Tax reform: What tax hikes can we expect?

Spain - 17 / 05 / 2020

Spain Tax Commentary

Despite the economic situation caused by the current health crisis, there is still talk of approval in the short term of the “Google tax” and “Tobin tax”; and some speculation has appeared over a potential corporate income tax and personal income tax hike or over a reform of inheritance and gift tax and wealth tax, to make these taxes uniform across autonomous communities. Lastly, we have also been hearing about a potential new “tax on large fortunes”.

There has been much discussion recently about the tax hike that could occur in Spain in the near future.

It is public knowledge that the bills on the “Google tax” and “Tobin tax” are already at the amendment stage in parliament. The bill on combatting fraud will shortly follow the same route, which will foreseeably restrict payments in cash to €1,000 and add various anti-abuse rules to Spanish tax law, in addition to implementing various European directives that remained to be transposed in Spanish law, such as the “DAC6” (which requires operators and tax intermediaries to provide information on certain types of international transactions in which they participate).

Anything else is pure speculation.

It is foreseeable, however, that the drafts that the Ministry of Finance had already prepared on reforming corporate income tax will be taken up again, to introduce a minimum tax rate along with restricting the double taxation exemption for dividends and capital gains obtained on shares in entities, and they might also increase the standard rates, who knows?

In relation to personal income tax, there is also a chance that the two new tranches announced a while ago for earnings above €130,000 or €300,000 will be approved, which would leave the sum of the central government and autonomous community rates at limits close to 54% in certain autonomous communities; and that the rates on savings income will also go up from the current 23% maximum rate to 27%.

Lastly, there could be a general reform of inheritance and gift tax, to harmonize these taxes by raising them, although this seems difficult to achieve without a reasonable consensus among the autonomous community governments and, probably, in the context of a far reaching reform of autonomous community finances. It will be a much harder task, technically and practically speaking, to move forward with the “tax on large fortunes” supported by Unidas Podemos, because that tax would have to replace wealth tax, in a context where no similar tax exists in any EU country; besides questioning basic tax principles such as horizontal equity, harming saving and investment in Spain and even giving an incentive for capital to leave the country at such a difficult time for our economy.