Spain: Digital Services Tax is in force - key features and insights

The Spanish Digital Services Tax is levied on certain digital services provided by large multinational companies with the participation of users located in Spain, regardless of their tax residence, involving exigent formal obligations.

The DST Law will affect companies other than the "usual suspects" (US Tech Giants), including (i) not-highly digitalised companies with relevant physical presence and (ii) business models which are already taxed in Spain for the value generated as it is included in the revenue reported in Spain.

The delay in publishing the DST Regulations and the relevant tax forms together with the need to give taxpayers time to adjust to the new obligations have led to the postponement of the first filing.

Our analysis addresses the key aspects of this new DST, the Resolution and FAQs published by the Tax Authorities, and discusses some of the main questions arising, such as double taxation issues, taxpayers involved or the permanent/ temporary nature of this tax.

Law 4/2020, of October 15, on Certain Digital Services Tax (the "DST Law") (Impuesto sobre Determinados Servicios Digitales), has created a new indirect tax in Spain, popularly known as the "Google tax", that applies on the provision of certain digital services in which there is a participation of users situated in Spain.

This new indirect tax arises from the existing consensus, both at OECD and EU level, that the new business models cause a disconnection between the place where these business models create value and the place where companies are taxed, based on the importance of intangible assets, the value of data and user contributions.

The delay in adopting specific measures on this matter at both international and European level has led some countries, including Spain, to adopt unilateral measures that allow them to tax in their respective territories some digital services provided by large entities that require user involvement or participation in the value creation.

The Spanish DST Law was published in October 2020, and came into force on 16 January 2021. However, DST Regulations have not been approved until 8 June 2021, coming into force on 10 June 2021. This delay in approving the regulations forced to postpone the first quarterly assessment deadline, meaning that both the first and second quarter of 2021 will be assessed during the month of July of 2021 by means of tax form 490. Besides, the Spanish tax authorities have published a Resolution of 25 June 2021, containing interpretation guidelines regarding this new tax (the “DST Resolution”), and a list of frequently asked questions (the “DST FAQs”) that could help to respond some of the questions raised in relation to the Spanish DST, but other questions remain unanswered.

As further explained below, the Spanish DST applies regardless of the tax residence of the digital service provider and the Spanish thresholds are quite low compared to other countries such as the UK, France and Italy. Indeed, this tax does not only affect the “usual suspects” (i.e. US technology multinational companies), but also (i) not-highly digitalised companies with a relevant physical presence who, incidentally, perform services subject to DST in Spain, and (ii) some business models which are already taxed in Spain for the value generated in this country because the revenue reported in Spain includes such value, creating cases of double taxation.

The purpose of this note is to analyse the key features of the Spanish DST and provide some practical insights regarding the doubts and implications that may derive from the application of this tax.

Why introduce a DST in Spain?

Current international tax rules are mainly based on physical presence and were not designed to address business models in which companies can provide digital services in a country where they do not have any physical presence.

Furthermore, these international tax rules also fail to recognize the relevant role that users play in certain business models, generating value for the most digitized companies through the provision of data, the generation of content or as components of the networks on which many of these digital business models are based.

In this regard, and although there is an international consensus on the advisability of addressing this problem with a global solution by revising the concept of permanent establishment, the delay in adopting specific measures has led some countries, such as Spain, to adopt unilateral measures to address this issue. However, the delay in finalising the parliamentary proceedings in Spain in order to fully implement the DST (which has been in the works since 2018) has allowed the EU to catch up by proposing an EU Digital Levy.

The process of revising the rules for taxing the profits generated by the digitalization of the economy was initiated within the OECD with projects such as BEPS Action 1, dedicated to the tax challenges of the digital economy, which was published in 2015. Also, in 2019, the Global Proposal against Base Erosion ("GloBE") was developed, built on two pillars: the first pillar aims at sharing the power to tax the profits of the digital economy among States by creating a new nexus; and the second pillar articulates measures against base erosion and seeks to minimize tax avoidance through profit shifting. On 2 July, the OECD has finally been able to announce an agreement by the Inclusive Framework on Base Erosion and Profit Shifting on these pillars, whose Pillar Two is expected to be effective by 2023, which would not solve short term need of tax collections to face COVID-19 recovery.  

