Spain: Law 11/2021 implementing ATAD and other measures against fraud | Hogan Lovells

[co-author: María Santana]

The Spanish Parliament has lastly accepted Law 11/2021, of 9 July, on measures to stop and combat against tax fraud (“Law 11/2021”) which implements a number of points of Council Directive (EU) 2016/1164 of 12 July 2016 (so-called “ATAD”) and additionally consists of other related amendments to Spanish tax laws to stop tax fraud and strengthen tax management. These modifications embrace the modification of the CFC guidelines, Exit Tax, SOCIMI and SICAV particular tax regimes, the taxable base for Transfer Tax and Stamp Duty on the acquisition of actual property property in Spain, the alternative of the “tax havens” idea by “non-cooperative jurisdictions”, and so on. Law 11/2021 was printed within the Spanish Official Gazette on 10 July 2021, and has come into power as of 11 July 2021, except in any other case acknowledged for sure particular measures. In this word we summarize the principle tax modifications that, in our view, must be taken under consideration by overseas buyers with current investments or planning to put money into Spain.

Introduction

The Spanish Parliament has lastly accepted Law 11/2021, of 9 July, on measures to stop and combat against tax fraud (“Law 11/2021”) which implements a number of points of Council Directive (EU) 2016/1164 of 12 July 2016 (so-called “ATAD”) and additionally consists of other related amendments to Spanish tax laws to stop tax fraud and strengthen tax management.

Law 11/2021 was printed within the Spanish Official Gazette on 10 July 2021, and has come into power as of 11 July 2021, except in any other case acknowledged for sure particular measures.

In this word we summarize the principle tax modifications that, in our view, must be taken under consideration by overseas buyers with current investments in Spain or planning to put money into Spain, however this isn’t an exhaustive evaluation of all of the modifications launched by Law 11/2021.

CIT: Implementation of ATAD measures

Law 11/2021 implements two points of ATAD, the “Controlled Foreign Company (CFC) rule” and the so-called “Exit Tax”. Other points of ATAD such us the “curiosity limitation rule”1 and the “hybrid mismatches” can be carried out at a later stage, and the “basic anti-abuse rule” doesn’t have to be carried out as a result of Spanish tax laws already has anti-abuse tax guidelines.

Law 11/2021 implements two points of ATAD, the “Controlled Foreign Company (CFC) rule” and the so-called “Exit Tax”. Other points of ATAD such us the “curiosity limitation rule” and the “hybrid mismatches” can be carried out at a later stage, and the “basic anti-abuse rule” doesn’t have to be carried out as a result of Spanish tax laws already has anti-abuse tax guidelines.

Controlled overseas firm (“CFC”) rule

Spanish Corporate Income Tax (“CIT”) Law already has a CFC regime, however Law 11/2021 introduces a number of amendments as of 1 January 2021, as required by ATAD:

Dividends and capital good points obtained by overseas holding firms at the moment are topic to the “passive earnings” imputation rule

Until Law 11/2021, the Spanish CFC regime expressly excluded dividends and capital good points obtained by overseas holding firms from ≥5% shareholdings in second-tier subsidiaries from the “passive earnings” imputation rule if the (first-tier) overseas holding firm met sure necessities.

Law 11/2021 removes this exception as of 1 January 2021, and if we put this along with the current modification to the Spanish participation exemption as of 1 January 2021 (i.e. exemption has been decreased from 100% to 95% of the dividends and capital good points, this implying a 1.25% efficient tax in Spain) this can suggest that Spanish firms could also be obliged to recognise beneath CFC guidelines an quantity of 5% of the dividends and good points obtained by overseas holding firms if these dividends or good points have been totally exempt in that jurisdiction (or not topic to tax beneath a territorial tax system) and thus have been topic to tax at a price decrease than 75% of the Spanish CIT (1.25%) that will have corresponded to this income2 (which the edge for the CFC guidelines to use).

Therefore Spanish firms proudly owning overseas holding firms ought to analyse whether or not they’re affected by this transformation or if they’ll profit from any of the CFC exceptions.

