International Tax Law Barrister, Lawyer & Attorney : Leon Fernando del Canto : Private Clients, Tax Planning, Spanish Tax : Spain, UK, Europe

Last 9th of March, the Spanish general elections gave Prime Minister Zapatero a great opportunity to show what he can do for the Spanish Real Estate market. Can the property market be influenced by a wise tax policy? I believe so.

During Zapatero's campaign there was a commitment to abolish some taxes, i.e. wealth and Inheritance which may have historically prevented people to relocate to Spain.  There were often press releases regarding tax breaks and incentives for the developers, buy to let allowances, etc...

The government will be formed in April and we shall see the legal instruments to implement the tax changes, which we will continue monitoring.

In Costa del Sol during the last decades we have seen the rise of the residential property market  and the influx of hundreds of thousand British and Irish property buyers. Originally  many people came to retire to this part of the world, a trend that is still true today. During the last decade, however,  a large wave of investors came, fueled by a buoyant market at home, specially in the UK and Ireland. The off-plan investment opportunities were promoted by 3-4 large real estate companies, which made very popular to invest in Spain.

Now, in 2008,  the market is very different. It would be fair to say that the international demand is still high for residential properties in Costa del Sol, as well as a large offer of such properties, with may have been temperated by a bear sentimento in the international investment market.

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A new book has been released by the OECD based on the working group discussing the role of the tax intermediaries, such as lawyers, tax advisers, bankers, etc... The book can be read in PDF format at Study into the Role of Tax Intermediaries.

The book examines the role tax intermediaries play in the operation of tax systems and specifically discusses their role in what they call  “unacceptable tax minimization arrangements”. As in any other OECD international initiative it will be interesting to see how the concepts of tax avoidance or minimization vs tax evasion are harmonized in such diverse jurisdictions, and agreements are reached.

In addition, the study identifies strategies for strengthening the relationship between tax intermediaries and revenue bodies, which is always welcome by all of us. 

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A serious analysis of the Spanish Economy and social progress during the last 33 years, this book from William Chislett, a journalist of the FT, brings a clear picture of the Spanish Economy and generates confidence in a country with great potential and a stable economy.

This work provides an objective view of the Spanish economy, which has been used as a political argument in the recent elections. 

Thirty three years of improvement, progress and innovation as well as profound changes that has placed Spain in the forefront of  sustainable economic and social progress in Europe.

The book can be downloaded in PDF at Real Instituto Elcano at Spain going places. Economic, Political and Social progress, 1975-2008

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The Chancellor’s announcement in today’s budget regarding non-doms will only please two categories of UK non-dom tax payers.

1.- Any non-dom making under £36k taxable in the UK and over £75k outside the UK (non remmitted income). I believe they will be delighted to pay the flat tax of £30k per year and  still keep their tax payable under the 40% income tax rate. For the group of people making over £167k outside the UK and not remmitting that income, the glorious UK will still remain as one of the lower tax jurisdictions in the EU, under OECD accepted standards. 

2.- The non dom tax payers who have been in the UK for only seven years will get one extra year’s grace prior to pay the  £30,000 tax charge. Today's budget suggests that the residency test before the charge will be extended to eight out of eleven years, rather than eight out of ten.

Regarding the 90 days-a-year residence rule, a day is now only counted from arrival in the UK at midnight. The general rule is that If a UK resident goes abroad permanently, he will be treated as remaining resident and ordinarily resident if his visits to the UK average 91 days or more a year.

Over the last budgets the announcements from the Chancellor are targeting the extended non-dom population in the UK and those emigrating from the UK. The question for me is how succesful has been the HMRC in terms of financial succes for the Treasure versus the havoc that is creating among the many non doms and expats that have been and still are contributing to the UK in terms of business and financial acccumen and intellectual capital. I invite comments on this one.

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The European Commission, according to a press release from the EU IP/08/342 issued in Brussels, 28 February 2008, has sent Spain a formal request to amend its discriminatory anti-abuse rules in the corporate tax area according to which income originating from specific Member States or territories of the EU is taxed more heavily than domestic income.

This affects primarily the Controlled Foreign Companies legislation, dividend distribution and depreciation rules when a company is located in one of the denominated "tax havens", which still includes Gibraltar, although it is clear the willingness of the Gibraltar government to cooperate with OECD rules and its compliance with EU mandate.

The Commission considers these rules incompatible with the freedoms of the EC Treaty. This request is in the form of a reasoned opinion, the second stage of the infringement procedure under Article 226 of the Treaty. If Spain does not amend its law within two months, the Commission may refer the case to the Court of Justice.

In respect of Controlled Foreign Companies legislation in the EU member states, the European Court of Justice has made clear that, in the granting of a tax advantage, the distinction made on the basis of the subsidiary's seat constitutes a difference in treatment which is not compatible with Article 43 of the EC Treaty, which guarantees the freedom of establishment. The Court has also recently stated that a national measure restricting freedom of establishment may be justified where it specifically relates to wholly artificial arrangements aimed solely at escaping national tax normally due and where it does not go beyond what is necessary to achieve that purpose.

Under usual tax rules, a subsidiary, established in one Member State is only taxed in another Member State on the income generated by a permanent establishment (branch) of that company in the latter. Under Spanish CFC legislation, the profits of a subsidiary established in Member States or territories of the EU qualified as tax havens are taxed in the hands of the parent company in Spain as they arise and not only upon distribution, as would have been the case if the subsidiary had been located in another Member State or in Spain. The rational behind this was the opacity in which the companies located in the tax havens used to operate. This may be applicable in other jurisdictions outside the EU territories

The Commission considers that the Spanish legislation is contrary to Community law: It goes beyond what is necessary, since it is applicable not only to wholly artificial arrangements but also to parent companies controlling subsidiaries carrying out genuine economic activities in those Member States or territories.

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Raul Villanueva, from Konsilia at www.konsilia.es, has informed that Spanish taxpayers may request from last week their draft income tax return for the Spanish tax year ended 31st December 2007.

The application deadline is offered by the AEAT, the Spanish  Tax Revenue Agency, at www.aeat.es,  to facilitate the process of return submission due by June 2008 

After receiving the draft, taxpayers should review, amend or confirm and will be able to submit it from the 1st of April until 30th June

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Pension plan contributions are tax efficient for the contributor if he receive employment or similar taxable income, however very few people consider the tax efficiency for the heirs or inheritors.

It is important to emphasize that pension funds are taxable on death when received by inheritance, according to the rules of Inheritance and Income Tax, one or the other tax will be applicable depending on the heirs position for Spanish Income Tax purposes. 

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