Spanish FTT, DST and other tax measures at a dead end?

The Spanish Congress has rejected a draft National Budget package including proposals for tax initiatives covering both a Spanish FTT and DST.

The rejection of the draft National Budget package by the Spanish Congress on 13 February 2019 and the subsequent call for general elections made by the Spanish Government puts on hold, at least for the time being, legislative tax initiatives such as the proposed implementation of a Spanish Financial Transaction Tax (FTT) and Digital Service Tax (DST) and several corporate, income and wealth tax increases promoted by the current Government.

This article summarises the latest proposals and possible timelines for their eventual approval or final rejection.

Political changes

Since the socialist party lead by Pedro Sánchez took its place in the Spanish Government after a successful no-confidence motion against the prime minister, Mariano Rajoy, a significant number of tax measures have been periodically announced. However, the political instability of the Socialist party, given the few seats they occupy in the Congress (only 84 out of a total of 350) and their dependence on the Catalan independent parties, has led to the rejection of the draft National Budget Act and the call for general elections in Spain.

On Wednesday 13 February, the National Budget Act was rejected by the Spanish Congress due the veto of the Catalan independent parties which did not support the proposal of the Government following the refusal of the Government to accept proposals for negotiation of Catalonia’s independence. This situation has led Pedro Sánchez to call for elections for the 28 April.

This political maze puts on hold the proposed tax measures included in the National Budget Act, as well as the legislative initiatives in relation to the Spanish FTT and the DTS (which were progressing independently in the Congress as a requirement for the enactment of new taxes under Spanish law). As a result, it currently seems very unlikely that, even if a left wing Government is returned with a majority after the elections, the FTT and DST at least could be ready to be implemented before the end of 2019.

A summary of the proposed tax measures now on stand-by, at least for the moment, is set out below.

Tax changes announced by the Socialist party in the draft National Budget Act

The main tax measures contained in the Socialist Party’s draft Bill filed with the Congress of Deputies on 25 January 2019 included the following proposals:

Changes to Corporate Income Tax (CIT)

Participation exemption: Under the draft Bill now rejected by the Congress, the current participation exemption regime would had been be limited to 95% of the gross dividend distribution or gain. This modification would have applied to both distributions and capital gains derived from the participation in Spain and foreign subsidiaries paid to Spanish CIT taxpayers.

Minimum effective tax rate: The draft Bill included a minimum 15% effective tax rate generally for consolidated groups and companies with net turnover above €20m (generally applicable to companies subject to the general tax rate of 25%) and an increased minimum effective tax rate of 18% (applicable to banks and petrol companies currently taxed at a 30%), as well as a reduced one of 10% for newly incorporated companies (currently taxed at a 15% nominal tax rate). It was the initial intention of the Socialist Party that the minimum rate was to be calculated on the basis of the accounting profits instead of the taxable base, but this was subsequently acknowledged to be contrary to general taxation principles and tax treaties.

The general corporate tax rate was intended to be reduced to 23% for companies with turnover under €1m.

Payments on account: The draft bill included an increase in the payments on account of corporate tax by Spanish companies, from the current 5/7 to 19/20 of the final corporate tax rate. The minimum payments on account for companies with €10m turnover would had been also increased from the current 23% to 24% (from 25% to 29% in case of banks and petrol companies).

Changes to SOCIMI regime

In 2009, the Spanish Government created a REIT-type regime to revitalise the real estate market in Spain (the SOCIMI regime). Overall, Spanish SOCIMIs enjoy a very advantageous tax regime, including a 0% tax rate provided that certain requirements are met including: a minimum capital investment of €5m, which can be invested in a single property; a minimum of 80% of the profits must be distributed through dividends; and a minimum of 80% of the value of the assets in urban buildings must be leased for three years.

The draft of the National Budget Act included for the first time a special tax of 15% on the non-distributed share of profits of the SOCIMIs.

Changes to Personal Income Tax (PIT)

Under the draft Bill, any individuals with annual earnings above €130,000 would be generally taxed at higher rates, with a new marginal tax rate for earnings above €300,000. In some Autonomous Regions (eg Andalucía, Asturias, Cantabria, Cataluña, Comunidad Valenciana and La Rioja) where the tax rates are generally higher, the top marginal tax rates would have increased from 48% to 52%. In Madrid, the Autonomous Region with lowest tax rates, the top rate would had moved from the current 43.5% to 47.5%.

