EUROPE: Comprehensive Spanish tax fraud prevention law extends list of 'non-cooperative jurisdictions'.

As published on step.org/industry-news, Thursday 15 July, 2021.

Spain's wide-ranging Law for the Prevention and Actions Against Tax Fraud (Law 11/2021) came into force on 10 July, amending a vast number of regulations and affecting almost every aspect of the Spanish tax system both for companies and individuals.

Notably, the Spanish list of ‘non-cooperative jurisdictions’ is being extended beyond the existing EU and OECD lists. It can now include any countries and territories considered to have harmful tax regimes, as decreed in an order from the finance ministry, even if they have a double taxation treaty with Spain. Any country with a low or zero corporate tax rate, or that facilitates offshore entities 'aimed at allocating profits that do not reflect a real economic activity’ in the country, can be designated as non-cooperative.

The controlled foreign corporation (CFC) rules are being extended to include income obtained by a permanent establishment located in a low-taxation country. The new law also eliminates the holding company exemption whereby companies holding more than 5 per cent participation in foreign subsidiaries were not subject to CFC rules if they had resources to manage the participation and did not qualify as mere asset-holders. Foreign holding companies obtaining dividends and capital gains arising from the transfer of shares may therefore fall within the scope of the CFC rules under the new regulation, if all the other relevant requirements are met. This extension is now also applicable to individuals, so owning holding companies outside the EU is generally penalised, according to law firm Baker McKenzie.

The new law also includes technical measures amending personal income tax, gift and inheritance tax (IHT), wealth tax, property taxation and cryptocurrency reporting. Spanish entities or foreign entities with offices in Spain that provide services related to virtual currency transactions will be required to inform the tax authorities regarding owners, beneficiaries or authorised brokers of cryptocurrencies and the transactions they carry out.

Property valuations for IHT purposes are being amended to take into account the new reference value estimated by the Directorate General for the Cadastre (the finance ministry’s managing body for the property register) as the most probable price at which the property could be sold. This new valuation method also has a direct impact on transfer tax and stamp tax, as well as wealth tax, says Baker McKenzie.