Nevertheless, the lack of concrete measures to address this problem and the absence of consensus at the international level until now have meant that, for the time being, Action 1 has not had the practical implementation that might have been expected.

At the EU Level, the European Commission presented on 21 March 2018 its Proposal for a Council Directive on a common system of digital services tax on revenue from the provision of certain digital services. This tax was intended to be short-lived, until the OECD reached a consensus at the international level. This proposal raised the reluctance of some Member States, which claimed incompatibilities with the principle of subsidiarity and that the work developed by the OECD makes regulation at European level unnecessary. The proposal for a Directive was therefore discarded. Nonetheless, on 14 January 2021, the European Commission published a roadmap including a public consultation for the creation of a digital tax, with the aim of presenting a proposal for a EU Digital Levy Directive in July 2021. According to the Communication from the Commission to the European Parliament and the Council on the Business Taxation for the 21st Century, published on 18 May 2021, this EU Digital Levy will coexist with the implementation of an OECD agreement on sharing a fraction of the taxable base of the largest multinational enterprises, though the formulation of the Digital Levy will remain unknown at least until autumn of 2021. In any case, we note that on 12 July 2021 the EU announced that the EU Digital Levy has once again been postponed due to the pressure from the US Government until a global agreement is reached concerning the minimum taxation.

The Spanish Government has calculated the DST will allow to collect approximately EUR 968 million. The US Trade Representative's Report on Spain's DST determined at least 39 companies that would be subject to this DST, of which 25 are US companies, two are Spanish and the remaining 12 are from other countries.

Indirect nature and purpose of the DST

The DST Law defines the DST as a tax of an indirect nature, which is levied on the provision of certain digital services in which there is an intervention of users located in Spanish territory.

Insights and comments

As the DST is defined as a tax of an indirect nature, the DST is compatible with direct taxes, such as corporate income tax, and other indirect taxes, such as Value Added Tax (“VAT”). The DST is defined as an indirect tax because:

  • It is instantly levied on the provision of certain services, and not the obtention of income;
  • It is calculated by applying a fixed rate to the gross remuneration, and not a progressive rate depending on the taxpayer's wealth; and
  • The taxable event is the added value generated by the users, and not the profits of the entity.

However, there is a doctrinal discussion around this indirect nature of the DST, as certain authors consider the DST's nature should be direct:

  • In spite of the Spanish DST Law affirming that the tax levies the provision of digital services ("es un tributo de naturaleza indirecta que grava […] las prestaciones de determinados servicios digitales en que exista intervención de usuarios"), the UK DST ("[DST] is charged in accordance with this Part on UK digital services revenues arising to a person in an accounting period"), the French DST ("une taxe due à raison des sommes encaissées par les entreprises du secteur numérique") and the Italian DST ("l’imposta si applica sui ricavi derivanti dalla fornitura dei servizi") all admit the object of this tax is the revenue derived from these services.
  • The high thresholds established to define who are taxpayers are, in fact, indicators of the taxpayer's economic capacity, and the DST only taxes the companies with (i) high income in general and (ii) high revenues in Spain derived from digital services;
  • Though the services subject to the tax are those in which there is an added value generated by the users, the DST is calculated on the total retribution obtained for the provision of the services, and not only the value added by the users; and
  • The reason behind the creation of the DST is the erosion of Corporate Income Tax bases, and the expected solution that would entail the suppression of DST are the OECD's BEPS and GloBE proposals. Hence, introducing an indirect tax to tackle a direct taxation problem (base erosion) that will be in any case ultimately solved with direct taxation measures (i.e. new nexus and minimum taxation rules), does not seem to be the most appropriate way to solve this issue.

In this regard, in 2017 the Spanish Constitutional Court analysed a regional tax created by the Regional Government of Catalonia that taxed the provision of contents by electronic communication service providers[1]. This regional tax has certain similarity to the current Spanish DST. The Catalan defence argued that the object of the tax was the availability of digital services for the user, and not the service provision as in VAT, but the Constitutional Court ruled that the Catalan tax had the same taxable event than VAT, that is a State Tax, being the Catalan tax unconstitutional. Therefore, we understand from the analysis carried out by the Constitutional Court that it would be complicated to defend that the DST is not an indirect tax.

