New tax and cadaster legislation

Spain - 02 / 01 / 2019

Tax Commentary

Royal Decree-Law 27/2018, of December 28, 2018, adopting certain measures related to tax and the cadaster was published in the Official State Gazette on December 29, 2018, and came into force the day after. The key new items of legislation are summarized below, expressly mentioning the date on which they take effect if it differs from the entry into force date mentioned above.

1. Adaptation of the Corporate Income Tax Law to Bank of Spain Circular 4/2017

1.1 First application of Bank of Spain Circular 4/2017

Bank of Spain Circular 4/2017, of 27 November, to credit institutions, on public and confidential financial information rules and formats (the “Circular”) adapted the accounting rules applicable to Spanish credit institutions to the changes in European accounting rules arising from the adoption of IFRS 9 and IFRS 15.

The first application of the standards in the Circular is generally required be made (with some exceptions) retrospectively, and the impacts recorded in reserves.

Any credits and debits in reserve accounts arising from those first application adjustments will have tax effects, if the corporate income tax legislation so determines, in other words, they must be taken into account for determining the corporate income tax base in the 2018 tax period.

Transitional rules have been put in place to reduce the tax effect of this first application of the Circular:

a) Inclusion in the tax base must be done in equal parts in each of the first three tax periods beginning on or after January 1, 2018.

It has been expressly determined that the provisions in article 130 of the Corporate Income Tax Law on monetization of deferred tax assets will not be applicable to the amounts so included; in other words, this deferral by thirds resulting from including the credits and debits in the tax base will not give rise to monetizable deferred tax assets.

b) This inclusion in equal parts will continue to be applicable even if the element concerned is retired from the balance sheet. Only if the taxpayer is dissolved over the three tax periods concerned will the remaining amount be included in the tax base for the last period, unless it is dissolved as a result of a restructuring transaction eligible for the neutrality regime.

c) The notes to financial statements for the three tax periods mentioned must include information on the amounts included and remaining to be included in the tax base.

1.2 Recognition of equity instruments under IFRS 9

According to the Circular, investments in equity instruments must be measured at fair value with changes to gains or losses, unless the institution makes an irrevocable election at initial recognition to recognize these changes in value through other comprehensive income. If this election is made, IFRS 9 states in a change that has been added that when cumulative gains or losses in other comprehensive income are derecognized they do not have to be reclassified to the income statement, but to a reserve account.

According to article 17 of the Corporate Income Tax Law, changes in value caused by applying the fair value method only have tax effects when they must be recognized through the income statement. It has now been added that they will also have tax effects when they must be recognized through a reserve account if this is so provided in primary or secondary legislation, and therefore those impacts on reserves will be reflected in the corporate income tax base.

2. Reclassifications of shares of collective investment undertakings

Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments laid down various requirements to avoid the investors or shareholders in collective investment undertakings bearing the cost associated with incentives, and this requires reclassifications of shares of collective undertakings to be made to comply with these requirements. Royal Decree-Law 14/2018, amending the revised Securities Market Law, has included these requirements in Spanish law.

It determines as follows in relation to these reclassifications:

a) Any reclassifications made between January 3, 2018 and the three months following the entry into force of Royal Decree-Law 27/2018 may be made automatically, without having to obtain the individual consent of the investors or shareholders.

b) These reclassifications will not give rise to the obtaining of income by investors or shareholders, whether personal income, corporate income, or nonresident income tax payers. The new shares apportioned to them will retain the value and acquisition date of those they replace.

This regime will also apply to any reclassifications made for the same reason (avoiding the costs associated with incentives) and in the same time period in the case of collective investment undertakings (or their sub-funds, classes or series) as provided in article 94.2.a) of the Personal Income Tax Law and article 53.2 of the Corporate Income Tax Law (relating to undertakings for collective investment in transferable securities).

3. Tax rules for the UEFA Champions League 2019 Final and UEFA EURO 2020

Tax rules for the UEFA Champions League 2019 Final and UEFA EURO 2020.

3.1 Tax rules for the organizer and for the participating teams

Legal entities resident in Spain and permanent establishments created by reason of the UEFA Champions League 2019 Final and UEFA EURO 2020, by the organizer or by the participating teams, are exempt from corporate income tax and nonresident income tax, as applicable, in respect of any income obtained in the course of the event, which is directly related to the taxpayer’s participation therein. This exemption is also available for the income obtained in Spain without a permanent establishment by the organizer or participating teams.

3.2 Tax rules applicable to individuals providing services to the organizer or to the participating teams:

The income received by non-Spanish resident individuals in respect of services provided to the organizer or to the participating teams is not treated as obtained in Spain (and therefore not taxed there).

Any individuals acquiring Spanish personal income taxpayer status as a result of being sent to Spain by reason of the final may elect to be taxed as nonresidents under nonresident income tax rules, as determined in the terms and conditions set out in the special personal income tax regime applicable to workers sent to Spain (“inbound expatriates regime”).

3.3 Customs arrangement

Although, generally speaking, the customs arrangement applicable to goods imported to be used in the holding and taking place of the final is the arrangement established generally by the Union Customs Code (and other applicable customs legislation), these goods are allowed to be imported under the temporary admission procedure for a period of up to 24 months which, in all cases, will expire, at the latest, on December 31 of the year following the year the event ends.

