Digital services taxes raise virtually no meaningful revenue—between 0.05 and 0.24 percent of total government income in countries that have implemented them—while creating significant economic distortions and risking international trade conflicts, according to testimony submitted to the European Parliament's Committee on Budgets on June 23, 2026. Economist Cristina Enache of Tax Foundation Europe told lawmakers that an EU-wide digital services tax could generate at most €5 billion annually, representing just 0.07 percent of total EU tax revenues and roughly 2.6 percent of the EU budget. The testimony concludes that digital services taxes are "not the right solution" and recommends the EU focus instead on strengthening value-added tax collection, which already generates seven times more revenue from digital services.
Ten European countries—Austria, Denmark, France, Hungary, Italy, Poland, Portugal, Spain, Turkey, and the UK—currently have digital services taxes in place, though they vary widely in design. Tax rates range from 1.5 percent in Poland to 7.5 percent in Hungary and Turkey, with Hungary having since reduced its rate to zero and Turkey lowering its to 5 percent as of January 2026. Austria collects approximately €137 million annually from its digital tax, representing 0.06 percent of total revenue, while the UK raises about €1 billion, or 0.1 percent of government income. France generates €891 million and Spain €410 million from their respective digital taxes. Six additional countries—Belgium, the Czech Republic, Latvia, Norway, Slovakia, and Slovenia—have announced or explored digital services taxes but none has become law. The European Commission originally proposed an EU-wide 3 percent tax on revenues from digital advertising, online marketplaces, and user data sales in March 2018, targeting firms with global revenues exceeding €750 million and EU revenues above €50 million, but the measure failed to gain unanimous support.
The testimony argues that consumers and European businesses, not large tech companies, ultimately bear the burden of these taxes. "DSTs are levied on gross revenues, not profits, making them similar to excise taxes—and, like excise taxes, they are largely passed on to consumers," the report states. Companies including Google, Amazon, and Apple have introduced surcharges in response to digital services taxes, passing costs through higher advertising fees and increased marketplace charges. Academic research cited in the testimony confirms that most of the burden falls on European users and businesses rather than on shareholders of large tech firms. The report notes this makes digital services taxes regressive, disproportionately affecting lower-income consumers, while placing added burdens on small European firms that rely on digital platforms.
Because digital services taxes apply to revenue rather than profit, they create severe distortions for low-margin businesses. A company with €100 in revenue and €15 in profit faces a 3 percent digital tax of €3, which translates to a 20 percent tax on profits—but if the profit margin drops, the effective rate can reach 60 percent or higher. The testimony warns this penalizes investment and growth while causing tax pyramiding, where the same activity gets taxed multiple times along the supply chain without the credit mechanism used in VAT. The report also highlights international tensions, noting that digital services taxes are widely seen as targeting US-based technology companies, which has led to Section 301 investigations and threatened retaliatory tariffs from the United States. An EU-wide digital services tax would likely trigger stronger trade disputes than the current system of national taxes.
The testimony recommends the EU abandon digital services taxes and instead strengthen VAT collection on digital services, which has already proven highly effective. VAT revenues from digital services grew from €3 billion in 2015 to over €33 billion in 2024—approximately seven times the estimated yield of an EU-wide digital services tax. Broadening the VAT base by eliminating reduced rates and exemptions could generate up to €773 billion in additional national revenue, of which even a small share would exceed what digital services taxes could deliver. The report concludes that tax design should "raise revenue efficiently, fairly, and with minimal economic harm—and DSTs fall short on all three counts."