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Deduction for Digital Services Taxes

AUTHORs: Mark O'Sullivan, Shane Hogan, Brian Doohan co-author(s): Ross Power Services: Tax DATE: 12/08/2022

On 5 August 2022, the Irish Revenue Commissioners ("Revenue") issued guidance in Revenue e-Brief 158/22 (the "Guidance") in respect of the deductibility of certain Digital Services Taxes ("DSTs"). 

Expansion of DST Guidance

The Guidance outlined Revenue's position that DSTs are a turnover tax, which are levied on revenues, rather than profits, in relation to the provision of digital services and advertising. This is noteworthy as if DSTs were considered a "tax on profits", a deduction would not be available under existing restrictions contained in the Irish legislation (section 81(2)(p) of the Taxes Consolidation Act 1997). In its recently published Guidance, Revenue have confirmed that certain types of DSTs which are incurred wholly and exclusively for the purposes of a trade are deductible in respect of computing income of that trade with respect to Irish corporation tax.

The new guidance confirms that the following types of DSTs are deductible:

  • France’s Digital Services Tax;
  • Italy’s Digital Services Tax;
  • Turkey’s Digital Services Tax;
  • United Kingdom’s Digital Services Tax; and
  • India’s Equalization Levy.

The Guidance doesn't distinguish between the two forms of equalisation levy which apply under the Indian regime, and one would expect that their position is that both types of levy are sufficiently similar that both should be covered.  Surprisingly the Guidance did not confirm that Spain's Digital Services Tax is also a deductible DST, however the list included in the Guidance should be interpreted as an initial list and Revenue recognised that other DSTs exist which have not been expressly covered in the Guidance may be added in the future.

If you would like to discuss how to ensure your business can navigate the changes that will arise from these updates, or indeed discuss any other matters, please contact Mark O'SullivanShane HoganBrian Doohan or your usual Matheson contact.