On October 23 2018, the Spanish Cabinet published three draft Acts including a wide array of measures aimed at preventing tax fraud, as well as creating two new taxes: a tax on financial services and a tax on certain digital activities. Currently, these draft laws have been submitted to public consultation and it is not yet clear whether the Spanish Parliament will finally approve such measures.
The most relevant measures proposed in the Draft Act to prevent and counter tax fraud (the "Draft") will be briefly set out below.
Spanish Corporate Income Tax (CIT)
Should a Spanish entity transfer its residence to another EU or EEA Member State, the resulting tax debt (calculated as the difference between the market value and the tax basis of its assets and liabilities) would no longer be postponed. Instead, the taxpayer would have the possibility of making the corresponding payment in five instalments.
The scope of CFC rules would be broadened to include income derived through permanent establishments located abroad. Moreover, CFC rules would catch two new categories of income (i) income from financial leases, insurance, banking and financial activities; and (ii) related party no (significant) value-added transactions over goods or services.
Spanish Personal Income Tax (PIT)
A taxpayer acquiring assets or rights by virtue of an inheritance covenant ("pacto sucesorio") and transferring such assets prior to the testator's death would calculate the resulting capital gain, by reference to the testator's acquisition value and date. This measure is aimed at preventing the use of inheritance covenants as a lower-taxed alternative to direct transfers.
In line with the amendments to CIT CFC rules, PIT CFC rules would cover the same two new categories of income. Moreover, CFC rules would also exclude active trading foreign entities residing within the EEA.
New information rules would apply to providers of exchange, escrow and custody services in relation to balances and transactions in cryptocurrencies.
Non Resident Income Tax (NRIT)
In line with the proposed CIT amendment, the option to pay the resulting exit tax debt in five instalments would also replace the current postponement. Moreover, exit tax liability would also arise in cases of transfers abroad of permanent establishments.
Mutual agreement procedure
Late payment interest liability would also apply during these procedures.
Mutual agreement procedures would take precedence over national appeals and review procedures, except in the case of certain penalties and tax offences, where the mutual agreement procedure would be suspended until the corresponding appeals have been resolved. Additionally, the mutual agreement procedure would not be available to taxpayers on whom certain tax penalties have been imposed.
Inheritance and Gift Tax (IGT), Transfer Tax and Stamp Duty
The Draft would replace references to the "real value" as the basis of calculation of the tax base with a simple mention of "value", similar to "market value". In this context, "value" would amount to the most probable price at which unrelated parties would sell and purchase an asset.
Where real estate is concerned, "value" would be the reference values, which the General Cadastral Directorate would be under a duty to publish, should Parliament enact this proposal (provided such values are published before the tax become due). Note, however, that taxpayers may submit proof to rebut these reference values.
In line with IGT and Transfer Tax and Stamp Duty proposals, the Draft would introduce "value" as one of the valuations methods applicable to real estate.
Additionally, new valuation rules would also apply to life insurance products where the policyholder is not entitled to exercise his or her right to surrender at year-end. In such cases, the insurance will be valued with reference to the mathematical provision constituted on such date.
Value Added Tax (VAT)
The proposal would include new provisions in relation to VAT liability, such as:
- Widened scope of subsidiary liability for import tax debts, which would now apply to all persons (as opposed to only customs agents) acting in name and on behalf of the importer;
- Clarification that the parent entity would be liable for all the duties and penalties resulting from the VAT group regime;
- Broadened scope of subsidiary liability applicable in cases of warehousing arrangements other than customs warehousing.
Tax haven regulations
- The Draft would put forward new and revised criteria to determine whether to classify a jurisdiction as a tax haven. The tax haven blacklist would be subject to periodic review to determine compliance with these criteria.
- Harmful tax regimes would also be included in the new blacklist as tax havens.
- The proposed measures would allow a jurisdiction to be treated a tax haven, even if such jurisdiction has entered into a tax treaty with Spain.
Spanish General Tax Act
- The Draft would introduce a prohibition to enact future tax amnesties.
- The Draft would overhaul the current system of late filing surcharges. The proposal would be to apply a 1% surcharge for each full month of delay up to a year and 15% plus late payment interest for delays exceeding a year. These surcharges would not apply where taxpayers voluntarily amend their tax returns to take into account a tax item, which the tax authorities have re-assessed in other tax periods.
- Penalty reductions would be increased in cases of tax assessment to which the taxpayer agrees. In these cases, a new regime would apply to the review of assessments and penalties to reduce litigation.
- New tax formalities and penalties are proposed in relation to the creation, sale and possession of accounting and account management software, that allows taxpayers to keep more than one set of accounts and which do not guarantee the integrity of the accounting entries.
- Taxpayers would also be under a duty to inform of cryptocurrencies held abroad in the corresponding tax return (form 720).
As mentioned, it is still too early to know whether Parliament will effectively enact these proposals. However, since their effects are wide reaching, we recommend monitoring developments, to see how these proposals fare in Parliament.