Law 11/2021, on measures to prevent and combat tax fraud, entails the application of new measures that have an effect on numerous taxes in our tax system.
Last Saturday, 10 July, Law 11/2021, of 9 July, on measures to prevent and combat tax fraud, transposing Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, amending various tax rules and on the regulation of gambling, was published in the Official State Gazette (BOE). This law, which has a cross-cutting content, introduces amendments to the main taxes (IS, IRPF, VAT, ISD, IP, among others), as well as to the General Tax Law, the Land Registry Law, the Local Taxes Law and other regulations. The law came into force on 11 July, although its seventh final provision establishes some special features, which we will refer to when commenting on the measures affected. Below is a list of some of the measures that have general effects:
Reference value of real estate
The regulation incorporates a new concept in the valuation of real estate, known as the reference value, which mainly affects Inheritance and Gift Tax, Wealth Tax and Transfer Tax and Stamp Duty. This reference value must be calculated by the General Directorate of Cadastre for each property, which has led to the incorporation in the Cadastre Law of the rules for determining this value. To this end, the Cadastre must approve the annual report on the real estate market, on the basis of which it must determine the reference value on the basis of maps of values and average values. In order to ensure that this value is not theoretically higher than the market value, the application of a reduction factor is foreseen. The Cadastre must publish the reference value of real estate on its electronic site by means of an edict before 30 October of the year prior to the year in which the reference value is to take effect. This edict will publicise the elements that have been taken into account to determine the reference value of each property. The regulation foresees a collective hearing of 10 days by means of an edict that will be published in the BOE and which will allow interested parties to present allegations and appeal through the economic-administrative channels or by means of an optional appeal for reconsideration. There is still no regulatory development that makes transparent or publicises the way in which these calculations and value maps are carried out, so this issue will have to be followed up in order to review the practical application.
Non-cooperative jurisdictions vs. tax havens
The international criteria derived from the EU Code of Conduct for Business Taxation and the OECD Forum on Harmful Tax Regimes entail the adaptation of the definition of what has hitherto been known as a tax haven, which is now treated as a non-cooperative jurisdiction and is regulated in the First Additional Provision of Law 36/2006. It also requires the modification of the criteria for classifying a territory within this category, including: territories that facilitate the establishment or existence of offshore companies aimed at attracting profits but which do not reflect real economic activity; or the existence of low or zero taxation; those characterised by opacity or lack of transparency in information with the absence of an effective exchange of information with Spain; as well as the effective exchange of information on the beneficial owner. The second transitory provision of Law 36/2006 is also amended, so that the countries or territories included in Royal Decree 1080/1991 will be considered as non-cooperative jurisdictions, but the possibility of updating them by ministerial order is established, in accordance with the new criteria.
Limitation of cash payments
The maximum amount that may generally be paid in cash is reduced to 1,000 euros (previously 2,500 euros). For non-resident individuals not acting as entrepreneurs or professionals, the limit is lowered from 15,000 to 10,000 euros. Note that this limitation applies to all payments made since 11 July last, even if they relate to transactions carried out prior to this date. On the other hand, the sanctioning procedure is regulated, which has certain special features, such as the fact that it does not include a hearing and provides for reductions of up to 50% if payment is made before the resolution is received. This reduction will also apply to previous proceedings in the event of withdrawal until 31 December 2021.
Amendments to the General Tax Law
The new rules affecting the general tax procedure are broadly applicable and refer to numerous issues. The Law includes, among others, the prohibition of tax amnesties, the regulation of the application of late payment interest both in the regularisation by the taxpayer and when the administration must pay it, measures against dual-use software, publicity of tax debtors, Special mention should be made of the measures relating to:
- Surcharges for late filing: the new regime establishes a gradual surcharge of 1% per month of delay and a 15% surcharge for delays of more than 12 months, the latter compatible with interest on late payment, but not applicable to customs declarations. This reduces the surcharges hitherto set at 5, 10 and 15 per cent, depending on whether the delay was up to 3, 6 or 12 months, and a surcharge of 20 per cent for delays of more than 12 months.
