admin

Basic aspects of the new Agreement between Spain and Gibraltar and its tax implications.

As we previously mentioned in our blog, on 13 March 2021 the International Taxation and Double Taxation Agreement between Spain and the United Kingdom in relation to Gibraltar was approved, marking a turning point in the tax treatment of individuals and legal entities that have a tax relationship with Gibraltar.

The agreement, which came into force on 1 January 2022 for those years whose tax year coincides with the calendar year, establishes new mechanisms for the tax residence treatment of individuals and companies, in addition to regulating a new administrative cooperation procedure for the exchange of information.

– Purpose of the Agreement.

The purpose of the Agreement is to mitigate or eliminate tax fraud and the negative effects on Spanish public finances as a result of the tax benefits that Gibraltar has enjoyed until now.

Rules are also established to resolve any conflict regarding the tax residence of individuals and, in turn, to prevent companies with tax residence in Gibraltar from carrying out economic activities in Spain.

– Tax residence of legal entities.

Legal entities incorporated under Gibraltar’s domestic law will be exclusively resident in Spain in the following cases:

  1. That the majority of their assets directly or indirectly are situated in Spain,

2.The majority of the income accrued in a calendar year is derived from sources in Spain,

  1. That the majority of the individuals in charge of the effective management are tax residents of Spain, 4.
  2. That the majority of the rights over the capital or voting rights are under direct or indirect control of individuals or legal entities resident for tax purposes in Spain, or legal entities linked to residents for tax purposes in Spain.

Points 3 and 4 will not apply to legal persons incorporated in Gibraltar before 6 November 2018 and which as at 31 December 2018 jointly demonstrate that:

– It has a fixed place of business in Gibraltar with a sufficient number of employees and sufficient qualifications and operating expenses appropriate to the activity carried on.

– It is subject to corporate tax in Gibraltar.

– Since 01/01/2011 or its incorporation and up to 31/12/2018 it has carried on its business without interruption.

– More than 75% of their income in respect of the year prior to 31/12/2018 is derived from sources in Gibraltar.

– Less than the following percentage of income in respect of the previous financial year to 31/12/2018 derives from Spanish source income: 5% turnover above 6 million euros. 10% between 3 and 6 million euros or 15% not exceeding 3 million euros.

 

– Tax residence of individuals.

Article 2.1 of the Agreement establishes that they will have exclusive tax residence in Spain in any of the following circumstances:

(a) If more than 183 overnight stays are made during the calendar year in Spain. In addition, sporadic absences will be added to the place where individuals make the majority of their overnight stays.

  1. b) If the spouse or similar, ascendants or dependent descendants have their habitual residence in Spain.
  2. c) If the only permanent home at their disposal is located in Spain.
  3. d) If 2/3 of their net assets in accordance with Spanish tax legislation are located in Spain.

Regarding the transfer of residence, it is worth mentioning that Spanish nationals who transfer their residence after the date of signature of the Agreement and non-Spanish nationals who have spent at least one full tax year in Spain, will not lose their Spanish tax residence during the tax period in which the change of residence takes place and the following four tax years.

The same applies to Gibraltarians who have spent at least four years in Spain. They would not lose their Spanish tax residence until after four tax years following the transfer of residence to Gibraltar.

– Other issues of interest.

The Agreement establishes mechanisms for the elimination of double taxation (Art. 2.3), in accordance with the provisions of its domestic legislation. Thus, in the case of Spain, international double taxation is provided for in Article 80 LIRPF or 31 and 32 LIS.

It also establishes mechanisms for administrative cooperation and exchange of tax information on tax matters and exchange of information, in accordance with Article 3 of the Agreement.

– Conclusions.

This Agreement marks a turning point for the elimination of Gibraltar’s tax benefits and the loss of its status as a tax haven, which, we note, continues to be included as such on the list of tax havens in Royal Decree 1080/1991, as amended by Royal Decree 116/2003.

Furthermore, this regulation is a first step towards closer international relations between Spain and the United Kingdom and their pursuit of common interests in relation to Gibraltar.

