International Tax Forum

Impuesto de Patrimonio, Wealth Tax abolition. Ahora Si!!!!

Fernando@konsilia.es (Fernando Del Canto) — Thu, 14 Aug 2008 21:47:41 +0100

Since we announced in tax precision the abolition of the Wealth Tax by the Spanish government, last April, we have been getting many questions from our readers questioning if the abolition would happen and legislation will be enhanced soon.

From a legal point of view, I have been always defending that abolition was already approved by the Government. Please see the postings at Taxprecision.com.

However many readers were receiving conflicting advice from Tax consultants, lawyers and even Tax officials. Many of them said that the abolition was not confirmed. As a Tax lawyer I exercise extreme due diligence in terms of the information I post and I have been very confident with this particular abolition. Anyone understanding how the legislative process work in Spain should have been crystal clear with this matter and from here I would like to send a message to our readers to make sure they always check with qualified advisers and that those qualified advisers "do their homework".

For those who still need to be 100% sure, the Government of Spain has now officially announced, by second time, the abolition of the Impuesto de Patrimonio, which you can see in the official Government page at La Moncloa.es.

Legislation has not yet been enhanced on this regard and we shall wait to see the final piece coming very soon. Meanwhile, and as usual, we welcome any comments or questions.

Jersey and Germany, another successful OECD Treaty signed!

Fernando@konsilia.es (Fernando Del Canto) — Sun, 27 Jul 2008 22:11:28 +0100

Germany and Jersey have signed a bilateral arrangement for the exchange of information for tax purposes.

This treaty numbers 16th of the agreements signed by one of the 35 Jurisdictions committed to work with OECD countries.The 35 jurisdictions committed to abide by the OECD protocol on this matter, as per www.oecd.org site are:

Anguilla (1), Antigua and Barbuda, Aruba (2)

Bahamas, Bahrain, Belize, Bermuda (1), British Virgin Islands (1) Cayman Islands (1), Cook Islands (3), Cyprus

Dominica

Gibraltar (1), Grenada, Guernsey (4)

Isle of Man (4)

Jersey (4)

Liberia

Malta, Marshall Islands, Mauritius, Montserrat (1)

Nauru, Netherlands Antilles (2), Niue (3)

Panama (Spanish), (English)

San Marino, Seychelles, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines

Turks & Caicos Islands (1)

US Virgin Islands (5)

Vanuatu

1. Overseas Territory of the United Kingdom.

2. Aruba, the Netherlands Antilles and the Netherlands are the three countries of the Kingdom of the Netherlands.

3. Fully self-governing country in free association with New Zealand.

4. Dependency of the British Crown.

5. External Territory of the United States.

The OECD has determined that three other jurisdictions - Barbados, Maldives, and Tonga - identified in the 2000 Progress Report as tax havens should not be included in the List of Unco-operative Tax Havens.

* Barbados will not be included in the list because it has longstanding information exchange arrangements with other countries, which are found by its treaty partners to operate in an effective manner. Barbados is also willing to enter into tax information exchange arrangements with those OECD Member countries with which it currently does not have such arrangements. Barbados has in place established procedures with respect to transparency. Moreover, recent legislative changes made by Barbados have enhanced the transparency of its tax and regulatory rules.

* The OECD has determined after careful review of the current laws and practices of Tonga and the Maldives that these jurisdictions do not meet the tax haven criteria.

UK Foreign companies and EU Tax legislation

Fernando@konsilia.es (Fernando Del Canto) — Thu, 10 Jul 2008 17:36:51 +0100

The UK HM Revenue & Customs position on foreign subsidiaries appears to be out of touch with the current EU Tax Case Law.

The HMRC will appeal the High Court judgment of Vodafone using a Luxembourg subsidiary as a holding company for European investments. The argument been that interest generated in Luxembourg should be taxable in the UK.

This reasoning goes against the European Court of Justice position in the "Cadbury Schweppes plc & Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue" case where it has been clearly established that domestic tax rules, such as UK CFC, can not prevent a company to organize its business affairs in another EU state directly or indirectly. In this case the UK tax rules penalize a more advantageous tax position which could be achieved by legitimately setting a company in Luxembourg.

