This country-specific Q&A provides an overview to tax laws and regulations that may occur in Spain.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax
How often is tax law amended and what are the processes for such amendments?
The annual Budget Act typically contains amendments to tax law. In addition, Parliament approves amendments to existing tax laws or, from time to time, even new legislation.
The Government passes secondary legislation developing the provisions of the law through Royal Decrees and Ministerial Orders.
Sectoral changes are typically discussed with the affected taxpayers but there is not a public and regulated procedure as such.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
The main obligation of the taxpayer is to file a tax return. This tax return is completed on a self-assessment basis where the taxpayer declares the income/profits obtained and calculates the tax due. The deadline for filing each return depends on the specific tax.
Individual taxpayers are required to file a Personal Income Tax return no later than 30 June of the following year. The filing deadline for companies depends on their accounting period but for those with a calendar year, the deadline is usually 25 July of the year following the end of the period to which the return refers.
Taxpayers must keep their records and books during the statute of limitations period (4 years).
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The Dirección General de Tributos (General Directorate for Taxation), which is dependent from the Ministry of Finance, is the body in charge of tax matters. More specifically, the Agencia Estatal de Administración Tributaria (Spanish Tax Authorities) deals with the collection of State taxes and the inspection of taxpayers.
It is possible to approach the General Directorate for Taxation to discuss a matter or even explore the feasibility of requesting a binding tax ruling. The process for obtaining such ruling takes time (no less than 3 months).
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
Any dispute must be first dealt with the Tax Authorities themselves including a process before the regional and central Administrative Courts (Tribunales Económico-Administrativos). These are bodies that although acting on a similar way as a court, are dependent from the Ministry of Finance. After that, if the dispute remains, the taxpayer could then go to a judicial court.
The timing would vary depending on the competent court and the number of appeals. Considering a normal case dealt by the regional and central administrative court which is then followed by an appeal to Tribunal Superior de Justicia (the High Court of Justice), a reasonable estimation would be 5 years.
If the matter ends up in the Supreme Court, the process may take no less than 10 years in total.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
In the case of individuals, Personal Income Tax must be paid at the time of filing the tax return, i.e., before the 30 June of the year following the tax period (calendar year) to which it refers.
Companies will also make the payment at the time of filing the Corporate Income Tax return within the 25 days following the six months period after the closing of the tax period to which the return refers to (for most entities, before July 25).
As a general rule, any taxpayer can postpone the payment of taxes under certain circumstances provided that a guarantee is delivered. There are some exceptions where such guarantee is not necessary.
In the event of a dispute, the tax must be paid in advance or, alternatively, a guarantee (typically, a Bank guarantee) should be delivered to the competent tax office, otherwise, the procedure to collect the payment will not be suspended. If such guarantee is delivered to the Tax Authority (and accepted), the tax liability is postponed until there is a final resolution.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Article 95 of the Spanish General Tax Act (Act 58/2003, of 17 December) imposes a duty on the officials of the Spanish Tax Authorities to ensure that taxpayer information is kept confidential. It is a criminal offence to breach this obligation by disclosing information.
Notwithstanding the foregoing, this duty is not absolute and it does not apply to disclosures for the purposes of a procedure carried out by the Spanish Tax Authorities or the Spanish courts.
Additionally, a recent exception to this duty was included in the Spanish General Tax Act whereby the Spanish Tax Authorities are entitled to publish, on a regular basis, lists of taxpayers whose unpaid tax quotas and/or unpaid tax penalties amount to at least EUR 1 million.
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Yes, Spain is signatory to the Common Reporting Standard (CRS) and has committed to the reporting and due diligence standards required by OECD for the purpose of the automatic exchange of financial information.
In this sense, the CRS commitment was included in the Spanish domestic legislation by virtue of Royal Decree 1021/2015, of 13 November, which establishes the obligations to be met by the Spanish financial institutions (both Spanish financial institutions and Spanish branches of foreign financial institutions) in order to identify the holders and amounts of financial accounts.