Finally, it should be noted that this regulation represents a turning point in the taxation of organisations that were trying to benefit from the 10% or 20% Gibraltar tax despite carrying out the bulk of their operations in Spain or having real estate in this country, since, with this Agreement, the formal aspects of the incorporation or management of the organisation are set aside in favour of having tax residence where the bulk of the organisation’s business or management is materially located and, consequently, its taxation.

Leticia Cayuela, appointed member of the Young Experts Group of the AEDAF

Leticia Cayuela, partner of the Tax & QC area is appointed member of the Board of National Experts of the Spanish Association of Tax Advisors (AEDAF).

The AEDAF is a group of tax advisors at a national level who value the best fiscal and tax tools in order to provide the maximum experience to the associate and, at the same time, try to achieve a quality and fair tax system through their contribution.

Likewise, in order to give visibility to associates under 40 years of age and to fight for common interests, this Association has created the “AEDAF Youth Group” at a national level where Leticia Cayuela has become part of it together with ten other young people, after meeting the academic and professional requirements demanded by the Association.

For MDG Asesores this means a step forward in its commitment and experience in the field of Compliance and Tax and an advance in the quality of its service from the hand of great professionals.

Link of interest: https://www.aedaf.es/es/cai-y-secciones/grupo-de-jovenes-573

MDG Team.

MDG incorporates Leticia Cayuela as a partner in the Tax and QC area.

MDG Advisors continues its expansion by appointing Leticia Cayuela Mayor as a partner in the Tax and Quality Control area.
Leticia has a degree in Business Studies from the University of Almeria, and a degree in Economics from the University of Malaga. She furthered her academic training with a Master’s Degree in Finance, Banking and Insurance from the University of Malaga. With a clear vocation for the area of taxation of companies and individuals, she studied the Master’s Degree in Tax Consultancy at the Universidad a Distancia de Madrid – Centro de Estudios Financieros (UDIMA-CEF).

Leticia represents MDG in the Spanish Association of Tax Advisors (AEDAF), and in January 2022 she has been appointed member of the group of young experts at national level.
Leticia joined MDG Advisors in October 2012, a firm where she has spent almost all of her professional career, with a wide and extensive experience in the field of taxation, both international and national, and in corporate taxation.

Favourable ruling by the TEAR in relation to the surcharge for the payment of the penalty.

Recently, from MDG Asesores we have won a new case against the Regional Economic Administrative Court (hereinafter, TEAR) in relation to the deadlines that the Tax Agency has to notify the taxpayer and its challenge.

In this specific case, on 15/05/2020, a deferral was requested for the payment of Non-Resident Tax in relation to the capital gain obtained from the sale of a villa. In response to this request, on 24/08/2020, the Tax Agency issued a request for information and we had 10 working days to reply.

On 03/09/2020 we requested an extension of the deadline to reply to this request, which was extended until 25/09/2020. The Tax Agency ignored the extension, so on the last day of the deadline, the taxpayer opted to pay the debt in full.

The problem of the case arises when the Tax Agency, considering the request unheeded, agreed on 15/09/2020 to file the request for deferral, but notifying the taxpayer on 9 November 2020, about a month and a half after the taxpayer had settled the debt with the Tax Agency.

MDG Asesores filed a claim before the Regional Economic-Administrative Court of Andalusia against the 5% surcharge imposed by the Tax Agency and based on article 167.3 of the General Tax Court Law, which states that “only the following grounds for opposition will be admissible against the order of enforcement: a) total extinction of the debt […]”; since the debt had been paid in full within the voluntary period before the resolution of the request for deferral of payment was given.

Recently, the TEAR has issued a decision against this collection procedure, having upheld our claim and annulling the contested act, so our client will soon receive the executive surcharge that he had to pay illegitimately for an amount of 89,206.47 Euros.

At MDG Asesores we study each specific case and analyse all possible avenues under tax law to help our clients to obtain an estimation of their claims and to obtain a refund of payments made unduly.

You can find the full resolution by clicking here.

MDG Team.

Historic ruling against spanish tax agency: the cjeu considers model 720 as “disproportionate”.

