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New Spanish corporate governance reform includes tax obligations
The law reforming the Spanish Corporate Enterprises Law for the improvement of corporate governance was published on 4 December 2014. This law is in response to the need to increase the application of international good governance standards in Spain, in compliance with EU recommendations and the OECD guidelines. Taxand Spain discusses how, for the first time, the reform introduces references to tax among the obligations and rules of good corporate governance set forth in the Corporate Enterprises Law.
Although the content of the Corporate Enterprises Law is predominantly corporate, for the first time specifically tax-related obligations are included in connection with good corporate governance. These are rules for listed companies which, nonetheless and as we see it, may also be taken as a clear reference for other entities.
In general, the reform deals with 2 major issues:
- The regulation of the shareholders’ meeting and shareholders’ rights
- The regulations on the board and board members
Specifically, it is in the area of the board and the audit committee of listed companies where the reform stipulates the new specifically tax-related obligations.
Most notable in this connection are the non-delegable decision-making powers attributed to the company’s board. Therefore:
- The board is attributed with the function of determining the company’s tax strategy
- Tax risks are expressly included in the area of the design and configuration of the company’s risk control and management policy (also a non-delegable power of the board)
- The board also has the power to approve all investments or transactions that, due to their amount or characteristics, have a marked strategic nature or entail a particular tax risk, unless their approval has specifically been attributed to the shareholders’ meeting
- The board is also entrusted with decision-making related to the creation or acquisition of holdings in countries or territories treated as tax havens
Along these same lines, the following are stipulated among the minimum functions of the audit committee:
- The supervision of risk management and internal control systems, expressly including tax risks
- The obligation to inform the board of the creation or acquisition of special-purpose entities or entities with registered offices in tax havens, as well as of all transactions carried out with related parties
Lastly, there is now an obligation for the annual corporate governance report that must be issued and published by listed companies to refer expressly to the company’s tax risk control systems.
Due to the newness of the provisions specifically referring to tax, the companies they affect are unlikely to have protocols and documents on internal policies which are in line with the new rules. For this reason (and given the fact that the law entered into force on 1 January 2015 and major changes must be adopted for the first shareholders meeting in 2015), such protocols and documents need to be prepared without delay.
Spanish listed corporations should:
- Review the company’s current situation and analyse the principles, protocols and rules of conduct established in the area of tax
- Based on the foregoing analysis, determine specific recommendations and actions to be taken to bring the company’s situation into line with the new law
- Prepare or review the tax strategy, as well as the tax-related policies, protocols and rules of conduct
- Enforce and comply with the new rules, monitor and control such compliance and verify effectiveness
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