The announced tax increase in Spain will decisively affect the work of tax advisers. It is an important concern on the agenda of companies and many individuals. Miguel Ángel Molina, partner of Tomarial responsible for the Fiscal Area, answers the main questions that arise about taxes in the immediate horizon. And he recommends taking steps now to minimize its impact.
We know there will be a tax increase, but can you foresee exactly what it will be like?
Unfortunately, we cannot know for sure the extent of the tax increase, although something is certain; There will be fiscal measures via "decree" or through the Budget Law. There are uncertainties, many ingredients in the current "cocktail shaker" that can condition the tax increase: a new outbreak of infections in Beijing that has led to new measures of confinement, increased public spending to alleviate the effects of the health crisis, we continue pending to know the margin of maneuver that Brussels will grant to Spain on the path of deficit compliance, expected drop in GDP of 9%, pending processing of the Budget Law, government approach to citizens that may endanger the block of the investiture.
It is not an easy task to predict what will happen. We must remember that we are currently governing with Budgets carried over from 2018, approved in the "Rajoy era". However, we cannot forget that the investiture agreement signed by PSOE and Unidas Podemos contemplated a tax increase in Personal Income Tax of up to 4 points for higher incomes and an increase in the effective tax rate for large companies in Corporation Tax .
When will the upload be effective?
The rational, logical and coherent thing would be for the tax measures that affect personal income tax and corporation tax to come into force for the next fiscal year that will start on January 1, 2021. But make use of this terminology to refer to our class Politics, it raises serious doubts for me and more after seeing the fiscal measures approved through Royal Decrees since the state of alarm was decreed in March.
What can you recommend to individuals with the highest incomes?
In the Personal Income Tax an increase of two points in the tax rates is foreseen on the general basis for incomes above 130.000 euros and four points for the part that exceeds 300.000 euros. The state rate on capital income will increase by 4 percentage points for income above 140.000 euros. There is no doubt that it will considerably affect these taxpayers, so a recommendation would be to anticipate by 2020 certain operations for the sale of assets with the expectation of generating high profits: sale of shares, real estate or investment funds. If you have planned divestment operations, now is the time to avoid the tax that savings will incur.
What would be the effect of taxing Patrimony and Successions?
It should be remembered that these are Taxes whose management is assigned to the autonomous communities. Currently, in the Valencian Community the Wealth Tax is fully in force and without bonus, unlike other communities such as Madrid. There are many voices calling for a harmonization of both taxes at the state level. But the current situation rules and any reform of these taxes should be debated within the paralyzed Commission for the Reform of the Financing System of the Autonomous Communities.
We have recently learned of the proposal of the United Parliament parliamentary group We can eliminate the current Wealth Tax and create a Tax on Large Fortunes to tax assets over one million euros. The simple announcement has generated a stir of such magnitude that it has caused that many clients are asking us for tax and financial advice in order to reorder the business heritage and even without ruling out residence transfers to other EU States. I believe that we must demand prudence and high-mindedness from our leaders in the current situation. The Minister of Finance had to step out to deny that the Government is working on this line proposed by her government partner. In my opinion, it turns to the totally erroneous and outdated "old policy" of "pay those who have the most" as an "antidote" to solve the devastating economic consequences that the COVID-19 pandemic has generated.
How will it affect SMEs?
The measures that can be approved will affect small and medium-sized businesses to a greater extent. The aim is to establish a minimum tax rate of 15% for companies with a turnover of more than 20 million euros. Limit the exemption for double taxation of dividends and capital gains from the sale of investees, etc. However, some tax reduction measures are contemplated, such as a two-point reduction in Corporation Tax (from 25% to 23%) for companies with a turnover of less than one million euros. In the event that the reform takes effect in 2021, these companies may be interested in deferring part of their income so that they are taxed two points less. Nor should we forget the proposal for a new deduction for the incorporation of women on the boards of directors of companies.
What about large companies?
There is no doubt that large companies, especially business groups, will be seriously affected if these measures are approved. The groups of companies will have to be rearranged to lighten their structures and thus be able to cushion the blow in the Corporate Tax and, more specifically, due to the limitation of the exemption for dividends. As a recommendation, they should redesign their tax policy both in relation to related-party transactions and in repatriation of profits from subsidiary companies to their parent companies. In my opinion, from the reform, the obligations of valuation and documentation of the related operations will take on a special role in the verification action by the Tax Agency.
What effect will a Google rate have?
A few days ago, the Congress of Deputies gave the green light to continue with the processing of the 'Tax on Certain Digital Services', popularly known as the 'Google rate'. It is a new tax dedicated to taxing 3% of the income generated by certain digital services provided by digital companies with revenues of more than 750 million euros worldwide and more than 3 million in Spain.
However, it appears that the rate will not go into effect. From the Treasury they fix it as a temporary Tax until a worldwide or at least European regulation is approved. In any case, if the cost of this Tax is finally approved, in my opinion, it will end up being passed on to the final consumer. Without forgetting the possible consequences in terms of tariffs on the export of certain Spanish products, such as oil and wine, in the event that the United States Government adopts measures in this regard in retaliation for this tax.
Is it time to take action before the effective tax increase?
Certainly yes. It is the moment to anticipate, to plan and, therefore, to restructure the business and family assets. In order to ensure the exemption in the Estate Tax for a family business and, consequently, guarantee a 95% reduction in the Tax on Inheritance and Donations for the transfer of said family business. And, ultimately, a proper reorganization of assets will almost certainly mean a greater and better protective shield against the impact of the foreseeable Corporate Tax reform.