The Court of Justice of the European Union (CJEU) has declared illegal the regulation of the Model 720, which obliges taxpayers to declare assets abroad that exceed the amount of €50,000.

The CJEU understands that, despite being a purely informative model, there are several legal issues that call it into question, which are as follows:

  • Infringes “obligations under the free movement of capital” on European territory as it penalises untimely non-compliance/compliance.
  • The tax administration can act without limitation in time for the regularisation of this form and, on the contrary, the CJEU rejects this imprescriptibility.
  • According to the CJEU, the penalties imposed by this form for failure to regularise it correctly are “very high”, with fines of 150%, which the court described as “disproportionate” and “discriminatory”.

As for the continuity of tax form 720, the Government has already announced that it will remain in force, with the exception of the appropriate modifications to be made to adapt to the ruling of the European High Court.

If you are a taxpayer of this model and you want to resolve any questions or queries that may have arisen, do not hesitate to contact our team to resolve them and analyse the best way to proceed in accordance with the law. MDG Asesores will be delighted to help you.

 

MDG Team.

The key legal aspects of the new royal decree-law 26/2021 on capital gains. What can happen?

On 9 November, Royal Decree-Law 26/2021 of 8 November was published in the Official State Gazette, which fills the legal vacuum left by Constitutional Court Ruling 182/2021 on the calculation to determine the taxable base of the now colloquially known “Plusvalía”, which we have previously discussed in our blog (link here).

This legal route has been the most frequently used to fill the legal vacuum, but is it in accordance with the law?

Safeguarding the principle of legal reserve established in the Constitution and the General Tax Law, the Royal Decree-Law is a regulation with the status of law, and therefore has sufficient legal and legislative force to be used in this way.

However, Article 86.1 of the Spanish Constitution regulates these legal instruments for “cases of urgent and extraordinary necessity”, but “which may not affect […] the rights and freedoms of citizens regulated in Title I”.  Where is the article that lays the foundations of tax law regulated? In Title I (Article 31 EC).

Although it might seem unconstitutional because of what we have mentioned, there is Constitutional Court case law which states that tax matters can be regulated by means of royal decrees-Law, but without affecting or regulating essential elements of taxation, since, in this case, it would have to be done by means of a law (issued by the Cortes Generales).

Following the Constitutional Court’s jurisprudence, this is where Royal Decree-Law 26/2021 would falter, given that what it regulates is the way in which the taxable event of the Tax on the Increase in Value of Urban Land is calculated, this being an essential element of all taxation.

On the other hand, the same article 86 of the EC establishes a period of 30 days for validation of the Royal Decree before the Spanish Parliament.

If this Royal Decree were validated before the Cortes, it would already have a valid normative character and its constitutionality would not be questionable.

However, the 30 days that this regulation has been passed by Royal Decree could lead to its unconstitutionality (always declared by the Constitutional Court) and, consequently, its nullity, thus generating a new legal vacuum.

At MDG Advisors we are waiting to find out if the Royal Decree will be validated and to find out all the effects on tax matters that this situation may entail and the possible unconstitutionality of the same, as well as trying to answer the questions that this whole situation raises. If you have any doubts in this regard, please do not hesitate to contact us to be attended by our tax advisors.

Gibraltarian companies may be subject to taxation in Spain.

On 13 March 2021 and with effect from 2022, an International Agreement on taxation and double taxation between Spain and the United Kingdom in relation to Gibraltar has recently been approved. The Agreement creates a set of rules to define tax residency, prevent double taxation and introduce transparency between Spain and Gibraltar on tax matters. Due to our geographical location in relation to Gibraltar and the scope that this Agreement may have in taxation and fiscal matters, we will analyse the most important aspects.

This Agreement represents an important step forward in international relations between the two countries, as it represents an unprecedented agreement on tax matters, where both parties strengthen their international relations in the pursuit of common interests.

The Agreement establishes a series of casuistry and requirements where the tax residence will be Spanish, which we highlight:

For example, in the case of an organisation based in Gibraltar whose assets (real estate, among others) are largely located in Spain, it will have Spanish tax residence.