We trust the Court of Appeal in the next instance or ultimately the House of Lords, will put an end to this trend that does not benefit the trade between UK and other EU states.

As Ralph Cunningham from the International Tax Review explains:

"The UK tax authorities will press on with defending the country's controlled foreign company rules even though a High Court judge decided on July 4 that they should be scrapped in their current form.

HM Revenue & Customs (HMRC) has said it will appeal a High Court judgement that it should end its enquiry into Vodafone's use of Luxembourg subsidiary as a holding company for European investments.

The tax authorities have been battling with Vodafone since 2002 over Vodafone Investments Luxembourg Sarl, which the mobile telecommunications company set up two years earlier.

HMRC claimed that the UK's CFC legislation meant that the interest on money the Luxembourg company lent to German subsidiaries was taxable in the UK.

Vodafone argued that as the European Court of Justice (ECJ) had ruled in the Cadbury Schweppes case in 2006 that a taxpayer could set up a subsidiariy in any part of the EU as long it wasn't only for 'wholly articifial' tax reasons, this meant the UK's CFC rules were unenforceable. The ECJ said it was up to the UK courts to decide if the CFC rules applied only to subsidiaries which were established in other member states to avoid tax.

The UK Special Commissioners ruled in July last year that they could only consider the motive test in the CFC legislation in cases such as Vodafone's. The motive test requires a UK taxpayer to show it didn't set up a CFC to divert profits from the UK and that it didn't use a CFC in transactions to reduce the amount of UK tax it would have to pay. The case has been to the Court of Appeal and the Special Commissioners before.

The CFC rules target subsidiaries that have been set up outside the UK in countries with a lower rate of tax and where the subsidiary pays less than three quarters of the amount of the tax it would have paid if it had been resident in the UK.

Justice Evans-Lombe said in the High Court that he didn't believe the CFC rules complied with the freedom of establishment principle because it was clear that Vodafone could set up a CFC in another member state and that Cadbury Schweppes showed that the UK tax authorities were interfering with that right by trying to tax its profits; that the CFC rules were aimed at using CFCs to avoid tax, but Cadbury-Schweppes showed that taxpayer could set up such a company to obtain a tax advantage as long as it wasn't established to only save tax.

The judge said only adding words to the CFC rules could make them comply with the freedom of establishment principle.

"It is to me a surprising proposition that the court can, by judicial legislation, add a further condition for the application of Section 748(3) in order to cure the invalidity of a statutory provision that would not otherwise comply with European law and be enforceable against certain taxpayers.

"The CFC legislation, which depends on Section 747 and Section 748 for its effectiveness, must be disapplied so that, pending such amending legislation or executive action, no charge can be imposed on a company such as Vodafone under the CFC legislation," the judge concluded. "It follows that HMRC's enquiry into Vodafone's tax return for the Accounting Period has no legitimate purpose and should be closed."

Though many tax professionals described the judgement as comprehensive, HMRC is not giving up the case.

"HMRC intends to appeal this decision, and the Government will continue to defend its ability to enforce the CFC rules, which are designed to counter tax avoidance through artificial shifting of profits to offshore subsidiaries," it said. The next stop is the Court of Appeal with the House of Lords a possibility after that. An application to refer the case to the ECJ was withdrawn in the Special Commissioners.

The ruling puts more pressure on the government to come up with a plan for the taxation of foreign profits that is acceptable under EU law and to taxpayers. The Treasury published a discussion document on the issue in June 2007 that proposed a tax exemption for foreign dividends but also a new controlled companies regime that some taxpayers described as "draconian". ..."

Spanish Tax Freedom date 22nd May !!!!

Fernando@konsilia.es (Fernando Del Canto) — Wed, 02 Jul 2008 13:08:04 +0100

This morning I received a mail from Institución Futuro, a Spanish Think Tank involved in tax policy research.