New classes of “passive earnings”

Law 11/2021 consists of within the Spanish CFC regime further classes of “passive earnings” as acknowledged in ATAD, reminiscent of earnings from monetary leasing and from insurance coverage, banking and other monetary actions, besides when this earnings is obtained by the overseas subsidiary within the context of a enterprise exercise, in addition to earnings from gross sales of products and companies bought from and offered to associated events (as outlined in Article 18 of the Spanish CIT Law) when the overseas subsidiary provides no or little financial worth.

Scope of CFC guidelines prolonged to everlasting institutions

Permanent institutions (“PEs”) exterior Spain will now fall throughout the scope of Spanish CFC guidelines, and due to this fact Spanish firms should embrace the passive earnings obtained by its PEs (with out chance to use the participation exemption obtainable to earnings from PEs) when the PE obtains “passive earnings” and it’s topic to tax in its jurisdiction at a price decrease than 75% of the Spanish CIT that will have corresponded to this earnings.

Escape clause from CFC guidelines is relaxed

Until now, Spanish CFC guidelines don’t apply when the overseas firm is tax resident in other EU Member State and the taxpayer offers proof that this EU firm has been arrange for good enterprise causes and that it carries out a enterprise exercise.

Law 11/2021 extends the scope of this escape clause to PEs positioned in other EU Member State and to entities/PEs of the European Economic Area (EEA), and now the taxpayer shall solely give proof that the overseas firm/PE carries out a enterprise exercise (i.e. the “good enterprise causes” requirement is not wanted).

Exit Tax

Spanish CIT Law already consists of an Exit Tax when a Spanish firm transfers its tax residency to a different Member State or to a 3rd nation, aside from these property which stay successfully related to a PE in Spain. Currently the Spanish CIT Law permits to defer the cost of the exit tax when the tax residency is transferred to a different EU or EEA jurisdiction, till the property are transferred to a 3rd celebration.

Law 11/2021 replaces, with results as of 1 January 2021, the above talked about tax deferral with the tax deferral rule offered in ATAD, which permits to defer the cost of the exit tax by paying it in instalments over 5 years, with the total tax debt changing into payable in sure instances (i.e. switch of the property to a 3rd celebration or to a 3rd nation, and so on.).

Law 11/2021 additionally clarifies, following ATAD, that in case of transfers into Spain of the tax residency of firms, property, or the enterprise carried out by a PE which can be topic to Exit Tax within the other Member State of origin, Spain shall settle for the worth established by this Member State because the beginning worth of the property for Spanish CIT functions (except this doesn’t replicate their market worth).

CIT: Special Tax Regimes

SOCIMI (Spanish REITs): 15% tax on undistributed earnings

One of the SOCIMI necessities is the obligatory distribution, on an annual foundation, of no less than 80% of the distributable accounting earnings generated by the SOCIMI (with sure exceptions).

Law 11/2021 has included the next amendments to the SOCIMI Law, that are efficient for tax intervals beginning as of 1 January 2021:

SOCIMIs can be topic to a particular 15% CIT on the accounting earnings that aren’t distributed. This 15% CIT doesn’t apply to the portion of accounting revenue that’s topic to 25% CIT (i.e. earnings that don’t adjust to the SOCIMI tax necessities) or to accounting revenue that’s topic to reinvestment pursuant to the SOCIMI tax regime (i.e. accounting revenue derived from the sale of a qualifying asset or shareholding will be distributed solely 50% of its quantity, offered that the remaining 50% is reinvested in qualifying asset/shares inside a 3-year interval);
This 15% CIT shall be paid throughout the 2-month interval after the shareholders’ assembly approving the allocation of the accounting end result. As this new provision enters into power for tax intervals beginning as of 1 January 2021, it’s going to have an effect on the distributions to be made in 2022 out of the earnings of 2021; and
Additional data necessities to be included within the annual accounts of the SOCIMI in an effort to observe the earnings of the SOCIMI.

This modification shall be taken under consideration when deciding the quantity of dividend to be distributed in June 2022 out of FY2021’s revenue. If the SOCIMI has not generated accounting revenue in 2021, or it generates accounting revenue however it distributes 100% of the distributable accounting revenue, then this new 15% CIT wouldn’t apply.

SICAVs

SICAVs regulated by Law 35/2003 of collective funding schemes, which implements UCITs Directive, can profit from a 1% CIT price so long as they’ve no less than 100 shareholders.

