The Taxation of Digital Giants: Digital Services Taxes, OECD Pillar One, and the $200 Billion Question

The Problem: Where Value Is Created vs. Where Profits Are Booked

The international corporate tax system was designed in the 1920s for an economy of factories, mines, and shipping routes. A company’s profits were taxed where it had physical presence — a plant, an office, a warehouse. This system has been systematically exploited by digital giants whose value creation is geographically diffuse. Google earns billions from advertising shown to users in France, India, and Brazil, but books those profits through subsidiaries in Ireland, the Netherlands, and Bermuda, where effective tax rates can fall below 2%.

The scale of profit shifting is staggering. The OECD estimates that multinational profit shifting costs governments $100-240 billion annually in lost revenue, equivalent to 4-10% of global corporate income tax revenues. The “Double Irish Dutch Sandwich” — a structure where profits flow from an Irish operating company through a Dutch conduit to an Irish holding company with tax residency in Bermuda — enabled companies like Google to pay effective tax rates of 2.4% on non-US profits. Apple famously held $252 billion offshore, accumulating profits in Irish subsidiaries that paid as little as 0.005% tax — a figure confirmed by the European Commission’s 2016 investigation and ultimately upheld by the European Court of Justice in September 2024, which ordered Apple to pay EUR 13 billion to Ireland.

For developing countries, the impact is proportionally greater. When Google, Meta, and Amazon operate in Algeria through advertising services consumed by millions of users but pay zero corporate tax in Algeria because they have no physical establishment there, the economic substance of the transaction (Algerian consumers, Algerian advertiser revenue, Algerian data) is entirely disconnected from the tax outcome. The digital economy has made the “permanent establishment” concept — the foundation of international tax allocation — functionally obsolete.

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OECD Pillar One and Pillar Two: The Global Solution Attempt

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) developed a two-pillar solution agreed by over 135 jurisdictions in October 2021; the framework has since grown to 147 member jurisdictions. Pillar One addresses profit allocation: for the largest and most profitable multinationals (those with global revenue above EUR 20 billion and profitability above 10%), a portion of profits — Amount A — would be reallocated to market jurisdictions (where customers are) regardless of physical presence. This means Algeria could tax a share of Google’s global profits based on the revenue Google derives from Algerian users.

Pillar Two establishes a global minimum effective corporate tax rate of 15%. Through the GloBE (Global Anti-Base Erosion) rules, if a multinational’s effective tax rate in any jurisdiction falls below 15%, the home country can impose a top-up tax to bring it to 15%. This eliminates the incentive for tax haven structures. As of early 2026, over 50 jurisdictions have enacted Pillar Two legislation, including 22 of the 27 EU Member States (through the EU Minimum Tax Directive), the UK, Japan, South Korea, Canada, and Australia. In January 2026, the OECD announced that 147 countries agreed on a “Side-by-Side” package allowing the US international tax system to coexist alongside Pillar Two GloBE rules.

However, Pillar One implementation has stalled significantly. The Multilateral Convention (MLC) to implement Amount A requires ratification by 30 states accounting for at least 60% of the ultimate parent entities of in-scope multinationals — effectively requiring US participation. The United States, under changing administrations, has oscillated between support and opposition. As of January 2025, the OECD’s co-chairs confirmed that consensus has still not been reached on the MLC, which has not yet opened for signature. Without US ratification, the grand bargain — countries withdraw unilateral digital services taxes in exchange for Pillar One rights — remains unfulfilled. This stalemate has pushed many countries to maintain or introduce unilateral measures.

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Unilateral Digital Services Taxes: The Fragmented Landscape

Frustrated by the slow pace of multilateral reform, dozens of countries have implemented or proposed unilateral Digital Services Taxes (DSTs). France was the pioneer with its 3% DST on digital advertising, marketplace, and data sales revenues (above EUR 750 million globally and EUR 25 million in France), enacted in 2019. The UK’s 2% DST targets search engines, social media platforms, and online marketplaces. Spain, Italy, Austria, and Turkey have all enacted variations, with Turkey reducing its DST from 7.5% to 5% in 2026 (with a further cut to 2.5% planned for 2027).

