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Are influencers required to pay taxes?
Advertising has changed dramatically in recent years. In today’s world, the major brands couple traditional means with influencer marketing, for example, a highly-followed YouTube or Instagram user that brings potential buyers’ attention to a dress or an accessory, hoping it will go viral. Sometimes these brands give their products to the influencer free of charge, while other times they pay them for their services. This raises a tax issue: should influencers pay tax on these activities?
In general, the answer is yes. When influencers receive any type of consideration, whether monetary or in kind, that consideration must be declared in their personal income tax return and, where applicable, they must include VAT on any invoices they issue.
This is the conclusion reached by the General Tax Office (DGT) in its binding ruling CV0992-16 of March 14, in connection with an individual who, in pursuing a hobby or interest, regularly uploaded homemade video games to YouTube and was approached by a company offering to pay him for advertising their products in a space on his channel. According to the DGT:
- For the purposes of the tax on business activities (Spanish IAE), uploading videos to a public YouTube channel constitutes a business activity, given that resources and means are organized and used in order to participate in the production of goods and services, irrespective of whether or not an economic profit is generated. Consequently, the YouTuber was required to register for this tax, even though, as an individual, an exemption would apply.
- For the purposes of personal income tax (Spanish IRPF), income obtained by allowing companies to advertise on one’s YouTube channel constitutes income from economic activities.
In calculating net profit, the taxpayer could deduct their business expenses, providing they are incurred in carrying out the activity and are related with the generation of income (i.e., income correlation principle). To be deductible, the expenses must be recognized in the correct time frame, noted in the related accounting records and duly justified.
Notwithstanding the above, the DGT concluded that expenses incurred in pursuing hobbies or interests (in this case, making video games) are still merely income used in consumer spending and therefore are not deductible. This conclusion is somewhat controversial, to the extent that these expenses were related with the generation of income that was indeed taxable.
We understand that the criteria put forth in the binding ruling would apply not only to YouTubers but also to Instagram influencers, and, in short, to any influencer who receives any type of monetary or non-monetary consideration for their “marketing” activity. This type of internet-based activity is not new to the tax authorities and is now being monitored and included in the most recent tax control plans.
Although at times it could seem strange that this type of income, received for simply being an influencer and helping to market certain brands, is taxable, we recommend reviewing each individual’s situation to determine the tax obligations to be met. This should be done not only now, when preparing tax returns, but before as well, prior to signing any contracts and working in this way.