With the OECD issuing its February 2019 public consultation, in which a consensus-based and long-term solution for the taxation of the “digital economy” begins to be sought, the Spanish Government seems to be adamant on the potential introduction of a Digital Services Tax (DST) in Spain (as late as yesterday -23 April 2019- in the second presidential debate).
As occurred in other EU jurisdictions such as Italy and France, the Spanish DST has aligned its design with the EU proposal for a Directive on the common system of a DST. It is built as an indirect tax and proposes the taxation of three digital services: transmissions of data, digital advertisements (i.e. the placing of advertising on a digital interface targeted at users of that interface) and digital mediation services (i.e. making a multi-sided digital interface available to users for them to find other users and to interact with them or to carry out supplies of goods or services directly between users). The DST’s tax base (revenues generated from those services) is proposed to be taxed at a 3% rate.
In our view, several doubts are cast on the legal nature of Spanish DST (is it an indirect tax or instead a tax on income? How would it interact with Spanish income tax treaties?) and on how and to whom it will apply: the devil is likely to be in the detail (Spanish DST regulations, which have yet to be published). Furthermore, it is arguable whether a DST actually ensures the establishment and the functioning of the EU internal market (to avoid distortion of competition) and may create double taxation for (at least telecom and) digital multinationals.
We believe that any interim solution (e.g. Spanish DST but also any potential equalization levy) does not offer a true solution to cope with the new digital economy framework.
The three OECD February 2019 proposals are a good starting point to initiate the debate on the challenges of how to tax the digital revolution. The proposals include, on one hand, the “user participation” and the “marketing intangible” proposals, focused on how to allocate the residual (i.e. non-routine) profit’s taxable rights to users/clients’ countries and, on the other hand, the “significant economic presence” (SEP) proposal (which suggests further exploring the 2015 SEP proposal).