The landscape is shifting rapidly. India, which had imposed a 2% Equalization Levy on non-resident e-commerce operators and a 6% levy on digital advertising, abolished both levies in 2024-2025 — removing the e-commerce levy from August 2024 and the advertising levy from April 2025 — in a move to reduce trade friction and align with evolving global norms. Nigeria has taken a different approach: rather than a traditional gross-revenue DST, it expanded its definition of permanent establishment to bring non-resident digital companies into the corporate income tax net at the standard 30% CIT rate, complemented by 7.5% VAT on digital services under the Nigeria Tax Act 2025.

These taxes are explicitly designed to capture value from digital services consumed domestically but provided by foreign companies without taxable presence. They are typically levied on gross revenue rather than profit, with rates ranging from 2% to 5% among the major adopters. The US has consistently opposed DSTs, arguing they disproportionately target American tech companies and constitute discriminatory trade measures.

Algeria’s position is revealing. The 2020 Finance Law introduced VAT on digital services provided by non-resident companies at a reduced rate of 9%, requiring platforms like Google, Netflix, and Amazon to collect and remit VAT on services consumed in Algeria. The 2022 Finance Law raised this to the standard 19% VAT rate. This is a significant step but addresses consumption tax (VAT), not income tax. Algeria has not enacted a DST. The administrative capacity to implement one — identifying the Algerian revenue of global platforms, enforcing collection from non-resident companies, and managing the diplomatic implications — is a genuine challenge. But the revenue at stake is meaningful, and the principle of taxing digital value creation where it occurs is increasingly hard to ignore.

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The Path Forward and the Algeria Lens

The international digital tax landscape in 2026 remains in flux. Pillar Two’s 15% global minimum tax is advancing — over 50 jurisdictions have enacted legislation, the EU directive is being implemented, and the January 2026 Side-by-Side package provides a framework for coexistence with the US tax system. Pillar One remains stalled, creating a dual-track world where the minimum tax proceeds while profit reallocation waits. The likely outcome is a hybrid system: Pillar Two’s minimum tax becomes effective globally while countries maintain unilateral DSTs for the income tax gap that Pillar One was supposed to fill.

For developing countries, the stakes are high but the agency is limited. The Inclusive Framework gives them a seat at the table, but the veto power of major economies — particularly the US — over Pillar One implementation means developing country interests are structurally subordinated. The UN’s initiative to establish a Framework Convention on International Tax Cooperation, supported by the G77 and African countries, represents an alternative forum where developing country voices have greater weight. In November 2023, the UN General Assembly voted to begin negotiations on this framework, with 125 countries in favor and 48 (mainly OECD members) against.

Algeria should pursue a three-track strategy. First, implement Pillar Two domestically to protect its own tax base from profit shifting by Algerian multinationals (principally Sonatrach’s international operations) and to qualify for top-up tax rights on foreign multinationals operating through low-tax jurisdictions. Second, evaluate a unilateral DST as a revenue measure and a negotiating lever — countries with DSTs have more leverage in multilateral negotiations than those without. Third, actively engage in the UN tax framework negotiations, where Algeria’s interests align with the broader developing country coalition seeking greater taxing rights over digital economy profits.

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Sources & Further Reading

• OECD: Base Erosion and Profit Shifting (BEPS)
• OECD: International Community Agrees Way Forward on Global Minimum Tax Package (Jan 2026)
• Tax Foundation: Digital Services Taxes in Europe, 2025
• Tax Foundation: Pillar Two Implementation in Europe, 2025
• PwC: Pillar Two Country Tracker
• OECD: Pillar One Update — Co-Chair Statement (Jan 2025)
• India Briefing: India Abolishes 2% Equalisation Levy (2024)
• UN/African Union: UNGA Votes 125-48 on Tax Cooperation Framework (Nov 2023)
• VATupdate: Turkey Plans Gradual DST Reduction to 2.5% by 2027