We have a tax in Spain which is levied on the net assets of individuals, Impuesto sobre el Patrimonio – net wealth tax (NWT) – for the purposes of which any individual owning assets located, or rights which can be exercised, in a Spanish territory is classed as a taxable person by virtue of an in rem obligation.
In the case of investments made by non-resident individuals who are the indirect owners of properties located in Spain (owning them through companies resident abroad), there is some doubt as to whether they may be classed as NWT taxable persons under this in rem obligation.
A reasonable, overall interpretation of the pertinent rule would be that interests in a foreign company are not subject to NWT under this in rem obligation. This appeared to be the understanding of the Directorate General of Taxes of the Ministry of Finance of Spain (DGT) which, in its binding Ruling V2982-11 of December 21 2011, concluded that:
"In cases of ownership by a non-resident of shares in the capital of a foreign company in turn owning, inter alia, the property located in Spain, there is no subjection to Spanish wealth tax."
However, the DGT appears to have abandoned this reasonable interpretation, in both recent double tax treaties and its latest binding rulings.
The treaties signed most recently by Spain – with Kuwait (Article 22.4), the UK (Article 21.4) and Germany (Article 21.4) – include an anti-abuse rule that applies in certain cases of indirect ownership of real estate. The rule applies where the real estate is owned through entities, at least 50% of whose assets, directly or indirectly, are made up of real property located in a contracting state.
Similarly, following the amendment of the treaty with Germany, the DGT has issued binding rulings (i.e. V0905-13, V1452-14, V0093-16 and V3047-17) to individuals resident in Germany forming part of ownership structures similar to that described above (an individual resident in Germany who owns 100% of a German company with a majority shareholding in a Spanish company with real property assets located in Spain). The conclusion reached was that the requesting parties were subject to NWT under the in rem obligation referred to above and must declare the stakes held in the Spanish company in which they had indirect ownership interests.
Also important is the DGT's response to binding ruling request V4968-16 of November 16 2016, submitted by a Norway resident, in which it referred to this type of property structure and to the right of the Spanish tax authorities to demand NWT from the ultimate owners on the basis of an in rem obligation. In particular, the DGT stated in its response that:
"It would be unfair discrimination, as well as contrary to European Union case law, to apply to a Spanish resident a treatment different from that applied to a non-resident, both owning capital in a company resident in Spain, whereby the former is taxed on their worldwide assets and the latter is released from said tax simply because their ownership is through an intermediate non-resident legal entity in Spain."
In light of this recent administrative approach, it would be advisable to review any ownership structures that are similar to those described, and the position that owners are adopting in relation to wealth tax based on an in rem obligation. In any event, this administrative stance is somewhat questionable, since tax treaties should not create, per se, a taxable event for NWT purposes, and because the DGT's interpretation of non-discrimination is not supported by EU law.