The personal income tax reform and possible decisions before it takes effect

Now that the Bill amending the Personal Income Tax in force (Law 35/2006, of November 28, 2006) has been approved and published in the Official Gazette of the Lower House of the Spanish Parliament, the taxpayer can consider different decisions which, starting on the date of entry into force of the reform (January 1, 2015), can lead to a better tax treatment, always respecting the law. Essentially, and in view of the fact that the reform improves in some cases and worsens in others the tax treatment of certain economic events, the decisions consist of either delaying or bringing forward, respectively, the performance of those economic events. For example, some of the aspects to be taken into consideration would, briefly put, be:

• Deferral in the receipt of income, in order to take advantage of the entry into force of lower tax rates.  This can affect extraordinary salary income, such as bonuses or the like, or the billing of professional income. With regard to investment income, it would also be beneficial to defer the receipt of significant dividends, and to channel investments in this period to accumulation, rather than distribution, products.

• Bring forward in 2014 the surrender of deferred capital insurance arranged before January 20, 2006, given that the repeal of the transitory rules established for these cases would entail in the future a minimum taxation of 19%, as compared with the 13% maximum effective tax rate that would be borne in 2014.

• Bring forward capital reductions or refunds of additional paid-in capital, given that the amount received will reduce the acquisition cost of the respective shares or units, after being taxed as income from moveable capital, where voluntary reserves exist.

• Bring forward the sale of listed shares acquired before December 31, 1991, provided that the average market price of the last quarter of 2005 is lower than their current market price. The application in 2013 of the abatement coefficients which the reform intends to abolish will result in the non-taxation of the capital gain, which will be taxed in 2014. Something similar can be said about the sale of shares or units in collective investment vehicles with other chronological conditions.

Defer to 2015 the sale of assets capable of generating taxable capital gains, if the proceeds from the sale will be applied to the creation of a life annuity, under certain conditions.