Understanding Spain’s Digital Services Tax
On February 28th, the Spanish government revealed to the public the bill detailing the country’s digital services tax (DST).
As in the case of other European nations, Spain has vowed to continue working together with the OECD and other international partners in the design of a global policy model to tax digital services companies.
However, the Spanish government is readying itself in the event that there’s no compromise reached by the end of 2020 and it is forced to move unilaterally with its own digital services tax.
As succinctly put by Baker McKenzie’s Javier Esaín for Bloomberg Tax, “Spain—like France—is definitely willing to apply its own DST if no international agreement is reached by the end of this year.”
What Does Spain’s Digital Services Tax (DST) Include?
Generally speaking, as explained by The Guardian, Spain’s new DST “will place a 3% tax on earnings from online ads, deals brokered on digital platforms and sales of user data by tech companies with at least €750m (£623m) in global revenue such as Facebook and Google.”
Spain’s DST will be collected on a quarterly basis. However, according to Baker McKenzie’s Esaín, the Spanish government has said, “the filing of the Spanish DST self-assessments and the corresponding DST liability regarding the second and third quarters of 2020 will not be required… before December 20.” Hence, companies would only have to cover one DST payment in 2020.
Esaín also explains that Spain’s regulation “includes an exemption applicable to intra-group transactions,” which “only applies when intra-group transactions are carried out between entities belonging to the same group with a stake, direct or indirect, of 100%.”
Companies affected by this rules must also meet two economic conditions: 1) “net turnover exceeds 750 million euros in the prior relevant calendar year,” and; 2) “revenues derived from Spain-located taxable services exceed 3 million euros.”
In terms of the definition of digital services, “data transfer services include not only the sale but also the assignment, without consideration, of data.”
Finally, as stated by Dr. Patricia Lampreave of Spain’s Instituto de Estudios Bursatiles in an article for MNE Tax, Spain’s DST establishes a set of compliance rules for affected companies.
Lampreave writes: “Companies must file periodic returns of information requested by the tax authorities relating to the computation of the digital service tax or must maintain all documents to support service transactions carried out in Spain. If the company is not established in Spain, it must appoint a tax representative to pay the DST in its place. The bill also establishes penalties for noncompliance.”
As part of this new bill, Spain reworked its “public revenue forecast” vis-à-vis the application of its DST. As explained by Esaín, “the economic impact is now reduced from 1.2 billion euros ($1.34 billion) to 968 million euros per year.”
Esaín believes this forecast, which is based on the original bill presented back in 2018, “should not be taken as read and definitely requires a re-evaluation,” specially considering “the serious disproportion of the Spanish DST estimate” when compared to that of France, the UK and Italy.
Back in February, Budget Minister María Jesús Montero said about the country’s new DST: “Spain cannot afford to have a tax system rooted in the last century. We must move towards a tax system for the 21st century, which takes into account this new form of activity.”