3.4. VAT

The following special VAT scheme has been introduced:

The “reciprocity” requirement does not have to be met for refunds to traders or professionals not established in the European Union of VAT incurred or paid as a result of performing transactions related to the final of these events.
Taxable persons not established in the European Union, the Canary Islands, Ceuta or Melilla, or in a state with which mutual assistance instruments exist, are not required to appoint a representative in Spain for the purposes of performing their VAT obligations.
Traders or professionals not established in Spanish VAT territory who are taxable persons and incur or pay VAT as a result of performing transactions related to the final, together with the organizer and the participating teams, are entitled to a refund of those VAT amounts at the end of each assessment period, which will be monthly. However, filing the monthly self-assessment returns will not imply the need to use the Immediate Supply of Information system. Moreover, where the non-established traders or professionals meet the requirements in article 119 and article 119 bis of the VAT Law (on the special refund schemes for non-established parties), those VAT refunds will be made according to those special schemes.
For transactions related to goods under the temporary admission procedure with total relief from duty, according to the new rule described in point 3.3 above, the VAT relief rules set out in the VAT legislation in relation to customs and tax arrangements will apply.
Transfers by taxable persons to Spain of tangible goods belonging to their business that are used temporarily in the holding and taking place of the final for a period not longer than 24 months or lasting, at the latest, until December 31 of the year following the year these events end may not be treated as an intra-Community acquisition of goods.
Under the special effective use or enjoyment rule Spain is not regarded as the place of supply for any services provided to traders or professionals not resident in the EU by Spanish-resident legal entities created by the organizer by reason of the holding and taking place of the final, or by the participating teams, as long as these services are supplied in relation to the organization, promotion or support of those events.

4. Maternity or paternity benefits

In a judgment rendered on October 4, 2018, the Supreme Court concluded that public maternity or paternity benefits received from the social security system are exempt from personal income tax.

The Personal Income Tax Law has now been amended to expressly include this exemption and broaden it to avoid discrimination arising for the following sectors:

a) Public employees under a social security regime not giving entitlement to receive maternity or paternity benefits from the social security system. In this case, exemption is granted for the income received during leave for birth, adoption or guardianship and paternity as set out in the Law on the Basic Statute for Public Employees or any other specific legislation applicable to them.

b) Professionals not included in the special social security regime for self-employed workers. In this case, benefits are exempt if they are paid by welfare-benefit mutual insurance companies acting as alternatives to the special social security regime in respect of the same items.

In both cases a limit is placed on the exempt amount, equal to the maximum benefit recognized by the social security in respect of these items.

These amendments will take effect from the entry into force of Royal Decree-Law 27/2018, and for the years falling within the limitation period.

5. Extension for 2019 of the limits for exclusion from the personal income tax objective assessment regime and from the simplified and special VAT schemes for agriculture, livestock and fishing

Royal Decree-Law 27/2018 extends to 2019 the application of certain thresholds which, if exceeded, trigger exclusion from the objective assessment method for income from certain economic activities (and which were originally introduced only for 2016 and 2017 by the General State Budget Law for 2016 and also later extended for 2018). More specifically:

a)The limit relating to gross income obtained from all activities has been raised from €150,000 to €250,000 generally; and from €75,000 to €125,000 for cases where the volume of gross income from the immediately preceding year relates to transactions for which an invoice must be issued where the customer is a trader or professional acting as such.

b)The limit relating to the volume of purchases in goods and services, excluding acquisitions of fixed assets, has been increased from €150,000 to €250,000.

Simultaneously, the new royal decree-law has extended to 2019 the limits that trigger exclusion from the special VAT schemes linked to the above-mentioned objective assessment method (simplified scheme and special scheme for agricultural, livestock and fisheries).

Lastly, a new time period has been set for submitting waivers or revocations of these methods and special schemes, which will be one month on or after December 30, 2018. Waivers and revocations submitted for 2019 in December 2018 will be deemed timely submitted, although changes are allowed to be made to them within a month from December 30, 2018.

6. Wealth Tax

Royal Decree-law 13/2011 temporarily reinstated wealth tax for fiscal years 2011 and 2012 (after it had been eliminated in practice since 2008, through a 100% reduction). This regime has been extended in successive years. Royal Decree-Law 27/2018 has now extended it again for 2019, so the 100% reduction will not be applicable (in principle) until 2020.

It should not be forgotten, however, that this is central government legislation and a few autonomous communities have used their legislative powers to allow specific reductions. Therefore, the applicable legislation for the autonomous community of residence must be taken into account.

7. Other new legislation

7.1 Real estate tax Revised cadaster values

As happens every year, the indexation allowance multipliers applied to cadastral values have been set for 2019:

Royal Decree-Law 27/2018 defines the rules applying to these multipliers.

It has also extended (effective in 2019 only) until July 31, 2019 (i) the time periods in which the local councils for areas where general collective valuation procedures are being conducted may approve a new real estate tax rate, and (ii) the time period set for the approval and publication of the comparative methods for appraising values. It has also extended until that date the time period granted for municipal applications to use the indexation allowance multipliers on cadastral values of urban properties.

7.2 Priority patronage activities

The priority patronage activities in 2019 are listed in additional provision seventy-one of 2018 General State Budget Law 6/2018.

For these activities, as in previous years, the tax credit rates and limits established in Law 49/2002 will be raised by five percentage points.