Amidst OECD’s delay, Spain proposes its own Digital Service Tax

The world reacts as the OECD faces a setback in its efforts to set new international tax principles for the digital economy. In the meantime, several countries move forward with their own tax measures.

Author: Javier Esain, Senior Associate in the Tax Department at Baker McKenzie. IE Law School alumni

Speed bumps on the road to a global agreement

Since 2013, the Organisation for Economic Co-operation and Development (OECD) has been working on different reports and proposals to address tax challenges faced by the digital economy. These reports consistently stress the need to amend the existing international tax principles. However, the OECD is currently composed of more than 130 countries, and reaching an agreement is no easy task when there are so many interests at stake.

After years of painstaking work and fruitless negotiations, unilateral tax measures were put in place in countries all around the globe. These measures were intended to act as a stop-gap until the OECD reaches its desired long-term international agreement.

The COVID-19 crisis has only added to the urgency of this debate, causing “increased pressures on public finances and decreased public tolerance for profitable multinational enterprises not paying their fair share of taxes”[1], as stated by the OECD itself.

In this complex and uncertain environment, the OECD committed to delivering a consensus-based solution by the end of this year. Many believed this to be a true turning point for the issue. In fact, Angel Gurría, OECD’s Secretary-General, pointed out that “the alternative to finding an agreement would be a trade war.”[2]

Despite Angel’s strong words, the OECD announced on October 12, 2020 that such an agreement will not be reached this year, pushing back its timeline to mid-2021[3]. COVID-19 and “political issues” were named as the biggest hurdles to reaching this agreement[4]. Bruno Le Maire, France’s Minister of Economy and Finance, said of the United States, “[It’s] the last State that is blocking an agreement on digital taxation at the OECD.”[5] In this respect, it remains to be seen whether the recent election of Joe Biden as president of the United States may result in the USA reconsidering its position on this debate.

The OECD’s delay raised questions on how local governments should respond. Almost a month after the announcement, many countries and international institutions have reacted individually to the setback.

The case of Spain: new Digital Service Tax

The first draft of the Spanish Digital Service Tax (DST) bill was announced in 2018. The Spanish government has consistently shown its commitment to progress with its own unilateral DST, without waiting for the OECD to reach a consensus, “since adopting and implementing these agreed measures at an international and multilateral level could take a long time”, according to the final Act’s statement of purpose. Ironically, after a prolonged parliamentary process in 2018, the Spanish DST Act was finally published in the Spanish Official Gazette just four days after the OECD confirmed its lack of consensus.

The Spanish DST follows many of the general terms expressed in the EU’s DST proposal which was published in March 2018 by the European Commission. Digital services for online advertising, online intermediation and data transfers will be subject to the new Spanish tax as of Q1 2021. Similar to the EU’s proposal, the Spanish DST allows certain services to be excluded from this tax. However, unlike the EU’s proposal, intra-group digital services will be generally subject to this tax (unless a 100% shareholding exists between both companies).

As for the EU’s proposal, companies that meet the following two economic thresholds will be considered tax payers for the Spanish DST in 2021: (i) those whose net turnover exceeds €750 million in 2020 and (ii) those whose total in-scope income (linked with Spain) exceeds €3 million in 2020.

While the Spanish DST generally mirrors the EU’s proposal, the Spanish DST has some very specific features that taxpayers should take into account, such as how intra-group transactions are considered for the purpose of this tax.

The taxation of the digital economy has been a hot topic over the past few years, and it is expected to remain at the center of discussions for quite some time.

Further reactions

Spain is not alone in its commitment to move forward with its own tax measures. There are a number of countries who have either proposed or implemented their own, including EU member states such as France, Italy and the UK, and non-EU countries such as Brazil, India, Turkey and Kenya.

France has been playing an active role in driving forward unilateral DST measures. The French DST was enacted in 2019, but in order to avoid US tariffs on certain French products, its implementation was agreed to be postponed until December 2020. This was done with the intention of giving the OECD time to reach an international consensus.[6]

When the OECD announced its delay in negotiations, France was among the first to respond—Bruno Le Maire quickly confirmed that the French DST for 2020 will be paid in December 2020[7].

Many EU institutions also reacted to the OECD’s update. The Council of the EU decided to postpone work on EU taxes until the end of 2020, while also declaring that “should no consensus be reached by the end of 2020, the EU will prepare a new proposal for a European digital tax.”[8] Ursula von der Leyen, President of the European Commission, clarified that this proposal would arrive “early next year.”[9]

In addition, just one week after the OECD delay was announced, the European Commission published its “Commission Work Programme for 2021”. In it, the Commission floats the possibility of proposing “a digital levy in the first half of next year.”[10] The EU also stressed the importance of having a unified EU policy in order to “avoid the fragmentation of the single market if different member states now start introducing different digital taxes.”[11]

The taxation of the digital economy has been a hot topic over the past few years, and it is expected to remain at the center of discussions for quite some time. If the OECD’s delay persists, further local governments might come up with their own tax measures, so pressure is mounting on the OECD to reach an international agreement.

Javier Esain is a Senior Associate in the Tax Department at Baker McKenzie. His practice focuses on international tax issues, covering areas such as international tax planning, BEPS initiatives and double tax conventions. Javier completed a Tax LL.M. at IE Law School and various executive education courses in the field of international taxation at IE Law School and ESADE Law School.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any other person or organization.


[1] https://www.oecd.org/tax/beps/brochure-addressing-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2020.pdf

[2] https://www.nytimes.com/2020/10/12/business/digital-tax-talks.html

[3] https://www.oecd.org/tax/beps/cover-statement-by-the-oecd-g20-inclusive-framework-on-beps-on-the-reports-on-the-blueprints-of-pillar-one-and-pillar-two-october-2020.pdf

[4] https://www.nytimes.com/2020/10/12/business/digital-tax-talks.html

[5] https://news.bloombergtax.com/daily-tax-report-international/u-s-blocking-digital-tax-agreement-at-oecd-le-maire-says

[6] https://www.europeantax.blog/post/102fxhj/postponement-of-the-2020-french-dst-instalments-following-discussions-in-davos

[7] https://www.vatupdate.com/2020/10/21/digital-services-tax-to-be-paid-in-december-2020/

[8] https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/649340/EPRS_BRI(2020)649340_EN.pdf

[9] https://www.law360.com/articles/1318935/trade-tensions-likely-as-oecd-fails-to-get-digital-tax-deal

[10] https://ec.europa.eu/info/sites/info/files/2021_commission_work_programme_en.pdf

[11] https://www.politico.com/newsletters/weekly-trade/2020/10/19/eu-ready-to-impose-digital-services-tax-791044