According to their preliminary research, in Spain the tax residents spent 142 days working for the government, i.e. until May 22nd. The calculation is based on individuals providing their details using a web calculator that Institución Futuro sponsors at http://www.diadelcontribuyente.org/en/cifras.php

The calculation is aimed to residents in Navarra, and I believe they are not including the indirect tax supported by the citizens in their daily transactions, such as VAT, transfer tax, Stamp duty, fuel tax, and many other hidden taxes. This preliminary figure does not account for Gift or Inheritance Tax, as well as any other one off taxes paid by citizen in one off transactions. Of course Municipal taxes are not included either.

The initiative is very popular in other countries as we have already mentioned in our blog and I look forward to get the final results of this initiative, if possible considering the overall tax position, which probably will take us to well over this date.

In the UK the tax freedom day 2008 was 2nd June, meaning 155 days working for the government. Please check the website in the Adam Smith Institute for more information at http://www.adamsmith.org/tax-freedom-day

Tax agreements with Guernsey and Isle of Man. Welcome!!!

Fernando@konsilia.es (Fernando Del Canto) — Mon, 09 Jun 2008 15:13:51 +0100

Two new bilateral arrangements for the exchange of information for tax purposes, between Guernsey and the Netherlands and between the Isle of Man and Ireland have been signed, as reported by the OECD.

This bring to fourteen the number of such agreements signed since the beginning of 2007 by jurisdictions committed to work with OECD countries. Other negotiations are ongoing and are expected to lead to further new agreements shortly.

The agreement with the Netherlands is the second such agreement signed by Guernsey, which concluded an agreement with the United States in 2002. For the Isle of Man, the agreement with Ireland is its tenth tax information exchange agreement.

EC Commission v Kingdom of Spain.- Non Resident Tax case

Fernando@konsilia.es (Fernando Del Canto) — Sat, 07 Jun 2008 09:19:14 +0100

Konsilia has been instructed to act against the Spanish Tax Agency by some of their non resident clients claiming capital gain taxes unlawfully paid. This case could potentially benefit any Spanish property sales by non residents, prior to 31st December 2006.

The claim is based on the statutory application of ECJ case Law in EU member states. The specific ruling relates to Case C-562/07, which addresses an action brought on 19 December 2007 by the EC Commission — Commission of the European Communities v Kingdom of Spain

The ECJ decision rules against the Spanish discriminatory tax treatment of EC non resident regarding Capital Gains Tax paid up to 31st December 2006. During those years Spain treated capital gains tax paid under a clear discriminatory regimen for non residents.

Non residents were taxed at a flat rate of 35%, while residents were taxed according to the Spanish Income Tax progressive scale, for assets owned for less than a year, and a flat 15% rate if the assets had been owned for more than a year.

This unfavorable tax regime for non residents remained until 31st December 2006. In 2006 the government passed Law 35/2006, establishing a 18% flat tax rate for all capital gains arising from disposals made by both residents and non-residents alike. However, no statutory provisions were made to correct the discriminatory regime applied to non residents up to 31st December 2006.

The Commission, on December 2007, referred Spain to the ECJ, on the grounds that the higher tax
burden on non-residents is discriminatory in nature and restricts freedom of movement for
workers and the free movement of capital, as provided for in Articles 39 and 56 EC and
Articles 28 and 40 of the EEA agreement.

The case is now clearly settled and Spain will need to comply with the decision. Before considering any action it is essential to consider the merits of each case with a qualified European Tax Lawyer, specialized in Spanish tax litigation.

Free movement of businesses in the EU

Fernando@konsilia.es (Fernando Del Canto) — Wed, 04 Jun 2008 08:29:32 +0100

The transfer of operational headquarters from one country to another is stil penalized in the EU.

Advocate General Maduro's recent Opinion in Case C-210/06 (Cartesio Oktató és Szolgáltató bt) supports the thesis that a company registered in an EU Member State (Hungary, in this case) should be able to transfer its operational headquarters to another EU Member State (Italy) without restrictions.

According to Maduro's opinion, any domestic rules impeding the transfer of a company registered office from one EU Member State to another are incompatible with EC Law.