However, in the judgement of the Court of Justice of the European Union (“CJEU”) concerning the Spanish tax on the value of electricity production (Impuesto sobre el Valor de la Producción de la Energía Eléctrica) (“IVPEE”), the CJEU was asked by a Spanish Court if this tax was actually an indirect tax and not a direct tax as announced by the regulations of the IVPEE. The CJEU considered the following:

  • the chargeable event for the IVPEE is the production and incorporation of electricity into the electricity system, namely net production of energy;
  • the IVPEE is not collected directly from electricity consumers, but from the economic operators which produce it and incorporate it into the system;
  • though the financial burden of a tax may, in principle, be borne in its entirety by the final consumer of electricity where the producer includes the amount of that tax in the price of each amount of the product released for consumption, there is no formal mechanism for passing on the tax; and
  • the taxable amount for that tax is the total amount received by the taxpayer for the production and incorporation of electricity into the electricity system, to which a uniform tax rate of 7% is applied.

And on this basis, the CJEU affirms "It follows from the foregoing considerations that the IVPEE is calculated solely in relation to the status of electricity producer, on the basis of taxpayers’ income which is partially fixed and thus irrespective of the quantity of electricity actually produced and incorporated into the electricity system. Therefore, it cannot be held that there is a direct and inextricable link between that tax and the consumption of electricity. (…) Consequently, as the IVPEE is not an indirect tax which is levied directly or indirectly on the consumption of electricity"[2].

In our opinion, these two rulings would provide arguments in favour of and against the characterization of the DST as an indirect tax, and it is complicated to anticipate the prevailing option. However, due to the similarity of the taxes, we consider the Catalan precedent would be a better fit, so we are inclined to believe that the DST would be regarded of an indirect nature.

This discussion is particularly relevant for the application of double taxation treaties: consumption taxes (i.e. indirect taxes) are excluded from the scope of application of these treaties, whilst taxes on company's profits could benefit from their application.

The non-application of double taxation treaties is key in order for the DST to effectively apply in Spain, because article 7 (“business profits”) of the (broad) Spain’s treaty network does not give the right to tax business profits obtained in Spanish territory if the digital service provider does not have any physical presence (i.e. a permanent establishment as it is construed under the current tax legislation) in Spain. In our view, the inapplicability of double taxation treaties could, in the long run, result in passing the tax to the final client (indeed, this has already begun to occur in some e-commerce platforms).

With regard to the compatibility of the DST with the VAT, accepting it is an indirect tax, the VAT Directive "shall not prevent a Member State from maintaining or introducing (…) any taxes, duties or charges which cannot be characterised as turnover taxes". According to the CJEU's case-law, taxes are characterised as turnover taxes when they present VAT essential's characteristics.

  • VAT is a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services;
  • VAT is a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.
  • VAT is charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.
  • VAT is collected fractionally, via a system of partial payments and deductions, that ensures the neutrality of the tax.
  • VAT is filed to the revenue authorities by the seller of the goods, but paid by the buyer to the seller as part of the price (i.e. an indirect tax).

The CJEU's case-law admits that a tax that does not have all the essential characteristics of VAT cannot be treated as comparable to VAT[3]. Consequently that tax does not jeopardise the functioning of the VAT system of the EU and, therefore, is compatible with the VAT Directive.

DST is not a general tax, and it is -theoretically- not borne by the final consumer. Also, it is not subject to a deductions system. Therefore, we understand that no compatibility issues will arise in relation to VAT.

Territorial scope of application

The tax is levied on the operations constituting the taxable event that are deemed to be carried out in Spain, including mainland, the Balearic Islands, the Canary Islands, Ceuta and Melilla.

Insights and comments

The Basque Country and Navarre are two regions of Spain which have a specific tax regime within the Spanish tax system, meaning that these territories will need to implement their own DST Law. The rules laid down for the distribution of taxing powers within Spanish administrations establish that indirect taxes will respect the State provisions, hence the regulatory framework for these regions will be very limited. We understand that the management and tax collection responsibilities of the DST will be assumed by the regional tax administrations if the Basque Country and Navarre decide to replicate the wording of the Spanish DST Law in their territories. To the date of publication, no measures have been adopted to this effect.