In order to encourage the filing of adjustments without surcharges, the regulation includes a new exemption from surcharges in cases where the taxpayer adjusts facts or circumstances identical to those adjusted by the Administration for the same tax concept, but in respect of a different period. In this case, the maximum period for regularisation is 6 months from the notification of the tax assessment for another tax period, if no appeal is lodged and no penalty is imposed by the tax authorities.
This new regime, when it is more favourable, will also be applicable to those levied prior to the entry into force of the law and which have not become final.
- Penalty regime: the law introduces new cases of liability, such as the parent company in VAT groups and the increase from 100 to 600 euros of certain returns for failure to file within the deadline or incorrect filing of self-assessments and returns without financial loss.
On the other hand, in order to reduce litigation , the reductions for penalties are increased
- The reduction of penalties arising from assessments with agreement increases from 50 to 65 percent.
- The reduction for prompt payment of penalties is increased from 25% to 40%
The new penalty reduction system is also applicable to penalties imposed prior to the entry into force of the regulation that have not been appealed and have not reached finality or when the withdrawal of appeals is accredited by 31 December and payment is made in the voluntary period.
Finally, the deadline for the Administration to initiate the sanctioning procedure as a result of verification procedures or of a procedure initiated by means of a declaration is extended to 6 months
- House searches and house searches: a more favourable regime for the administration is regulated, allowing even house searches without the prior initiation of a procedure.
Finally, measures are regulated in relation to the management, collection and inspection procedure.
With regard to the measures affecting specific taxes, we would like to highlight some of them.
Corporate income tax
Law 27/2014, of 27 November, on Corporate Income Tax (LIS) has been amended in the following aspects:
- Exit Tax: the exit tax regime required when a resident entity transfers its domicile outside Spain means that the difference between the market value and the tax value of the assets and liabilities must be included in its taxable base, unless they are assigned to a permanent establishment in Spanish territory. Until now, when the transfer of the assets took place to a member state of the European Union or the European Economic Area, payment of the tax debt could be deferred (with late payment interest and guarantees) until the assets were transferred to third parties.
With the new regulation in force for years commencing on or after 1 January 2021, the deferral regime is replaced by the possibility of opting to split the payment of the tax liability into five equal parts. In principle, guarantees will only be required if there are reasonable grounds for believing that collection of the debt could be frustrated or severely hindered.
- SICAVs: in order to be able to apply the 1% tax rate as from 11 July, these entities will have to meet certain requirements to qualify for this tax benefit, relating to the minimum number of shareholders:
- The minimum number of shareholders, which may not be less than 100, and for this purpose only those holding shares of €2,500 or more will be counted.
- In the case of sub-fund SICAVs, to determine the minimum number of shareholders in each sub-fund, only shareholders holding shares of €12,500 or more shall be taken into account.
- The minimum number of shareholders determined in accordance with the above criteria must be present for a number of days representing at least ¾ of the tax period.On the other hand, a transitional regime is established whereby, during the year 2022, those SICAVs that have been taxed at a rate of 1% in the financial year 2021, may agree their dissolution and liquidation and execute within the 6 months following the agreement all the necessary acts for the cancellation of the company in liquidation from the register. These operations will be exempt from Corporate Transactions Tax and a deferral of income in Personal Income Tax and Corporate Income Tax is established, provided that the total amount of money or assets corresponding to them as a liquidation share is reinvested, subject to certain conditions, in the acquisition or subscription of shares or units in other collective investment institutions (CIIs).
- SOCIMIs: for financial years that have started since 1 January last, the following modifications are incorporated:
- Special levy: this new special levy of 15% will be applied to the amount of the profits obtained in the year that is not distributed, in the part that comes from income that has not been taxed at the general corporate income tax rate and is not income subject to the reinvestment period. The special tax shall accrue on the date of the resolution of the general meeting of shareholders to apply the profit for the year and must be self-assessed and paid within two months of that date.
- Information in the notes to the annual accounts: SOCIMIs that have opted to apply the special tax regime must include a special section in the annual accounts with details of information related to the origin of the reserves, distribution of dividends, date of acquisition of real estate for lease and of the shares in capital, and identification of the real estate assets, mainly.