One immediate result of this case, depending on outcome, will mean that exit charges applied on some countries will need to be removed to facilitate the free movement in the EU.

In the absence of EU regulations on this particular matter, the countries apply domestic legislation on these circumstances. In Hungary this means that the company moving will need to liquidate their assets in that country, which in AG' opinion is contrary to EC Law.

It is still to be seen if the ECJ follows the Advocate General Opinion. We welcome the move in any case and hopefully this will further help the development of a real EC market with no barriers to free movement of business and capital.

Intellectual Property Tax War

Fernando@konsilia.es (Fernando Del Canto) — Fri, 30 May 2008 08:04:46 +0100

Things are moving very quick in the Intellectual Property Tax world.

A few years ago IP tax incentives were not considered by many countries. In the last years several countries have developed very attractive tax treatment for companies wanting to manage their intellectual property in a tax efficient way.

The last one is Luxembourg which from January 1st 2008 is offering a fantastic rate of 6% on certain types of Intellectual Property income.

A field that was not even considered 10 years ago, is coming today as one of the leading edge advisory services.

The savings on a sound IP international structure can be substantial for any corporation.

In the world of Intellectual Property Tax Planning, as in the broad international tax planning arena, there are many advisory firms proposing smart tax schemes and great ideas. Very little attention is given to materiality and providing a sound structure to implement those plans.

In the years to come more countries will be trying to make IP Tax one of their main competitive advantages. Advisers, in coordination with their clients, will need to assess their overall policies and how well are they catered to provide all the ancillary services needed to succeed on this enterprise.

Having been involved in IP international tax planning many years , the question I always ask my clients before starting an IP project is how committed are you to develop and implement a strong IP strategy?

European property Investment Tax Conference London 20-21st May 2008

Fernando@konsilia.es (Fernando Del Canto) — Thu, 01 May 2008 15:25:31 +0100
My colleague Emma Yates from LexisNexis is organizing a conference on Tax Planning for European Property investment on the 20th and 21st May in central London. Please find attached information and contact Emma if you have further queries.

Ley 2/2008, 21st April 2008 to improve Spanish Economy

Fernando@konsilia.es (Fernando Del Canto) — Sun, 27 Apr 2008 14:08:17 +0100

The REAL DECRETO-LEY 2/2008, of 21st April, containing several initiatives to improve the economic environment in Spain was passed by the Government last week. Unfortunately the regulations regarding Wealth Tax abolition is not yet included. Keep watching this space

Reforms to improve the Spanish Economy - April 2008

Fernando@konsilia.es (Fernando Del Canto) — Wed, 23 Apr 2008 17:21:42 +0100

Zapatero's government announced several economic measures, together with the Wealth Tax abolition we indicated last week.

Do we know how these measures may stimulate the economy and encourage more foreign investment? This is to be seen when the announcements are translated into statutes.

We believe it is encouraging, to say the less. The statutes and rules will be detailed over the next months and we should continue commenting on those:

• Abolition of the annual charge for Wealth Tax, as we announced in our last post.

• A new deduction for earned income, including pensions, equal to 0.9% of the
net family disposable income.

• Improved tax treatment for refurbishment of buildings.

• Improved system for repayment of VAT

• Greater flexibility for mortgage borrowers to renegotiate the term of the loans, and a reduction in fees and costs associated

• Improved tax treatment for non residents who invest in public debt

Spanish Wealth Tax Abolished

Fernando@konsilia.es (Fernando Del Canto) — Sat, 19 Apr 2008 21:33:56 +0100

Friday 18th April 2008 will be remembered as the day when the Spanish Wealth Tax (Impuesto de Patrimonio) was suppressed by the Counsel of Ministers.

The abolition will be effective for this tax year, i.e. 31st December 2008.

How will this change affect High Net Worth Individuals living or wanting to move to Spain?

This change will make possible for many individuals to stop worrying about paying taxes on worldwide assets and start paying a flat 18% Income Tax in Spain, if their income is coming from investments, dividends or capital gains. Compared with the hectic 43% suffered by most taxpayers, this is an interesting incentive to consider relocation to Spain.