The DST Law does not provide for a specific connection point for the Autonomous Regions of the Basque Country and Navarre, but does establish the need to adapt the Economic Agreements with these regions. In any case, we understand that any rule in relation to the levying or management of the DST by the Basque Country and Navarre would need to be based on the location of the user of the digital service. If our understanding is correct, this would mean a greater management difficulty for taxpayers, who will not only have to be able to locate the user in Spain, but also within the Spanish territory.

Given that the assessment period has already initiated, we understand the logical course of action would be the collection by the Spanish Administration and reaching an agreement with the regional authorities in order to distribute the revenues that would have corresponded to the regional administrations.

Location of services

The default method to determine the location of users is the Internet Protocol (IP) address, although the DST Law allows the taxpayers to use other means of proof of the location of their users, such as geolocation. This alternative would be useful to discard "artificial" locations that are generated by using VPNs.

DST Regulations allow the use of geolocation based on network identification (WiFi, Ethernet or other), physical geolocation by satellite (with systems such as GPS-Global Positioning System, GLONASS, Galileo or Beidou) or by means of information provided by terrestrial wireless communications systems (such as GSM-Global System for Mobile Communications or LPWAN), or beacons (WiFi or Bluetooth), or any other combination of existing or future technologies.

The DST FAQs suggest alternative methods for locating the users such as the national telephone prefix or the registry address in case of online advertising services or online intermediation services.

The DST Law states that any processing of personal data must be carried out in accordance with the EU and Spanish data protection regulations.

Insights and comments

Doubts are raised about the possibility of using methods such as geolocation of users, which generally must be authorized by the user on each device:

  • From the entities' perspective, compiling location data will entail additional legal obligations and costs as they will need to comply with Data Protection regulations that might not be currently applicable to their activity.
  • From the users' perspective, a logical fear is that companies may feel entitled to impose geolocation configurations, claiming they are simply fulfilling their tax obligations, but this will finally result in a broader compilation of the users' data with commercial purposes.

The Spanish DST Law is similar in this aspect to the French and Italian DSTs. However, the British DST includes a specific nexus with services related to particular accommodation or land in the UK and with advertising services that are paid for by a UK user.

As explained in section “Taxable services” below, this localization rule will result in many cases of double taxation for which the UK has included a specific tax relief, but Spain has not.


Taxpayers of DST are defined as those legal entities resident in Spain, the EU or third countries:

  • whose net turnover in the previous calendar year exceeds EUR 750 million; and
  • whose income from the rendering of services subject to DST in Spain in the previous calendar year exceeds EUR 3 million.

These thresholds are applied at a group level, so all the entities of the group that carry out the taxable event are individually considered taxpayers, regardless of their individual status.

Intra-group services involving the realization of the taxable event are included in these thresholds, unless there is a 100% participation between the provider and the recipient of the service.

The Spanish DST Law establishes a special rule in order to determine the second threshold applicable to year 2021. According to this special rule, the second threshold must be calculated by annualising the income from the rendering of services subject to DST in Spain between 16 January 2021 (date of entry into force of the Spanish DST Law) and the end of the corresponding DST self-assessment period (further explained in the section “Accrual and liquidation period”). Similarly, if an entity has initiated its activities during the previous calendar year, its turnover and relevant income must be grossed-up to the year.

As for entities that join or are excluded from a corporate group mid-year, the DST FAQs specify that the newly included entity will not become a taxpayer until the following calendar year, whereas the excluded entity will continue to be considered a taxpayer for the remainder of the year.

Insights and comments

Though the first threshold (i.e. EUR 750 million of total net turnover of the multinational group) is intended to be fairly high in order for the DST to apply only to large multinationals, the second threshold (i.e. EUR 3 million of income derived from digital services provided in Spain) is one of the lowest approved at the moment. For example, the thresholds established by the UK, France and Italy are GBP 25 million (approx. EUR 28.5 million), EUR 25 million and EUR 5.5 million, respectively.

The introduction of such a small second threshold involves that this tax does not only affect highly digitalised companies, but also those with a relevant physical presence who, incidentally, perform services subject to DST in Spain.

In addition, the DST was originally intended to ensure taxation in Spain of companies with little or no physical presence in Spanish territory who could avoid being taxed in Spain in favour of low taxation jurisdictions. However, the Spanish DST Law does not include any exclusion for (i) Spanish multinationals providing digital services and having physical presence in Spain or (ii) business models which are already taxed in Spain for the value generated in this country because the revenue reported in Spain through a subsidiary or a permanent establishment includes such value, creating cases of double taxation which is not solved with the current wording of the said Law.