The draft Bill also contained an increase in capital gains, dividends and interests (savings income) tax rates, which would be taxed at 27% from €140,000. The current top rate for this type of income is 23%, applicable from €50,000.

Wealth Tax

Wealth Tax had been extended on a yearly basis since 2011 due to the financial situation but was scheduled to be removed definitively by 01 January 2019. In December 2018, a provisional urgent measure approved the extension of this tax to 2019. Further, the draft National Budget law also included an additional provision which implied that from 2019 onwards this tax would become permanent and the top tax rate would increase to 3.5% (the previous year it was 2.5%).

Again, the definitive reinstatement of Wealth Tax has now been put on hold, though it will continue during 2019, at the former rate of 2.5%.


Both FTT and DST require a specific law for their introduction, given that they would be entirely new taxes. Therefore, on 25 January 2019 the Government approved two draft Bills and sent them to the Spanish Congress as separate legislative initiatives to the National Budget Law package. Below are set out brief overviews of the draft Bills sent to the Congress in respect of each of these taxes.

Financial Transactions Tax (FTT)

Since 2013, Spain was part of the core group of EU member States promoting the enhanced co-operation procedure for the adoption of an FTT. Due to the lack of real progress in the adoption of an EU FTT, the Socialist party taking Government in June 2018 decided to propose the implementation of a similar tax domestically, without waiting for the outcome of the enhanced co-operation procedure.

In November 2018, the Spanish Government announced a draft text. For more details on this draft, see “Spanish FTT: the Spanish Government publishes a first draft law”.

After receiving comments from different associations and parties, in January 2019, the Government approved a first draft Bill which was sent to the Congress. According to the draft Bill, the following modifications have been introduced to the former draft released in November:

Taxpayers and responsible persons: The draft Bill clarifies that the FTT will be assessed by the investment services firm or credit entity acquiring the shares on its own behalf, irrespective of its residence, but if such investment firm or credit entity does not act on its own behalf, the tax will be assessed by the following persons (as substitutes of the taxpayer), depending on where the transaction is carried out:

  • if the acquisition takes place on a trading venue, the taxpayer will be the market member executing the purchase order
  • when several market members are involved in the execution of a purchase order as intermediaries, the intermediary who is liable to the tax is the firm that received the purchase order directly from the end buyer
  • if the acquisition takes place outside a trading venue:
    • if carried out by a systematic internaliser, the taxpayer will be the systematic internaliser
    • otherwise, the taxpayer would be the financial intermediary which receives the purchase order from the buyer or delivers the shares to the buyer upon the execution or settlement of a financial instrument or agreement
    • if none of the aforementioned persons intervene in the acquisition, the tax will be assessed by the custodian of the securities acting on behalf of the purchaser.

In all these cases, the taxable person is entitled to recharge to the actual purchaser of the shares the amount of FTT due.

Scope: The draft Bill clarifies that the following transactions would be out of the scope of the Spanish FTT: (i) the acquisition of shares exclusively aimed at the issuance of depositary receipts; (ii) the acquisition of depositary receipts in exchange for the supply of the Spanish shares that will be represented by the depositary receipts; and (iii) transactions to cancel depositary receipts via supply of the Spanish shares represented by them.

Exemptions: Aside from some slight clarifications as to the scope of some exemptions (eg wider definition of market making activities), the draft Bill requires that for the application of the exemptions, the acquirer of the Spanish shares must provide the taxable person with evidence of the eligibility for the exemption in all cases. The draft Bill provides for both the acquirer of the Spanish shares and the taxpayer, to keep certain documentation readily available in case of request by the Spanish tax authorities.

Collection: The Spanish FTT would be assessed monthly by the investment firm or credit institution acquiring the Spanish shares irrespective of its residence.

Reporting: The taxpayer would be obliged to inform the custodian of all the relevant details of the transaction (otherwise, the formerwill be jointly liable for the information not provided/inaccurate).

The taxpayer must also obtain a Spanish tax ID number and submit an annual summary report of the tax, including reference to any exempted transactions (where the taxpayer paid the tax through a central securities depositary, the latter will be subject to this reporting).

Digital Services Tax (DST)

While the EU DST proposal remains uncertain following the lack of consensus at the meeting of the EU’s Economic and Financial Affairs Council (Ecofin) held in December 2018, the Spanish Government has been determined to approve a domestic DST.

