Law 11/2021, of July 3, on measures to prevent and fight against tax fraud (among others), takes a further step in the transposition of Directive (EU) 2016/1164, of the Council, of July 12; establishing rules against tax avoidance practices that directly affect the functioning of the internal market. In this sense, one of the fields that is subject to modification is the so-called “exit tax”, due to the change of tax residence abroad, a modification that affects legal entities and permanent establishments in Spain, remaining the same for individuals.
Art. 19.1 Law 27/2014, of November 27, on Corporation Tax.
Until the entry into force of the Law on July 11, 2021, the difference between the market value and the tax value of the assets, unless such assets were assigned to a permanent establishment located in Spain, had to be included in the taxable income.
The previous article stipulated the possibility, at the taxpayer’s request, of deferring taxation until the time of the departure of the assets of the entity, when the country to which it is transferred simultaneously complies with the requirements of:
1. Be a member state of the EU or the European Economic Area, and.
2. Existence of effective exchange of information
Thus, if the above requirements were met, until the amendment made by Law 11/2021, unrealized capital gains were subject to taxation only in the event of those being transferred outside the group or to a non-member State, or being transferred to a third party.
The amendment made by Law 11/2021 maintains the wording of the first paragraph, establishing the obligation to include in the taxable base of the tax, the difference between the book value and the tax value of the assets of the company, except for the assignment of a Permanent Establishment in Spain and adding that those transfers of assets that are related to the financing or delivery of guarantees or to comply with prudential capital requirements or for liquidity management purposes will be exempt, provided that it is foreseen that they must return to Spanish territory.
Unlike the estimation made in the Personal Income Tax, the new estimation does not make any provision, beyond the above mentioned in relation to capitalization or liquidity management operations, on the recovery of the tax residence. In the event that this occurs, it may be subject to taxation in the State to which the tax residence was transferred, and if an impairment of those assets had occurred (e.g. shares of a subsidiary), this would constitute a non-deductible expense in Spain until the shares are transferred outside the group or the company is liquidated.
However, and herein lies the main difference, it replaces the possibility of deferring the debt with a debt installment in five annual installments, with alternative requirements for the receiving State:
1. Member State of the European Union
2. Member of the European Economic Area, when it has signed an agreement on mutual assistance in the recovery of tax credits with the European Union or with Spain.
This means that, upon the transfer of the tax residence, unrealized capital gains are necessarily subject to taxation.
In addition, the installment payment will now imply the payment of late payment interest for each year, calculated in accordance with the provisions of art. 26 of Law 58/2003, of December 17, 2003, General Tax Law, to be computed as from one year after the end of the voluntary period for filing the tax return corresponding to the last tax period. Therefore, in accordance with the precept, late payment interest would be payable from the second fraction until the fifth fraction, the current late payment interest being 3.75% per annum.
Additionally, the regulation establishes that the constitution of guarantees may be requested “when it is justified that there are reasonable indications that the collection of the debt could be frustrated or seriously hindered”, which may be assessed by the collection bodies within 6 months following the end of the voluntary payment period of the first fraction, and a period of 10 days is given for the provision of guarantees.
Finally, the installment payment will lose its validity, which will result in the total or partial payment of the tax debt within a period of one month, and if applicable, the initiation of the enforcement procedure with respect to the following:
1. When the assets are transferred to a third party, for the proportional part of the value of the asset;
2. When the assets are transferred to a country that does not comply with the above requirements, for the proportional part of the value of the asset;
3. When the tax residence is transferred to a country that does not meet the above requirements;
4. When the taxpayer is in liquidation or in a collective execution proceeding or analogous proceeding in comparative law;;
5. When failed to comply with any of the income deadlines.
When the loss of validity of the installment payment is partial, due to the transfer of assets to third parties or transfer outside the territory of the EU/EEA, the failure to pay the amounts within one month (i.e. failure to comply with the voluntary payment period), in addition to the initiation of the enforcement procedure with respect to these amounts, will result in the loss of validity of the entire amount of the installment debt.
It should also be mentioned that failure to comply with the installment payment period will result in the payment of the surcharges for the executive period (executive, reduced or ordinary), as provided for in article 28 of the General Tax Lawebe
Therefore, the fact that the rule emanates from an-EU Directive means that it must be taken into account that we will encounter a relatively homogeneous tax treatment of transfers of economic activities, or of the tax residence of entities, being taxed in the country of origin in a similar way, depending on the transposition of the directive into national law.
Finally, the rule provides for the binding nature of the values for which tax has been paid for the receiving State, a rule which, being homogeneous in Community Law, will also mean that the Spanish Tax Administration will be bound by the values admitted by the administrations of other EU Member States.
Art. 18 Royal Legislative Decree 5/2004, of March 5, which approves the consolidated text of the Non-Resident Income Tax Law.
Regarding permanent establishments, the norm modifies the regulation made by the Consolidated Text of the Non-Resident Income Law, establishing as a new assumption in which the difference between book and market value will be subject to taxation, those cases in those that a Spanish Permanent Establishment transfers its activity to another State, with the same rules, conditions and limits as those introduced with respect to legal entities.
The difference between the market value and the tax value of the items to be included:
1. Those affiliated to a Permanent Establishment that ceases its activity.
2. Those previously attached to a Permanent Establishment located in Spanish territory transferred abroad.
3. Those attached to a Spanish Permanent Establishment that transfers its activity abroad.
Artícule 95 bis Law 35/2006, of November 28, on Personal Income Tax. (Personal Income Tax Law).
Although the precept has not been modified, the current regulation of the taxation for change of residence is recapitulated. The differences between the market value of the shares or participations and their acquisition value, will be subject to taxation in the form of Capital Gains as long as the taxpayer has been a resident during the last ten years, and concurs, alternatively, any of the following circumstances:
1. That the market value of the shares jointly exceeds 4,000,000 euros.
2. When the foregoing is not fulfilled, that on the accrual date of the last tax period that must be declared for this tax, the percentage of participation in the entity is greater than 25%, provided that it exceeds 1,000,000 euros.
If the transfer occurs to a Member State of the European Union or the European Economic Area, the capital gain will not be incorporated, unless any of the following circumstances occurs in the following ten years:
1. The residence is changed to a non-member State of the Union
2. Shares are transferred
3. That the duty of communication of:
a. The quantification of the capital gain,
b. The State and domicile to which the fiscal domicile and its modifications are transferred
c. Maintenance of ownership of shares and, where appropriate, their transfer.