We shall keep informing on the legislative development and regulations on these great news.

Zapatero and the International Property buyer in Costa del Sol

Fernando@konsilia.es (Fernando Del Canto) — Sat, 29 Mar 2008 13:12:22 +0100

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.
The urban plans are not coming to terms with environmental concerns and the construction in Costa del Sol has slowed down too. A natural correction of the frenetic rhythm of construction of the last decades.

In our professional practice at Konsilia we are observing a clear trend in the last year, which involves international executives in their 40-50s with their families, moving to Spain primarily for lifestyle reasons. In Costa del Sol, primarily from Marbella to Sotogrande, they find a place to live with English professional services, several international schools and plenty of international flights from Malaga, Gibraltar, Jerez or Sevilla airports to the main international destinations.

These clients want to be genuinely residents in Spain. As a tax adviser I like to think that there are some tax elements in this move:

The new Spanish expatriate regime allowing international executives to move to Spain with a 24% flat tax rate, excluding international income and wealth from been taxed in Spain during the five years following the move. Please see our article on this topic published in the Tax Journal (UK)

The beneficial Spanish tax treatment of investment income, including interest, dividends and capital gains at 18% rate, which makes Spain a great place to come to live out of the hard made money.

The promises of the Spanish government to abolish Wealth Tax, and possibly Inheritance Tax, at least to reduce the pressure of this last one for residents. Regarding Inheritance Tax we have seen some moves on some regions like Illes Balears, where Palma de Mallorca is located, and its government has reduced the charge for donations made to buy the first residential property (L 6/2007 27 December)

The UK changes on non-dom rules, which is a very suggestive way for some British Tax non-dom to make a move to warmer lands.

Of course there are many other elements to support the continuation of this trend in Costa del Sol. It is true that the Spanish Economy , considering the many challenges in and outside Spain, continues performing at a good rate.

Another interesting data, this one from the Property Consultants CB Richard Ellis , is the investment opportunities arising from commercial property in Costa del Sol, a market that is reflecting the increase of businesses in the area.

Summarizing, we believe that these times of stabilization of the residential market in Costa del Sol are a mild correction in a sector reaching now maturity. The future of Costa del Sol, far away from what has been said by many tabloids, is still bright and we are confident that the Spanish government can influence it positively with some tax reforms, as the ones mentioned in this post.

Tax intermediaries, the OECD views

Fernando@konsilia.es (Fernando Del Canto) — Sat, 22 Mar 2008 19:58:35 +0100

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.

Spain going places. Spanish Economy for international analysts

Fernando@konsilia.es (Fernando Del Canto) — Sun, 16 Mar 2008 11:09:56 +0100

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

Another happy budget for some UK non-dom?

Fernando@konsilia.es (Fernando Del Canto) — Wed, 12 Mar 2008 21:24:29 +0100

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.

As the Financial Times published today, Deepak Malhotra, who advises South Asian clients for Grant Thornton said important concessions had been made on rules for remaining non-resident, as well as the non-dom tax regime.

“Non-dom clients will be more positive about things than before,” he said. “But it would have been better to consult first, rather than issue draconian proposals that upset a lot of people.”

Mr Malhotra thought the final proposals might help lift the uncertainty that has hung over non-dom taxation for many years, with proposals repeatedly aired and then shelved. “The promise of no further change in this parliament or the next should reassure businesses and individuals.”

Please see full article at FT web page

EU request to Spain on Tax Havens rules

Fernando@konsilia.es (Fernando Del Canto) — Wed, 12 Mar 2008 10:56:33 +0100

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.

