Report from DigWatch
In Brief – The chair of the European Parliament’s subcommittee on tax matters is calling for an EU-wide digital services tax (DST) despite strong opposition from the US. Pasquale Tridico argues that an EU DST would make Europe’s tax system fairer in a market dominated by foreign tech firms. National DSTs by EU countries like France have added to bilateral US-EU tensions, including drawing tariff threats from Washington. Digital tax supporters argue that despite US arguments that they are discriminatory, they apply equally to all predominately digital companies and address alleged imbalances in corporate taxes caused by the ability of digital businesses to generate large profits in countries without having the same level of tax-generating physical presence via employees and facilities that traditional industries have.
Context – Back in 2020 Europe became a hotbed of efforts to increase corporate taxes paid by the largest digital companies. France led the campaign, enacting a 3% DST. President Trump aggressively opposed DSTs and used tariff threats to keep them at bay. The US-France tax standoff provided a model to other governments, with DST taxes enacted, tariff threats pushing off collection, and talks at the OECD pressing for a global tax deal. In time, over a dozen countries, many in Europe, moved ahead with DSTs. The Biden Administration did reach a global tax deal that paired dropping DSTs with a global corporate minimum tax but it was never fully implemented. Trump objected to the OECD tax agreement and quickly exited it when he returned to office. He also revived tariff threats against countries with DSTs. However, his wave of tariffs in 2025 were applied to countries without regard to DST policies and none of the bilateral trade deals ended a national DST. In mid-2025, Congressional Republicans included a so-called “Revenge Tax” in their initial budget reconciliation bill to impose a big new tax penalty on foreign investors from countries with DSTs, but the Administration eventually called for it to be dropped due to the negative impact on foreign investment in US-based assets.