Moreover, the treatment at group level means that non-Spanish resident entities that have a very small digital presence in Spain will have to comply with all the formal requirements, both general (e.g. obtaining a Spanish tax identification number) and specific to the DST (see section “Formal obligations” below), because they have reached the thresholds at group level. For this purpose, the UK DST and the Italian DST have created the role of "responsible member", which is either the parent entity or a nominated person, that will be responsible for the submission duties of all the group. Current Spanish Regulations have not considered a similar possibility, and DST FAQs expressly state that each individual member of the group shall be a taxpayer and it will not be the group as a whole. Nonetheless, as explained below, there are several measures in place to facilitate the filing of returns for groups such as filing in batches or direct “machine to machine” filing.

Taxable services

The taxable services must be provided by means of a digital interface, which is defined as “any software, including websites or parts thereof, or application, including mobile applications, or any other means, accessible to users, that enables digital communication”. This is an open definition which allows to include interfaces accessed through any device, including SmartTVs, car navigators or even kitchen appliances.

The following digital services carried out through a digital interface accessible to users (individuals, professionals or businesses) located in Spain are subject to DST:

Online advertising services

The taxable event is the inclusion of “targeted publicity” in a digital interface, either the providers' or third parties'. The publicity is presumed to be targeted, unless the taxpayer proves otherwise. The DST Resolution establishes that the advertisement is understood to be targeted when it has any degree of personalisation based on users data, such as geographic location, age, gender, search keywords, information provided upon profile registration, etc., and specifies that the utilisation of one single piece of data is sufficient to qualify the advertisement as targeted publicity.

The taxable event occurs when the advertising appears on the device of a user located in Spanish territory. The interaction, or lack thereof, of the user with the advertising does not impact the accrual of DST.

The provider of the advertising services, and taxpayer of the DST, is the entity that includes the advertisement in the digital interface, whether the owner of the interface or a third party who commercialises the available advertising spaces after acquiring the right to use such spaces. In the latter case there will only be one taxable event and one taxpayer, regardless of any additional services that may be carried out by the entities intervening in the chain.

Online intermediation services

The DST Law provides for two types of online intermediation services, depending on the objective of the intermediation:

  • Intermediation services to facilitate deliveries of goods or provision of services ("underlying transactions"): They will be subject to Spanish DST when the underlying transaction is concluded through a device located in Spanish territory (regardless of where the underlying transaction or payment takes place).
  • Intermediation services that facilitate locating and interacting with other users (“interaction services”): They are subject to Spanish DST when the user's account has been created on a device that, at the time of registration, was located in Spain, regardless of its location at the time of each access.

Insights and comments

We include below some issues arising from the wording of the Spanish DST Law:

  • Given that intermediation services to facilitate deliveries of goods or provision of services are subject to Spanish DST when the underlying transaction is concluded through a device located in Spain, a high risk of double taxation is triggered, as only one of the users is required to be located in Spain, and no tax relief is provided (e.g. British DST allows to deduct half of the tax). Furthermore, according to the DST FAQs, if one of the users is not using the device when the transaction is concluded (e.g. the user is waiting for confirmation of the transaction after making an offer), it will be considered to be located wherever the device was located when the user placed the acquisition or sale offer.
  • The Spanish DST rules do not specify whether the cost of ancillary services, such as packaging or distribution of goods, shall be included in the price of the intermediation service (as in the British DST) or are excluded (as in the French DST), so we understand that this should be clarified by the Spanish tax authorities. In our view, the fact that packaging or distribution are services that by nature require physical presence (and therefore are already captured by the current tax rules) is a very good argument to defend that they should be excluded. In any case, in order to be able to argue that the cost of ancillary services should not be included in the price of the intermediation service for Spanish DST purposes, the invoice issued to the client should include a breakdown between the price for the intermediation service, if any, and the price for other ancillary services.
  • As the taxable event of interaction services is linked to the creation of an account on a device, in our view, services performed through an interface that does not require user registration would not be subject to Spanish DST.
Data transmission services

The taxable event is the transmission in exchange for a price of data collected from the activity of users on digital interfaces, provided that such data has been generated through a device located in Spain at the time of use of the interface.