Làszlo Kovàcs, Commissioner responsible for Taxation and Customs Union said: "I understand that Member States need to ensure that their tax bases are not unduly eroded because of abusive and overtly aggressive tax planning schemes, but the Commission as Guardian of the Treaties cannot tolerate disproportionate obstacles to cross-border activity within the EU." He added: "The infringement at stake again reveals that there is a need for better coordination of national anti-abuse tax rules as the Commission stressed in its December 2007 Communication on anti-abuse rules in the area of direct taxation (IP/07/1878). I invite all Member States (and not only Spain) to explore the scope for constructive and coordinated responses which would strike a proper balance between the protection of national tax bases and the need to observe the freedoms of the Treaties"

Tax treatment of dividends distributed by companies established in particular Member States or territories

Under the national legislation, dividends distributed by companies located in certain Member States or territories of the EU, in which a Spanish company holds a participation of more than 5%, do not benefit from tax exemption while such an exemption would be granted if dividends were distributed from companies located in Spain or in other Member States. The Commission considers that this difference in treatment restricts the free movement of capital.

According to Article 56 of the EC Treaty all restrictions on the movement of capital between the Member States shall be prohibited. The national provisions at issue create a higher tax burden for resident shareholders investing in companies established there and, thus, may have the effect of deterring them from investing capital in the companies having their seat in these Member States or territories. Those provisions are also capable of having the effect of impeding companies located in those Member States and territories from raising capital in Spain. Therefore, the legislation at issue affects market access of both – the distributing companies and the resident shareholders – and thereby constitutes a restriction within the meaning of Article 56.

Spanish "Controlled Foreign Company" legislation

Controlled Foreign Company (CFC) rules typically provide that profits of a CFC may be attributed to its domestic shareholders (usually a parent company) and subjected to current (immediate) taxation in the hands of the latter (whereas normally the parent company would be taxed on the profits of its foreign subsidiary only at the time of distribution). The main purpose of CFC rules is to prevent resident companies from avoiding domestic tax by diverting income to subsidiaries in low tax countries.

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 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.

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.

Non-deductibility of depreciation provision

Spanish legislation does not allow Spanish companies to establish tax deductible provisions for depreciation relating to holdings in companies located in those Member States or territories. The Commission considers that the national provisions at issue create a higher tax burden for resident shareholders investing in those Member States or territories than for resident shareholders investing nationally or in other Member States. Spanish legislation dissuades its residents from making investments in other Member States and constitutes a restriction on the freedom of establishment and on the free movement of capital within the meaning of Article 43 and 56 of the EC Treaty.

The reference number of the infringement procedure is 2005/4290.

Spanish Tax Return 2007 Deadline

Fernando@konsilia.es (Fernando Del Canto) — Sun, 09 Mar 2008 18:17:05 +0100
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

Pension Plan vs Investment Funds in Spain

Fernando@konsilia.es (Fernando Del Canto) — Mon, 03 Mar 2008 07:50:55 +0100

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.
Therefore, if the fund is exempted from Inheritance Tax, the heirs will be taxed according to the income tax rules up to 43% if residents and at 24% if non resident, providing the fund is located in Spain. The taxable base will be for the full amount of the fund.

From a estate planning point of view it may be worth considering an investment fund rather than a pension plan. The investment fund will be taxed, on disposal or liquidation, according to the Capital Gains Tax rules at 18% both for residents and non residents.

A no brainer tax saver, as only the gain will be taxable in this case.

As usual it is important to balance estate planning with efficient income tax planning in order to calculate the most advantageous situation.

British Tax authorities pays for Briton's bank details

Fernando@konsilia.es (Fernando Del Canto) — Sun, 24 Feb 2008 22:20:27 +0100

Today in the BBC it was revealed that the HMRC, the UK's tax authority has confirmed that it has paid an informant for data regarding British citizens who have accounts in tax haven Liechtenstein.

HM Revenue and Customs (HMRC) confirmed the move after a Sunday Times report, but would not say how much it had paid the informant. Read the article here

The suspected whistle blower, accused of stealing data from the bank, LGT, was sacked and convicted of fraud.Mike Warburton, a partner at Grant Thornton at www.grantthornton.com said: It is shocking that the Revenue has started buying information from dubious sources to help its investigations.

I have discussed this issue in this morning post OECD, Liechtenstein and Germany. Is there a place for a synthetic approach? and will welcome people's views.