According to a recent announcement by the Spanish Minister of Finance, the Spanish government will propose a new digital services tax (DST) that is expected to take effect by the end of 2018. The temporary Spanish DST would apply only to companies with significant worldwide profits and is intended to fund a government-mandated increase to all Spanish public pensions by generating an estimated revenue of EUR 600 million in 2018 and EUR 1.5 billion in 2019.
Although the mechanics of the Spanish DST have not yet been clarified (including the scope of applicable services, revenue threshold, tax rate, and compliance requirements), it is anticipated that the legislative framework will be consistent with the principles set forth in the draft European Union (EU) Directive presented on March 21 by the European Commission (the EU Directive).
The EU Directive targets firms selling online advertising or providing online sales platforms and would impose a 3 percent tax rate on such digital firm revenues. Revenues generated from online sales would not be includible for purposes of calculating the DST base. The DST would be applicable only to those firms with annual worldwide revenue in excess of EUR 750 million or with EU taxable revenue in excess of EUR 50 million.
Spain is joined by France, Germany, Italy, and the UK, which have also shown support for the EU Directive and are advocating for a coordinated approach across the European market.