Opinion of the EU Committee of the Regions on Digital Economy Taxation, key points

The Committee of the Regions (CoR) is an EU advisory body that provides sub-national authorities (i.e. regions, provinces, municipalities…) with a formal say in EU law-making process.

On their plenary session December 5-6th 2018 the CoT adopted an opinion containing their Policy Recommendations and proposed also specific amendments to both the DST and SDP Directives drafts. As part of the legislative process, the official opinion is sent now to all the European institutions and published in the Official Journal.

The fundamental two observations from CoT are, first a concern that the shift to the new Digital Economy Taxation initiatives in general could benefit larger EU Member States with many consumers, with some inequalities being produced at the expense of smaller exporting EU economies.

And second, CoT urges Member States to share their portion of the DST proportionally with the local and regional authorities.
Other than that, following are the other take-over points of the CoR opinion we can collect:

  • The restriction of the scope of application of DST to the processing of user input only is legally questionable. CoR proposes replacing it by “largely reliant on user value creation”.
  • It proposes a straight Sunset Clause for DST.
  • To prevent the risk of hampering EU digitalization, it proposes the elevation of the thresholds for a SDP to be created, requiring a proportion of total revenues in excess of 10 €M, versus the 7€M of the draft, and requiring that at least 2 of the 3 conditions (versus only 1) are met for SDP to be formed and recognized as a taxable person.
  • Fine tunes article 5 of SDP draft to make sure the regulation itself is not “auto-imposing” the application of a credit system in respect to the Corporate Tax paid.
  • Proposal to remove a number of specific digital services from the long Directive draft list whose related activities could create a SDP: e-books & electronic publications, online newspapers, online news, traffic information and weather reports. The reason for that is that in the CoT opinion, they are not fundamentally different from their non-digital / “paper” equivalent.

On top of the disagreement existing between a few EU countries on the overall picture of this initiative, CoR has expressed strong consultative opinion over the points described. Some of those points are already resolved by the revised “compromise text” of the draft DST Directive, and others are not.

CoR opinion is not legally binding, but it is necessary to note that their view on the “user input only” issue it is one of a very structural nature if we consider how the DST is currently constructed.

Due to the non-direct taxation nature of the temporary measures in most of the countries working on them, as well as in the DST Directive, depending on how the qualification of the tax would be it is clear now that this tax allocation could generate some “intra-states” friction with local/state/province tax administration level, as they are raising their hands now.


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.

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.

• 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.

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.



• 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).


• 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.


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.


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.


Aligned to the EU directive allocation criteria.

Taxable base = Gross revenue (no deduction allowed)
Tax rate = 3%


  •  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….”.


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.

Australia drafts legislation to level playing field in online accommodation bookings

At the end of July 2018, the government released draft regulation and explanatory memorandum with the aim to extend the Goods and Services Tax (GST) to ensure that offshore sellers of hotel accommodation in Australia calculate their GST turnover in the same way as local sellers from 1 July 2019.
It amends the GST Act to require offshore suppliers of rights or options to use commercial accommodation in Australia to include these supplies in a GST return if such offshore suppliers equals or exceeds the $75.000 registration turnover threshold.
Applying the law if passed, would require analysis of the principal versus agent condition of the offshore supplier. The amendments of the law apply to Whole-sale level of the market where the wholesaler acquire title (right or option to use accommodation and on-sells those rights to a guest) so will seem to be affecting the big on-line bed-banks but would not apply to OTAs (online travel agencies) or agencies acting on behalf of the hotel. Expected coming into force would be July 1st, 2019.

DET3 comments
When talking about digital economy taxation, the Level the Playing Field discussion can have several dimensions. In this case is Foreign to local players dimension at indirect taxation level; this is draft proposal by now, but the amendments aim to ensure neutrality in the GST treatment of Australian hotel and similar accommodation regardless of whether the right to use the accommodation is purchased directly through an Australian supplier or from an offshore supplier.