Changes to the corporate tax regime and an increase in inspections by the tax authorities will lead to an increase in work for law firms
Spain's fiscal reform, which took effect at the beginning of
2015 and lowers income and corporate taxes, will, above all,
benefit Spanish holding companies, according to Juan Alberto
Urrengoechea, a partner in tax law at Roca Junyent in Madrid.
The reform will lower the top rate of income tax depending on the
autonomous region where the individual is resident. In Madrid, the
top rate will drop from 52 per cent to 44.5 per cent this year,
with the bottom rate falling to 21.2 per cent, meaning taxpayers
will pay an average 12.5 per cent less on their income.
Corporate tax will be reduced from 30 per cent to 28 per cent this
year, and to 25 per cent in 2016. Meanwhile, start-ups will benefit
from a corporate tax rate of 15 per cent (limited to two fiscal
years).
Under the new laws, which bring Spain in line with the the
Organisation for Economic Co-operation and Development´s
(OECD's) base erosion and profit shifting (BEPS) project,
Spanish firms will no longer, for example, be penalised by being
taxed twice when selling a stake in another company. "This is
a hugely positive development," Urrengoechea says.
Tax revenue problems persist
But while the reform is good for business, it will not solve
Spain's problem of raising tax revenues, leaving it to rely on
its much-maligned measure of hiking VAT, which is currently at 21
per cent but only accounted for 5.5 per cent of the country's
GDP in 2012.
The reform, which ushers in more cohesion among corporate income
tax regimes at an international level, ensures greater transparency
and eliminates double taxation. "This implies a big change,
albeit not a necessary one," Urrengoechea says.
He adds: "The new law on companies provides a legal framework
applicable to Spanish companies and foreign companies operating in
Spain, while the second big impact is the OECD's BEPS project.
The idea behind the BEPS project is to limit aggressive fiscal
practices and the artificial transfer of benefits from one country
to another."
The reform will also help to increase transparency and certainty
among investors by reducing disputes relating to international tax
rules, as well as guaranteeing that a company's profits are
taxed where the economic activity generating that profit takes
place.
But the reform has positive and negative aspects, Urrengoechea
says, as there will now be fewer opportunities for tax deduction,
while the effect on foreign investors in Spain will be negligible.
"Other legislative changes (that is, the Companies Act) mean
that a board of directors will be responsible for a listed
company's fiscal policies, which will lead to greater
transparency and supervision, while implying an additional source
of work for law firms counselling companies that require their
fiscal policies to be in line with Spain's new
legislation," he adds.
Urrengoechea argues, however, that the reform was not entirely
necessary and that a partial modification of the laws would have
sufficed. "But all fiscal reform is an instrument of political
and economic legislation exercised by the government, and all the
recent governments of Spain have wanted to leave their footprint in
the form of a fiscal reform, which is why Spain undergoes a reform
every few years."
Urrengoechea describes the latest fiscal reform as "the big
one", and predicts it will create new opportunities for law
firms.
The modifications to the country's legal framework mean that
companies must adapt and seek legal advice, while the increase in
foreign investment in Spain will likely translate into an increase
in the number of mergers and acquisitions, which will in turn bring
more clients to law firms.
The other opportunity for law firms is in litigation, he says. The
country's fiscal authorities have increased their inspections,
which will result in more litigation against the authorities with
law firms needed to defend their clients' interests.
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