Italy passes Digital Services Tax in 2019 revised budget

After the EU rejected the original draft of the Italian 2019 budget that was pointing to reduce local GDP by 2.4%, a new revised budget with additional taxes has been finally approved by the Parliament that it is supposed to leave instead the GDP reduction in 2,04%.

The law, adopted Dec. 30, incorporates a 3% Digital Services Tax that is succinctly worded but whose initial definitions are now completely in line to the ones in the EU DST Directive Draft, which means that the former services scope passed in the 2018 budget is no longer valid.

Implementing legislation developing the details of the services in scope (and other elements like defining when a digital device is used in Italy) is needed and it should be passed around April 2019, with the tax expected to gain full effect in June.

Digital Services in Scope and joint liability rule

Like in the EU Directive Draf the tax applies to revenue from online advertising, multisided digital interfaces, and data sales by companies with global annual revenue of at least 750 million euros, and at least 5.5 million from in-scope digital services provided in Italy.  User contribution to the generation of value will be a necessary element. 

The initial text suggest there will be a joint liability rule, through which a local company can be liable for taxes owed by a foreign supplier.

DET3 comment

The initiative taken in late 2018 by Italy and reflected in its 2018 budget is now replaced by a new text aligned to the EU Commission. Despite the Political turmoil affecting this topic, this was a necessary technical measure.

Considering the overall current dynamic and fast changing context, it was clearly to be avoided that each of the EU countries that are firm towards stand-alone solutions while Global solution is built are going ahead with different scopes/definitions. There will be nuances and differences still as every country must run its own legislative process under its local political landscape, but it is important that the base foundation is shared.   

The tax seems to be a “one of its class” that lays in-between corporate tax and VAT, while the Spanish draft has defined it expressly as an indirect tax.

It is likely that the pressure of the EU control on the public finances of Italy will make this time the technical teams accelerating the work to nail the details in a proper legal text in the announced time-frame, but to be seen considering previous experiences in the country. 

Who is surprised about France advancing its Digital Services Tax?

French president Macron measures announced in reaction to the the “gilets jaunes” / “yellow vests” will increase the French budget deficit above the EU required boundary. That is why France might not wait until March 2019 to pass a Digital Services tax in order to get incremental sources of revenue starting from January 2019.
Still hoping to achieve a European horizontal and binding agreement on the Digital Services Tax before March, which was the tight timeframe provided in the recent Franco-German joint declaration, reality is France won’t stay quiet.

The French Finance Minister confirmed France is determined to find unanimity by March at EU level, but if not they will be prepared to act.

The idea is that the French DST will be worded in close alignment to the last version of the EU Directive and forecast is that Government will collect 500 million euros annually through it.

The announced French DST is from one hand a straight deficit control measure and by other hand a clear stand to its strong positioning on this topic since the early BEPs days and before.

Those reading “behind the text” of the recent Franco-German declaration could clearly anticipate that it was in part preparing the ground for this fast local level movement in their country if needed.

By experience in countries like Spain were we have been closely involved and participating in the legislative process, we know that transposing the draft Directive text into “local language” text that properly explain the digital concepts, technology drivers  and respect the local lax taxonomy is a process that takes time and requires tunings in order to avoid unexpected outcomes.

About the international impact of this new unilateral measure, we remit to our recent news published on the EU directives status after the December ECOFIN.

Cross-EU update on digital permanent establishment and SDP concept

EU parliament think-tank published December 7th a briefing on the work on corporate taxation of a Significant Digital Presence (SDP).

It explains the mixed reactions that the March 2018 Directive proposal received from stakeholders. It explains that the recent report by Parliament’s Committee on Economic and Monetary Affairs (ECON) has proposed to widen the scope and reach and requested also an increase in clarity for tax authorities and companies.

The plenary vote on the report happened just a few days ago in mid December and the Members of the European Parliament (MEPs) adopted both its two opinions on the proposals for Council directives on the corporate taxation of a SDP and the DST one by an overwhelming majority.

On the SDP topic, the opinion adopted is proposing to incorporate to the Directive as a taxable service the supply of “content on a digital interface such as video, audio, games, or text using a digital interface”. Their provided example is that this way Online platforms selling digital content such as Netflix, can be taxed.

DET3 Comment

There is a conflict between this MEPs request of widening to include the digital supply of all those types of content, and the request of the Committee of Regions (CoR) to remove from the list of services that could create a SDP those related to “e-books & electronic publications, online newspapers, online news, traffic information and weather reports” (See our CoR opinion summary).

