This content is from: Spain

Spain: The never-ending saga of trusts and Spanish tax uncertainty


The implementation of the common reporting standard (CRS) and other information transparency rules, coupled with the increased powers conferred by many countries on their revenue agencies to deal with such information, is bringing to the forefront many private wealth holding structures, which are underpinned by a trust arrangement.

Trust arrangements are already popular in English-speaking societies, but they are a growing trend in Spain as foreigners come to retire and live on its coasts.

In the absence of specifically targeted legislation or tax case law in Spain, many settlors and beneficiaries have adopted a 'put your head in a hole' approach, digging the hole out of a perceived legitimate interpretation of the laws: the (irrevocable discretionary) trust produces legal effects with respect to the ownership of the trust assets, the settlor drops out of the picture, his wishes only remain as indicative to the trustee, and the beneficiaries only have a right that is exercisable, not at their discretion, but at that of the trustee.

The Spanish tax agency, for its part, has been asked for its opinion on these types of arrangements through the Spanish system of formal ruling requests on several occasions, and has repeatedly insisted on disregarding the trust, assigning the ownership rights in the trust assets to the settlor or the beneficiaries without in our view a clear and unequivocal guideline.

However, trust structures are becoming increasingly common, leading to more and more opportunities to discuss their effects with revenue commissioners in the course of tax ruling requests and audits. It is only a matter of time before litigation spreads and case law is produced.

In this context, it would be fairer if the rules were clear for everyone involved, either through regulation or through some kind of general and objective guidelines expressly validated by the Spanish tax agency and respected by tax inspectors within audit proceedings.

One example which could be a good road map for Spanish lawmakers to set some kind of objective interpretative criteria comes from Italy. The foundation of the Italian tax treatment of trusts was established in the Italian Finance Act 2007, which introduced a regime whereby trusts were taxed like a corporation. In 2010, the Italian tax authorities issued a circular listing various cases where trusts would be deemed as mere conduits subject to strict compliance obligations.

Defining the Spanish tax implications of trusts through some kind of regulation or official guidelines would provide Spanish taxpayers with much-needed certainty, since the tool utilised by the Spanish tax authority – subjective rulings – is so dependent on specific facts only known by the requester and the tax authority that it becomes an odyssey for anyone who tries to interpret them to be sure what the Spanish tax authority's actual position is.

A recent ruling issued by the Spanish tax authority in April 2016 regarding the Spanish tax implications of some US trusts, the background description of which is worded in such a way as to make it difficult to know the specific case being analysed, has evidenced how trusts linked to a settlor's death seem to trigger a merry-go-around of tax scenarios depending on the specific provisions agreed to at the time of establishment of the trust.

According to the few paragraphs of background facts included in the published ruling, the trust subject to analysis was irrevocable, the beneficiaries were appointed and had no power to compel the trustee to distribute a share of the trust assets.

Against this backdrop, the Spanish tax agency concluded that since the trust was set up while the settlor was still alive and the beneficiaries were designated – although they were not actually owners of the trust assets at that point – the transaction should be treated as an inter-vivos transfer for Spanish tax purposes.

In the case addressed in the ruling, the gift was not subject to Spanish inheritance and gift tax since the beneficiaries were not Spanish tax residents at the time of settlement of the trust.

The application of this approach by the Spanish tax authority raises myriad doubts: What were the particular facts considered by the Spanish tax authority that led it to treat this case as a gift rather than an inheritance for Spanish tax purposes? How does this approach fit in with the Spanish wealth and income taxes? It appears that this puzzle is missing some pieces.

Pedro Fernandez ( and Alberto Antonio Rodriguez (, Málaga
Tel: +34 952075525

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