Stricter necessities to profit from the 1% CIT price

Law 11/2021 amends Spanish CIT Law and makes this requirement stricter with results as of tax intervals beginning as of 1 January 2022, by stating that3 :

Only shareholders proudly owning shares in a SICAV with a worth ≥ €2,500 shall be taken under consideration for the minimal shareholder requirement (which shall be elevated as much as €12,500 in case of a SICAV by compartments);
The minimal shareholder requirement, as outlined within the earlier paragraph, shall be met no less than throughout 3/4 of the tax interval; and
This minimal shareholder requirement will be managed by the Spanish Tax Authorities (thus far this requirement was managed solely by the Spanish CNMV).
Transitory regime to liquidate (not complying) SICAVs

Law 11/2021 features a transitory tax regime to facilitate the dissolution and liquidation of SICAVs (not complying with the brand new requirement) throughout 2022 with out opposed tax implications. Specifically:

These SICAVs will proceed to be topic to 1% CIT till their liquidation;
Liquidation of the SICAV can be exempt from 1% Capital Tax;
Shareholders of the liquidated SICAV will profit from a rollover reduction on any capital good points derived from the liquidation of the SICAV in the event that they reinvest all of the liquidation quota in other collective funding schemes. This implies that shares/models acquired by the shareholder within the reinvested SICAV/Fund will inherit the tax base price and acquisition date of the shares within the liquidated SICAV; and
Transfer of listed shares owned by the liquidated SICAV can be exempt from monetary transactions tax, topic to the reinvestment above defined.

Non-Resident’s Income Tax (with or with out PE in Spain)

Tax consultant

With results as of 1 January 2021, residents of a EU nation or an EEA nation with trade of tax data are not obliged to nominate a tax consultant in Spain.

Exit Tax

Spanish Non-Residents’ Income Tax (“NRIT”) Law already consists of an Exit Tax when a PE of a overseas entity ceases its exercise or transfers its property exterior Spain.

Law 11/2021 provides that the Exit Tax may also apply to the property allotted to a PE which transfers its exercise exterior Spain, and consists of within the NRIT the tax deferral guidelines offered in ATAD talked about above for Spanish CIT:

Exit Tax will be paid in instalments over 5 years when the property or PE are transferred to a different EU Member State or EEA jurisdiction; and
Spain shall settle for the worth established by the Member State of origin because the beginning worth of the property for Spanish CIT functions (except this doesn’t replicate their market worth).

“Tax havens” idea changed by “non-cooperative jurisdictions”

Spanish tax laws at the moment consists of a number of particular “tax haven” anti-avoidance tax guidelines for, amongst other instances, funds made to entities primarily based in jurisdictions included within the Spanish checklist of “tax havens” jurisdictions and for overseas buyers investing in Spain via jurisdictions included on this tax havens checklist (e.g., within the ETVE regime and within the particular tax regime for enterprise capital entities).

Law 11/2021 states that the references included in Spanish tax laws to “tax haven” jurisdictions (and additionally to jurisdictions with out efficient trade of knowledge and to jurisdictions with nil or low taxation) shall now be deemed to be made to the idea of “non-cooperative jurisdictions”.

The Ministry of Finance shall approve the checklist of “non-cooperative jurisdictions”, which shall embrace jurisdictions, territories and preferential tax regimes primarily based on the next standards: (i) tax transparency and efficient trade of knowledge, (ii) existence of useful tax regimes for off-shore entities or devices to facilitate the allocation of earnings which don’t replicate precise financial exercise in such jurisdictions, and (iii) the existence of low or nil taxation.

This checklist of “non-cooperative jurisdictions” shall be up to date attending to the factors of the EU Code of Conduct on Business Taxation or the OECD Forum on Harmful Tax Practices, which in follow implies a transition to the idea utilized by the OECD and the EU aligning the factors used to categorise these jurisdictions.

Law 11/2021 clarifies that, if a jurisdiction with a tax treaty with Spain is included within the checklist of “non-cooperative jurisdictions”, the tax guidelines associated to non-cooperative jurisdictions may also apply to such jurisdiction to the extent they aren’t opposite to the tax treaty provisions.

Accordingly, references in Spanish tax legislation to “tax havens”, reminiscent of within the particular ETVE tax regime (Entidades de Tenencia de Valores Extranjeros) or within the particular tax regime for enterprise capital entities (entidades de capital riesgo), can be deemed to be made to “non-cooperative jurisdictions”.

