Spain passes the Digital Services Tax regulations and tax return

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Though effective since January 2021, the Spanish Digital Services Tax has still not been fully implemented. The approval of the regulations and the tax return allow to better understand the material and formal obligations arising from this new tax and is a step towards the first self-assessment period expected for July 2021.

The Spanish Digital Services Tax (“DST”) Law was published in October 2020, and came into force on 16 January 2021 (please see our related publication). 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 -for now- self-assessed during the month of July of 2021.

On 9 June the tax return (form 490) for DST was also approved, and published on 11 June 2021. In this return, taxpayers must identify the group to which they belong, should it be the case, their total income and taxable base by category of digital services and the adjustment of previous tax periods if applicable.

The DST Regulations develops (i) the DST location rules for the users’ devises and (ii) the formal obligations.

With regards to the location rules, the DST Law establishes that the digital services are taxed when the user of the services is located in Spain, which will be presumed by their IP address. The DST Regulations specify that the location of the device will be determined by all address details using the geolocation technology employed. It also lists some of the means of evidence that may be used to prove that the location is different from that indicated by the IP address (WiFi, Ethernet, GPS, GLONASS…). The taxpayers are obliged to establish the necessary mechanisms to locate the users’ devices, but the Regulations also allow to delegate to a third party the fulfilment of the location obligations.

In addition, the DST Regulations establish the formal obligations for the DST, which can be summarized as follows:

a. 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.

b. Taxpayers must comply with filing obligations relating to the initiation or modification of the activities that determine their liability to the DST.

c. Quarterly records to be kept by taxpayers that include information such as (i) the global total revenue derived from the services, (ii) the number of views or users involved in Spain, and (iii) the number of views or users involved globally. These records must be differentiated according to the taxable service.

d. Obligation to identify customers (not users) by name and, if available, VAT number.

e. In addition to the revenue and customer records, taxpayers 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.

f. The obligation to keep records include the obligation to submit information regarding the digital services under the tax authorities' request.

g. The documentation related to transactions subject to DST must be kept until the DST is time-barred (we note that the general statute of limitation period in Spain is four years).

Furthermore, the Spanish tax authorities have published a draft document concerning interpretation issues of the DST. This document is subject to public hearing, allowing for additional contributions by any person or entity until 21 June 2021. Hogan Lovells shall soon publish an analysis of these matters and other doubts about the DST's practical application that remain unanswered.

Next steps

Multinational companies need to analyse their digital activity in Spain in order to determine if they would fall with the scope of DST in Spain, to be prepared to comply with the tax obligations in the first DST self-assessment.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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