On the 12th of May 2017, Law 6/2017 approving the tax on non-productive assets held by companies was published in the Official Gazette of the Catalonian Government. Clearly, this tax is designed to have a redistributive effect and would be akin to a wealth tax for companies. Thus, the tax would impose a levy on certain assets, supposedly located in Catalonia and deemed not to be used for the entity’s business purposes. However, it seems that the law was rushed through Parliament and creates too many legal uncertainties.
Taxable event and accrual
The tax is aimed at the following assets, provided such assets are considered non-productive and are located in Catalonia: real estate, automobiles with engines in excess of 200 horsepower, leisure boats, aeroplanes, art objects, antiques and jewellery. As a general rule, “holding” is defined in the broadest possible sense, so as to include the transfer of the right to use such assets, resulting from any type of agreement allowing for the substantial assignment of all risks and benefits inherent to ownership.
It is worth noting that there is an exemption for real estate held by charities, NGOs or, more generally, entities with no profit-motive, provided such real estate is exclusively devoted to the non-profit activities of these entities.
The tax will accrue on the 1st of January of each calendar year. Exceptionally and for year 2017, the tax will accrue on the 30th of June.
This tax is directed at entities with legal personality and at entities with no such legal personality but constituting a taxable business unit or a separate set of assets; such as, for example common property holdings, civil law companies, etc. In any case, such entities must have a “commercial purpose”. It seems that the Law is intent on bringing again to the fore the unfortunate debate surrounding civil law companies with “a commercial purpose”, which arose with the enactment of the 2015 Corporate Income Tax Law. Such debate resulted in numerous requests for rulings from the Spanish Directorate of Taxes (Dirección General de Tributos).
Note that Public Authorities and entities, as well as diplomatic representations and international organisms headquartered in Catalonia are exempted from the tax.
Territorial scope of the tax
The notion of “located in Catalonia” will certainly also prove difficult to determine and apply in practice. As far as real estate in concerned, the law is clear since such real estate can only be located in a specific and unique place.
However and with regard to all other assets concerned, these are considered located in Catalonia by simple reference to the taxpayer. In other words, taxpayers holding any such assets may be subject to the tax, regardless of the exact physical location of the asset. This provision is understandable, since otherwise avoiding the tax would only require displacing any given asset. However, the law defines the taxpayer without a reference to the territory of Catalonia. In effect, therefore, the law provides for tax which could apply well beyond the territorial scope of Catalonia.
Notion of “non-productive”
As a general rule, the Law provides that assets which are assigned for no consideration and are destined for the private use of related parties should be considered as non-productive, provided such assignment is not considered as salary in kind.
Moreover, assignment for private use but in return for consideration may also result in the asset being considered as non-productive, unless the beneficiary is a related party who (1) has paid market value for such assignment, (2) effectively works for the company and (3) receives in return for such work a salary greater than the price of the assignment. It would seem that the law attempts to address situations where the assets destined for the private use of individuals are “parked” in companies.
The law also provides that assets which are not destined for the business purposes of a company should be deemed as non-productive. Note that assets for the use and enjoyment of non-related workers and assets used for the economic or socio-cultural benefit of employees are exempted.
The taxable base will be the aggregate amount of the market value of the assets considered. Certain specific rules are included to cover certain cases such as rights in rem or financial leases, etc.
The tax rate varies in accordance with a scale from 0.21 % to 2.75 %.
Law 6/2017 specifically provides that the tax has a redistribution objective and is also aimed at preventing tax abuse and avoidance. However, it is doubtful whether the law, in its current form, can indeed fulfil any of those objectives.
It is well known that wealth taxation is at best only a secondary source of income for States. Only a minority of OECD countries have included in their systems a wealth tax, since such taxes are perceived as costly to manage and inefficient in terms of return. Moreover, it seems that the law can only have a very limited ability to prevent situations of tax abuse. In this regard, it would seem much more effective to improve the audit practices of the Spanish Authorities.
Last, the interaction of this tax with the Spanish Wealth Tax does not seem to have been taken into account. The joint effect of both taxes would seem to give rise to potential double taxation exposures, not properly addressed.
In summary, this new tax seems to bring many uncertainties for Spanish taxpayers.