Pendent to see what the results of the December critical debate at EU level on this topic under the current Presidency are, at this point, it seems that Spain is heading to be the potential first country implementing a unilateral digital service targeted tax with all its elements defined, with effect January 1st, 2019.
From DET3 we are actively participating in this debate with the local Directorate in charge and will continue to contribute within the spirit of our objectives.
OBJECTIVE OF THE REGULATION
That Spain gain taxing rights that “legitimately belong to its territory” in respect to specific digital services, in order to incorporate user’s contribution to the value creation process.
REASONS THAT JUSTIFY THIS TAX AS A UNILATERAL MEASURE
• The long period elapsed since the international debate started on this topic, and the absence of practical solutions.
• Reasons of social pressure, tax justice and tax systems sustainability.
DIGITAL SERVICES IN SCOPE
Levied on gross B2B/B2C revenues from exploitation of specific types of digital services characterized by user value creation: “Where user participation is an essential contribution to the value creation process”.
• 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 allow recurrent interaction between users with the purpose of:
o A direct delivery of underlying goods or services between those users (online intermediation).
o Just reaching other users.
• Sales of user data generated through their participation and activity in the digital interface.
Draft law intro sets also a clear co-relation between this essential contribution and the monetization.
OUT OF SCOPE DIGITAL SERVICES: WHAT IT IS NOT TAXED
ABOUT DIGITAL ADVERTISING SERVICES
• Where the entity placing the advertising does not own the digital interface, that entity, and not the owner of the interface, shall be the one providing a service falling in scope (same rule than EU Directive draft).
ABOUT ON-LINE INTERMEDIATION SERVICES (MSDI)
• On-line sales of goods & services made from vendor Website, when vendor sells in its own account and is not an intermediary.
• The underlying services or goods themselves.
• Where the sole or main purpose of making the interface available is supplying to users:
• Digital content
• Communication services
• Payment services
• The supply by a trading venue or a systematic internaliser of any of the services referred to in Directive 2014/65/EU; Also, any data transmissions done by these regulated players.
• The supply of certain services by a regulated crowdfunding provider or a service consisting in the facilitation of the granting of loans.
WHO IS TAXED
Companies complying 2 cumulative conditions:
Carrying out in-scope digital services.
Being above both: WW revenue >750 M€
In scope digital services revenue > 3M€ in Spain.
Cross-border transactions & Domestic transactions are subject.
As a difference to the EU directive draft, inter-company transactions falling in scope are also taxed and they are required to be valued arm’s length.
WHEN IS SPAIN CONSIDERED AS THE PLACE OF THE DIGITAL SERVICES DELIVERY?
The location of user value creation is considered to be in Spain when:
Digital advertising: When the user’s digital device is located in Spain in the moment that the advertising is displayed.
On-line intermediation with subjacent: when the user device in the transaction conclusion moment is located in Spain.
On-line intermediation without subjacent: when the user account in the platform was opened from Spain.
Data sale transactions: when the user of the interface was in Spain in the moment the data sold later was generated.
To this effect, a legal presumption is established about location of any digital device (“Spanish device”) to be determined based on the IP address of it throughout its use, unless something different can be concluded using geolocation or other current of future techniques.
PROPORTION OF TAX BELONGING TO SPAIN
Aligned to the EU directive allocation criteria.
TAXABLE BASE & TAX RATE
Taxable base = Gross revenue (no deduction allowed)
Tax rate = 3%
COMPLIANCE & FORMAL OBLIGATIONS
- A declaration of activities initiation is required.
- A Tax ID number must be obtained.
- Request to be included in the Digital Services Tax Register to be created.
- Carry over any other formal obligation required by reglament.
- Appoint a Spanish representative if you are a non-EU tax payer.
- Maintain all relevant records & documents to support service transactions
realized in Spanish territory.
- Translate them to Spanish when required only.
- Self-declaration, on a quarterly basis.
If taxable base amount not known at declaration date, taxpayer to set it
provisionally with a later regularization required.
- Deductible as a cost from Corp Tax
Hiding or faking the place of realization of the digital service or the IP Address it is to be considered a serious infringement of the tax code law with a penalty of €150 for each false digital access with a limit of 0,5% of the company previous year gross income.
Provisional tax that “should be removed as soon as a global agreement is reached, and a long-lasting solution implemented….”.
DET 3 COMMENTS
The text of the draft law is strongly based on the EU Directive draft, with some hues like the one on intercompany transactions and a more elaborated formal obligations part. The text clearly states that this is an “Indirect Tax” but sets some points of nuance differences with the VAT.
There is a sui generis sunset clause in the draft whose text is highly interesting; no mention to any tax treaty negotiation process.
The potential 0,5% limit on gross income for penalties would have to be calculated based on Group gross income.
The impact of the Internet Protocol addresses system in this potential new tax arena becomes an interesting new turn of the corner in the international debate around this topic. Discussion has a number of dimensions here.
Between October 23rd, and November 15th it is the time frame provided for stake-holders contribution to the public consultation comments.
It remains to be known the effect of the absence of majority of the current Government and the tough negotiation process for the public budget that will happen in the following weeks in Spain. This negotiation is intimately co-related with the new Digital Services Tax and the new Financial Transactions Tax proposed.