And regardless of what is passed or not, there is also a need to have a one-voiced consistent technical message on this topic at EU institutions level, aligning the digital permanent establishment thresholds of the SDP Directive, with those contained in the last proposed amendments of the EU CCTB, not only on the number and type of users and contracts, but specially in the “Volume of digital content” one incorporated in this last text.
Is the Digital Permanent Establishment the answer to find a path in the complicated international political context? There is agreement on the technical side of a large numer of countries tax administrations about it as the solution to produce a clearer picture of where a company generates its profits.

But we warn and anticipate that practical application of any Digital PE is going to be highly problematic.

Postponed decisions, disagreements & misalignments in the EU Digital Economy Taxation effort after the December 4th ECOFIN

Finance and Economy Ministers held an important policy debate on the proposal to establish a digital services tax last ECOFIN meeting.
A compromise revised text of the March Directive proposal, supported by many countries, was presented, but according to the official outcome released that text did not gain the necessary support.

Ministers examined also the last-minute joint declaration by the French and German delegations inviting the Commission and the Council to:

• Amend and focus its DST directive on a tax base referring to digital advertising targeted at users only (versus the 3 initial digital services subject).

• To submit proposals on minimum taxation of digital economy in line with the work of the OECD, US, Germany and France, not based in taxing revenue but profits.

The joint declaration stressed at maximum to Council the urgency to adopt a legally-binding directive on a DST without delay, and in any case before March 2019.

Interestingly, the joint declaration notes that the DST directive would not prevent Member States from introducing in their domestic legislation a digital tax on a broader base than just digital targeted advertising.
At the light of all the above, the presidency recommended continuing to work on the basis of the latest directive compromise text and the elements of the Franco-German declaration with the aim of reaching an agreement as soon as possible.

In the following 2 days after ECOFIN we saw the publication of the opinion of the European Committee of the Regions on the Digital Economy Taxation topic, DST and SDP directives, proposing additional specific amendments, questioning a number of points and recommending additional actions (*).

There is no agreement yet between all Member states at EU level on the short-term regime, there is misalignment between EU political bodies on some elements and there is no international consensus yet at OECD level on how to respond to the challenges we have on the table since a number of years ago.
As more and more countries in most continents/regions, are considering unilateral measures, mix the international situation (OECD/EU/UN) with those local different pictures, scopes and interpretations on digital economy, add a few segments of post BEPS MLI variances, and it is clear that we are adding a systemic complexity that is against some of the key Digital Economy principles of simplicity and agility and against the instant international business articulation that the “global cloud” enables…..Cloud implementation is moving really fast in organizations of all sizes, so timing is starting to be the critical element of this debate.

Respecting the March deadline and taking unanimous decisions it is one of the key underlying conditions set in the text of the Franco-German “concession” of watering down the DST in scope services and deferring entering into force timeframe.

So, March 2019 for the EU and January 2019 for the OECD expected communication on this topic status and progress on the “minimum taxation” framework are the next high relevance dates.

Despite this difficult general situation, it seems nonetheless that all these turbulences and strong balancing of political interests and trade commerce collateral impacts discussions are generating a level of concrete progress towards reaching preliminary consensus between key OECD countries about the future potential overall framework. Including the US.

To be checked in the OECD January report. But time is starting to be a factor now.

We anticipate that the analysis of the practical implications of the application of any of the long-term solutions in consideration is going to take time, and the fundamental discussion will be around valuing digital value creation, users and data. Everything will likely end up pivoting around.

Unless the modus operandi were to be heavily changed to an agile collaborative streamed mode, it is not going to be easy to have measures implemented by the date some EU Member States are requesting it. Will these countries be satisfied with a general framework?.

(*) We refer to our summary of the European Committee of the Regions opinion contained in this same “last-news” section of our website.

Opinion of the EU Committee of the Regions on Digital Economy Taxation, key points

The Committee of the Regions (CoR) is an EU advisory body that provides sub-national authorities (i.e. regions, provinces, municipalities…) with a formal say in EU law-making process.

On their plenary session December 5-6th 2018 the CoT adopted an opinion containing their Policy Recommendations and proposed also specific amendments to both the DST and SDP Directives drafts. As part of the legislative process, the official opinion is sent now to all the European institutions and published in the Official Journal.

The fundamental two observations from CoT are, first a concern that the shift to the new Digital Economy Taxation initiatives in general could benefit larger EU Member States with many consumers, with some inequalities being produced at the expense of smaller exporting EU economies.

