Szabo, Dr. Gabor B: Beginning of the End or End of the Beginning?

  • The Spanish Tax Havens’ ‘Blacklist’ A Treasury of Anti-avoidance Rules – Gabriel Pretus Labayen
      Prior to the mid eighties the Spanish economy albeit well on its way to a modern market in the formal sense, was to a great extent a semi-closed one, with relatively low levels of foreign trade and investment. Entry into the EEC in 1986 meant an abrupt change, in few years levels of intracommunity trade skyrocketted and cross borders transactions became common place for many Spanish companies. This change posed new challenges to the Spanish Revenue, which hitherto had not been geared to dealing with foreign based tax planning or tax avoidance structures. Spanish tax rules had many loopholes as regard the taxation of Spanish source foreign income, an aspect which in some cases had barely been considered. The main issues then identified as threats to the Spanish income and corporate tax bases were:

      Offshore entities being used to invoice grossly inflated or non existence service fees to Spanish companies, thus reducing their taxable profits. Offshore entities being used to obtain capital gains free of tax on both movable and immovable assets, in many cases by the simple expedient of selling and failing to declare. Spanish companies investing in offshore subsidiaries and taking charges as a result of alleged losses suffered by them. Spanish nationals moving residence to offshore locations (mainly Gibraltar and Andorra) to escape wealth tax and Death duties as well as to reduce taxation on savings and income. Spanish entities and individuals investing in offshore passive subsidiaries or investment funds, thus accumulating untaxed income. Generally the use of offshore companies to avoid disclosure of beneficial ownership of assets.

      This matters were further exacerbated by the relaxation of Foreign Exchange Controls, which started in 1986 and gathered speed from 1990 onwards and made it much easier both for foreigners to invest in Spain and for Spaniards to invest abroad. This problems were further compounded by the fears about Spanish untaxed funds being stashed away in offshore financial centres and re-invested in Spain through foreign companies, thus perpetuating the existence of a huge ‘unofficial’ economy.The Spanish government took its first measures in July 1991 when a Royal Decree (RD 1080/91) was published containing a list of 48 countries and territories (ANNEX I) which from then on were classed as being ‘tax havens’. The Spanish government has since recognized, against the background of myriad initiatives directed against tax havens by the EU, OCDE, FATF etc. and their perceived willingness to charge their ways under pressure, that their approach might be inflexible and counter-productive. As a result on January 31st 2003 it passed Royal-Decree 116/2003 which paves the way for the removal of countries from the black list, provided they sign a Double Taxation Treaty with Spain which include an exchange of information clause, or a Tax Information Exchange Agreement. It should also be taken into account that the entry of Malta and Cyprus into the EU by May 1st 2004 will effectively exclude them from the list. We understand that Treaty negotiation with Malta have already started. The idea was to use this classification to discriminate against investments made through such territories as well as commercial transactions involving entities or individuals resident in them, thus discouraging their use. This started taking shape with Law 18/1991 which approved a new Income Tax Law replacing the one dating back to 1978 and has moved forward (or backwards, depending on your view) remorselessly since then, through several important milestones, the main ones being:

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