- Deduction for investments in film productions, audiovisual series and live performances of performing arts and music: effective for tax periods beginning on or after 1 January 2021, the requirements for the application to be met by producers in charge of the execution of foreign productions of feature films are modified.
- International tax transparency regime: with effect for tax periods beginning on or after 1 January 2021, we highlight the following new features:
- The income imputation regime is extended to include permanent establishments.
- New types of income subject to imputation are included, such as insurance activities, leasing transactions, or income derived from transactions with related persons or entities.
- As in the domestic regime, 5 per cent of the amount of dividends or shares in profits will be taxed in the tax base as management expenses.
- The non-taxation of dividends and income deriving from the transfer of shares in securities representing 5% or more of the capital of an entity, held at least one year in advance, is abolished, provided that the non-resident entity liable to be subject to the tax transparency regime had the material and personal resources to manage the investees.
- The escape clause that prevents the application of the tax transparency regime to entities resident in the EU is now applicable to the EEA; on the other hand, the requirement of a valid economic motive is eliminated, remaining limited to cases in which the taxpayer proves the performance of economic activities.
- Declaration of bankruptcy to the tax authorities: effective for tax periods beginning on or after 1 January 2021, the declaration of bankruptcy must be due to the total insolvency of the entity with respect to tax debts and will allow the Tax Agency to provisionally remove the entity from the Entity Index.
Non-Residents’ Income Tax
The changes in the Revised Text of the Non-Resident Income Tax Law, approved by Royal Legislative Decree 5/2004, of 5 March, are applicable for tax periods starting from 1 January 2021 and affect:
- Representatives: the obligation to appoint a representative is limited exclusively to taxpayers who are not resident in the EU. For taxpayers from states that are part of the European Economic Area and are not members of the EU, it will not be necessary to appoint a representative when there are regulations on mutual assistance.
- Transfer of domicile of Permanent Establishments. Determination of the taxable base: the difference between the market value and the book value of the elements that are attached to a PE located in Spanish territory that transfers its activity abroad will be included.
To this effect, a new case of conclusion of the tax period is added relating to when the PE transfers its activity abroad.
Personal income tax
The changes affecting Law 35/2006 on Personal Income Tax (LIRPF) are as follows:
- Income derived from property rental: the reduction applicable to income from property used as a dwelling is set at 60%. However, this reduction cannot be applied by taxpayers who have not declared this income before a data verification, limited verification or inspection procedure has been initiated. Nor can it be applied to income derived from income not included or expenses unduly deducted.
- Inheritance agreements: the regulation includes a new paragraph relating to lucrative acquisitions on death derived from contracts or inheritance agreements with present effects: thus, as of 11 July 2021, if the beneficiary transfers before the expiry of 5 years from the agreement or from the death of the deceased if this is earlier, he will be subrogated to the position of the transferor with respect to the value and date of acquisition, when this value is lower than that provided for in the Inheritance and Gift Tax. In other words, the acquisition value will not be that declared in the inheritance agreement but that of the person who transferred the asset, which could give rise to double taxation, as the acquisition would have been taxed under ISD.
- Shares in CIIs: the tax treatment of partners or participants in listed investment funds and companies is standardised and extended to collective investment institutions listed on a foreign stock exchange (ETFs), and the exceptions for applying the deferral regime are regulated.
- Cryptocurrencies: reporting obligations are regulated in relation to virtual currencies and, specifically, on the balances (holdings) held by holders of virtual currencies, as well as the persons and entities obliged to provide this information. This aspect is developed in greater depth in this AddNEWS specifically.
Inheritance and Gift Tax
The changes affecting the regulation of Inheritance and Gift Tax affect:
- Reference value for real estate: the general rule in the valuation of assets in ISD is to take into account their market value, unless a higher value is declared, but in the case of real estate, it is introduced that at least the reference value set by the Cadastre, which was mentioned at the beginning of the article, must be taken into account. In the absence of such a reference value, the value to be declared will be the higher of the value declared by the taxpayer or its market value. In the event that the taxpayer does not agree with the reference value of the property, he must appeal against it, which entails a worsening of the situation hitherto existing, in which it was the Administration that had to prove that the value declared by the taxpayer was not market value.
