The Google rate, also known as the GAFA rate (Google, Amazon, Facebook, Apple), has a free hand for parliamentary processing once the Spanish Congress yesterday rejected the amendments to the entirety presented by PP, Vox and Ciudadanos, against the project of law presented by the government.
The (misnamed) Google rate is a new tax that will be levied with 3% online advertising services, brokerage services, and the sale of data generated from information provided by the user, and in general, to collaborative economy companies that operate on the Internet that bill globally over 750 million euros and more than 3 million euros in Spain.
The project has been in the limelight for nearly a decade and seeks that this type of digital companies that “They hardly contribute in the countries where they generate benefits”, according to the Minister of Finance, pay for what they really generate for their business (which is a lot) through “a fair and progressive tax system of the 21st century”, to tax digital businesses, capable of operating without physical presence or creating value with the contribution of end users. “Digital taxation for a digital economy, which does not make traditional businesses less competitive,” he clarified.
The world has changed. Every day the economy is more digital and the current taxation is designed for the economy of 20 years ago, “explained the minister, clarifying that it will not have an effect on SMEs, since” it does not tax e-commerce retail activities or sales between individuals ”, but it will affect technology companies such as Google, Apple, Facebook, Amazon and Netflix, and in general“ large multinational companies that hardly contribute in the countries where they generate profits ”.
Why is a Google fee necessary?
To put the Google rate in context. Apple operates in Spain through various subsidiaries that they allow you to pay less taxes than a mileurista. The largest company in the world by market capitalization and one of the ones that obtain the greatest benefits with respect to its income, paid the Spanish Treasury between 2010 and 2014 7.5 million taxes.
Another unheard-of example: Apple Retail Spain recorded losses of 22 million euros in 2012, when Apple’s physical stores are (based on their area) the most profitable in the world. In Europe, the use of subsidiaries and the establishment in Ireland of its headquarters, allows it to transfer most of its turnover there where it pays tax rates well below the average of the Old Continent.
The Apple thing is just an example and not the most surprising. The two subsidiaries of Netflix established in Spain paid 3,146 euros for corporate tax in 2018, its first fiscal year in Spain. The key is to channel your income to a company in the Netherlands, which, as in the case of Ireland, offers you lower tax rates.
Google rate in Europe
The new digital tax is powered by the European Commission and is in line with the measures being taken by the United Kingdom, France, Germany, Italy or Hungary. It will affect companies like Apple, Amazon, Google or Facebook, others like Netflix, Uber or Airbnb, and in general all technology or digital companies that are not taxed in Spain for the income they obtain in the country, as other large companies do. like Microsoft or IBM.
The European Commission considers that these great technology companies practice sophisticated financial and tax operations to pay the fewest taxes in Europe. A “tax engineering” that takes advantage of legal loopholes in the member states, various subsidiaries and billing transfers to centrals established in certain countries that allow them to pay tax rates well below the average of the Old Continent and the rest of non-digital companies.
The tax was already announced by the former Spanish Finance MinisterCristóbal Montoro and the current Prime Minister, Pedro Sánchez, have already reiterated their intention to impose a tax on large technology companies as part of a plan to increase state revenues. The new digital tax is a transposition of a European directive and will be processed as a proposed law independently of the General State Budgets.
The technology companies have already shown their concern about the future entry into force of this tax that has been in use for a decade, although everything indicates that in the end they will have to operate under the same rules than the rest of technology companies and non-digital companies that regularly pay taxes in Spain. As for the opposition, the Popular Party and Citizens have considered this tax reasonable, but its implementation inadequate at this time, without expecting to reach an international consensus for fear of retaliation from the Trump administration.
In any case, the executive has the support of the majority of Congress and the decision is to continue with the processing of a tax that will come into force three months after its publication in the Official State Gazette (BOE) and will affect, in general , to collaborative economy companies that operate on the Internet that invoice over 750 million euros worldwide and more than 3 million euros in Spain. The Google rate in Spain will be transitory until the European regulation in which the Commission is working or the attempt by the OECD (much more complicated to reach consensus) to harmonize a standard worldwide is approved.