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13.5. Other Anti-Avoidance Rules

Hybrid Mismatches

Spain introduced the hybrid mismatch rules in line with the EU Anti-Tax Avoidance Directive (ATAD), which entered into force on 11 March 2021. The  rules are apply to tax periods beginning on or after 1 January 2020 but which have not concluded on the date of entry into force. Thus, for companies following the calendar year, the rules apply from 1 January 2021. The rules apply to resident entities and permanent establishments of non-resident taxpayers. Transactions covered by the hybrid mismatch rules include:

  • Hybrid entity mismatch;
  • Hybrid financial instrument mismatch;
  • Hybrid transfers giving rise to double utilization of foreign tax credits;
  • Disregarded permanent establishment mismatch;
  • Imported mismatch;
  • Tax residency mismatch; and
  • Reverse hybrids.

The scope of the anti-hybrid provisions excludes mismatches arising from the following:

  • Mismatches involving a taxpayer who is exempt from Spanish corporate income tax;
  • Mismatches arising as a result of a financial instrument/agreement which is subject to a special tax regime; and
  • Mismatches arising due to differences in valuation, including the differences resulting from the application of transfer pricing rules.

A mismatch outcome is not considered as a hybrid mismatch unless it arises between:

  • Associated enterprises;
  • A taxpayer and an associated enterprise;
  • The head office and permanent establishment;
  • Two or more permanent establishments of the same entity; or
  • Under a structured arrangement (which may include arrangement with unrelated enterprises).

Associated enterprises for the purposes of the hybrid mismatch rules include the following:

  • Related parties as per the transfer pricing provisions;
  • An entity owning, directly or indirectly, at least 25% of the voting and/or economic rights in the taxpayer;
  • Entities “acting in concert” with respect to the voting and/or economic rights in another entity/ taxpayer; and
  • Entities having “significant influence” over one another.

Tax adjustments are required if the mismatch in tax treatment of legal entities or financial instruments leads to:

  • Double deduction – when the deduction of the same expense is claimed by both a Spain entity and a foreign associated enterprise; and
  • Deduction without inclusion – when a deduction of the expense is claimed by the payer without a corresponding inclusion of the income in the hands of the recipient.

If a mismatch arises, it is neutralized by:

  • Disallowance of deduction of expenditure under the hybrid arrangement to the extent that the corresponding income is not included in the tax base of the recipient or in case of double deduction; and
  • Inclusion of the income arising from hybrid arrangement as taxable income to the extent that it is deductible for the payer.

Also, the earning-stripping rules do not apply to the interest expenses which are not deductible under the anti-hybrid provisions.

Tax Information Exchange Agreements (TIEAs)

Tax Information Exchange Agreements (TIEAs) provide for the exchange of information on tax matters and Spain has concluded TIEAs with several countries, including Andorra, Aruba, the Bahamas, the Netherlands Antilles, and San Marino.

Exchange of Cross-Border Tax Rulings and Advance Pricing Arrangements

In line with BEPS Action 5 and the EU directive on mutual administrative assistance, Spain has adopted various measures in its domestic laws to enable the exchange of information on cross-border tax rulings and advance pricing agreements (APAs) beginning from 1 April 2016.

Automatic exchange also applies to the cross-border tax rulings and APAs issued:

  • On or after 1 January 2014 but before 1 April 2016; or
  • On or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

Financial Account Information Reporting and Exchange

Spain has adopted measures to implement the automatic exchange of financial account information with EU Member States pursuant to Council Directive 2014/107/EU of 9 December 2014, which synchronized EU rules with the global standard for exchange of information developed by the OECD under the Common Reporting Standard (CRS). Spain is also a party to the OECD Mutual Assistance Convention and the related Multilateral Competent Authority Agreement, and as such exchanges financial account information under CRS with qualifying non-EU countries. Finally, Spain concluded an Intergovernmental Agreement (IGA) with the US for the implementation of the  U.S. Foreign Account Tax Compliance Act (FATCA).

