The Spanish government has started the legislative process for approving a 3% digital services tax (DST): the Spanish Parliament published the DST bill on 28 February 2020. If it is approved, the DST could apply from the second quarter of 2020, with payments due at the end of 2020.

Interim measure without a sunset clause

The bill makes clear that the Spanish government shares the view that current tax rules do not adequately tax the “digital economy”. 

Whilst the Spanish government is committed to the discussions at the OECD level and to reaching an international agreement on how to tax the digital economy, it decided to move forward with the DST because of the pressure of Spanish public opinion, tax justice and to ensure the sustainability of the Spanish tax system, and because, despite the significant time investments already made, international discussions have not yet produced a clear result. 

Therefore, according to the bill, the DST should be an interim measure to be amended/adapted when an international consensus is reached. The bill does not, however, contain a sunset clause which would disapply the DST in the case of such a consensus.

Details on the DST proposal

According to the bill, the DST will be charged at a rate of 3% and will be payable quarterly. In principle, the DST for the second and third quarter of 2020 will not be payable until 20 December 2020. As the DST is not intended to be a tax on income or wealth, but an indirect tax compatible with VAT, its application should not be affected by double tax treaties.

The proposed DST creates three distinct taxable events in connection with digital services: 

• on-line advertising
• on-line intermediation
• data transfers.

It applies to the extent that users participating in the process are located in Spain. Taxable persons are legal entities or any other entities without separate legal personality (wherever established) that, individually or at the group level, exceed two thresholds in the preceding year:

• net income over €750 million
• income derived from digital services subject to Spanish DST exceeds €3 million.

The taxable base will be revenues (excluding VAT and analogous taxes) derived from the relevant digital services. The DST bill includes specific rules for determining the revenues obtained from each of the taxed digital services.