digitalization of the economy

Current international tax rules are based on physical presence in order to tax entrepreneurial profits given that they were not designed to face business models based on intangible assets, data, and knowledge.

Such rules do not consider the business models in which companies can render digital services in a country with no physical presence in it. Hence, there is no link between the place where value is generated for the company and the country where it is being taxed.

To face this problem, the OECD and, unilaterally, some countries, try to find a solution that permits tackling tax challenges deriving from the digitalization of the economy.

✔ The OECD has been focused on nexus aspects based on the level of revenues of digital activities, thus abandoning the use of physical presence as the only nexus to determine the tax profit.

✔ Various countries, Spain amongst them, have made progress in the adoption of unilateral measures to assign part of the profit derived from certain digital business models in the territory where the data and users are located as sources of value generation for companies.

✔ In Spain, the entering into force of the Digital Services Tax on June 16th, 2021, advances the adoption of a practical solution to the indicated challenges, transitorily, up until the new legislation that eventually adopts an international solution comes into force.

✔ Companies rendering digital services (online publicity, online intermediation, or data transfer) whose net turnover in the preceding year exceeds 750 million euros and whose revenues derived from the rendering of digital services subject to this tax in the preceding year exceed 3 million euros, are obliged to quarterly pay 3% on the revenues obtained for such services in Spanish territory.

✔ This tax affects, for example:

  • The owner of a digital interface that receives income from the publicity shown by another company to users located in Spanish territory.
  • The company that owns a “Market place” platform and that receives a commission for the sale by a seller located in Spanish territory to a customer located, too, in Spanish territory.
  • The company that grants another company the right to use data generated by users of a digital interface located in Spain at the very moment when data were generated.

✔ Spain has justified the adoption of this unilateral measure on the fact that it is exercising its legitimate rights to tax when it is the territory from which the data and users’ contributions that generate value to the enterprise are derived.

In the context of tackling the tax challenges derived from the digitalization of the economy, the OECD has informed that it will provide the Pillar Two model rules to governments so that they serve as an example of how to carry out the two-pillar solution to address such tax challenges.

The rules define the scope and set out the mechanism for the so-called Global Anti-Base Erosion (GloBE) rules under Pillar Two, which will introduce a global minimum corporate tax rate set at 15%. The minimum tax will apply to MNEs with revenue above EUR 750 million.

The GloBE rules will facilitate a coordinated system of taxation intended to ensure large MNE groups pay this minimum level of tax on income arising in each of the jurisdictions in which they operate. The rules create a “top-up tax” to be applied on profits in any jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum 15% rate.

✔ Spain has implemented a minimum 15% effective corporate income tax rate for fiscal years starting from Jan. 01, 2022. Companies affected by this new measure are those that have a net turnover of, at least, 20 million euros, in the twelve months prior to the fiscal period, which is far from the threshold of EUR 750 million indicated by the OECD to set this level of tax.

✔ Tax groups are also subject to this minimum tax, irrespective of their turnover.

✔ In order to assess the tax basis on which this minimum tax is applied, the taxpayer must take into account all book to tax adjustments and include the setting off of any pending tax losses carried forward.

✔ To find out the minimum tax quote, the taxpayer is entitled to deduct tax reliefs as well as double taxation tax credits. If the resulting tax quote is higher than the minimum 15% tax, then the taxpayer can apply additional tax credits until this minimum tax is reached.

✔ Though it is not specifically regulated in current guidelines, it is understood that the tax credit for foreign film productions as well as the encashment of R&D tax credits are not affected by this minimum 15% tax.

Publicado el 06-2022 por PBS