Insights and comments

The DST Law does not specify the method of collection, which may be an active contribution by the user (e.g. data submitted at the time of registration), or derived from the user's activity (e.g. tracking by cookies, profiles interacted with, etc.).

We understand that transmission of data generated in the framework of non-taxable services will also be subject to DST, such as search patterns in e-commerce platforms, except for data transmissions provided by regulated financial institutions (further explained in the next section).

The DST FAQs note that all the subsequent transmissions of data will be subject to the tax, and not only the first transmission or capture of data.

Non-taxable services

The following services are not subject to Spanish DST:

  • E-commerce, i.e. the sale of goods or services contracted through platforms in which the supplier does not act as an intermediary;
  • The underlying transactions between users within the framework of an online intermediation service;
  • The provision of online intermediation services consisting of only digital content, communication services, or payment services;
  • The provision of regulated financial services and data transmissions provided by regulated financial institutions; and
  • The provision of digital services carried out between entities that are part of a corporate group with a direct or indirect participation of 100% between them.

Insights and comments

Some of the non-taxable events are not easily defined. Though many of the issues have been solved, others remain. These are some examples:

E-commerce and digital contents

E-commerce transactions and the direct provision of digital contents are not subject to DST. However, this exclusion only applies when the service provider is the owner of the goods or digital contents: when the service provider is acting as an intermediary (i.e. marketplace functions), it will be considered a taxable intermediation service, and the underlying transaction between the owner of the goods or digital content and the user or customer will not be subject to DST.

Digital contents are defined broadly and include those available through download, streaming or directly accessing the interface, either accessed once, during a limited period of time or with unlimited access.

Regulated financial services

The DST Law has expanded the exclusion from the proposal of Directive, and also regarding the draft of the law prepared in 2018. The wording is very wide and the reference is now made to the financial sector in general provided that it is regulated, rather than particular financial services. Therefore, we understand that the definitions established by the specific regulatory laws and the regulatory characterization of the entity and the services provided should apply in default.

In particular, the DST Law defines regulated financial services as financial services provided by a regulated financial entity. Subject to a case by case analysis, we understand that "regulated financial services" should include those services provided by financial entities which need to be authorized and/or registered and licensed in order to provide those services. Therefore, we understand that this single category should include (i) the collection of funds and deposits from the public; (ii) payment services; (iii) investment services; (iv) insurance and reinsurance transactions; or (v) e-money issuance, among others. In addition, we understand that insurance activity would also fall within the scope of non-taxable regulated financial services.

However, this should only apply to strictly financial or insurance services, and not to other related activities such as mortgage or insurance comparison sites. The UK DST, on the contrary, provides an exclusion for the entire online financial marketplace (that is, the non-subjection of the entire entity) if more than half of the revenues arising to the provider are related to the trading of financial instruments, commodities or foreign exchange.

Intercompany services

In relation to the exclusion of digital services within a corporate group, it would be unreasonable to interpret that the service provider entity must hold a 100% participation in the service recipient entity, but rather that the ultimate parent company within the group must hold a 100%, directly or indirectly, in both provider and recipient. This interpretation has been confirmed by the Spanish tax authorities in the DST Resolution, concluding that only the group parent company must hold a 100% participation in the entities providing and receiving digital services.

Even with this interpretation, the need to hold a 100% is a very restrictive requirement that has not been included in other European DSTs. For example, French, Italian and British DSTs refer to the corporate consolidated group, controlling entity and GAAP group, respectively. The belonging to a group in which the dominant has a significant control in the group (e.g. holding over 50% of voting rights or naming the administrators of the participated entity) is sufficient in these territories and is, in our opinion, a much more reasonable and simple criterion than a full 100% participation. In addition to the low thresholds to qualify as a taxpayer, this criterion highly broadens the scope of potential taxpayers.

Calculation of the DST payable in Spain

DST is calculated as a 3% of the taxable base. This taxable base is the gross income obtained from the provision of these services, according to the following rules:

  • Online advertising services: Proportion between the number of appearances of the advertising on devices in Spain and the total number of appearances of such advertising on devices anywhere.
  • Online intermediation services with underlying transactions: Proportion resulting between the number of users located in Spain with respect to the total number of users of the service.
  • Other online intermediation services: Total income derived directly from users accessing the interface through an account created in Spain, regardless of where the access takes place.
  • Data transmission services: Proportion between the number of users who have generated data who are located in Spain and the total number of users who have generated the data regardless of their location.

