Peer-to-peer lending platforms and insurance businesses that meet that revenue split are also exempt.
Determining Where Users Are Located
Because the tax follows the user, not the company, geolocation is the operational core of compliance. The primary method is the IP address of the user’s device. If the address maps to France, the revenue tied to that user counts toward France’s threshold and tax base.
Countries permit alternative methods when they are more accurate. Italy’s tax authority accepts GPS receiver data, cellular base station data, Wi-Fi network connections, and Bluetooth beacon signals, alongside account-creation information, cookie data, and delivery addresses. The governing principle is that a company must use the most accurate method available to it. If your own systems tell you a user is not really in the country their IP suggests, you are expected to rely on the better information.
Documentation follows from that principle. Companies need to keep records of which methods they used, how they allocated revenue across jurisdictions, and how they handled borderline cases. During an audit, the burden of proving correct allocation falls on the company. If the documentation cannot support the numbers, tax authorities can substitute their own calculations.
Double Taxation and the U.S. Foreign Tax Credit Problem
These taxes hit gross revenue, not profit. A 3% French tax on €50 million of French digital revenue produces a €1.5 million bill whether the underlying business was profitable or not. That same revenue is also part of the company’s global profits back home, and most double tax treaties do not prevent the overlap: countries generally classify the digital services tax as an indirect tax rather than an income tax, which puts it outside the treaty allocation rules.
For U.S.-headquartered companies, this design has a sharp consequence. The IRS allows a foreign tax credit only for foreign income, war profits, and excess profits taxes. Because digital services taxes fall on gross revenue, they generally do not qualify. A U.S. company can deduct the payment as a business expense but cannot credit it dollar-for-dollar. At the 21% federal corporate rate, a $10 million payment yields roughly $2.1 million in tax savings as a deduction, compared with a full $10 million offset if it qualified as a credit.
Overlap between two European taxes is possible as well. If a transaction involves users in both France and Spain, both countries may claim taxing rights, and their user-location rules will not always produce cleanly non-overlapping results.
Registration, Filing, and Records
Once a company crosses both thresholds in a country, it must register with that country’s tax authority. There is no single filing point across Europe. The original EU proposal included a one-stop-shop, but the directive was never adopted, so a company operating across multiple markets registers separately in each.
Most countries require annual returns, and some require quarterly estimated payments. Returns detail total digital services revenue, the methods used to allocate that revenue to local users, and the resulting tax. Filing is electronic through government portals.
Penalties for underpayment are real. France, for example, imposes a 5% penalty plus 0.20% per month in interest on underpayments. Similar structures apply elsewhere. Record-keeping does most of the compliance work: revenue figures, geolocation methodology, mapping decisions, and treatment of edge cases all need to be documented well enough to defend on audit.
Why These Taxes Are Still Here
The whole national-tax landscape was framed as a bridge to the OECD’s Pillar One framework, which would reallocate taxing rights over the profits of the largest multinationals to the countries where their users are. In exchange, participating countries would withdraw their unilateral digital services taxes.
The timeline has slipped. A June 2024 deadline to finalize the Multilateral Convention passed without resolution. As of early 2025, the convention has not been signed or ratified by any country. It requires ratification by at least 30 jurisdictions accounting for 60% of the parent entities of in-scope multinationals before it enters into force. Until then, every national tax remains active and enforceable.
The practical posture is to treat these taxes as permanent. Companies that assume Pillar One will arrive shortly and let compliance drift face back-taxes, interest, and penalties that will not disappear when a global framework eventually takes effect.