And second, CoT urges Member States to share their portion of the DST proportionally with the local and regional authorities.
Other than that, following are the other take-over points of the CoR opinion we can collect:

  • The restriction of the scope of application of DST to the processing of user input only is legally questionable. CoR proposes replacing it by “largely reliant on user value creation”.
  • It proposes a straight Sunset Clause for DST.
  • To prevent the risk of hampering EU digitalization, it proposes the elevation of the thresholds for a SDP to be created, requiring a proportion of total revenues in excess of 10 €M, versus the 7€M of the draft, and requiring that at least 2 of the 3 conditions (versus only 1) are met for SDP to be formed and recognized as a taxable person.
  • Fine tunes article 5 of SDP draft to make sure the regulation itself is not “auto-imposing” the application of a credit system in respect to the Corporate Tax paid.
  • Proposal to remove a number of specific digital services from the long Directive draft list whose related activities could create a SDP: e-books & electronic publications, online newspapers, online news, traffic information and weather reports. The reason for that is that in the CoT opinion, they are not fundamentally different from their non-digital / “paper” equivalent.

On top of the disagreement existing between a few EU countries on the overall picture of this initiative, CoR has expressed strong consultative opinion over the points described. Some of those points are already resolved by the revised “compromise text” of the draft DST Directive, and others are not.

CoR opinion is not legally binding, but it is necessary to note that their view on the “user input only” issue it is one of a very structural nature if we consider how the DST is currently constructed.

Due to the non-direct taxation nature of the temporary measures in most of the countries working on them, as well as in the DST Directive, depending on how the qualification of the tax would be it is clear now that this tax allocation could generate some “intra-states” friction with local/state/province tax administration level, as they are raising their hands now.


On November 29th 2018, the EU Presidency sent to the Council the revised proposal for a Directive on the common system of a digital services tax on the revenue from certain digital services, that was made public yesterday before the ECOFIN ministers meeting, where we also knew the last minute agreement reached before the meeting between Germany and France on the topic (the “Franco-German joint declaration” (*).

This last movement has been perceived by some as a relevant step back and by others as the potential enabler of a final consensus and it will likely affect the work that was done in developing the Directive draft, as it brings to the negotiation table an important cut down of the number of services in scope.

In any case, the new Directive text updates the March draft and it is considered a compromised agreement text accepted by a good number of countries. Presidency mentions that it is time then for the political segments of the EU to take a clear stance on this now.

As we have commented on the previous Directive draft, and published our contribution to the public comments period in our reports section, we focus now on the novelties and differences we see as relevant in the text at first glance:

  • User definition: includes now not only any legal person, but any “legal arrangement, whatever its nature is, that accesses a digital interface with a device”.
  • Target advertising definition incorporated: Confirms that it is about digital promotional communications targeted at users of a digital interface based on data collected on them. And not generic digitally displayed advertising. Burden of proof to support undeclared “non-targeted” advertising is now on the taxable person.
  • Removal of the previous complex references to financial systematic internalizers and crowdfunding schemes, to be replaced by straight “regulated financial service” or “regulated financial entity”, concepts that are included in the definitions article and that are subject to authorization and supervision under “any” harmonization measure adopted by the EU, including providers subject to equivalent non-EU supervisory measures.

The supply of regulated financial services by regulated financial entities are not subject to the tax.

  • Sales of Data generated with user participation: sales of data captured with sensors (IOT) or sale of data by a regulated financial entity are also clarified as not subject in the current text.
  • In order to qualify for being a tax payer, thresholds remain at group level, whereby now in the new text the taxable person will be every individual entity of the group providing taxable services and not the group as a whole.

It will be possible nonetheless for one single entity of the group to file one consolidated return on behalf of all the liable taxable entities (MOOS equivalent).

  • Under the new text, non-EU established groups, that have several companies in EU member states who become liable, could see any of these EU based companies being required by a Member State of the other EU based entities to pay in that country on behalf of their local failing company.
  • Timeframes for Directive implementation: Transposition timing limit is moved further from December 2019 to December 2021 in this draft. Entry into force, from January 1st 2020, to January 1st, 2022.
(*) The impact and consequences of the Franco-German declaration will be subject to a separate analysis in another post/article coming soon, but please see the EU Digital Services Roadmap we publish today, incorporating  the potential effects of such declaration with a visual perspective.


As the situation is very dynamic, with fragmented information, and a number of things still in development, this is our visual explanation of the most updated status of the EU Digital Services Tax discussion, timeframes and options, all in connection with the international context.  We hope it helps the international community.

Please note that according to the process outlined in December 4th Franco-German declaration, the OECD solution would have to be translated into EU law before January 2021 for the Directive (if passed until March 19) not actually entering into force in January 21.

