- Since 16 January, Law 4/2020 on digital services and Law 5/2020 on financial transactions have applied.
- The financial transactions tax charges 0.2% on purchases of shares of large Spanish listed companies.
- The digital services tax applies 3% to certain revenue of the largest technology groups.
On Saturday 16 January 2021 two taxes approved in October came into force: Law 4/2020 of 15 October on the Tax on Certain Digital Services, known as the Google tax, and Law 5/2020 of the same date on the Financial Transactions Tax, the so-called Tobin tax. They are new taxes, with their own taxpayers, forms and formal obligations, and they arrive in the middle of an international discussion on how to tax the digital economy.
Although their direct targets are large technology groups and financial intermediaries, the effect can reach companies and families: someone who buys listed shares may bear an extra cost that the intermediary passes on, and someone who depends on digital platforms may see the levy passed on in fees. Neither tax directly affects most small and medium-sized businesses. A similar levy already exists in other European countries, such as France and Italy, though with different designs and rates.
0.2% on share purchases
The financial transactions tax applies to purchases for consideration of shares in Spanish companies admitted to trading on a regulated market whose market capitalisation exceeds €1 billion, at a rate of 0.2% of the amount of the transaction. Capitalisation is measured on 1 December of the previous year, so each year there is a different list of affected securities. It taxes purchases only: sales, fixed income and derivatives are outside its scope. This obliges intermediaries to review each year which securities exceed the threshold and to adjust their systems.
The taxpayer is the financial intermediary that executes the transaction, although in practice it may pass the cost on to its client. Primary-market transactions and those of market makers, among others, are excluded. For an investor, the effect is an additional cost, small per transaction but cumulative if trading is frequent.
3% on digital services
The digital services tax charges 3% on revenue from three types of services: online advertising, online intermediation and data transmission. It only reaches groups that exceed two thresholds: worldwide turnover above €750 million and revenue from these services in Spain above €3 million. The tax is attributed to Spain according to the location of users, and is settled quarterly.
Its existence reflects a broader debate: many countries consider that the large platforms pay little tax in the markets where they earn revenue, and have created their own levies while the OECD seeks a global solution. Some of these national taxes have caused trade friction, and they are expected to be adjusted if an international agreement is reached.
What to review
If your company is one of the few that exceed the thresholds, now is the time to check with the adviser how the base is calculated, which revenue is considered taxable and how the location of users is documented. Companies that buy advertising or platform services should check whether their contracts allow the tax to be passed on in the price.
Investors who trade shares of large listed companies can ask their institution how the 0.2% will be passed on. Implementing regulations are still pending, so some practical details, such as the filing forms and payment deadlines, will be settled during the year. It is also useful to follow developments at the OECD, where an agreement is being negotiated that could replace national digital taxes.
Two new and tightly targeted taxes that foreshadow a bigger shift in how finance and the digital economy are taxed.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
