Spain targets BigTech with new Tax on Digital Services

6 min read

The Spanish Official Gazette published last October 16th legislation enacting a new indirect Tax on Certain Digital Services to be levied on On-line Advertising and Intermediation Services, as well as on Data Transfers realized in Spain by major Technological companies. The new tax is a unilateral response to the current lack of international consensus and falls, at 3%, on previously not taxable events. It will enter into force next January 16th 2021.


Tax on Certain Digital Services (DST)

Law 4/2020 of October 15th (Ley 4/2020, de 15 de octubre, del Impuesto sobre Determinados Servicios Digitales), governs the so-called Tax on Certain Digital Services, fundamentally aimed at bridging the gap between the place where value is created by major technological corporations and the place where such companies pay their taxes.

DST is an entirely new tax based on the understanding that the current international taxation rules, primarily focused on physical presence, were not designed to address today´s business models centered on intangible assets, data and knowledge. According to legislators these business drivers enable companies to render certain digital services in a country without being physically present in it, or to generate value from the supply of data, the creation of content or the participation in networks by its users without due recognition of their participation.

DST Law, thus, aims at taxing in Spain the value attached to certain digital services provided these are rendered by relevant digital players (whether established in Spain, in another EU member state or in a third country), with a material digital presence in Spain. In order to qualify as a taxpayer two revenue thresholds must be exceeded: (i) Global yearly net revenues above euro 750 million and (ii) Spanish yearly taxable income per DST above euro 3 million.

The Law´s preamble recognizes that the lack of practical solutions resulting from long-time international debates, combined with reasons of existing social pressure, tax justice and sustainability of the tax system, makes it now necessary to enact this tax which should be conceived as a unilateral, perhaps transitory, measure until an internationally adopted solution is reached, including presumably a new concept of permanent establishment, and harmonized legislation is introduced.

The main features of the Spanish DST are the following:

(i) DST is an indirect tax levied, in accordance with the law, on certain digital services rendered by legally defined taxpayers with the intervention of users located in Spain.

(ii) Digital Services subjected to DST exclusively fall in three separately defined categories: (a) On-line Advertising services, (b) On-line Intermediary services and (c) Data Transfers.

(iii) The following events are expressly not subject to DST: (a) on-line sales of goods or services purchased through the web page of the provider who does not act as an intermediary, (b) the underlying delivery of goods or services between users in the context of on-line intermediary services, (c) on-line intermediary services when the only or main purpose of such services rendered by the entity who facilitates the digital interface is to provide digital contents to users or to render them communication services or services subject to payment, (d) regulated financial services or data transfer services, rendered by regulated financial entities, and (e) digital services rendered between entities forming part of a group with a direct or indirect participation of 100%.

(iv) Taxpayers are, per the law, those entities which, on the first day of the (quarterly) settlement period, exceeded the following two thresholds in the previous calendar year: (a) net revenues above euro 750 million (to be considered at Group level), and (b) income derived from the rendering of digital services subject to this tax above euro 3 million.

(v) A User is defined as any person or entity who uses a digital interface.

(vi) A User is deemed to be located in Spain in the following cases for each service category: (a) On-line Advertising: when, at the moment at which the advertisement appears in the user´s device, the device is situated in Spain, (b) On-line Intermediation: when completion by a user of the underlying transaction takes place through the digital interface of a device which, at the moment of completion, is situated in Spain in the case where an underlying provision of goods or services exists or when the account enabling the user access to the digital interface has been opened through a device which, at that moment, was located in Spain in the case of other On-line Intermediation services and, (c) Data Transfers: when the data has been generated by a user through access to a digital interface by means of a device which, at the moment when the data were generated, was situated in Spain.

(vii) DST is levied at a rate of 3% on the amount of revenues, as determined by the law, excluding VAT, obtained by the taxpayer from taxable digital services.

(viii) Special proportionality allocation rules are foreseen by the law to determine the amount of income to be reported as taxable in Spain out of the total revenue derived by the taxpayer for each category of services: (a) Re On-line Advertising the number of times advertising appears in devices situated in Spain versus the total number of times advertising appears in any device, wherever it is located, (b) Re On-line Intermediation where an underlying direct delivery of goods or services exists between users, the number of users situated in Spain versus the total number of users, wherever they are situated or, in the case of other On-line Intermediation services, the total income derived from users, whose access to the digital interface is made through accounts opened by means of devices situated in Spain when the accounts were opened, and (c) Re Data Transfers: the number of users generating data situated in Spain versus the total number of users generating data, wherever they are situated.

(ix) DST is accrued when the services are rendered, executed or completed, or upon total or partial collection, in the case of anticipated payment, and must be settled on a quarterly calendar basis.

(x) If in a given settlement period it were not possible to determine the amount of the taxable base the taxpayer must determine, on the basis of sound criteria, a provisional base on which to pay the tax subject to regularization within a maximum period of four years.

DST Law will enter into force next January 16, 2021 and although it is still pending regulatory development it will entail compliance by taxpayers of numerous formal obligations including due registration, obtaining of a fiscal identification number, appointment of a representative, filing of periodic returns, bookkeeping obligations, supplying (translated) information at the request of the Spanish tax authorities and others including, in this case, the establishment of the necessary systems, mechanics or agreements which enable the determination of the location of user´s devices in Spain.

Technological companies, whether Spanish, from an EU State or from a third State, should carefully consider DST´s potential impact, including its increased costs of compliance. Close monitoring forward of future implementing regulations and relevant doctrine will be crucially required in light of doubts and uncertainties associated with the introduction for the first time of certain technological concepts in the tax law.


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