Mandatory Reporting of Cross-Border Tax Arrangements (DAC6/ MDR)

On 8 April 2021, Spain published the law implementing the EU Council Directive (DAC6) on the reporting of cross-border tax planning arrangements and mandatory exchange of information with the other EU Member States. The reporting requirement primarily applies to intermediaries (service providers) that design, market, organize, or manage the implementation of a reportable arrangement based on specific parameters. However, the reporting requirements are shifted to the taxpayer in certain cases, including where there is no intermediary, or the intermediary does not have an EU nexus or is subject to confidentiality obligations, in which case the intermediary must notify other intermediaries of the obligation to report and if there are no other intermediaries, the taxpayer should be notified of its obligation to report and be provided with the reportable information.

The tax authorities published the following guidance for the reporting of cross-border arrangements:

  • Declaration of information on certain tax planning arrangements - to be submitted within 30 days from when an arrangement is made available for implementation or the first step has been executed;
  • Declaration of updated information on certain marketable cross-border arrangements - to be submitted in the month following the end of each calendar quarter; and
  • Declaration of information on the use of certain cross-border planning arrangements - to be submitted in the last quarter of the calendar year following the one in which the reportable arrangement is used in Spain.

Certain transitory provisions have been provided for the initial deadlines. This includes that the following must be declared within 30 calendar days after the relevant ministerial order enters into force:

  • Reportable arrangements between 25 June 2018 and 30 June 2020;
  • Reportable arrangements between 1 July 2020 and the date of the entry into force of the Order; and
  • Reportable marketable arrangements between 1 July 2020 and 31 March 2021.

Failure to submit a declaration on a reportable arrangement may result in a penalty of EUR 2,000 for each piece of information or data set that should have been included in a declaration. The minimum penalty in such cases is EUR 4,000 and the maximum penalty is equivalent to the amount of the fees received or to be received for each arrangement or the value of the tax effect derived from each arrangement, depending on whether the offender is the intermediary or the relevant taxpayer, respectively.

The penalties may be reduced by half if a late submission is made without prior request from the tax administration.

The EUR 2,000 penalty also applies for each omitted or inaccurate data on reportable arrangements, subject to the same minimum and maximums.

Exit Tax Rules

Generally, where an entity formed in accordance with Spanish law transfers abroad its legal seat, place of effective management and main business, it loses its tax residence status. When a company migrates out of Spain as above, the entity is considered liquidated and deemed to realize all its assets and liabilities at fair market value. The difference between the market value and the book value of the assets is included in the taxable base of the entity for that tax year. However, capital gains from the assets that remain connected to a PE in Spain are not deemed to have been realized. Hence, the loss of tax residence results in the immediate taxation of unrealized capital gains and losses, including foreign exchange gains and losses. Effective 1 January 2021, Spain amended the exit tax measures in line with the EU Anti-Tax Avoidance Directive (ATAD1). As per the amendment, the exit tax rules apply to the following transactions:

  • A transfer of an enterprise or permanent establishment abroad in the context of a transfer of tax domicile (for natural persons), or of the statutory seat and central management (for legal entities), unless the relevant assets remain effectively connected to a Spanish permanent establishment and maintain their book values in the books of such permanent establishment; and
  • A transfer of activity performed through a permanent establishment in Spain to another jurisdiction, if the transfer would cause Spain to lose its rights to tax the assets transferred.

The exit tax rules do not apply to assets transferred abroad for securities financing, as collateral, or in compliance with prudential capital requirements or for liquidity management, if such assets are expected to be returned to Spain within 12 months.  

Further, the payment of the exit tax may be deferred and paid in installments over a period of five years if the transfer is to another EU Member State or EEA Member State with which Spain has an agreement for mutual assistance for the recovery of taxes and the assets or business is not subsequently disposed of or transferred to a third state.

Furthermore, in case of transfer of the assets/activities from EU Member State to Spain, the value used by the EU Member State for exit tax purposes may be used as the acquisition cost in Spain, unless it does not reflect the market value.

Non-Cooperative Jurisdictions

Spain introduced anti-tax haven legislation and issued a list of 48 blacklisted jurisdictions originally in 1991. In July 2021, a new law adopted to implement various measures of the EU anti-tax avoidance directive (ATAD) largely reshaped the antitax haven regulations (see below).