This gross income is calculated per transaction, and not on an aggregated basis. In the case of publicity services, a transaction is each agreement between the advertiser and the owner of the interface, but in the case of programmatic advertising included through Supply Side Platforms (SSP) the transaction is the set of services provided by each SSP during the settlement period.

If the taxable base is in a currency other than the euro, the applicable exchange rate will correspond to the last one published in the last published Official Journal of the European Union of the settlement period.

Insights and comments

Our view of the DST calculation is that the taxable base is totally decoupled from the real income obtained in Spain. However, this dissociation can be either in favour of or against the taxpayer's interests. It also is disconnected from the users' value creation process that allegedly justifies the existence of this DST, as it only considers the total remuneration obtained and not other factors such as the interaction with the interface, the interface usage time, the quality of the data collected, or even the technical complexity of the interface that would lead to a higher fee charged by the interface owner with the same user implication than in other platforms.

Accrual and liquidation period

DST is accrued upon the rendering, execution or carrying out of the services. Advanced payments are taxed at the time of the payment, whether total or partial.

The DST self-assessment period is quarterly, by means of tax form 490. However, the DST Law states that in the event of the taxpayers' inability to determine the taxable base in the self-assessment period, they must establish a provisional taxable base and subsequently correct it once it is possible in the following assessment period (i.e. it is not necessary to file a supplementary return). The specific proceeding for this amendment would entail delay interest but not any penalties or surcharges.

The first self-assessment of the DST should be due in April 2021 in relation to the first quarter of 2021. However, the Spanish tax authorities have postponed the filing until July 2021 (together with the DST of the second quarter of 2021). Hence, both quarters must be assessed between 1 July and 2 August 2021.

Formal obligations

As for the formal obligations, they are mostly established by the DST regulations:

  • All taxpayers, whether residents or not in Spanish territory, must request from the Spanish tax authorities a tax identification number ("NIF") in Spain, if they do not already have one.
  • Taxpayers must comply with filing obligations relating to the initiation (boxes 111 and 714 of form 036) or modification (boxes 137 and 714 of form 036) of the activities that determine their liability to the DST. Taxpayers not established in the European Union must also appoint a representative for DST purposes.
  • The DST Regulations establish quarterly records to be kept by the taxpayer that include information such as the global total revenue derived from the services, the number of users in Spain involved, and the number of users involved globally. These records must be differentiated according to the taxable service.
  • In addition to the revenue and user records, the taxpayer must prepare a descriptive report of the processes, methods, algorithms and technologies used to analyse the cases of taxable and non-taxable income, to locate each type of service provided, calculate the income corresponding to each provision of digital services and identify the files, programs and applications used for this purpose.
  • The DST Regulations include the obligation to identify customers by name and, if available, VAT number.
  • The obligation to keep records include the obligation to submit information regarding the digital services, either periodically or under the Tax Administration's request.
  • The supporting documents of transactions subject to DST must be kept until the DST is time-barred. These documents shall also be translated into Spanish when required by the Tax authorities.

Corporate groups may file the tax returns via a proxy or through a social collaborator, and the returns may be filed in batches in order to carry out a single filing, or through the direct “machine to machine” mechanism.

Insights and comments

The DST Law does not define who is a "customer", though it does define "users". We understand that the customer shall be the person or entity who pays for the provision of the digital services (e.g. the advertiser or the acquirer of data, among others), but the limits on this concept will need to be specified.

The requirement to identify customers might pose a great difficulty for taxpayers who have no way of verifying the veracity of the data provided at the time of creating the account (e.g. platforms that require paid subscriptions to access), and will not be possible for services that do not require prior registration (to be confirmed if unregistered users can in any case be considered customers).

In any case, this tax obliges to fulfil several formal obligations that should be analysed very carefully in order for taxpayers to be prepared before July 2021. We expect that many multinational companies will need to adapt their systems in order to be able to meet all the requirements set forth by the DST Law.