This Agreement represents a turning point in the taxation of organisations that tried to benefit from the 10% or 20% Gibraltar tax rate despite carrying out the bulk of their operations in Spain or having real estate in Spain, since, with this Agreement, the formal aspects of the incorporation or management of the organisation are set aside in favour of having tax residence where the bulk of the organisation’s business or management is physically located and, consequently, its taxation.

There are also tax developments for individuals regarding the transfer of their tax residence between the two countries.

At MDG Advisors we will propose the best solutions to our clients who are involved in this situation. If you have any queries, please do not hesitate to contact us.

The constitutional court declares unconstitutional and null the method of calculating the taxable base of plusvalía”

As we announced in our blog last week, the Constitutional Court has published its sentence on the unconstitutionality issue 4433/2020 regarding the Tax on the Increase in Value of Urban Land or, colloquially known as “Plusvalía”.

 

CONTEXT OF THE TAX CONTROVERSY

 

In order to understand the context of the controversy surrounding this tax, we should point out that this sentence is not the first to rule on the constitutionality of this tax. There have already been various constitutional notices and, specifically, the STC 26/2017 covered the issue of its tax object.

 

This sentence already established that “we are not, therefore, faced with a tax that subjects a transfer of assets to taxation, as the object of the tax is not linked to the fact of the transfer, although this is used to trigger the tax obligation; nor are we faced with a tax that taxes assets, as its object is not the mere ownership of the land, but the increase in value”, so the lack of legal basis of this tax had already been anticipated.

 

On the other hand, STC 59/2017, in its Legal Basis 13, established that, with respect to the challenged articles, “the fiction that an increase in value liable to taxation has taken place at the time of any transfer of land simply because the owner has kept it in his estate for a given period of time”. This means that tax would be levied on non-existent wealth and contravenes article 31 of the Spanish Constitution because the tax is not made taking into account the public or private urban development action and, therefore, an increase in value.

In conclusion, in 2017 the Constitutional Court declared two articles unconstitutional on the grounds that they were subject to taxation in situations where there was no increase in value and in 2019, the Constitutional Court declared “Plusvalía” unconstitutional when it was higher than the increase in value.

 

WHAT DOES THE CONSTITUTIONAL COURT ESTABLISH IN ITS LATEST SENTENCE?

 

In the current sentence under analysis, the Court applies the constitutional doctrine of past sentences regarding the configuration of this tax and declares articles 107.1, second paragraph, 107.2.a) and 107.4 of the TRLHL (Spanish legislation) null and void regarding the determination of the tax base “for unjustifiably contravening the principle of economic capacity as a criterion for taxation (art. 31.1 CE)”.

 

Furthermore, it establishes that “the maintenance of the current objective and compulsory system for determining the tax base, as it is alien to the reality of the real estate market and the economic crisis and, therefore, outside the economic capacity levied by the tax and demonstrated by the taxpayer, violates the principle of economic capacity as a criterion for taxation (art. 31.1 EC)”.

 

However, the reality is quite different, since the application of the principle of economic capacity as a criterion or parameter of taxation to the rule for quantifying the taxable base of “Plusvalía” has led the High Court to consider articles 107.2.A and 107.4 of the TRLHL (Spanish legislation) unconstitutional for “establishing a single method for determining the entire taxable base, and not part of it, of an objective nature and of mandatory application”.

 

The legislator intended to create an objective valuation rule for the increase in the value of the land and that, on the contrary, economic reality has questioned this presumption, as the tax base of the tax is far from the idea of quantifying increases in value. For this reason, the Constitutional Court established that the tax cannot be based on situations unrelated to the economic capacity of the taxpayer, as this could contravene the principle of non-confiscation.

 

Also noteworthy is the Court’s reference to the fact that “the legislator enjoys a wide margin of freedom in the configuration of taxes”, although the principle of economic capacity “as a measure of the tax burden” is a limit to the legislator’s configuration.

 

WHAT ARE THE EFFECTS OF THIS SENTENCE? CAN IT BE CLAIMED?

 

As we already knew through the informative note of 26 October 2021, the sentence establishes important limits to its scope and effects in order to guarantee legal certainty.