The practical implementation of the above-mentioned obligation of information will be made through the submission of Form 289 (approved by Order HAP/16952016, of 25 October) to be filed on an annual basis before 31 May.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
The amendments to Spanish tax law were enacted as part of the global tax reform which took effect as of 1 January 2015 and also included some provisions related to the OECD BEPS project, such as stronger CFC rules and limitations on tax deductibility of financial expenses. In fact, Spain has recently signed the OECD’s multilateral instrument being developed under Action 15 that will allow countries to update all their bilateral tax treaties in line with the OECD proposals.
As regards the existence of permanent establishments (PE) for tax purposes, Spanish Tax Administration is taking a more economic approach to the PE definition and stricter positions on the related tax treatment.
In addition, Spain’s current tax treaty policy is to negotiate the inclusion of limitation on benefits clauses and anti-hybrid provisions.
Is there a GAAR and, if so, how is it applied?
The anti-abuse tax measures regulated by Spanish Tax legislation could be divided into:
A. General tax anti-abuse provisions:
a) Conflicts in the application of tax regulations: This conflict would exist when the taxpayer avoids, total or partially, the taxable event or reduces the taxable basis (or the tax due) through transactions in which any of the following occurs:
- Said transactions, considered individually or as a whole, are notoriously artificial or not typical for achieving the result obtained.
- They do not derive into material legal or economic effects different from the tax saving or the effects that would have been usually obtained.
b) Simulation: this is understood to occur when there is another hidden purpose under the appearance of a legal transaction, which could be (i) not entering into any agreement or (ii) entering into any other contract than the one intended.
B. Specific tax anti-abuse provisions as regulated expressly in each area of tax law in order to prevent a specific kind of transaction or apply a different tax treatment to that sought by the parties.
a) Corporate Income Tax: A specific anti-abuse provision is applied for CIT purposes within the scope of restructuring transactions. In order to apply the neutral tax regime, the existence of valid economic reasons (different from tax reasons) should be accredited by the taxpayers.
b) Transfer Tax: An anti-abuse clause is established by virtue of which the acquisition of securities/shares representing a controlling participation in companies where, at least 50% of its assets are real estate located in Spain may be subject to Transfer Tax.
c) Related entities: In general terms, specific anti-abuse provisions have been incorporated to the Spanish tax legislation in order to ensure that transactions carried out by related entities are valued at fair market value.
The above-mentioned GAAR provisions are focused on dealing with (i) valid economic reasons to be accredited within corporate restructurings under the tax neutral regime and (ii) the accrual of Transfer Tax upon the acquisition of more than 50% over land rich companies.
In general terms, it could be said that the Tax Authorities (and some administrative or judicial courts) tend to apply the wording of the law in broad terms (based on its spirit) instead of specifically applying the Spanish GAAR provisions as they would require to follow the procedure set out in the Spanish regulations.)
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
Yes, it does. The rates are as follows:
a. Corporate Income Tax is levied at the standard rate of 25%. Credit entities are subject to an increased rate of 30%.
b. Employment income is taxable under Personal Income Tax at the rates derived from a sliding scale. The applicable rates vary among the different Spanish regions. In general terms, between 19% and 45%.
c. The general VAT rate is 21%. There is also a reduced rate of 10% for certain goods.
d. Savings income (interest, dividends and capital gains from moveable assets) and royalties are taxable at privileged rates under Personal Income Tax. The applicable flat rate is 19% on the first €6,000, 21% for taxable income between €6,001 and €50,000, and 23% for taxable income exceeding €50,000.
e. There is not a separate tax for income on land. Any income derived from such source would be taxable under Personal Income Tax or Corporate Income Tax, as applicable.
f. Capital gains obtained by individuals are taxable under the same principles as savings income at the above rates. In the case of companies, they will be taxed as any other ordinary profit unless an exemption applies (e.g. in the case of certain qualifying participations).
g. This is a tax transferred to the Autonomous Communities (regions) and each one has the right to establish its own rates. As a general principle, Stamp Duty is payable on any transaction documented in a Notary deed having access to a Spanish Public Registry, the rates ranging between 1% and 2.5%. Capital duty is no longer applicable to the incorporation of companies or their capital increase (either monetary or non monetary) but certain exceptions apply in the event of share capital reductions or liquidation of a company.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Yes, Corporate Income Tax is applied on the income recorded in a company's books, which is calculated by applying the accounting standards. The Corporate Income Tax Act provides for certain adjustments to be made to such profit for the purposes of assessing the tax base.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities?
