According to the Draft´s Explanatory Memorandum, this tax measure is justified as a reaction to the challenges arising from the new global economy development in which intangible assets become greatly relevant, the users participation is essential in the company´s value creation process and data has an intrinsic value.
While acknowledging that an international or, at least, European approach would be desirable Spanish Government deems this Spanish unilateral approval necessary due to lack of consensus and practical measures. However, the Draft takes as its starting point the European Commission proposal presented on March 21, 2018. Likewise, the Draft contemplates that the Spanish DST will be adapted to the solutions adopted by the European Union if and as soon as they become available.
The DST is set as an indirect tax, which is consistent with the international Tax Treaties and VAT, and it would be deductible from Corporate Tax.
According to the Draft, these are the DST´s main features:
Under the Draft, only legal entities with annual worldwide revenue of €750 million or more during the previous calendar year and with a total amount of taxable revenues obtained in Spain exceeding €3 million will be subject to DST. In the case of entities belonging to a group, the thresholds above shall be established by reference to the group.
2. Taxable events
Furthermore, concerning the taxable event, the proposed Spanish DTS is imposed on the provision of certain digital services where user participation is an essential contribution to the value creation process. Specifically:
- Digital advertising through an owned or third-party digital interface, addressed specifically to the users of such interface.
- Online intermediation services: Offering of a multisided digital platform that allows recurrent interaction between users with the purpose of a direct delivery of underlying goods or services between those users (online intermediation) or with the only purpose of reaching other users.
- Sales of user data generated through their participation and activity in the digital interface.
The most relevant discrepancy in relation to the European Commission’s proposal is that the Draft has not excluded from taxation intra-group transactions. Therefore, the above mentioned services rendered to entities within the same group will be subject to DST.
However, the Draft excludes from taxation the following digital services:
(a) Online sale of goods or services made on a supplier´s website when the supplier does not act as an intermediary
(b) The underlying sale of goods or services between users in the context of online intermediation services
(c) Online intermediation services where the sole or main purpose of making the interface available is supplying to users:
- Digital content
- Communication services
- Payment services
(d) The supply of certain services by a regulated crowdfunding provider or a service consisting in the facilitation of the granting of loans.
Generally, DST shall apply only when the user's digital devices are located in Spain. For this purpose, specific location rules are established for each of the digital services listed above. These rules are based on the place where the devices of these users have been used, generally located by their IP addresses.
3. Tax base and rate
Under the Draft, the tax rate would be 3% applicable to gross income, excluding VAT, obtained by the taxpayer upon the provision of the digital services covered by the DST.
4. Compliance and other formal obligations
The Draft incorporates a whole set of formal obligations applicable regardless of the taxpayers tax residence. Amongst these formal obligations we highlight:
(a) A declaration of activities initiation is required.
(b) Self-declaration, on a quarterly basis must be submitted.
(c) In case the taxpayer does not have a Tax ID number, this must be obtained.
(d) The taxpayer should request to be included in the Digital Services Tax Register, which will be created.
(e) The non-EU taxpayer should appoint a Spanish representative.
(f) Taxpayers must maintain all relevant records & documents to support service transactions located in Spain and translate them to Spanish, only when required.
5. Penalties regime
The Draft includes a specific penalty regime. In particular, obscuring or distorting the location, the digital service location or the IP Address will be considered an infringement with a penalty of €150 for each false digital access with a limit of 0,5% of the company´s gross income of the previous year.