Digital Taxation: Changes in Tax Legislation for Digital Companies in 2024

Every business inevitably encounters the need to account for all potential tax-related risks. This is particularly relevant for digital companies, which must continuously adapt to changes in legislation. However, one of the fundamental aspects of successfully operating such a business is the ability to properly manage tax obligations.

In 2024, global tax legislation for digital companies continues to evolve to address the growing challenges and demands of the digital economy. The increasing volume of online business and the expansion of transnational digital services are driving countries to introduce new tax regulations aimed at ensuring fair taxation of profits.

This article examines the key changes in tax regulation for digital companies, including the expansion of the scope of the Digital Services Tax (DST), tax rate increases in several countries, and their impact on the industry. We will also analyze which types of digital services are now subject to taxation and how companies should adapt to the new requirements.

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Historical Background: Preconditions for Changes in Tax Legislation for Digital Companies

The digitalization of the economy began in the 2010s when major technology companies such as Google, Facebook, and Amazon significantly increased their revenues through the provision of cross-border services. However, their taxation remained relatively low, as existing tax regulations were not adapted to the new economic realities. As a result, disputes arose between countries regarding how and where the profits of such companies should be taxed.

The introduction of the first Digital Services Taxes (DST) in Europe in the early 2020s marked a significant step toward establishing a fairer tax framework. These taxes aimed to address imbalances in taxation and protect national economies from revenue losses. Below are some high-profile cases that contributed to the adoption of DST:

1. Google. Google repeatedly attracted scrutiny from European tax authorities due to its profit-shifting practices, which involved channeling earnings to low-tax jurisdictions such as Ireland and Bermuda. Consequently, the company paid relatively low taxes compared to the revenue generated from users in high-tax countries like France and the United Kingdom. These cases became key factors in prompting governments to introduce DST.
2. Amazon. Amazon employed a strategy in which a significant portion of its profits was formally allocated through subsidiaries in jurisdictions with favorable tax conditions. As a result, despite substantial sales volumes and revenues in countries such as Germany, France, and the United Kingdom, the company’s tax liabilities remained minimal. This case underscored the inefficiency of traditional tax frameworks in addressing the realities of digital businesses operating across multiple jurisdictions.

Introduction of DST After These Cases

These and other cases prompted governments in many countries to develop and implement Digital Services Taxes (DST) to address gaps in taxation. The primary objective was to ensure the fair allocation of tax revenues among countries where companies operate and generate profits, regardless of whether they have a physical presence there.

As a result of such precedents, the European Union, along with individual countries such as France, the United Kingdom, and Spain, began introducing DST at rates ranging from 2% to 7.5% on revenues derived from digital services. This measure aimed to compensate for the shortcomings of traditional corporate taxes.

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Current Changes 

As of 2024, numerous countries and international organizations, including the OECD and the EU, have introduced amendments to digital taxation laws. Several countries have increased tax rates on digital services or expanded their scope to include a broader range of taxable services, such as: 

• Digital advertising (covers revenues generated from advertising placements on online platforms and social media);
• Online platforms (includes intermediary services provided by marketplaces and aggregators that earn revenue by facilitating interactions between sellers and buyers); 
• Cloud solutions (companies offering Software as a Service (SaaS), cloud storage, and computing power are now also included in the expanded list of taxable services).

Several countries have raised their digital services tax rates, including: 

• France: Maintains a 3% DST on revenues from digital interfaces and targeted advertising services.* This tax applies to companies with global revenues exceeding €750 million and revenues in France above €25 million.
• Italy: Introduces a 3% DST on revenues from digital advertising, intermediary services, and the transfer of user data. The tax applies to companies with global revenues exceeding €750 million and revenues in Italy above €5.5 million.
• Spain: Applies a 3% DST on revenues from online advertising services, internet brokerage services, and the sale of user data. The tax applies to companies with global revenues exceeding €750 million and Spanish revenues above €3 million.
• United Kingdom: Introduces a 2% DST on revenues from search engines, social networks, and online marketplaces. The tax applies to companies with global revenues exceeding £500 million and UK revenues above £25 million.
• Austria: Implements a 5% DST on revenues from online advertising services. This tax applies to companies with global revenues exceeding €750 million and revenues in Austria above €25 million.
• Turkey: Applies a 7.5% DST on revenues from digital advertising, digital content sales, and digital intermediary services. The tax applies to companies with global revenues exceeding €750 million and revenues in Turkey above 20 million Turkish lira.
• India: Introduces a 2% tax on revenues from e-commerce and services provided by non-residents. This tax applies to companies with revenues exceeding 20 million Indian rupees.

