In October 2013 the Fundación Impuestos y Competitividad brought together several experts in Tax Law at the Universidad Pontificia Comillas ICAI-ICADE to discuss the different aspects considered by the current reform of Spanish Tax System. This conference formed part of the cycle on “The reform of the tax system: its analysis from the perspective of the company and the goal of competitiveness”, organised by the Foundation.
The event was opened by Mr. Iñigo Navarro Mendizábal, in representation of the Universidad Pontificia Comillas ICAI-ICADE, and Mr. Mario Lara Sanz, a partner of PwC, in his capacity as Chairman of the Fundación Impuestos y Competitividad, who recalled that the principal objective of the Foundation, whose patrons are eight of the leading tax law firms in Spain, is the review, innovation and improvement of the tax legislation and practice in Spain and the European Union, in benefit of the competitiveness of the Spanish economy and the European Union.
The event consisted of three presentations and a concluding debate. The first presentation focussed on “the international framework: the equilibrium between tax consolidation and international tax competition” and was given by Mr. César García Novoa, the Head of the Financial and Tax Law Department of the University of Santiago de Compostela. Mr. García Novoa commented on the accommodation given by the Supreme Court in our legal system to what is known as “soft law,” among whose exponents are the resolutions of the OECD, and he openly criticised the dynamic interpretation of the Conventions for avoiding international double taxation followed by our courts in notable cases like the Roche or Oracle judgments.
Within the general approach, he explained how the pressure of the international tax competition also forms part of the international framework to which the reform of the system must pay attention.
As for the measures which should be incorporated into the future reform, he cited, on one hand, the obligatory incorporation of the criteria in the matter of transferral prices of the OECD Guide of 2010, the reduction of the Corporation Tax rate and the need to maintain the incentive for the internationalisation of Spanish companies, which admits the possibility of creating branches or subsidiaries, and even recognising the right to take advantage of the most beneficial tax regimes; and on the other hand the stimulation of the improvement of the treatment of displaced workers and the review of the regime on impatriates, the improvement of the treatment of the patent box, making a critical vision of the reform introduced with the Entrepreneurs Act, and reviewing the measures of restriction of deductibility of financial expenses, modifying the criterion of determination of EBITDA and adopting the alternative formula of the LODIN proposal.
The second presentation was given by Mr. Juan López Rodríguez, a Doctor in Law and a State Tax Inspector, who spoke about “the European Union, the demands of fiscal harmonisation and convergence and the imperatives of the crisis.” Mr. López made an extensive analysis of the EC-related conditioning factors in regard to the various taxes, considering it necessary to incorporate into the General Taxation Act a suitable regulation of those conditioning factors on the system as a whole.
He then diagnosed the current tax system as insufficient in the collection aspect, inefficient due to its excessive burden on the productive factors in comparison with the taxation borne by consumption, and not neutral due to the abundance of incentives and reductions.
As specific reform measures, he supported the review of the reduced and super-reduced rates of VAT and the increase of environmental taxation (in particular, in water treatment, an increase of the special taxes and a review of the municipal vehicle tax based on parameters of an environmental nature). In regard to Personal Income Tax (IRPF) and Corporation Tax, he proposed the elimination of incentives and benefits (such as those for home purchase or pension plans) and also an increase of wealth tax, which is less harmful to economic growth.
In reference to the problem of the battle against fraud, another of the indispensable goals of the reform, he emphasised the need to endow the Spanish Inland Revenue Service with greater resources to this purpose, since in comparison with other countries the Agencia Tributaria has a scarcity of means for this activity.
The series of presentations was completed by Mr. Roberto Fernández Llera, an economist and doctor from the University of Oviedo, who discussed “the territorial structure of the State, the regional and local tax system,” highlighting the asymmetry existing in the current system, which suffers from a serious imbalance caused by the disparity in the distribution of public income and expenditure between the State and the Autonomous Communities.
Mr. Fernández Llera defended the need to examine in depth the fiscal autonomy of the Autonomous Communities and their fiscal co-responsibility, with an inviolable twofold limit: the maintenance of market unity and the respect for the EU regulations. To this purpose, he reflected on the possibility of the Central State Administration establishing certain minimal bases harmonised in relation with the taxes in which the Autonomous Communities have regulatory capacity, this ensuring a desirable homogeneity in the tax systems of the various Communities.
In relation with local tax regimes, Mr. Fernández Llera declared that the crisis has aggravated the long-standing and endemic financial insufficiency of the system.
Among the most notable measures in the taxation field, he mentioned the strengthening of the Business Tax levied on earnings from economic activities, since this tax has undergone an extensive defiscalisation in recent years, and he expressed his support for the tax on large fortunes, especially unproductive ones. From the point of view of the tax authorities, Mr. Fernández Llera reflected on the possibility of the State allocating to the councils of municipalities with over 20,000 inhabitants a part of the revenue of the principal taxes (VAT, IRPF, etc.)
The presentations having concluded, the panel debate took place, with the presence of the three speakers plus Ms. Pilar González de Frutos in representation of the CEOE (the Spanish Employers’ Association), and three representatives of the Foundation’s Board: Mr. Federico Linares (Ernst&Young Abogados), Mr. Ricardo Gómez Barreda (J&A Garrigues) and Mr. Miguel Cruz (PwC Tax & Legal Services).
Mr. Federico Linares defended the essential need for the reform to produce a tax system
which will reinforce legal certainty by means of regulatory stability. In particular, he declared that the current model of Corporation Tax is obsolete, in crisis, and needs a total reform which, in the case of the corporate
groups resident in Spain with international projection, will make it possible to enlarge the tax bases applicable in Spain, capturing bases generated in other countries by reinforcing figures such as the “Patent Box,” the Valuation Price Agreements in relation with transfer prices, etc., but without an overall increase in the taxation on companies.
Mr. Miguel Cruz, for his part, pointed out the absence of a previous, serious and rigorous social debate on the total reform of the Spanish tax system, as exists in other countries, as is the case of the Mirrlees Report in the United Kingdom; he also noted how the reform in Spain appears to be intervened or marked by the recommendations received from the EU.
Mr. Ricardo Gómez Barreda expressed the need to question Spain’s local and regional map, with over 8,000 municipalities and 17 Autonomous Communities, respectively, in the framework of the reform of the tax system, all in benefit of competitiveness and market unity and the reduction of the distortions generated by the internal fiscal competition between the various territories, asserting that the citizens and companies do not understand the inequalities.
Finally, Ms. Pilar González de Frutos thanked the Foundation for the invitation, and in closing the event she announced that the CEOE is working on a series of recommendations within the framework of the reform of the tax system in Spain, emphasising that under no circumstances must the reform brake or impede the international expansion of Spanish companies or, inversely, the entry of foreign investments; and in the matter of regional and local taxation, it demands that the State comply with the competences attributed to it by the legislation and make the exercise of the tax competences of the Autonomous Communities and the local corporations compatible with the demands of the single market. Presentations: unfortunately, the full text of the presentations is only available in Spanish