The Spanish Tax Authorities haven’t launched but a listing of “non-cooperative jurisdictions”, however it’s anticipated that the present EU checklist of non-cooperative jurisdictions, which is up to date no less than twice a 12 months, can be used as a reference. The EU checklist was up to date in February 2021 and is anticipated to be reviewed in October 2021.

Transfer Tax / Stamp Duty: “Value of reference” in acquisitions of Real Estate

Until now the taxable base for Transfer Tax and Stamp Duty on the acquisition of actual property property has been the “actual worth” of such property, which is the worth agreed between the events besides when the Tax Authorities can show that the market worth is greater. This has generated important tax litigation.

Law 11/2021, with the excuse to scale back this tax litigation, introduces the idea of “worth of reference” for use as taxable base for Transfer Tax and Stamp Duty in actual property transactions as of 1 January 2022, besides when the value agreed between the events is greater, during which case the latter can be used.

This “worth of reference” shall be decided by the Cadastral Office (“Catastro Inmobiliario”) on an annual foundation with goal standards, primarily based on the costs reported by the notaries in actual property transactions, contemplating the geographical zones and the kind of actual property asset, and can not exceed the market worth.

In the absence of a “worth of reference”, the taxable base would be the greater of the worth agreed by the events or the market worth.

Taxpayers can enchantment against this “worth of reference” in the event that they think about that it’s greater than market worth, however in follow this new idea of “worth of reference” will shift the burden of the proof, as now taxpayers should present proof supporting that the market worth is decrease than this worth of reference, whereas till now it was the Tax Administration who had the burden to show that the market worth is greater than the value agreed by the events.

VAT Grouping

In relation to the particular VAT groping regime, Law 11/2021 clarifies that the guardian entity of the VAT Group can be chargeable for the cost of the VAT group debt and for the correctness of the compensations and refunds claimed by the VAT Group, and for other formal obligations of the VAT Group.

Taxation of Individuals

Unit-linked insurance coverage merchandise

Spanish Personal Income Tax (“PIT”) Law offers a tax deferral rule for earnings derived from unit-linked insurance coverage contracts that adjust to the necessities foreseen in Article 14.2.h), which shall solely be taxed when the insurance coverage profit is collected upon termination of the contract or give up of the coverage (versus on an annual foundation).

Now Law 11/2021 adapts the necessities established in Article 14.2.h) of the PIT Law in an effort to apply the above-mentioned tax deferral, specifying that the unit-link merchandise shall make investments the premiums in property that fulfil the necessities foreseen within the regulatory rules relevant to insurance coverage firms (i.e. Article 89 of Royal Decree 1060/2015, 20 November).

Exchange Traded Funds (“ETFs”)

Under present PIT Law, capital good points derived from the sale of models in Spanish ETFs and overseas ETFs harmonized and listed within the Spanish Stock Exchange are excluded from the tax deferral foreseen for transfers between funding funds (“régimen de traspasos”).

Law 11/2021 states that, as of 1 January 2022, capital good points from any kind of ETF, whatever the inventory trade during which it’s listed, can be excluded from this tax deferral regime.

However Law 11/2021 offers a transitional regime to permit the appliance of the tax deferral to ETFs not listed within the Spanish Stock Exchange and bought earlier than 1 January 2022, offered that the sale proceeds are usually not reinvested in other comparable ETFs.

CFC regime

Amendments made in Spanish CIT Law to the Spanish CFC regime are additionally included in Spanish PIT Law for Spanish resident people proudly owning shares in overseas entities. See part for Spanish CIT above.

Crypto-currencies and tax type 720

Spanish tax resident people should report back to the Spanish Tax Administration, on an annual foundation, all their property and rights positioned exterior Spain via type 720, if sure necessities are met.

Law 11/2021 states that Spanish resident people proudly owning crypto-currencies positioned exterior Spain shall report the worth of those crypto-currencies within the Spanish type 720 if the worth of the crypto-currencies exceeds EUR 50,000.

Gift and Inheritance Tax

“Value of reference” as taxable base for actual property

The “worth of reference” decided by the Cadastral Office (as described within the Transfer Tax/Stamp Duty part) shall even be used as taxable base of the true property properties to calculate the Gift and Inheritance Tax.

