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Implementation of the new Budget Law Bill in 2011
Recently, on 30 September, the Spanish Government presented the General State Budget Law Bill for 2011 to the Parliament. As the Ministry of Economy and Finance announced, this Bill seeks to reinforce the transformation of the Spanish economic growth model, prioritising the investment in R&D&I, education and infrastructures. Furthermore, the tax consolidation process shall be moved forward to ensure the sustainability of public finances in the medium term. Taxand Spain identifies the main tax changes proposed in the Budget Law Bill.
Regarding Personal Income Tax ("IRPF"):
a) General range of tax rates
The Bill establishes the general range of tax rates applicable starting 1 January 2011, and includes two new tranches:
1. Amounts greater than EUR120,000.20, but less than EUR 175,000.20: 22.5% (which, added to the autonomous community rate - if it has not been regulated by the relevant Autonomous Community - raises the total rate to 44%)
2. Amounts more than EUR 175,000.20 and upwards: 23.5% (which, added to the autonomous community rate - if it has not been regulated by the relevant Autonomous Community - raises the total rate to 45%).
b) Taxation of the shareholders of an open-end investment vehicle ("SICAV")
The Bill regulates shareholders or members of collective investment undertakings taxes in relation to capital reductions and distributions of additional paid-in capital carried out from 23 September 2010.
Specifically, the Bill establishes a new case of attribution of income in respect of capital reductions made at the SICAV for the purpose of reimbursing contributions. In this case, the amount of the capital reduction or the arm's length value of the assets or rights received will be attributed to the shareholder, characterised as income from movable capital in accordance with Article 25.1.a (dividends, meeting attendance bonuses and shares in profit), and capped at the higher of the following amounts:
1. The increase in the net asset value of the shares in the period from their acquisition or subscription until the date of the capital reduction.
2. The amount of retained earnings, when the capital reduction derives from them.
Any excess over the prescribed limit will reduce the acquisition costs of the shares in question, until it is cancelled out. In turn, any excess resulting will be included as income from movable capital derived from the distribution of additional paid-in capital.
Under no circumstances, the EUR1,500 exemption established for dividends will be applicable.
In the event of distribution of the additional paid-in capital of the SICAV's shares, the whole amount obtained will be attributed to the shareholder, without it being entitled to apply the reduction in the acquisition value of the shares provided for in Article 25.1.e) of the IRPF Law.
These rules for attribution of income will also apply to collective investment undertakings analogous to SICAVs and registered in another State, irrespective of any limits they may have in respect of restricted investment groups, on the acquisition, transfer or redemption of their shares; in any case, it will apply to companies subject to Directive 2009/65/EC.
c) Reduction for multiyear salary income
Effective from 1 January 2011, the amount to which the 40% reduction for salary income which is either generated over more than two years, or which is generated over notably irregular periods applies may not exceed EUR 300,000.
Regarding Non-resident Income Tax:
Effective from 1 January 2011, the wording of the exemption for income distributed by Spanish resident subsidiaries to their shareholders resident in another Member State of the European Union is amended establishing a shareholding requirement of only 5%. Thereby, the provision shall be brought in line with the interpretation sustained by the European Court of Justice.
Regarding Corporate Income Tax:
a) Financial goodwill
Effective for tax periods ending as of 21 December 2007, the wording of Article 12.5 of the Revised Corporate Income Tax Law ("TRLIS") is amended to prevent the application of this article to the acquisition of companies resident in the European Union carried out as of 21 December 2007.
b) Tax treatment of the shareholders of SICAVs
The Bill regulates the taxation of the shareholders or members of collective investment vehicles in relation to capital reductions and distributions of additional paid-in capital made as of 23 September 2010.
Article 15.4 of the TRLIS, in case of capital reductions with reimbursement of contributions, establishes that shareholders shall be taxed on the excess of the arm's length value of the assets received over the book value of the participation held. The same rule will apply in the case of distribution of the additional paid-in capital of the shares or units.
However, a special rule is introduced for transactions performed by SICAVs regulated by the Collective Investment Undertakings Law and not subject to the standard tax rate. According to this rule, the total amount received in the capital reduction, capped at the amount of the increase in the net assets value of the shares in the period from their acquisition or subscription until the date of the capital reduction, will be included in the shareholder's tax base without the right to take a tax credit.
Regardless of the amount received from the distribution of additional paid-in capital by those SICAVs, it will be included in the shareholder's tax base without the right to a tax credit.
The above provisions will apply to collective investment undertakings analogous to SICAVs and registered in another State, irrespective of any limits they may have in respect of restricted investment groups, on the acquisition, transfer or redemption of their shares; in any case, it will be applicable to companies subject to Directive 2009/65/EC.
Regarding legal and late-payment interest rates
The legal interest rate is maintained at 4% and the late-payment interest rate is maintained at 5%.
Although the Spanish Government's proposed changes described above are expected to be approved in the end with the support of other political groups (the Spanish Government does not have an absolute majority in the Lower House of the Spanish Parliament), they could possibly be modified, we will keep you informed of these updates.. In fact, we should not rule out an increase in fiscal pressure beyond the pointed modifications regarding IRPF.
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