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Spanish digital services tax targets big tech companies

Spanish digital services tax targets big tech companies

Spain’s digital services tax (DST) is slated to enter into force in January 2019, despite the criticism and concerns of multinational technology companies, write Rafael Calvo and Juan Camilo Sánchez of Garrigues, Taxand Spain.

Following the path of the European Commission, the Spanish government has recently filed a preliminary bill to create the DST, an indirect tax on digital services where there is an essential contribution by the users to the value creation process of the company and where those user contributions are monetised by the companies. In accordance with the government’s forecast, the DST would collect €1.2 billion ($1.4 billion) in FY2019.

The tax rate would be 3% and the taxpayers would be the multinational groups with net revenues of more than €750 million worldwide and over €3 million in Spain. This measure will affect large multinational technology companies providing the following digital services:

  • The placing on a digital interface of advertising targeted at users of that interface (online advertising services);

  • The making available of multi-sided digital interfaces to users which allow these to find other customers and to interact with them, or even facilitate the provision of underlying supplies of goods or services directly between those users (online intermediary services); and

  • The transmission of data collected from users on digital interfaces (data transmission services).

On the contrary, the DST should not affect entities providing underlying supplies of goods or services that take place between users within an online intermediary service. It should also not apply to the sales of goods or services contracted online via the website of the supplier of those goods or services (e-commerce retail activities), where the supplier does not act as intermediary. This is because the value creation for the retailer lies with the goods or services provided and the digital interface is only used as a means of communication.

Spain’s DST is based on one of the two legislative proposals published by the European Commission in March 2018. The Commission’s initiatives are:

  • A long-term solution, which consists of modifying the traditional definition of permanent establishment (PE) to create a digital PE, which would exist when a multinational group has a significant digital presence in a member state. It would apply when the company provides digital services through a digital interface and meets certain conditions related to number of users, contracts and revenues; and

  • An interim solution, which is almost identical to the one being promoted now by the Spanish government.

As expressly mentioned by the Spanish government, the fact that no practical solutions have been adopted in this respect since international debates on the subject began, as well as growing social pressure, tax justice and sustainability of the tax system, mean it is necessary to follow the path started by other countries and adopt a unilateral solution. However, the government said the rules on its DST will be adapted once a solution is adopted at European level. Therefore, the DST should be considered in principle as a temporary measure that may be modified as soon as other measures are approved at a European level.

As expected, the European Commission and the Spanish government have received a great deal of criticism after publishing these initiatives, including the following:

  • The Commission and the Spanish government assume that in the covered digital activities, the “value” of the service is created by the users, which are the ones who provide the data used by these companies to supply the digital services. On the other hand, the multinational technology companies maintain that the “value” of the service mainly resides in the industrial and intellectual property of the platform or application, or in the know-how, given that there would be no point in having the users’ data without knowing how to process them.

  • These measures could generate double taxation or excess of taxation given that the DST would be levied on the total gross income (without the possibility of deducting expenses) from a business, without considering whether the group has had losses or whether that income has been taxed in other jurisdictions; and

  • The DST has been designed as an indirect tax, compatible with VAT, with the main aim of falling outside the scope of tax treaties, which could raise legal concerns.

Despite the foregoing, if finally approved, the Spanish DST will presumably enter into force in January 2019.


Rafael Calvo

Juan Camilo Sánchez

Rafael Calvo ( and Juan Camilo Sánchez (

Garrigues, Taxand Spain


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