On 23 October 2018, the Spanish Government announced a draft text with the aim of establishing a temporary DST in Spain until an EU agreement could be reached. Broadly, the draft text followed the EU Directive proposal published in March 2018. Companies with a net revenue over €750m with revenues derived from digital services within the scope of the tax exceeding €3m in Spain would be taxed at a 3% rate.

On 25 January 2019, the Government announced a draft Bill which was sent for approval by the Congress. There were some amendments compared to the text published in November, including the following: (i) digital services supplied between 100% owned companies will not be subject to the DST; (ii) the obligation on the taxpayer to identify any user’s devices within the Spanish territory; and (iii) tax penalties have been increased to a maximum of €400,000.

The scope of the DST under the current draft would cover services where the participation of a user in a digital activity constitutes input for the business and that enables that business to obtain revenues therefrom. These services include:

  • online advertising services: this is placing on a digital interface advertising targeted at users based on the data collected by them (all advertising will be considered as targeted advertising unless proved otherwise)
  • online intermediation services: digital platforms and intermediaries that allow users to locate other users and interact to provide a service or delivery of goods between users
  • data transfer services: the transmission of data collected about the users generated by the information gathered during their activity on the platform or the sale of metadata.

The activities excluded from DST taxation would be generally the same as those outlined by the European proposal:

  • online sales of goods or services where the value creation for the retailer lies with the goods or services provided and the digital interface is simply used as a means of communication
  • the sale of goods or services between end users within an online intermediation service
  • online intermediation services with the aim of providing digital content to users or communication or payment services
  • regulated financial services rendered by regulated financial entities
  • income derived from the transfer of data by regulated financial entities.

However, the draft Bill does not exclude intra-group transactions from the scope of the DST. During the public consultation, it was pointed out that this discrepancy compared with the European Commission’s proposal may result in over taxation.

The location of the users will be the nexus with the Spanish territory for the DST regardless of whether the user has paid any consideration that contributes to the generation of revenue for the company. The IP address will generally locate the place where the devices are used. However, other methods of geo-location may be accepted to avoid errors, allocation concealment or IP address falsification.

Since the DST focuses on the services provided, without considering the features of the service provider or its economic capacity, it is suggested that the DST is not a tax on income or assets, and therefore is not covered by double taxation treaties. As defined in the draft law, it is configured as an indirect tax compatible with the Value Added Tax. However, it should be noted that the EU Council legal service issued an opinion in October 2018 concluding that the DST foreseen in the proposal for a Directive is not an indirect tax, mainly because the taxpayer is not the consumer but the service provider. It is true, on the other hand, that it is provided that the Spanish FTT is will accrue immediately following each taxable digital service (or at the time of the total or partial price for the services is actually received, whichever event takes place first), which is different to the EU Directive proposal. Tax returns would be filed quarterly.

Despite not being specified in the draft text, the DST should be a deductible expense for Spanish Corporate and Non-residents taxpayers. Nevertheless, it is highly desirable that this point should be clarified in the legislation.


Now that President Sánchez has called for general elections, it is clear that the changes to the CIT, SOCIMI regime, PIT and Wealth Tax will not happen in the context of the National Budget Act promoted by the socialist Government, which has now been withdrawn due to the lack of parliamentary support. However, these changes could be potentially be implemented before the end of 2019, particularly if the Socialist party wins the general elections in April 2019 with a majority position. Otherwise, if a centre-right wing coalition take the Government after the elections, it is unlikely that such proposed tax measures would be reintroduced.

With regards to the Spanish FTT and DST, the call for elections makes the future of these taxes increasingly uncertain.

Most likely if a centre-right wing coalition wins a majority in the April elections, the current legislative initiatives for both taxes will end. Other experience of introducing such taxes within the EU may also make the future Spanish Government carefully consider the difficulties of implementing such taxes unilaterally, without waiting for broader EU initiatives. Furthermore, the implementation costs of these taxes for the Spanish Administration, taxpayers and entities responsible for its collection, as well as the potential loss of investment in Spanish markets due to increased regulation, are aspects that may also eventually prevent a new Government from reintroducing these initiatives.

In any event, we must now await the outcome of the general elections on 28 April to have a clearer idea of the future of these tax initiatives.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.