An update from our associates at Blevins Franks

UPDATE Tax  | 12th July 2017


What has happened? 

During the last few weeks, some news related to taxation has been published in different Spanish newspapers.

Some of the news may not be directly relevant to our clients, but we would like to keep you updated on the proposed Spanish tax changes for your information.

We have included a brief summary of the tax news below:

1)    New self-employment law to be approved shortly

There has been an agreement between different Spanish political parties, so it is likely that a new ‘autónomos’ law is to be approved possibly during July.

The future new law, whose official name is ‘Ley de Reformas Urgentes del Trabajo Autónomo’, will include several improvements for self-employed individuals in Spain, including amongst other:

¾  Being able to combine 100% of state pension and self-employment income when the individual has employees. Currently, this is possible but only 50% of the state pension is received.

¾  Possibility of extending the €50 self-employment tariff from 6 months to 1 year.

¾  Possibility of applying 12 euros per day as a deduction for lunch.

¾  Possibility of applying a 20% deduction of utility bills (e.g. water, electricity, telephone, etc.) if the self-employed individual works from home.

¾  Accidents on the way to/from work (in itinere) will be recognized for self-employed individuals.


2)    Spanish 2017 general budget has finally been approved

On 29th June, the 2017 Spanish general budget came into force a day after being published in the Spanish Official Gazette (‘BOE’).

No relevant changes regarding personal income tax and wealth tax were introduced. Most of the new rules affect corporation tax, VAT and other local and special taxes. The official interest rate for Fiscal Year 2017 has been approved as 3%.

3)    New DGT ruling about the 150% penalty for Modelo 720

The Spanish ‘Dirección General de Tributos’ (‘DGT’) has just published a new binding ruling (V1434-17) analysing the consequences of submitting the Modelo 720 late, but voluntarily (i.e. without any request made by the Spanish Tax Office).

This is the first ruling about the Modelo 720 penalties, and it has only been ruled on three years after the question was sent to the Spanish DGT.

According to this ruling, if the Modelo 720 is submitted late but voluntarily and the undeclared assets are regularized by submitting an amended tax return to declare the unrealized capital gains, the 150% penalty can be avoided.

The reasoning behind is that is that the objective of the voluntary regularization is to collect the unpaid debt on a voluntary basis by the taxpayer.

Please bear in mind that the Modelo 720 law remains the same until Spain decides to change it, or until the EC or the ECJ forces Spain to change it as the penalties are considered disproportionate and against the EU principles.

However, this is a good argument to encourage taxpayers who were not compliant with the Modelo720 in the past, to voluntarily regularise their situation without necessarily facing massive penalties.

4)    Possible income tax reduction for Fiscal Year 2018

The Spanish Minister Cristóbal Montoro, who is in charge of Spanish Taxes, has recently mentioned during a press conference that there is a margin to slightly reduce personal income tax for Fiscal Year 2018.

This is because the political party Ciudadanos requested a personal income tax reduction for next year in exchange of their support for the 2018 budget.

It looks like this will only affect the lowest tax brackets, reducing the tax payable for taxpayers on lower incomes.

Thus, Albert Rivera, the Ciudadanos leader, has just announced that the current limit of €22,000 to submit a Spanish tax return for residents will be reduced to €14,000, and these taxpayers will not have to pay income tax. Other tax cuts will also be available for the bracket up to €17,500.

We will have to wait until further details are provided, possibly in the general budget for Fiscal Year 2018.

5)    Spanish Constitutional Court declared the ‘tax amnesty’ unconstitutional and void

Last 8th June 2017 the Spanish Constitutional Court declared the Spanish ‘tax amnesty’ unconstitutional and void.

The ‘Declaración Tributaria Especial’ which was its official name, was approved in 2012 by a Royal Decree-Law 12/2012 of 30th March 2012 and allowed individuals who were not compliant with taxes in Spain in the past to regularize their situation by paying 10% of the acquisition value of the undeclared assets. No other penalties, late payment penalties and fines were payable.

Around 30,000 people took advantage of this scheme, which was very controversial, especially because some politicians who have been recently involved in corruption cases signed up for this ‘tax amnesty’.

The reasoning behind this decision is because according to the Spanish Constitutional Court, the law that approved this extraordinary measure was against Article 31 of the Constitution, which stresses the obligation to all individuals to participate in maintaining public funds.

In effect, this case has illustrated a conflict between separate provisions within the Spanish Constitution and the incorrect application of a Royal Decree Law. Whilst the effects of the ruling are somewhat unclear it is believed that the decision will not lead to the retrospective collection of the taxes that were not collected as a result of the ‘amnesty’.