New law on measures to prevent and combat tax fraud
The recently published Anti-fraud Act transposes the European Union (EU) law on tax avoidance practices and, in addition, introduces changes designed to establish the parameters for tax justice, and to facilitate actions aimed at preventing and combating fraud by strengthening tax control.
The following is a summary of some of the main measures provided for in the Act.
CORPORATE INCOME TAX (CIT)
- Exit Tax
When a Spanish tax resident entity changes its tax residence to another EU member state, it may opt to fraction the payment of the Exit Tax over a five-year period. This measure changes the previous option where the payment could be postponed until the assets where transferred.
- CFC rules
The Spanish CFC rules now include income obtained by permanent establishments abroad, with no possibility of applying the exemption provided in article 22 of the CIT Act.
New types of passive income have been added to the list (i) insurance, credit, financial leasing and other financial activities, except when the income has been obtained through an economic activity, and (ii) transactions in goods and services with related persons or entities in which the Spanish resident entity adds little or no economic value.
The reference to the non-allocation of dividends and capital gains deriving from interests held in the capital or equity of entities that account for at least 5% of capital is also withdrawn. In other words, dividends and capital generated under the foreign entity will now be subject to the new CFC rules.
CFC rules are not applicable if the foreign entity is resident of an EU Member state or forms part of the European Economic Area Agreement, and it performs an economic activity or, alternatively, it is a Collective Investment Undertaking governed by the UCITS Directive.
In order for a SICAV (investment company with variable capital) to take advantage of the 1% tax rate, it must have at least 100 shareholders. For this purpose, only those shareholders holding shares valued at EUR 2,500 or over will be taken into account.
NON-RESIDENT INCOME TAX
- Exit Tax
There are changes in line with those mentioned in the CIT section, but affecting to non-resident entities’ permanent establishments in Spain.
The requirement for EU-resident entities operating in Spain through a permanent establishment to appoint a representative is withdrawn. With the new measures, EU entities that have a branch in Spain (or other forms of permanent establishments), will no longer have to appoint a representative in Spain for income tax purposes.
PERSONAL INCOME TAX
- Succession agreements
Recipients of assets through special succession agreements with present effect shall maintain the value and holding period of the assets received, if the assets are transferred within five years from the execution of the succession agreement or from the death of the transferor (i.e. the recipient will not benefit from the step-up in the valuation).
- ETFs – tax deferment regime
The treatment of Spanish ETFs is brought into line with that of foreign ETFs, regardless of where they are listed. Investments (or re-investments) in these assets cannot benefit from the Spanish tax deferral regime envisaged for reinvestments in investment funds.
- CFC rules
There are changes in line with those mentioned in the section on CIT.
INHERITANCE AND GIFT TAX
- Market value and reference value
The concept of “real value” is replaced by the term “value”. As a general rule, the term “value” is considered to be market value. In the case of real estate assets, however, the market value will be presumed to be the market reference value published by the General Directorate for the Cadastre. If such value has not been published, the market value may be established by any legally admissible means of proof.
EU case law is incorporated into Spanish law in such a way that non-residents (i.e. EU residents and, for the first time, non-EU residents) may benefit from the application of the regional legislation.
- Real estate
Wealth Tax rules stipulate that real estate properties shall be valued at the highest of the following: (i) the cadastral value, (ii) the value “determined” or verified by the tax authorities for the purposes of other taxes, or (iii) the price, consideration or value of acquisition. The change in this regard lies in the fact that the “reference value” determined by the authorities may be taken into account for the purposes of point (ii) above.
However, this reference value shall only be applicable under the Wealth Tax after the property has been transferred and subject to taxation under the Inheritance and Gift Tax or the Transfer Tax/Stamp Duty, since that is when the reference value will first be used. Hence, the reference value for Wealth Tax purposes shall not apply automatically to real estate properties acquired prior to the entry into force of these new changes.
- Unit linked
There is a change regarding the calculation of the value of irrevocable life insurance. Specifically, when the policyholder does not have the power to exercise the right of redemption, the insurance will be calculated using the value of the mathematical provision at the aforementioned date on the policyholder’s tax base.
Non-resident taxpayers may apply the legislation of the autonomous community where the greater value of the assets and rights that may be exercised, or must be fulfilled in Spain are located. Thus, as in the case of Inheritance and Gift Tax mentioned above, this change allows non-EU residents to also benefit from the regional regulations.
Transfer Tax and Stamp Duty
- Market value and reference value
The concept of “real value” is replaced by the term “value”. As a general rule, the term “value” is considered to be market value. In the case of real estate assets, however, the market value will be presumed to be the market reference value published by the General Directorate for the Cadastre. If such value has not been published, the market value may be established by any legally admissible means of proof. Article 314 of the Securities Market Act is updated in this regard.
GENERAL TAXATION ACT
- Surcharges for late filing
A new method of calculating surcharges for late filing is introduced. The surcharge will be 1% plus another 1% for each full month’s delay with which the self-assessment is filed. After 12 months, the surcharge will increase to 15% plus the corresponding default interest.
- Reduction in penalties
In the cases of settlements, penalties may be reduced by 65%.
The reductions for prompt payments, and as long as no claims are filed against the assessments or the penalties, are set at 40%.
- Opening of penalty proceedings
The window in which penalty proceedings may be initiated is extended to six months.
- Reduction of limits
The limit of EUR 2,500 is reduced to EUR 1,000 for cash payments where one of the parties is acting as a business person or professional. The equivalent amount is EUR 10,000 (previously EUR 15,000) where the payer is an individual who can prove that he/she does not have his/her tax domicile in Spain and is not acting as a business person or professional.
Virtual currencies held abroad are to be included in the declaration of assets and rights held abroad.
The list of countries or territories that are considered to be non-cooperative jurisdictions may be updated by ministerial order.
LOCAL BUINESS TAX
For the EUR 1 million exemption, the group’s turnover shall be considered (article 42 of the Company Act), regardless whether the group carries out consolidated financial statements.
 Act 11/2021, of 9 July, on measures to prevent and combat tax fraud, transposing Council Directive (EU) 2016/1164, of 12 July 2016, laying down rules against tax avoidance practices that directly affect the functioning of the internal market, amending various tax rules and in the field of gambling regulation (“Anti-fraud Act”).
 Act 27/2014, of 24 November, on Corporate Income Tax (“CIT Act”).
 Coupled with the recent amendment of the article 21 exemption regime, whereby the exempt amount was reduced to 95%, this means that cases where the Spanish resident entity receives the dividend may give rise to double taxation.
 This measure is controversial since it subjects to taxation a wealth that the policy holder does not own and cannot (and in many cases will not) dispose. This measure could infringe the constitutional principle of economic capacity.
 Royal Decree Legislative 4/2015, of 23 October, which approves the revised text of the Securities Market Act (“Securities Market Act”).
 Previously, the penalty reduction was 50%.
 Previously the reduction was 25%.