Spain recognises certain types of entities with and without legal personality as taxpayers. As a matter of example, investment funds do not have legal personality as they are not companies but are Corporate Income taxpayers. Partnerships and trusts are not recognised under Spanish Law.
Is liability to business taxation based upon a concepts of fiscal residence or registration?
As a general principle, it is based on fiscal residence of the entity. However, a company will be typically considered as Spanish tax resident if, among other circumstances, has been incorporated under Spanish Law or has its place of seat in Spain.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Under Spanish legislation there is no specific tax regime applicable to enterprises zones as a whole, but only applicable to investments made and businesses carried out in specific regions (i.e. Canary Islands, Ceuta, Melilla) which the legislator intends to protect and to encourage.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Since 1 January 2008, Spain has offered a favourable tax regime to taxpayers investing in intellectual property (IP) rights.
To date, the IP regime introduces a 60% tax exemption on IP-derived income from eligible assets. As a consequence, in Spain, for corporate income which is currently taxed at the standard rate of 25%, the effective rate of taxation for the IP-derived income will drop to a maximum of 10%.
The IP regime has a broad scope and applies to income derived from the assignment of the right to use the exploitation or capital gains derived from the transfer of the following specific intangible IP assets (i.e. regardless of whether that intangible asset is recorded or not in the entity's accounts): patents, designs, secret formulae or processes and rights over information concerning industrial, commercial or scientific experiences.
However, other intangible IP assets not listed above are not covered by the IP regime, since they are expressly excluded from such regime (e.g. trademarks or service marks, domain names, software, copyrights on literary, artistic or scientific works, rights over industrial, commercial or scientific equipment, etc).
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Yes, groups of corporates can choose to be taxed on a consolidated basis, provided that certain participation requirements (as a general rule, a direct or indirect participation of 75%) are met.
Under the tax consolidation regime, tax losses can be offset by the group against the overall profit, with certain limitations in the case of losses obtained prior to the formation of the group.
Is there a CFC or Thin Cap regime?
Spain applies CFC rules in order to tax any income obtained by foreign companies located in low tax jurisdictions which are deemed not to carry out an entrepreneurial activity, as defined. No CFC rules are applicable when the foreign entity is resident in another EU Member State provided that it has been incorporated based on valid business reasons.
Thin capitalisation rules no longer exist. However, the Corporate Income Tax Act includes interest barrier rules that, as a general principle, deny the deductibility of interest expenses corresponding to net indebtedness exceeding 30% of the EBITDA in a given tax period.
Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Yes, the Corporate Income Tax Act includes a regime for transactions between related parties which must be agreed at arm's length. It is possible to obtain an advance price agreement through a procedure set out in said Act.
There has not been any official reaction from the Spanish Tax Authorities in relation to the Starbucks or Apple decisions.
Are there any withholding taxes?
Yes. Withholding taxes are applicable on any income obtained by non-Spanish residents, individuals or entities (essentially, dividends, interest and royalties), the general rate being 19% in the absence of a Double Tax Treaty.
In addition, certain exemptions are applicable, such as the exemption on interest income obtained by EU residents or the exemption on dividends based on the Parent-Subsidiary Directive.
Are there any recognised environmental taxes payable by businesses?
Both Spanish legislation and the specific legislation applying to different Spanish Regions include environmental taxes which may be payable by businesses, individuals or businesses acting as final customers.
As regards the legislation applying to the whole Spanish territory, Tax on Hydrocarbons and Special Electricity Tax are applicable and are levied on the amount of hydrocarbon or electricity consumed.
On the other hand, environmental taxes passed by the different Spanish Regions are focused on business activities carried out by companies within the territory of the corresponding Region and that may entail environmental damage through any type of pollution, wastes or emissions.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
As a general rule, dividend income received from resident and non resident companies are exempt from taxation in Spain provided that a participation of, at least, 5% (or with an acquisition cost of 20 million Euros) has been uninterruptedly held during the year prior to the distribution of the dividend (such period can be completed afterwards). Some additional requirements as to the level of taxation of the participated entity are necessary in the case of dividends from non Spanish entities.