 

Firstly, the declaration of unconstitutionality of the precepts analysed means that they will be expelled from the legal system, which means that Local Public Bodies will be aggrieved as, from 26 October 2021 (the date of publication of the sentence), they will not be able to make settlements for this tax and a legal vacuum that should be resolved for greater legal certainty.

 

Likewise, something to be highlighted is that “it is the legislator (and not this Court) who, in the exercise of its freedom of regulatory configuration, will carry out the relevant modifications or adaptations to the legal regime of the tax to adapt it to the requirements of art. 31.1 EC, as highlighted in all the constitutional pronouncements on the legal precepts now annulled”, so we must await to know whether a new tax quantification will be configured for this tax or whether, on the contrary, the legal vacuum of this tax will remain.

 

Secondly, with regard to your possible claim, the Court is quite clear and closes the door to any type of claim with retroactive effect for those levies of this tax that have been “definitively resolved by means of a judgment with the force of res judicata or by means of a final administrative resolution” as of the date of publication of the judgment (26/10/2021), in addition to:

 

  • Provisional or final settlements that have not been challenged at the date of this sentence.
  • Self-assessments whose rectification has not been requested under article 120.3LGT at that date.

 

These limitations and effects eliminate any type of positive result for those judicial and/or administrative proceedings that have not been initiated prior to the sentence.

 

Finally, at MDG Advisors we will be waiting to find out what measures the legislator will take with regard to the new configuration, if it will be implemented and what the long-term effects of this court sentence will be.

Law 5/2021, of 20 october, on assigned taxes of the autonomous community of andalusia.

Last 26th October 2021, the new Law 5/2021, of 20th October, on the Devolved Taxes of the Autonomous community of Andalusia, was published in the BOJA (Official Gazette of the Autonomous Community of Andalusia).

This new regulation, according to its Second Final Provision, will come into force on 1st January 2022, except for the following precepts which came into force on 27th October 2021, repealing Decree Law 7/2021 of 27 April and various precepts of Legislative Decree 1/2018:

Transfer Tax (ITP)

– General fixed tax rate applicable to real estate (Article 41 of Law 5/2021) of 7%, repealing the rate according to the tables in Article 34 of Decree-Law 1/2018.

– Reduced tax rate to promote a social housing policy (art. 43 Law 5/2021). This new regulation includes new specific rates of 3.5% for habitual dwellings whose value does not exceed €150,000 and provided that the acquirer is a victim of domestic violence, a victim of terrorism or an affected person and for those municipalities with depopulation problems.

Stamp Duty (AJD)

– General tax rate for notarial deeds (Art. 49 Law 5/2021) of 1.2%, unchanged with respect to the repealed Decree Law 7/2021.

– Reduced tax rate to promote social housing policy (Art. 50 Law 5/2021). As in the case of onerous property transfers, new specific rates of 0.3% are included for habitual dwellings whose value does not exceed €150,000 and provided that the purchaser is a victim of domestic violence, a victim of terrorism or an affected person and for those municipalities with depopulation problems.

At MDG Advisors we are constantly evolving so that our tax compliance service is in constant search for excellence. For this reason, our team is analysing the recent Law 5/2021, of 20th October, to find out about all the tax innovations that will come into force in 2022, and we will inform about it in the next few days.

The constitutional court declares the municipal capital gains tax (“plusvalía”) unconstitutional.

The High Court has declared unconstitutional and null and voided a large part of article 107 of the TRLRHL, which was the fundamental pillar for the calculation of the taxable base of the municipal capital gains tax on the increase of urban land (“Plusvalía”).

The unconstitutionality has occurred due to the fact that the calculation of this tax is not in line with reality, understanding that the method of “determination of the tax base of this tax determines that there must be an increase in the value of the land during the period of taxation, regardless of whether there has been this increase and the actual amount of that increase”, so it puts at risk the principle of economic capacity regulated in Article 31 of the Spanish Constitution.

At MDG Advisors we are waiting for the Constitutional Court to publish the judgement in full in the next few days in order to carry out an exhaustive study of all the fiscal and tax repercussions that could arise for taxpayers and advice our clients accordingly.