The original blacklist contained the following 48 jurisdictions:

Andorra Anguilla Antigua and Barbuda Aruba
Bahamas BahrainBarbados Bermuda
British Virgin Islands Brunei Cayman Islands Cook Islands
Cyprus Dominica Falkland Islands Fiji
Gibraltar Grenada Guernsey and Jersey Hong Kong
Isle of Man Jamaica Jordan Lebanon
Liberia Liechtenstein Luxembourg, with respect to income received by 1929 Holding companies Macao
Malta Mariana Islands Mauritius Monaco
Montserrat Nauru Netherlands Antilles Oman
Panama Saint Lucia San Marino Seychelles
Singapore Solomon Islands St. Vincent and the Grenadines Trinidad and Tobago
Turks and Caicos UAE U.S. Virgin Islands Vanuatu

A 2003 law amendment provided for the removal of two types of jurisdictions from the blacklist:

  • Those which have concluded a tax treaty including a tax information exchange clause with Spain; and
  • Those which have concluded a tax information exchange agreement (TIEA) with Spain.

Further, two subsequent laws prescribed the issuance of an updated blacklist, but no update has been issued to date. Whilst the practical implications of the exclusion from the blacklist were never announced publicly, it is assumed that the following jurisdictions are removed from the original blacklist due to the conclusion of a qualifying tax treaty or TIEA with Spain (note that in addition, the listing of some EU jurisdictions poses issues with regard to EU law, even if the relevant jurisdiction (e.g. Cyprus) joined the EU after the issuance of the original 1991 list):

Andorra  Aruba  Bahamas Barbados
Cyprus Gibraltar Hong Kong Jamaica
Luxembourg Malta Netherlands Antilles Oman
Panama San Marino Singapore Trinidad and Tobago
UAE      

Law 11/2021 of July 2021 removed the reference to tax havens and replaced it by the concept of non-cooperative jurisdictions, defined as jurisdictions which:

  • Lack fiscal transparency, considering:
    • the existence of regulations in the jurisdiction on mutual assistance in the exchange of tax information;
    • effective exchange of tax information with Spain;
    • results of peer review evaluations carried out by the Global Forum on Transparency and Exchange of Information for Tax Purposes; and
    • the effective exchange of information regarding beneficial ownership;
  • Facilitate the execution or existence of offshore instruments or companies, aimed at attracting benefits that do not reflect real economic activity in said jurisdictions; or
  • Have low or no taxation, including where the effective level of taxation is considerably lower than in Spain.

The new legislative framework now clarified that it may also apply to tax treaty partner jurisdictions, in so far as not contrary to the provisions of the relevant tax treaty.

Further, the law itself does not prescribe a minimum level of taxation for the characterization of a given tax regime as constitutive of favorable taxation. It does, however, stipulate the future issue of a list of impacted jurisdictions by way of a Ministerial order, and allows -but does not mandate- the use of the blacklists issued by the EU and the OECD.

The implications of blacklisting are that tax benefits otherwise available to non-residents under domestic law, tax treaties or EU law, including inter alia the participation exemption for dividends received and relief from withholding tax on outgoing dividends, are not available to entities resident in a non-cooperative jurisdiction.

Other implications of blacklisting include the following:

  • Disallowing the deduction of business expenses paid directly or indirectly to residents of blacklisted jurisdictions except if specified conditions are met;
  • Discretionary authority granted to the tax authorities to determine the transfer price of transactions with persons established in blacklisted jurisdictions; and
  • Potential presumption of tax residence in Spain of entities established in blacklisted jurisdictions if the main assets of the relevant entity consist, directly or indirectly, of property located or rights exercised or fulfilled in Spain.

Ultimate Beneficial Ownership Disclosure

Effective 2018, all Spanish unlisted companies are required to declare their Ultimate Beneficial Owners (UBO) annually along with the filing of annual accounts with the commercial registry, subject to certain exceptions.

The UBO is defined as the person who ultimately owns or controls (whether directly or indirectly) more than 25% of the company’s shares or voting rights or controls the entity through other means.

The Spanish UBO register contains the following information:

  • Name;
  • Identification number;
  • Date of birth;
  • Nationality;
  • State of residence; and
  • Nature and extent of the interest held.

The UBO for newly created companies is to be declared in a prescribed form along with the submission of the first annual accounts. Any changes to the details mentioned in the UBO register are to be notified to the commercial registry.

Additionally, those companies that have an indirect UBO will need to disclose the information on the legal persons that intervene in the chain of control of the Spanish company. If a company does not have a direct or indirect UBO, it needs to identify the members of its management body.