- The foundation believes that this “balancing act” leads to asymmetries when determining taxable income.
- The project has other aspects that are difficult to interpret and may be conflictive in the future.
- Even so, the board of trustees gives a moderately positive assessment of the parliamentary regulation in process.
The Tax and Competitiveness Foundation believes that the tax reform, as a whole, is positive, because it aims to reduce the tax charge,and consequently promote competition. The reform is also more sensitive to international taxation matters, promotes saving and self-financing, and introduces improvements in technical regulations on taxes.
However, although the tax rate reduction may be considered less than that desired, the board of trustees understands that this reduction is conditional on international demands and budget balancing requirements.
The foundation’s assessment of other aspects of the regulation is more negative:
- a) It feels that there is a balancing act with the figures subject to reform that does not allow the net impact of the reduction announced to be assessed. It is not easy to establish whether the “obvious” reductions proposed reduce the tax more than the corrections introduced during this and previous legislation. In addition, these counterweights are conducive to asymmetrical criteria for determining taxable income on a permanent basis.
- b) There are aspects of the reform with a high potential of being difficult to interpret and, consequently, may be conflictive in the future, with a clear rapid increase in anti-abuse regulations.
Despite this, the foundation trusts that, after parliamentary negotiations, the appropriate corrections will be introduced to strengthen the positive aspects of the reform. It also emphasizes that, considering the desirable improvement to the system’s legal certainty, changes to the draft bill reforming the General Taxation Act will be fundamental as a substantial part of the entire process.
Income tax
Positive aspects
- The tax rate reduction clearly backs the competitiveness of the system and promotes new international investment that highlights the nominal tax rates. The reform brings Spain closer to the standards of comparable countries.
- The exemption of dividends and gains to avoid economic, international and internal double taxation is valuable; the legislator was courageous and generous in this essential aspect regarding taxing international groups with a Spanish parent company.
- The rules promoting self-financing, through capitalization reserves and the leveling reserve for smaller companies are very positive, given that they promote companies having their own financing, and being stable and competitive.
Negative aspects
- Some measures in the reform have a negative impact on a company’s competitiveness and cause a divergence between taxable profit and accounting profit (exclusion of impairment losses on financial assets and property, plant and equipment; delaying losses from transactions with investees or permanent establishments; limiting compensation for losses, etc.).
- Although avoiding double taxation is a step forward, internationally, however, it is conditional on the rules for international tax transparency (15% exclusion). In some cases, these measures may even lead to excessive taxation of actual economic structures and prevent the expansion of Spanish multinational companies and the mobility of capital abroad.
Non-resident income tax
The tax charge on salary income has been significantly reduced if compared to the tax charge in 2014, 2013 and 2012, which is positive because it stimulates consumption and generates more disposable income for taxpayers. However, and not considering the taxes allocated to helping the disabled and large families, the tax reduction is questionable: a 10% reduction, if income is less than €30,000; negligible for income between €30,000 and €100,000; and even a tax increase for income greater than €100,000 per year. Therefore, the tax reform is merely continuing tax policy with regard to 2011. The suppression of the exemption on delivering shares to employees can also be criticized, as the measure brought into line business creation and commitment on the part of the employees.
However, there are technical improvements, such as those made in relation to handling irregular salary income and the disassociation of directors’ remuneration from the related transaction regime.
Another positive aspect for taxing property income includes maintaining tax incentives on the rental property market, although there has been criticism that (i) this income has not been including in the savings base, (ii) the tax on “alleged property income” has not been eliminated, and (iii) a transitional regime has not been considered to eliminate the adjustment coefficients for calculating property gains. The taxation of savings improves in terms of neutrality as a result of the reinstatement of short-term gains in the savings tax base and the possibility of offsetting financial profit and loss in the same tax base. Therefore, choosing one financial product or another is not conditional on the applicable taxation, ensuring that the Spanish financial markets will be more competitive.
It should be noted that the legislator has regulated the tax incentives for long-term savings, such as new individual savings plans; and the effort made to maintain the competitiveness of the Spanish supplementary social welfare system by maintaining tax incentives for pension plans is commendable.
With regard to international taxation, the inpatriate regime is assessed positively as a result of its attraction for foreign companies to carry out their business. However, there are other measures in this regard that can be clearly criticized,particularly the new tax transparency regime and the “exit tax”; both of which raise doubts as to whether they are in line with Community law and may represent a significant obstacle to Spanish companies’ competitiveness and their expansion abroad. In addition, non-resident companies that obtain profit from Spanish sources are discriminated against compared to resident companies, which may threaten European community principles regarding the movement of capital and freedom of establishment.
Value added tax
Although there are increases for healthcare products required by Community law, there were no changes in VAT rates, clear demonstrating that the government had discarded the recommendations to increase VAT proposed by the European Commission and the IMF.
The reform includes technical improvements, such as admitting the refund of taxes borne by operators not located in Spanish territory, without reciprocity; and extending the period for correcting the tax base in the case of past-due balances. What is missing is a more in-depth review of this tax, which has been touched up and patched since 1992, and the reform offered a good occasion to do just this, ensuring the effectiveness of the tax throughout all business activities, excluding the tax on asset transfers for consideration for property transfers, as well as in global business transfers. Without a doubt, one of the reasons this has not been carried out may be the difficulty of distributing the tax among the autonomous regions.
Lastly, the excessive weight of the formal requirements of this figure must be reduced, and, therefore, any regulations that prevent deductions as a result of formal breaches, that subject the monthly refund regime to disclosure obligations, or that eternalize penalties as a result of mere formal breaches that do not constitute economic loss for the tax authorities must be eliminated.
About the Tax and Competitiveness Foundation
The Tax and Competitiveness Foundation was founded on September 22, 2011, as a non-profit organization. Its main purpose is the research into, study and dissemination of, and independent opinion on international regulatory developments regarding taxation, and on the experience of applying such developments, especially regarding researching processes through which such developments and experiences, if they do not exist in Spain or in the European Union, are incorporated into Spanish and community law and practice to benefit the competitiveness of the Spanish and the European Union economy.
The foundation’s board of trustees is formed by eight entities: PwC Tax & Legal Services; Cuatrecasas, Gonçalves Pereira; Uría Menéndez; Baker & McKenzie Abogados; Deloitte Asesores Tributarios, EY Abogados, Garrigues and KPMG Abogados.