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Spain approves digital tax despite concerns of a US backlash

The move follows the French example and is aimed at enabling Spain's tax system to deal with the digital world

Spain's government has followed France's example and approved a digital services tax, risking retaliation from the US. 

The levy was announced by budget minister María Jesús Montero on Tuesday, according to The Guardian, with the aim of avoiding unfair competition on more traditional businesses.

Earnings from online ads, deals brokered by digital firms and the sale of user data by large tech companies will all be subjected to a 3% tax. The last stipulation is for businesses that have at least €750m (£623m) in global revenue, such as Google and Facebook

The goverment is expecting the tax to raise €968 million a year on top of €850 million a year through a tax on financial transactions which was also reportedly approved on Tuesday. 

It won't be fully implemented until December as it is subject to a separate agreement on taxing global tech by the Organisation for Economic Cooperation and Development (OECD). 

"Spain cannot afford to have a tax system rooted in the last century," Montero said after the Spanish government approved the digital tax, according to The Guardian. "We must move towards a tax system for the 21st century, which takes into account this new form of activity."

French authorities felt the same last year and announced a similar proposal to stop companies exploiting global tax loopholes. At the time, the French finance minister Bruno Le Maire said the levy would hit around 30 companies that operate in France, these included British and Chinese firms but the majority were American businesses. 

The US initially issued threats of retaliation with higher duties on French products, but the two countries have agreed to pursue a legal framework with the OECD, placing Frances tax on hold until the end of the year. 

The UK was also thought to be considering a digital levy of 2% back in 2019 but single frameworks in multiple countries will lead to greater complexity, according to Neil Ross, programme manager for digital economy at TechUK. 

"The OECD is positive about the possibility of agreement and national governments should be dedicating their resources to supporting a positive conclusion," said Ross. "Having a variety of DST's will not help to ensure consistency between countries and could lead to a race to the bottom which benefits no one."

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