Our Spanish member Adigital issued a press release last Thursday affirming that a unilateral initiative like the one that has been proposed by Spain isolates the country and severely damages its competitiveness. Without prejudice to a detailed analysis of the specific proposal that the Spanish Government will present to establish a tax on certain digital services, the Spanish Association of the Digital Economy (Adigital) warns about the harsh consequences for the Spanish economy that will be derived from its application.
Adigital subscribes the need to address a debate aimed at adapting the regulatory framework to the digital economy, particularly in the area of taxation, but, in any case, it remembers that this debate must be approached from an international perspective, especially given the globalized and digitalized nature of the economy. The association believes, therefore, in a regulation accepted and agreed on a global scale, that prevents countries from addressing unilateral initiatives such as the one intended by the Spanish government. Such a proposal, questioned by international organizations like the European Commission or the OECD, will undoubtedly be an element that fragments the European Single Market and the Digital Single Market, which will unilaterally and unjustifiably damage Spanish enterprises’ competitiveness.
Adigital states that temporary fiscal measures adopted in the past have proven to be highly distorting, generating a strong legal uncertainty for citizens, companies and investors, and forgetting their provisional nature to become permanent. According to the association, a transitory solution will also be a clear obstacle for the country to participate in the international debate, discouraging the search for adequate, lasting and consensual solutions, and leaving Spain in a situation of exceptionality until the necessary international agreement.
“In the current global context and with an economy with enormous deficits in innovation and digital competitiveness, Spain can not become a country that discourages investment, any approach in this regard must be established internationally,” Carina Szpilka, President of Adigital, explains.
The association, which groups more than 550 companies, insists that the introduction of a new tax requires rigor and study in the definition, the delimitation of the taxable event, or compliance mechanisms. It also requires the indispensable assessment study and the necessary justification to support the establishment of a tax that discriminates the provision of services by digital means, as opposed to “traditional” ones, against basic principles of tax justice, equity and non-distortion. The improvisation in the delimitation of a tax and in its implantation, it says, always derives in a damage for contributors and society while introducing elements of legal uncertainty.
Additionally, Adigital believes a tax of this nature sets a precedent, again unilateral, of serious consequences against internationally accepted tax principles, such as taxing profits, rather than income. In addition to obvious issues of double taxation and non-compliance with international treaties, it should be remembered that the high level of income of companies does not necessarily imply a real profit. Moreover, especially in the first years or in very competitive economies with low margins, it is common that there are no benefits or for those generated to be very low, especially in companies that are intensive in R&D. Nor should we forget the principle that governs corporate taxation: companies pay where the value is generated, linked to the place where the costs and risks of the activity are assumed.
Adigital highlights the discriminatory nature of a tax like the one proposed, with the inevitable negative impact it will have on investment, growth and competitiveness. As pointed out by the OECD, such a measure will increase the cost of capital and reduce the incentives for investment and innovation of the companies that must support it, which will result in a disincentive for growth of SMEs, start-ups and technological companies, causing a negative impact on employment and SMEs.
By the same token, the association fears the repercussions that the tax will imply, in the end, for intermediaries and final consumers of these digital services. With a tax of these characteristics, Spanish entrepreneurs and users are at a competitive disadvantage compared to the rest of Europe and the world, since they will be forced to face an additional expense in international markets. In this way, a tax like this becomes a tax on export.
“Adigital promotes global, constructive, coherent and holistic dialogue to achieve a modern regulatory framework, appropriate to the innumerable changes that digitalization brings. We must advocate for standards that can translate internationally accepted principles, which have made possible the innovation we enjoy now, in new norms that can adapt to the rapid changes of recent years, and to those that remain to come. To participate in the international debate, and in the global economy, we cannot adopt unilateral measures that leave us at a disadvantage in advance and show signs of wanting to stop the digitalization of the economy”, Szpilka says.
Click here to download the press release.