Another ‘Google’ tax hits this week - this time in Spain

Following the path of other developed countries (e.g., France, United Kingdom, Italy), Spain enacted last October a brand new “tax on certain digital services” that will come into effect on 16 January 2021.

Background of a tax (not so new)

The origin of this tax can be found in Action 1 of the BEPS report (5 October 2015) and in the report on tax challenges posed by the digital economy of 16 March 2018, both from the G20/OECD. At European level, there is also a proposal of directive of the European Commission (21 March 2018) on a common system of  tax on digital services, that has not been approved yet due to the lack of agreement among member states.

While the ideal solution should be a tax treatment harmonized at worldwide level, the G20/OECD report of 16 March 2018 acknowledges that both an international agreement and unilateral measures are legitimate solutions. In this sense, the most recent works at OECD level (Statement by the OECD/G20 Inclusive Framework on BEPS on the Two-pillar approach to address the tax challenges arising from the digitalisation of the economy, 29-30 January 2020), deal with the adaption of the international tax system to the digitisation of the economy by reallocating taxing rights to countries or territories when the new economic agents participate in their markets or economic activity, without the need for physical presence, creating a new tax link or nexus for this purpose. Therefore, as already indicated in the OECD reports on the digital economy, the establishment of unilateral measures is (or should be) of a transitional nature. This provisional nature is preached by the new Spanish tax until the new legislation aimed at incorporating the solution adopted internationally enters into force.

A copycat of the French tax on digital services?

The Spanish tax on digital services (DST) is an indirect tax, compatible with VAT, that lies on the provision of certain services, which for the purposes of the law are identified as “digital services”, when the users are located in Spanish territory, among which it is worth highlighting:

• The inclusion, in a digital interface, of advertising aimed at users of that interface (“online advertising services”).
• The provision of multi-faceted digital interfaces that enable their users to locate and interact with other users, or even to facilitate the delivery of underlying goods or services directly between those users (“on-line brokerage services”).
• The transmission, including sale or transfer, of data collected about users which have been generated by activities carried out by users on the digital interfaces (“data transmission services”).

Not all digital services are included.

However, the following services will not be subject to the new DST:

• Sales of goods or services contracted online through the website provided that the supplier does not act as an intermediary.
• The underlying supply of goods or services between users.
• The provision of online intermediation services where the purpose is to supply digital content to users or to provide communication services or payment services to users.
• The provision of financial and data transmission services regulated or provided by regulated financial institutions.
• The provision of digital services between entities forming part of a group and with a direct or indirect shareholding of 100%.

The 750M€/3M€ thresholds

The tax will apply only to entities whose net turnover in the previous calendar year exceeded 750 million euros, calculated at group level in case of a group of companies (an amount coinciding with the obligation to file the country-by-country report) and whose total income from the provision of digital services subject to the tax exceeds 3 million euros in the previous calendar year, after application of the rules laid down for determining the taxable amount (in order to determine the part of that income corresponding to users located in Spanish territory).  

The taxable amount will be the amount of the revenue, excluding, where appropriate, value added tax or other equivalent taxes, obtained by the taxpayer for each of the supplies of digital services subject to the tax, carried out in the territory of application of the tax (Spanish territory). The key element in determining the place where the digital services are provided is that the device through which users access them is located in Spanish territory.

The tax rate will be 3%; the accrual will occur for each taxable supply of services, and the filing and settlement period will be quarterly (calendar quarters).

Formal obligations (apart from paying the tax)

• Submitting declarations concerning the start, modification, and cessation of digital activities.
• Applying for a Spanish tax identification number from tax authorities.
• Keeping the register books established by regulations.
• Providing information on digital services.
• Appointing a representative to comply with the tax obligations.
• Conserving all documentation.
• Translating it into Spanish, or any other official language, when required by tax authorities.
• And last, but not least, establishing the systems, mechanisms or agreements that allow the localisation of the devices (a key point for the control of the tax).

Hopefully, companies subject to this new digital tax have started their preparations as it is anticipated, the same with the other digital tax implementations to be a rocky start especially from administerial and administrative perspectives.