Now that we are familiar with the “temporary” tax on large fortunes, and after having received resolutions from the Tax Agency in which it seems that they are not in favour of giving their arm to twist in favour of the taxpayer, at least in the first instance (later we will see who wins the battle), we consider of special relevance to point out the importance of the analysis of the Double Taxation Agreements and their implications in this new “temporary” tax that has given us so many headaches, as well as in the Wealth Tax.
As a complement to a blog published by our firm in May 2023, in this case, we would like to highlight the importance of analysing the Double Taxation Agreements and their tax implications in each specific case presented by the taxpayer, before delving into the interpretation of the internal regulations of our country.
We are all aware of the modifications introduced by Law 38/2022, of 27 December, in terms of the regulatory changes affecting the taxation of companies not resident in Spain, but if there is anyone who is not aware of them at this time, we will explain them below:
New wording of 5.One.b) of the Wealth Tax Law real obligation:
“For these purposes, securities representing equity interests in any type of entity, not traded on organised markets, at least 50 per cent of whose assets are directly or indirectly made up of real estate located in Spanish territory, shall be considered to be located in Spanish territory. For the purpose of calculating the assets, the net book values of all the assets entered in the accounts shall be replaced by their respective market values as determined on the date on which the tax accrues.
In the case of immovable property, the net book values shall be replaced by the values that must be used as the tax base in each case, in accordance with the provisions of Article 10 of this law”.
Following the aforementioned amendment, our firm has received many enquiries from non-resident clients with direct or indirect participation through companies with real estate located in our country.
But the question is, does this modification affect all non-resident taxpayers who asked our firm? The answer to this question is that it is important to analyse each specific case, and in tax terminology, each Double Taxation Agreement in question.
In order to summarise whether or not the modification introduced in the aforementioned article 5.1.b) of the Wealth Tax Law has implications in your specific case, we summarise the tax implications in three large blocks:
– It will only affect countries without Double Taxation Agreements or with Double Taxation Agreements, but which do not contemplate Wealth Tax, so we would have to resort to domestic regulations: Andorra, Algeria, Australia, Brazil, Qatar, USA, China, Korea, Finland, Ireland, Ireland, Spain, France, Italy, Portugal, Spain and Portugal, China, Korea, Finland, Ireland, Italy, Japan, Portugal, Singapore; and with suspensive or resolutory character Saudi Arabia, Croatia, Albania, Cape Verde, Philippines, Hong Kong, Jamaica, Malaysia, Malta, New Zealand, Oman, Pakistan, Dominican Republic, Romania, Senegal, Thailand, Vietnam, Colombia, Egypt and Nigeria.
– It will also affect double taxation treaties with a real estate companies clause in the same terms as the current domestic law: Belgium, France, Panama, Germany, India, Israel, Luxembourg, Mexico, Norway, United Kingdom, Armenia, Azerbaijan, Belarus, El Salvador, Slovenia, Republic of Georgia, Kazakhstan, Uruguay, Iceland, Moldova and South Africa.
– And finally, and in this case of GREAT IMPORTANCE, it does not seem to affect double taxation treaties that contemplate Wealth Tax and that do not have a clause on real estate companies, as they are transactions NOT subject to tax: Argentina, Austria, Canada, Chile, Emirates, Greece, Holland, Hungary, Iran, Kuwait, Morocco, Poland, Russia, Sweden, Switzerland, Venezuela, Bolivia, Bulgaria, Czech Republic, Cyprus, Costa Rica, Cuba, Ecuador, Slovakia, Estonia, Indonesia, Latvia, Lithuania, Macedonia, Serbia and Tunisia.
After the above, and as a conclusion to this blog, it is important to highlight the importance of analysing, in the first instance, whether or not it is subject to the specific tax to be applied, and for this, the first thing to do is to analyse the double taxation agreement of each country, so that in the event that it is subject to the tax in its territory, the internal regulations of each country can be applied to see if any exemption, rebate or deduction, among other cases, can be applied.
Therefore, from our firm, we always advise and offer our clients good advice specific to each taxpayer, since the tax implications in each case differ from others, so in tax matters, the GENERALIZATION of a case from one client to another, is not good advice.