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Spain: Potential discrimination in the taxation of capital gains

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The European Commission announced its decision to open infringement proceedings against Spain

Rafael Calvo Salinero of Garrigues considers the taxation of capital gains for non-resident taxpayers in Spain.

On December 2 2021 the European Commission announced its decision to open infringement proceedings against Spain, requesting it to change its rules on the timing of recognition of capital gains for non-resident taxpayers in transactions with deferred payment, due to potentially being contrary to EU law.

Under the Spanish personal income tax and corporate income tax laws, for certain types of transactions with deferred payment or paid in installments, Spanish resident taxpayers have the option to pay the tax when the capital gains accrue or to defer it and pay it proportionally based on the cash flow. 

However, the rules on the accrual and payment of tax on capital gains obtained by non-resident taxpayers without a permanent establishment do not offer that option and the tax must necessarily be paid when the capital gains accrue, i.e. at the time of the transfer of the assets (and even if payment has been deferred). 

In the Commission's opinion, that difference in treatment could amount to an infringement of the free movement of capital, which is prohibited by Article 63 of the Treaty on the Functioning of the European Union.

The letter of formal notice requesting more information from Spain is the first stage in the infringement proceeding initiated by the European Commission. Spain has two months to reply in detail to the notice sent by the Commission, and if it so decides, propose the necessary amendments to its legislation. 

If Spain fails to provide a satisfactory response, the Commission may decide to issue a reasoned opinion explaining why it considers that a breach exists, and if Spain still fails to adopt corrective measures, it may refer the matter to the Court of Justice of the European Union (CJEU).

This is not the first time that the different tax treatment in Spain of income obtained by resident and non-resident taxpayers has been questioned. 

In 2009, the CJEU held to be contrary to the free movement of capital the higher rate that applied for non-resident taxpayers than for resident taxpayers on capital gains obtained on asset transfers (C-562/07). 

In 2010, it was also held to be contrary to the free movement of capital to lay down a higher ownership interest for non-resident taxpayers in order for the exemption on dividends from Spanish subsidiaries to apply (C-487/08). In a case that bears a certain degree of similarity to this case, the court held to be contrary to EU law (to the freedom of establishment, in this case) the obligation for individuals who transferred their residence to another member state to include any income not yet charged to tax in the tax base for the latest tax year they were resident in Spain, instead of applying regular timing allocation rules (C-269/09).

The question arises whether other potentially discriminatory rules based on similar principles may also require a similar analysis (an example that springs to mind is non-resident taxpayers not being allowed to offset capital losses against capital gains obtained in Spain, even during the same year). 

The described precedents gave rise, after the CJEU had delivered a decision on them, to the required amendments to the legislation to align the taxation of resident and non-resident taxpayers, so we shall have to see how Spain will react to the proceeding that has now been opened and when the conceivably necessary changes to the legislation will occur.



Rafael Calvo Salinero

Partner, Garrigues



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