Ending Unfair Digital Services Taxes in Travel

Digital Services Taxes (DSTs) are unilateral gross-receipts taxes that foreign governments impose on digital platforms’ revenues, typically ranging from two to seven percent, once they sell above a certain threshold from users in that country. The United States Trade Representative (USTR) office has previously found DSTs in countries including the United Kingdom, France, Italy, Spain, Turkey, and India to be discriminatory and burdensome. Beyond the current regimes, a growing number of jurisdictions are implementing or considering DSTs, including Belgium and Brazil, with additional proposals continuing to surface across the world. The Trump Administration has made ending DSTs a priority and successfully compelled Canada to abandon their tax. 

As currently structured in many jurisdictions, DSTs levy taxes on gross revenues rather than net income, which is especially punitive for high-volume, low-margin businesses like online travel platforms. Because DSTs generally provide no credit for taxes already paid earlier in the chain, a low headline rate can translate into a far larger effective burden when multiple covered firms participate in the same transaction. Travel Tech members typically operate on slim profit margins—facilitating transactions between travelers and providers—and do not retain most of the revenue that passes through their platforms to travel service providers. 

Why DSTs Harm Travel Platforms and Consumers

Travel service suppliers, like airlines and hotels, freely partner with Travel Tech members to promote and sell their quickly expiring services to a global audience. However, DSTs do not apply to these suppliers that offer direct booking on their own sites, even though they are selling the exact same fares and rooms as online travel platforms. This distorts competition by favoring vertically integrated suppliers over online travel platforms that offer consumers transparency and choice. 

Further, because travel distribution is frequently cross-border and often involves multiple specialized digital services, a single booking can be subject to multiple DSTs on top of ordinary income taxes, creating duplicative costs and massive compliance burdens. This pyramiding effect can turn a seemingly modest DST rate into a much higher effective tax burden on the covered firms involved in online commerce. 

A recent Tax Foundation overview, “Taxing the Matchmakers: How Digital Services Taxes Cascade Through Online Commerce,” underscores this problem. The report explains that DSTs are often presented as modest taxes on large technology firms, but because they apply to gross revenue rather than profit, they can cascade through online marketplaces and tax the same commerce repeatedly. In a stylized travel example, the Tax Foundation finds that France’s 3 percent DST can amount to roughly 39 percent of a covered firm’s combined pre-tax income, illustrating how DSTs can impose disproportionate costs on digital intermediaries that help connect consumers with suppliers. 

The Tax Foundation also notes that DSTs punish specialization by making it more expensive for separate digital businesses—such as search tools, booking platforms, advertising exchanges, and other online services—to work together. That matters for travel because consumers benefit when specialized platforms make hotels, flights, rental cars, and other travel options easier to compare and book across providers. 

Rather than imposing unilateral DSTs that cascade through commerce, policymakers should pursue neutral tax frameworks that apply a single ordinary layer of consumption tax to digital services. Destination-based VAT or GST systems can tax digital consumption while crediting tax paid on business inputs, avoiding the pyramiding that makes DSTs especially harmful to online travel distribution.