Click on Roadmap to enlarge

digital economy taxation ECOFIN & OECD levels



UK outlines a more targeted 2020 Digital Services Tax

While the UK Government believes that the long-term answer to develop a “corporate tax framework for digital businesses” needs to be a coordinated international effort, the outcome of that process remains uncertain and the progress has been “painfully slow” according to UK Chancellor. That is why the UK Government has communicated in November 2018 the decision to introduce a Digital Services Tax (DST) from April 2020.

“Interim action is needed to ensure that digital businesses pay tax that reflects the value they derive from UK users”, a tax which is expected to raise £1.5 billion over the 2020 to 2024 period, applying a 2% rate.
The target seems to be the revenue from specific transactions of defined Digital Business Models, when those revenues are linked to the participation of UK users.

Business models under scope and specific connected transactions initially mentioned, are:
• Search engines: Advertising in search engines
• Social media platforms: Advertising targeted to local users
• Online marketplaces: Intermediation fee

Tax will only arise to the extent it is obtained through one of the in-scope business models, whenever they are linked to UK users. Like the EU Draft Directive, the focus is on location of the user, not of the business or billing/collection place.

The DST it is “narrowly-targeted, proportionate and ultimately temporary”, including the following features:
• A double threshold: minimum WW revenues from in-scope business models of at least £500m to become taxable, with the first £25m of digital in scope UK revenues exempt.
• A safe harbor: through an specific procedure, companies making losses or with very low profit margin will not have to pay the DST.
• A review clause: UK DST will be subject to formal review in 2025 at the light of international discussions status. The government will unwind it if a coordinated solution is in place prior to that year.
Like in the EU Directive, the UK DST will be an allowable expense for Corporate Tax purposes but not creditable against UK Corporate Income Tax.
Out of scope: The note states that financial and payment services, the provision of online content, sales of software/hardware and television/broadcasting services will be out of scope of the DST.
Next steps
The government will be issuing soon a consultation on the design of the DST to ensure “it does not place unreasonable burdens on businesses”. The DST would then be legislated for in the 2019/2020 Finance Bill, and start to apply from April 2020 if passed.

DET3 comments
As for today, this is just a formal communication of a Decision and not yet a draft bill that will only come after the consultation. Despite the swings in position about timing on action of the last months, UK Government is clearly asserting its position now, in a movement that will also grant them a little more perspective to understand what will happen at OECD level by 2020.

The focus it is clearly on business models first and second transactions, sculpting in this way certainly a narrower scope than the EU envisaged model, with easy to identify targets behind.

The text of the UK communication does not talk about a digitalized economy but about a “tax framework for digital businesses”, that signals a departure from the “no-ring fence” OECD approach.

In terms of Digital/Tech unicorns, the pre-Brexit UK is one of the EU area members with more companies in the ww-ranking, and some of them play in the e-commerce marketplace arena, but the difference in size with their foreign counterparties is still huge, while in terms of social media / search engine business models arenas, 2 foreign companies cope around 2/3ds of ww digital-advertising market…

Australia discussion paper on Tax system and Digital Economy

Australia’s treasury, published an official Discussion Paper about the digital economy and the country corporate tax system on October 2018, opening a public consultation period running until November 30th, 2018.
The paper summarizes Australian corporate income tax system, and its connection to the international environment where multinationals operate, explains their country actions taken on this topic until today and regulations passed (MAAL, DPT, specific GST rules), and reflects about a number of points using mainly the OECD literature as a reference, with repeated citation of the UK position paper on the topic. Then, opens several questions to public stake-holders comment about:

• If taxing user participation value creation, about how to do it, and how to value it, incorporating the marketing intangibles element into the discussion (area of traditional focus of its Tax Administration even in the pre-highly digitalized business models).
• Allocation of taxing rights over residual profits associated to:
o User contributions to user countries
o Marketing intangibles to market countries
• PE/Nexus rules to be changed and how.
• Any justification for ring-fencing?.
• Any different change than Nexus and Profit Attribution rules to be made in international tax framework or local regs to address digitalization challenges?.
• What indicators are to be sued to identify businesses that benefit most from user-created value?.

DET3 comments
Not many novelty elements in the analysis but a good international discussion summary and challenges recollection. Influence of the UK position in the paper is strong.

Interesting nonetheless for what it implies is the purposed separation of digital users contribution from the marketing intangibles concept, and the summary differences between customers and users in the digital economy, something we have clearly highlighted in our October 17th paper prepared for the OECD public consultation (user does not mean client part).

When talking about intermediation platforms and interim period potential taxation, there are indications about local Treasury feeling more comfortable taxing just the cases where both consumers and suppliers are located in Australia, which defers from the EU and some other unilateral countries Directives/regulations drafts.