- Accumulations in inheritance agreements: the accumulation period is set at 3 years for donations and 4 years for inheritances.
- Non-residents: the rule is adapted to EU case law so that the tax benefits will apply to any non-resident taxpayer in Spain and not only to EU taxpayers.
The amendments to Law 19/1991, of 6 June 1991, on Wealth Tax are basically limited to the following:
- Value of real estate: the incorporation of the new reference value means that the Wealth Tax Law regulates that in the valuation of real estate, the higher of the cadastral value, the value determined or verified by the Administration and the acquisition value must be taken as the value to be declared for the purposes of this tax. This determined value is introduced in order to include the reference value in the valuation, although only in the event that the property has been the object of a transfer subject to ITP and AJD or of an acquisition subject to ISD to which the reference value has been applied, with no effect on the assets acquired or previously owned by the taxpayer.
- Life insurance without right of surrender and temporary or life annuities: the value to be computed in the IP will be the value of the mathematical provision on the date of accrual, which will also apply in the case of life or temporary annuities deriving from life insurance, which affects the so-called Unit Link.
- Non-residents: in transposition of EU criteria, the regulations of the Autonomous Regions will also apply to all non-residents, regardless of their place of residence.
Wealth Transfer and Stamp Duty (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados)
The following amendments are introduced in the revised text of the Law on Wealth Transfer Tax and Stamp Duty:
- Purchase of gold from private individuals: the purchase of gold and jewellery from private individuals by businessmen or traders engaged in this type of transaction in this specific business sector is included as a taxable event under the concept of Transfer of Property for a consideration.
- Reference value of real estate: the real value of real estate incorporates the reference value of the Cadastre, the minimum value to be settled being this value.
- Transactions involving the transfer of securities: in relation to the exemption from ITP and AJD regulated in article 314.3. 1ª of the Securities Market Law, the value of the real estate that forms part of the asset must be assessed at its value for tax purposes (remembering that the minimum value will be the reference value of the Cadastre).
To recall that this precept affects the transfer of securities of companies whose assets comprise more than 50 percent of real estate not assigned to the activity located in Spain or, alternatively, have control of an entity whose assets include securities that enable it to exercise control in another entity whose assets comprise at least 50 percent of real estate also located in Spain.
Value Added Tax
The amendments made to Law 37/1992 of 28 December 1992 on Value Added Tax basically concern the determination of liability for the tax in:
- Groups of entities: the liability of the controlling entity for infringements committed in relation to the obligations arising from the payment of the tax debt, the request for compensation or the refund resulting from the aggregate tax return corresponding to the group of entities is specified. Thus, the parent entity will be responsible for both the truthfulness and accuracy of the amounts and qualifications entered by the subsidiaries included in the aggregate tax return.
- Customs operations: subsidiary liability is extended to all customs representatives in import operations.
- Warehouses other than customs warehouses: the case of subsidiary liability for payment of the tax debt of the holders of warehouses other than customs warehouses corresponding to the departure or abandonment of goods from these warehouses is extended to goods subject to EEEI, which were excluded until now. In this way, the aim is to prevent the benefits of the system from being used fraudulently to make purchases exempt from VAT and with the accrual of the tax on leaving the non-customs warehouse, but without its payment.
However, with regard to products subject to the Taxes on Alcohol and Derived Drinks or on Hydrocarbons, a series of limitations of liability are established in operations assimilated to imports when the departure or abandonment of the goods has been carried out by the “extractor” or a person or entity authorised by him for this purpose, who is recorded in the register of extractors of these products.
Tax on Economic Activities
The regulation amends certain provisions of the Ley Reguladora de las Haciendas Locales (Real Decreto Legislativo 2/2004, de 5 de marzo) in relation to the exemptions applicable to the Impuesto sobre Actividades Económicas in the following aspects:
- Non-resident taxable persons: regardless of tax residence, the exemption will be applicable to individuals, in accordance with Community regulations.
- Groups of companies: the net amount of turnover will not be accumulated in the case of the obligation of accounting consolidation.
In addition, other modifications have been introduced which, given the complexity and extension of the regulation, we do not include in this informative note as they are more specific and which we will analyse on a case-by-case basis.