Penalty regime

Aside from the general penalty regime applicable in Spain, the DST Law includes a specific penalty for failure to establish systems, mechanisms or arrangements for determining the location of users' devices in the territory where the tax is levied. The fine is 0.5% of the entity's net turnover of the previous year, with a minimum of EUR 15,000 and a maximum of EUR 400,000.

Other issues related to the Spanish DST

A sunset clause has not been included in the text of the Spanish DST Law (as opposed to what happens with the French DST), so the duration of this tax and its coexistence with future international measures are still open questions.

As mentioned, the EU has initiated the process to create a Digital Levy that could take the form of (i) a corporate income tax top-up to be applied to all companies conducting certain digital activities in the EU, (ii) a tax on revenues created by certain digital activities conducted in the EU, or (iii) a tax on digital transactions conducted business-to-business in the EU. Should this Digital Levy be created as a direct tax, we understand that it would be totally compatible with the Spanish DST. Also, the fact that it would be a EU Levy, and not a national tax harmonised at a EU level such as VAT, leads us to assume the tax collection would be destined -at least partially- to the EU treasury; thus Spain would not be inclined to abolish its DST. The Commission's proposal on the Digital Levy was expected for 20 July, but the US Treasury's pressures to reconsider have put this proposal on hold for the sake of the global deal on a minimum taxation. This means that questions on compatibilities of the Digital Levy with national DSTs and the OECD's Pillars will remain unsolved at least until autumn. For the time being, EU officials affirm that the Digital Levy will be complementary to the tentative deal on corporate taxation at a global level.

We believe that the lack of a sunset clause in addition to the indirect nature given to the DST reflects the eagerness of the Administration to increase the tax collection. Firstly, the inapplicability of double taxation treaties avoids limiting the taxation in Spain. The fact that the DST is an indirect tax means that is a deductible expense for Corporate Income Tax purposes, but most of the taxpayers will be non-residents in Spain, and therefore the impact would be minimal. Finally, the DST has been set up in a way that will allow compatibility with any agreements reached at an international level, both direct taxation reforms and new indirect taxes.

A final mention must be made to the Report on Spain's Digital Services Tax published in January 2021 as a result of the Section 301 Investigation carried out by the US Trade Representative ("USTR"). This report concludes that Spain’s DST, by its structure and operation, discriminates against US digital companies, including due to the selection of covered services and the revenue thresholds, and burdens or restricts US commerce. However, we consider this is an inevitable result of the ownership of most digital based companies being in US hands, either by creation or by acquisition. The purpose of the tax is, precisely, to ensure the taxation of the value created in Spain for companies who do not have physical presence in Spain and are not subject to Corporate Income Tax. Therefore, the fact that very few Spanish companies are subject to the tax is not an abnormality, not is the tax specifically targeting US companies.

In March 2021, the USTR announced the proposed trade actions in these six investigations, and undertook a public hearing and comment process. Following the official announcement of the decision of the USTR to impose additional tariffs of 25% on a range of Spanish products, the immediate suspension of their application was also announced for a period of 180 days. As of today, the Spanish Government has not announced how they expect to navigate US pressures or any measures to be taken in the context of these tax talks.

Next steps

Companies and corporate groups whose net turnover is over EUR 750 million need to analyse if the services they provide fall within the scope of the Spanish DST and if they can be valued in more than EUR 3 million.

If that is the case, they will be subject to Spanish DST and to the formal obligations derived from this new tax.

Companies who are not subject to DST because they do not reach the thresholds, but fall slightly short, are recommended to prepare a defence file to be prepared to prove to the Tax Administration, should they be required to, that they are not DST taxpayers.

At Hogan Lovells, we can help you determine the impact of this tax for your company and assist you in complying with formal obligations and preparing your defence file.

[1]               Ruling 94/2017, of 6 July 2017, unconstitutionality appeal number 4567-2015.

[2]               Judgement Promociones Oliva Park, C-220/19, dated on 3 March 2021.

[3]               Judgments Vodafone Magyarország, C-75/18, and Tesco-Global Áruházak, C-323/18, dated on 3 March 2020, in relation to special taxes levied in Hungary on the turnover of telecommunications operators and of undertakings active in the retail trade sector.


Authored by Alejandro Moscoso del Prado and Priscila Méndez.

Disclaimer: This publication is for information only. It is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.



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