On July 4, 2018, Spain published Law No. 6/2018 in the official gazette, enacting the 2018 Budget measures into law. The legislation contains the BEPS Action 1 and 5 measures discussed below, among others.
Editor’s Note: Articles 75-79 of Law No. 6/2018 contain amendments to Spain’s Value Added Tax (VAT) rules to implement the place of supply measures in EU Directive 2017/2455 of December 5, 2017 for electronically supplied services, which are not discussed below.
EU Digital Services Tax
On April 30, 2018, Spain’s Ministry of Finance announced its intention in the updated 2018 Budget Plan (2018-2021) to introduce a new tax on certain digital services in 2018, which would follow the principles in the European Commission (EC) digital tax proposals of March 21, 2018.
On March 21st, the EC proposed to introduce a digital services tax (DST), aimed at addressing the tax challenges of the digital economy in the EU. The EC said that current EU tax rules were not designed to address today’s global digital business, where the user has little or no physical presence in the taxing jurisdiction. The DST would be an interim digital tax (e.g., 3%) that would cover the main digital activities that currently escape tax altogether in the EU. This interim tax would apply to revenues created from activities where users play a major role in value creation, including from the following:
- Selling online advertising space.
- Digital intermediary activities (which allow users to interact with other users and which can facilitate the sale of goods and services between them).
- The sale of data generated from user-provided information.
Under the EC’s proposal, the interim tax revenues would apply only to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million.
According to Section 4.3. of the updated 2018 Budget Plan (2018-2021), the purpose of the tax is to overcome the deficiencies of the current Spanish tax system, and subject large companies to tax on digital activities where the value is created. It will be applied only to companies with a large amount of annual income, and will only tax income derived from the provision of certain digital services. Spain estimates that this new tax will have an impact of about €600 million in 2018.
Under additional provision 152 of Law No. 6/2018, the government will send draft legislation to Parliament for consideration within three months, which will be based on the March 21st EC DST proposals.
Patent Box Amendments
Article 68 of Law No. 6/2018 amends Article 23 of Law 27/2014 (Reduction of income from certain intangible assets) to include the following (list is not exhaustive) for tax periods beginning from January 1, 2018:
- Income from the transfer of the right to use or exploit patents, utility models, supplementary certificates for the protection of medicines and plant protection products, designs, or advanced registered software, obtained through R&D, will be entitled to a reduction in the tax base in the percentage resulting from multiplying 60 percent by the following coefficient:
- In the numerator, the expenses incurred by the transferring entity directly related to the creation of the asset, including those derived from subcontracting with third parties. Increase these expenses by 30 percent.
- In the denominator, the expenses incurred by the transferring entity directly related to the creation of the asset, including those derived from subcontracting and, where appropriate, from the acquisition of the asset.
- To receive a reduced rate, taxpayers must meet the following requirements (list is not exhaustive):
- Transferee uses the rights of use or exploitation in the development of an economic activity, and this use does not result in deductible expenses by the related transferor entity.
- Transferee does not reside in a no or low-tax jurisdiction or tax haven, unless located in an EU member state and the taxpayer proves that the operation responds to valid economic reasons and it carries out economic activities.
- When the same assignment contract includes accessory services, the corresponding consideration must be differentiated in the contract.
- Entity has the necessary accounting records to be able to determine each of the expenses corresponding to the assets subject to assignment.
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