All non-residents can profit from Regional tax reliefs

Law 11/2021 amends the Gift and Inheritance Tax Law to make clear that every one non-residents taxpayers (and not solely those that are resident within the EU and EEA jurisdictions) are entitled to use the tax reliefs accepted by the Spanish Regions, following the case-law of the Spanish Supreme Court.

Wealth Tax

“Value of reference” as taxable base for actual property

The “worth of reference” decided by the Cadastral Office (as described within the Transfer Tax/Stamp Duty part) shall even be used as taxable base of the true property properties to calculate the Wealth Tax.

New valuation rule for all times insurance coverage contracts (unit-linked)

Until now, life insurance coverage contracts have been solely included within the taxable base of Wealth Tax after they had a give up worth (valor de rescate) on the date of accrual of the tax. Therefore, these life insurance coverage merchandise that can not be surrendered or that didn’t have a give up worth on the date of accrual weren’t topic to Wealth Tax (e.g. unit linked insurance coverage merchandise).

Law 11/2021 has launched a brand new valuation rule relevant to life insurance coverage contracts, whereby if the life insurance coverage contract can’t be surrendered by the policyholder or doesn’t have a give up worth on the date of accrual, the policyholder should embrace within the taxable base of the Wealth Tax the worth of the mathematical provision on the date of accrual. Consequently, unit linked insurance coverage merchandise can be now taxed beneath Wealth Tax even when the policyholder can not give up the coverage.

Tax Proceedings/Litigation

We embrace under a abstract of probably the most related amendments in relation to tax proceedings or tax litigation.

Surcharges por (voluntary) late cost are decreased

Until now, the late cost of a tax legal responsibility as soon as the voluntary interval has elapsed, however earlier than the Tax Authorities have claimed this tax debt, has a surcharge of 5%, 10% or 15% of the tax debt (with out penalties) if the cost is made throughout the 3, 6 or 12 months respectively after the tip of the voluntary interval, and a surcharge of 20% if paid after 12 months.

Law 11/2021 reduces the above surcharges to 1% plus an extra 1% for every month of delay, and reduces to fifteen% the surcharge for cost after 12 months, in an effort to encourage the voluntary regularization by the taxpayer.

These decreased surcharges apply to tax proceedings initiated earlier than Law 11/2021 and nonetheless open, when the surcharges regime is extra beneficial to the taxpayer.

Penalty proceedings

The cost of penalties in tax assessments with settlement (“actas en conformidad”) and in case of early cost can profit from discount percentages. Now Law 11/2021 will increase these discount percentages in an effort to incentive the early cost of penalties and scale back tax litigation: Reduction share in tax assessments with settlement is elevated from 50% to 65%, and in early cost from 25% to 40%.

Law 11/2021 additionally extends the expiration interval that the Tax Authorities need to provoke a penalty continuing after the conclusion of a tax inspection continuing, from three (3) to 6 (6) months.

Statute of limitation interval

The 4-year statute of limitation interval was suspended through the State of Alarm (virtually 80 days) attributable to COVID-19, which suggests that taxes that weren’t time-barred at first of the State of Alarm have a statute of limitation interval of 4 years + circa 80 days.

Now the Law 11/2021 clarifies that this extension within the limitation interval will solely apply to these taxes with a statute of limitation interval that will have expired earlier than 1 July 2021 within the absence of this extension, which implies that these taxes with a limitation interval ending after that date will once more have the usual 4-year statute of limitation interval.

Inspections in taxpayers’ domicile

Law 11/2021 consists of related modifications with regard to the Court authorization course of that’s required by the Spanish Tax Authorities to enter within the taxpayer’s domicile within the context of a tax inspection.

Next steps

Foreign buyers planning to put money into Spain or with current investments have to analyse the modifications launched by the Spanish Anti-Tax Fraud Law in an effort to appropriately assess the influence of those new tax measures.

References

1 As Spain already has an curiosity limitation rule and thus its implementation will be postponed to 2024.

2 We word that withholding taxes suffered by the overseas holding firm on these dividends shall be computed for this minimal tax calculation.

3 This requirement doesn’t apply to hedge funds or “sociedades de inversion libre”

[View source.]

https://www.jdsupra.com/legalnews/spain-law-11-2021-implementing-atad-and-2761598/

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