Pendent to see what the results of the December critical debate at EU level on this topic under the current Presidency are, at this point, it seems that Spain is heading to be the potential first country implementing a unilateral digital service targeted tax with all its elements defined, with effect January 1st, 2019.
From DET3 we are actively participating in this debate with the local Directorate in charge and will continue to contribute within the spirit of our objectives.

That Spain gain taxing rights that “legitimately belong to its territory” in respect to specific digital services, in order to incorporate user’s contribution to the value creation process.

• The long period elapsed since the international debate started on this topic, and the absence of practical solutions.
• Reasons of social pressure, tax justice and tax systems sustainability.

Levied on gross B2B/B2C revenues from exploitation of specific types of digital services characterized by user value creation: “Where user participation is an essential contribution to the value creation process”.

• Digital advertising through an owned or third-party digital interface, addressed specifically to the users of such interface.

• Online intermediation services: Offering of a multisided digital platform that allow recurrent interaction between users with the purpose of:

o A direct delivery of underlying goods or services between those users (online intermediation).
o Just reaching other users.

• Sales of user data generated through their participation and activity in the digital interface.

Draft law intro sets also a clear co-relation between this essential contribution and the monetization.



• Where the entity placing the advertising does not own the digital interface, that entity, and not the owner of the interface, shall be the one providing a service falling in scope (same rule than EU Directive draft).


• On-line sales of goods & services made from vendor Website, when vendor sells in its own account and is not an intermediary.

• The underlying services or goods themselves.

• Where the sole or main purpose of making the interface available is supplying to users:

•            Digital content
•            Communication services
•            Payment services

• The supply by a trading venue or a systematic internaliser of any of the services referred to in Directive 2014/65/EU; Also, any data transmissions done by these regulated players.

• The supply of certain services by a regulated crowdfunding provider or a service consisting in the facilitation of the granting of loans.


Companies complying 2 cumulative conditions:

Carrying out in-scope digital services.

Being above both: WW revenue >750 M€
In scope digital services revenue > 3M€ in Spain.

Cross-border transactions & Domestic transactions are subject.

As a difference to the EU directive draft, inter-company transactions falling in scope are also taxed and they are required to be valued arm’s length.


The location of user value creation is considered to be in Spain when:

Digital advertising: When the user’s digital device is located in Spain in the moment that the advertising is displayed.
On-line intermediation with subjacent: when the user device in the transaction conclusion moment is located in Spain.
On-line intermediation without subjacent: when the user account in the platform was opened from Spain.
Data sale transactions: when the user of the interface was in Spain in the moment the data sold later was generated.

To this effect, a legal presumption is established about location of any digital device (“Spanish device”) to be determined based on the IP address of it throughout its use, unless something different can be concluded using geolocation or other current of future techniques.


Aligned to the EU directive allocation criteria.

Taxable base = Gross revenue (no deduction allowed)
Tax rate = 3%


  •  A declaration of activities initiation is required.
  •  A Tax ID number must be obtained.
  •  Request to be included in the Digital Services Tax Register to be created.
  •  Carry over any other formal obligation required by reglament.
  •  Appoint a Spanish representative if you are a non-EU tax payer.
  •  Maintain all relevant records & documents to support service transactions
    realized in Spanish territory.
  •      Translate them to Spanish when required only.
  •      Self-declaration, on a quarterly basis.
     If taxable base amount not known at declaration date, taxpayer to set it
    provisionally with a later regularization required.
  •      Deductible as a cost from Corp Tax


Hiding or faking the place of realization of the digital service or the IP Address it is to be considered a serious infringement of the tax code law with a penalty of €150 for each false digital access with a limit of 0,5% of the company previous year gross income.

Provisional tax that “should be removed as soon as a global agreement is reached, and a long-lasting solution implemented….”.


The text of the draft law is strongly based on the EU Directive draft, with some hues like the one on intercompany transactions and a more elaborated formal obligations part. The text clearly states that this is an “Indirect Tax” but sets some points of nuance differences with the VAT.

There is a sui generis sunset clause in the draft whose text is highly interesting; no mention to any tax treaty negotiation process.

The potential 0,5% limit on gross income for penalties would have to be calculated based on Group gross income.

The impact of the Internet Protocol addresses system in this potential new tax arena becomes an interesting new turn of the corner in the international debate around this topic. Discussion has a number of dimensions here.

Between October 23rd, and November 15th it is the time frame provided for stake-holders contribution to the public consultation comments.

It remains to be known the effect of the absence of majority of the current Government and the tough negotiation process for the public budget that will happen in the following weeks in Spain. This negotiation is intimately co-related with the new Digital Services Tax and the new Financial Transactions Tax proposed.