On 18 January 2019, the Spanish government approved a Bill which will provide for a tax on certain digital services (the "Spanish Digital Tax") but this has not yet been enacted, due to the dissolution of the Spanish Parliament pending formation of a new government. It is therefore as yet unknown whether the future new government will continue with this proposal or similar.
The scope of this new tax is largely in line with the one proposed by the European Commission in its proposal for a Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services (the "Proposed Directive"), and it is intended to be conformed with the European proposal if and when this is finalised. At present, however, the EU proposal for a tax on digital services has been paralysed due to the refusal of some Member States to move forward with it.
The main features of the Spanish Digital Tax (as currently provided in the Bill) are as follows:
Taxable event
The provision of certain digital services carried out in Spain (which, for these purposes includes all Spanish territories) by "taxable persons" will be subject to the Spanish Digital Tax.
The digital services subject to this tax are those in relation to which there is a user participation that contributes to the value creation process of the company that provides the services, and through which the company monetises those user contributions. In other words, the services included in the scope of this tax are those which would not be able to exist in their current form without users involvement.
These digital services are defined in the same way as in the Proposed Directive. Thus, the revenues included in the scope of this tax are solely those derived from the provision of any of the following services:
- services consisting in the placing on a digital interface of advertising targeted at users of that interface ("online advertising services");
- services consisting in the making available of multi-sided digital interfaces to users, which allow users to find other users and to interact with them, and which may also facilitate the provision of underlying supplies of goods or services directly between users ("online intermediation services"); and
- the transmission of data collected about users which has been generated from such user's activities on digital interfaces ("data transmission services").
Spanish users
Only the provision of digital services used by persons located in Spain will be subject to the Spanish Digital Tax. Specific rules determine when users will be considered to be located in Spain, depending on the digital service in question, and these are based on the place where the devices of those users have been used. The place of location of these devices will generally be determined by reference to their Internet Protocol (IP) addresses, unless other evidence is used, e.g. other tools for geolocation of the devices.
These new links for determining the place of consumption of the digital services provided will be challenging both for the Tax Authorities and the taxpayers, with the latter already expressing confusion over how they will determine the location of the users of their services and concern regarding technological and technical limitations for locating the IP addresses of their users.
Taxable persons
Legal entities which, irrespective of their tax residency, comply with the following two requirements at the beginning of the settlement period, will qualify as taxable persons for the purposes of the Spanish Digital Tax:
- the net amount of its turnover in the previous calendar year exceeds 750 million euros (as established in the Proposed Directive); and
- the total amount of their taxable revenues corresponding to users located in Spanish territory and corresponding to the previous calendar year, exceeds 3 million euros.
The first threshold limits the application of the tax to large companies, which are those capable of providing these digital services based on data and user contribution, and which rely heavily on the existence of extensive networks of users, on big data traffic and on the exploitation of a strong market position.
The second threshold limits the application of the tax to cases where there is a significant digital footprint in the territorial scope of application of the tax in relation to the revenues covered by the Spanish Digital tax.
Special rules are established for entities belonging to a group; in order to determine whether an entity exceeds the thresholds and is therefore considered a taxable person, the thresholds must be applied in relation to the amounts applicable to the whole group.
Tax base, rate and settlement period
The tax base of the Spanish Digital Tax will be the amount of the VAT-exclusive revenues earned by the taxable person for the provision of any of the in scope digital services. For the purpose of calculating the tax base, only the proportion of revenues corresponding to users located in Spain in relation to the total number of users will be taxed.
The Spanish Digital Tax will be levied at a single rate of 3 per cent (as set out in the Proposed Directive), the accrual will be produced for each service provision taxed, and the settlement period will be quarterly.
Final remarks
With the progress of the Spanish Digital Services Bill held up while a new government is formed, it is uncertain whether this new tax will be introduced and, if so, in what form.
Assuming any such tax will remain similar to that in the Proposed Directive, there will be doubts as to its technical application as it will introduce new criteria for taxing the new digital economy, particularly in determining the place of consumption, which opens the door for a future paradigm shift on how these new ways of doing businesses will need to be taxed.
Authors: Eduardo Gracia, Partner; Javier Hernández Galante, Partner; Ricardo García-Borregón, Senior Associate; Lorena Viñas, Expertise Lawyer
