Spain’s tax situation after 30 years as a member of the EU
To mark the 30th anniversary of the signing by Spain of the Treaty of Accession to the EU, and with the international affairs spotlight being firmly focused on Greece, this is the first in a series of articles in which we shall be analyzing the legislative changes and legal implications to which this event has given rise.
It is not easy to sum up in just a few paragraphs the consequences that Spain’s membership of the European Union has had in the area of taxation. What is generally clear, however, is that European law has helped Spanish taxpayers, tax authorities and courts to take a broader view of taxation, and that overall, EU membership is equipping Spain with tax laws which are more open to internationalization and less protectionist (we are, after all, in a single market) and leaving us, most certainly, better prepared to tackle other relevant issues (anti-fraud rules, fiscal competition between States) from a global standpoint, in coordination with our European partners. In short, EU legislation is now fully accepted as a source of Spanish tax law.
European law, as we all know, is not all-encompassing (whereas domestic law must necessarily be just that), and it is bound by certain essential principles with respect to competence and subsidiarity. Tax law is a good example of this. The EU’s influence does not extend to all the taxable events envisaged in the Spanish tax system, and neither is it systematic. It is nevertheless having a growing impact on areas which, with time, have proved to be decisive.
The point of departure from the theoretical perspective—leaving aside the indispensable harmonization of VAT and other indirect taxes levied on the trading of goods and services in the EU—is a traditional premise: sovereignty in the area of direct taxation rests with the Member States (and not with the EU). In other words, taxes on income (that of natural persons and that of corporations) have either not been harmonized or been harmonized only to a residual degree. This traditional premise, however, is becoming ever less true, as national sovereignty is progressively relinquished—as experience shows—in key areas. For example:
- However much tax rules may be based on the classic principles of taxation (e.g. residents and nonresidents are in different situations and should therefore be treated differently), they cannot establish barriers which curtail the freedoms (of establishment, movement of capital, provision of services) which entitle nonresidents to invest in Spain unimpeded. Similarly, they cannot restrict or limit the capacity of Spanish residents to invest in other States (EU states and, in some cases, non-EU states too). A great many Spanish tax rules have had to be either adapted or eliminated altogether in order to preserve these principles. These include, to name but a few, the rules on thin capitalization, international tax transparency, dividends and capital gains from Spanish and foreign sources, the taxation of nonresident investment funds, tax consolidation, determination of the tax base and tax rate for nonresidents, the taxation of inbound and outbound expatriates, tax credits for R&D&I, etc.
- The regulation or establishing of stimulus measures or tax relief (incentives, credits, exemptions) are required to respect the rules of EU Competition Law and, in particular, the ban on State aid. Spain, which has traditionally maintained a fairly low profile in the European Courts insofar as relates to tax issues, is making quite a name for itself in this area. The State aid proceedings against certain provincial tax incentives, against the credit for export activities and, more recently, against the rules on the amortization of financial goodwill and the tax lease system applicable in the shipbuilding sector have been followed and discussed in all the European forums. And what they show, in any event, is that tax sovereignty can also be called into question by this means.
What can we expect in the future? On the one hand, further reinforcement of the former “indirect” harmonization (although hopefully with more clearly defined limits in relation to State aid). On the other hand, the increasing concern over tax transparency, the need to combat tax fraud, and the drawing up of rules intended to place restrictions on so-called “aggressive tax planning” (spearheaded by the OECD which nevertheless lacks the legal means available to the EU) are likely to lead to new global reforms.
Against this backdrop, the recently announced initiative aimed at establishing a Common Consolidated Corporate Income Tax Base serves a two-fold objective on which all the points referred to above (including some which have hardly been mentioned, such as the elimination of double taxation) converge. On the one hand, it will limit significantly the tax planning options available to multi-national groups; and on the other, it will eliminate—or at least reduce—the regulatory and administrative complexities resulting from the co-existence of 28 different tax systems, introducing rules (e.g. the possibility of offsetting income and losses generated in different member states) which will make the EU a more attractive market and—at long last—enable us to affirm that taxes have ceased to be the exception to the rule that Europe has no borders.
Garrigues Tax Department