Global Tax Alert | 27 December 2013

Spanish 2014 Budget Law extends increased tax rates for non-Spanish residents and amends exit tax rules

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Executive summary

On 26 December 2013, the Spanish 2014 Budget Law was published in the Spanish Official Gazette. Among many other measures, the draft bill extends the application of increased tax rates on Spanish source income obtained by non-Spanish residents with no permanent establishment in Spain and modifies the Spanish exit tax rules in order to adapt them to the case law of the European Court of Justice.

Extension of the application of increased tax rates for non-Spanish residents

On 30 December 2011, a number of measures to reduce the public deficit, including a temporary increase of the domestic tax rates applicable to non-Spanish tax residents acting in Spain without a permanent establishment were approved.1

The increase on tax rates was established for years 2012 and 2013; the 2014 Budget Law extends its application to 2014. The tax rates (in the absence of an applicable tax treaty with reduced rates or of other tax benefits) applicable to these taxpayers in 2014 will be as follows:

  • The general tax rate will continue to be 24.75% (the rate was formerly 24%).
  • The tax rate on dividends and interest will be fixed at 21% (originally 19%).
  • Capital gains will continue to be taxed at 21% (previously taxed at a 19% rate).
  • The 21% branch remittance tax applicable to profits repatriated to the foreign head office by Spanish permanent establishments (PE) will remain in force.

It is expected that the original lower rates will again be applicable as from 1 January 2015, but year-end legislation will need to be monitored.

Amendment of the Spanish exit tax rules

Spanish exit tax rules were recently found to be in breach of EU Law by the European Court of Justice (ECJ). The Decision held that a migration to another EU member territory should not be subject to immediate taxation, as taxation should be deferred until a triggering event occurs.2

The 2014 Budget Law amends the Spanish exit tax rules in order to adapt them to the ECJ Decision. Under the new wording, the exit tax as a consequence of (i) the transfer of the tax residence of a Spanish company to another EU Member State, or (ii) the transfer of assets allocated to a Spanish PE to another EU Member State, may be deferred up until the assets are transferred to a third party, although such deferral is subject to the taxpayer posting a guarantee with the tax authorities covering the deferred tax. In addition, interest will accrue throughout the period during which the tax is deferred. This new provision applies retroactively to transactions occurring from 1 January 2013 forwards (which does not appear to be consistent with the correct interpretation of the Spanish tax rules, pursuant to the criterion of the Court).

Endnotes

1. For further details see EY Tax Alert, Spain increases tax rates for 2012 and 2013, dated 5 January 2012.

2. For further details see EY Global Tax Alert, ECJ rules against Spanish exit tax, dated 26 April 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid
  • Alfonso Puyol
    +34 91 572 5010
    alfonso.puyolmartinez-ferrando@es.ey.com
  • José Luis Gonzalo
    +34 91 572 7334
    joseluis.gonzalo@es.ey.com
Ernst & Young LLP, Spanish Tax Desk, New York
  • Cristina de la Haba
    +1 212 773 8692
    cristina.delahabagordo@ey.com

EYG no. CM4063