In 2024, additional categories of digital services were introduced into the tax framework in several countries. Some jurisdictions expanded their lists to include:

• Paid subscriptions for digital content: This includes streaming platforms and subscription-based services such as video, music, and e-books.^**
• Virtual events and online conferences: With the growing popularity of virtual events, some countries have begun taxing companies that organize and generate revenue from such activities (For example,  Zoom Webinars and GoToWebinar, global online event platforms Hopin and Airmeet, Virtual trade shows and fairs VFairs and ExpoPlatform, professional development and certification courses Udemy Live and LinkedIn Learning, digital concerts and music shows StageIt and Dreamstage, esports and gaming tournament services Esports Arena and FACEIT).
• Digital consulting and educational services: Online schools and training courses have now been classified as taxable services in many jurisdictions.

Which Countries Apply DST?

DST is applicable in countries where a company generates revenue from providing digital services, but there are important clarifications. Not every sale or income automatically obliges a company to pay DST. The obligation arises only when certain conditions are met:

1. DST is typically levied on income from specific types of digital services, rather than from any commercial activity. These services may include income from online advertising, commissions for intermediary services, sales of user data, and other digital operations. Sales of physical goods generally do not fall under DST unless they are connected to digital platforms.
2. In many countries, the obligation to pay DST arises only when certain revenue thresholds are exceeded. For example: 

• Global income of the company must exceed a set minimum (e.g., €750 million).
• Local revenue in a specific country must exceed a specified threshold (e.g., €3 million in Spain).

This means that companies are not required to pay DST in every country where they earn income unless they meet these thresholds.

Thus, if a company like Amazon provides digital advertising services or operates as an intermediary (such as a marketplace), it must pay DST in those countries where the income from these services exceeds the established thresholds.

For example, if Amazon generates revenue from advertising or commissions for the use of its platform in Germany, it will be required to pay the DST on the income earned from such services in Germany, provided that DST is applicable in the country. Similarly, if digital content sales occur in Spain, Amazon must comply with the Spanish DST.

Therefore, a company must monitor its DST obligations in each country where it operates and where this tax has been introduced. This means keeping track of income earned in each jurisdiction subject to taxation and submitting the corresponding reports to the tax authorities in those jurisdictions.

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Prospects and Next Steps

In summary, it can be noted that international digital companies today face an increasing tax burden, which necessitates a revision of their tax strategies. Specifically:

• Increased compliance costs: New reporting and documentation requirements across various jurisdictions demand additional resources and effort.
• Revision of business models: Some companies may change their business models or structures to minimize tax liabilities.
• Increased competition: Local companies are gaining advantages, as the new DST rules primarily target large international players.

The transition period for businesses cannot be called easy. It is expected that tax regulation will continue to evolve. Many countries are following the example of the EU and considering tightening national taxes on digital services. In order to operate successfully under these conditions, companies must adapt to the new rules. However, these changes require not only compliance but also effective integration of the new rules into business processes.

In the challenging environment of tax law transformation, we are ready to provide comprehensive legal support for digital companies. Our experts will help you navigate the current requirements, minimize risks, and adapt your business to the new realities. Our lawyers have a deep understanding of the specifics of digital business and international taxation, which allows us to find optimal solutions even in complex cases.

If your business needs reliable legal support on digital taxation matters, contact us. Submit a request on our website or call and we will be happy to assist you.

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*However, in France, there is currently a discussion about increasing the DST rate from the current 3% to 5%. Members of the French National Assembly have proposed an amendment to the 2025 finance bill, which includes this increase. It is expected that raising the DST rate to 5% will generate over €500 million in additional revenue in 2025. However, the future of this amendment remains uncertain, as a previous proposal to increase the DST rate to 6% was rejected.

** Examples of such services include:

• Video: Platforms offering subscription-based streaming services for video content, such as Netflix, Disney+, Hulu, and Amazon Prime Video, which provide access to films, TV series, and other video materials.
• Music: Music streaming services like Spotify Premium, Apple Music, YouTube Music Premium, and Tidal allow users to listen to music without ads, download tracks, and access additional features.
• E-books and audiobooks: Services such as Audible, Scribd, and Kindle Unlimited provide users with access to extensive libraries of books and audiobooks on a monthly or annual subscription basis.
• Magazines and newspapers: Subscriptions to digital versions of news outlets and magazines, such as The New York Times, The Washington Post, Financial Times, and The Economist, grant readers access to exclusive articles and analytical content.
• Educational content platforms: Subscription-based educational services like MasterClass, Coursera Plus, and Skillshare provide access to instructional materials and courses from experts in various fields.