Today, the Digital Services Tax Act (“the new tax“) was published in Spain’s Official State Gazette and it will enter into force on 16 January 2021. Under this law, digital services for online advertising, online intermediation and data transfers will be subject to taxation in Spain as of 2021.
Click here to read in Spanish.
The new tax will imply significant economic costs for the companies concerned, both in terms of taxation and compliance. In addition, its scope of application is not exclusively restricted to multinationals with a predominantly technological or digital focus, but could apply to other sectors as well (banking, automotive, etc.).
In practice, over the coming months, the new tax will require companies to verify whether or not they are subject to it and, if so, conduct an individual analysis of their business lines, so as to gauge the impact this new tax may have on them.
Companies that are taxpayers under this new tax will be required to invest in systems that allow them to know where the users of the taxable digital services are located.
The new tax introduces fines of up to EUR 400,000 a year for companies that do not comply with this obligation.
The main features of the new tax are described below:
- Taxpayers concerned. Companies that meet the following two thresholds (calculated at the group level and regardless of their tax residence): (i) net turnover exceeds EUR 750 million in 2020; and (ii) total income from taxable digital services exceeds EUR 3 million in 2020.
- Digital services included. Three are included: online advertising, online intermediation and data transfer. Some digital services are expressly excluded from the tax. It should be stressed that the new tax will apply to services provided between companies in the same group, unless a 100% shareholding exists between them.
- Link with Spain. These digital services will be subject to the new tax if the user’s device is located in Spain. Unless proved otherwise, the new tax assumes the location of a user’s device is established by their IP address.
- Chargeability: When the services are provided, carried out or executed.
- Tax base. The starting point will be the gross income that the taxpayers obtained from the digital services subject to the tax. The final tax base will be calculated by applying certain special rules to the gross income (the rules will differ depending on the specific type of digital service provided). The tax base for intra-group services will be their market value.
- Tax rate: 3%.
- Self-assessment frequency: Every quarter.
- Formal obligations. Companies subject to the new tax must comply with certain tax obligations in Spain, such as acquiring a tax identification number, at times appointing a representative, keeping a specific record book or putting systems in place to allow users’ devices to be located, among others.