Final approval by the Spanish Parliament of the Draft Law on the Tax on Certain Digital Services

On 7 October the text of the Bill regulating the Tax on Certain Digital Services (or Digital Services Tax "DST") was definitively approved by the Spanish Parliament.

The IDSD will come into force three months after its publication in the Official State Gazette ("BOE"), meaning that the tax will not come into force until January 2021. As the entry into force is foreseen for 2021, the Fourth Final Provision, which regulates the payments to be made for the second and third quarter of 2020, must be a misprint resulting from the delay in the processing of the Law which will undoubtedly be eliminated in the final publication in the BOE.

The most significant aspects and fundamental elements of the tax were analysed in our Newsletter of 5 November 2018 on the "Draft Law on the Tax on Certain Digital Services" of 23 October 2018, to which we refer in order to avoid unnecessary repetitions. (https://www.osborneclarke.com/insights/spanish-digital-services-tax/).

However, it is important to note, in summary, that this tax is of an indirect nature and is levied on revenue from certain digital services to which an essential contribution is made by users established in the territory of application of the tax in the process of creating value for the company (located in other jurisdictions) providing those services.

More specifically, it taxes companies with a net turnover in the previous calendar year of more than 750 million euros and which obtain revenues in Spain (also in the previous calendar year) of at least 3 million euros from (i) the provision of online advertising services, (ii) the provision of online intermediation services; or (iii) the sale of data generated from user-supplied information on digital interfaces. These revenues will be taxed at a rate of 3%.

The main changes in the text approved with respect to the preliminary draft law that has already been commented on are as follows:

• The explanatory memorandum makes the temporary nature of the DST conditional on the approval of the various European Union directives that are expected to address the taxation of the digital economy and incorporate an internationally adapted solution.
• This includes the non-applicability of intra-group transactions, provided that they are carried out by entities of the same group with a direct or indirect holding of 100 percent. Therefore, if there is a minority in the chain of participation, this non-applicability would not be applied.
• The establishment of systems, mechanisms or agreements making it possible to determine the location of users' devices in the territory of application of the tax is added as a formal obligation on the part of the taxpayer.
• With regard to the system of infringements and penalties, the fixed pecuniary fine of 150 euros for each access where the decisive place of performance of digital services has been concealed or falsified is eliminated and the pecuniary fine of 0.5 percent of the net turnover of the previous calendar year is maintained. However, in this case, a minimum of EUR 15,000 and a maximum of EUR 400,000 is established for each calendar year in which the previous breach occurred.
• The single transitional provision is introduced in the clauses which establish that during the period between the entry into force of the Law and the following 31 December, the determination of whether the EUR 3 million threshold of income is exceeded in Spain must be made taking into account the income existing since the entry into force of the Law until the end of the settlement period, which is increased by one year.
• The Third Final Provision authorises the Financial Law to amend essential elements of the tax, such as cases of non-application of tax, the quantitative thresholds for attaining the status of a taxable person or the amendments required as a result of the harmonisation of the tax by virtue of the Directives that are approved. This undoubtedly introduces a certain degree of legal uncertainty since it is not the appropriate legal instrument for approving amendments of this nature.

The DST undoubtedly raises many questions. It is configured as an indirect tax that can generate cases of double taxation due to the direct taxes already paid by companies established in Spain, thus affecting the constitutional principle of economic capacity.

There is also concern about whether the DST will cause a sharp drop in productivity, competitiveness and innovation in Spanish companies, at a time when Spain needs to encourage the digitalisation of its economy.

Finally, it is to be expected that the US government will give its opinion on the new fiscal measure. It seems foreseeable that, as in the case of France, the United States will put pressure on Spain with tariff measures on Spanish products in order to suspend the entry into force of the DST until a consensus is reached at OECD level on the taxation of the digital economy.