The changes coming with the Tax Fraud Prevention Act (part I)

On 25 May 2021, the draft Law on Measures to Prevent and Combat Tax Fraud was approved.

Pending Senate ratification, the law, which is expected to enter into force shortly, is, in part, a transposition into domestic law of Directive (EU) 2016/1164, and amending various tax rules, known as ATAD (Anti Tax Avoidance Directive)

But do youWhat exactly are the regulatory changes? As discussed below, the LMPLFF is a cross-cutting tax change covering a multitude of taxes and areas.

In this post we will look at those that affect the ITP-AJD Law, Inheritance and Gift Tax, as well as direct personal income tax and corporate income tax.

In successive posts, we will analyse the changes that affect tax procedures, the Cadastre, the IAE or changes in customs matters.

1. Amendments to the Law on the Prevention of Tax Fraud in ITP-AJD and in Inheritance and Donations Tax

(i) New tax base for real estate: Reference value.

This is perhaps the most relevant reform in real practice of this new law. Both the Inheritance and Gift Tax and the Tax on Onerous Transfer of Property and Documented Legal Acts determine the taxable base, in certain cases, to be the same as the real value of the property, which has historically generated a multitude of value verifications and litigation between the Administration and the taxpayer.

The Tax Fraud Prevention Act removes the reference to "real value" and includes the concept of "reference value" which is equated with market value.

The tax base of the taxes indicated shall be presumed, in the absence of proof to the contrary (rebuttable presumption), "the reference value provided for in the land registry regulations at the date on which the tax becomes chargeable".. This value, which is different from the cadastral value, is generally higher than the cadastral value.

  • How the "reference value" is calculated

The aforementioned reference value determined by DG Cadastre will be determined on the basis of all sales of real estate carried out and formalised before a notary public.

To this end, during the first 20 days of each December, the Cadastre publishes an informative announcement in the BOE (Official State Gazette) to generate knowledge of the reference values of each property, which may be permanently consulted through its Electronic Headquarters.

It is also foreseen that, when the aforementioned reference value does not exist or cannot be certified by the General Directorate of Cadastre, the taxable base will be the higher of the following amounts: the declared value or the market value.

It will therefore be an official valuecalculated on the basis of the data supplied by the notaries and registrars, but without such valuation is adapted to the reality of the property (state of conservation, renovation, urgency of sale, location, etc).

  • Recourse to the "reference value

It is regulated that this reference value may be challenged both by means of an appeal for reconsideration and by means of a request for rectification of self-assessments In order to decide on the matter, a mandatory and binding report from the General Directorate of Cadastre will be required.

(ii) Gold purchases from private individuals

It is determined that the purchases of gold and jewellery from private individuals by traders are subject to transfer of property for a consideration (TPO).

(iii) Application of the autonomous region's inheritance and gift tax regulations

As we have already explained in several previous articles, in relation to the applicability to non-residents in Spain of the autonomous community rules for the settlement of inheritance and gift taxFinally, it is included in the regulation with the status of law that the aforementioned autonomous regulation applies to non-residents regardless of whether they are resident in the EU, EEA or a third country.

2. Amendments to the Law on the Prevention of Corporate Income Tax Fraud

(i) Exit tax (Exit tax) (art 21 Law)

The current regulations oblige companies to companies wishing to change their registered office to another country external to the European Union to be included in the taxable base for the year of departure the existing implicit surplus value in the company

However, until now this was not the case if the transfer took place to another EU country.

With the future Law on the Prevention of Tax Fraud (LMPLFF) also such unrealised capital gains will be obliged to be integrated in the event of relocation to another EU countryalthough fractionation is allowed of the exit tax for a period of 5-year termsubject to the same general regime of guarantees and interest as any other tax debt

In addition, if within the 5-year instalment period (i) the entity transfers or transfers the assets to a State other than an EU or EEA State or (ii) fails to comply with any of the instalment periods, the right to instalments is lost, and the obligation to pay the full amount outstanding is determined at that time.

In addition, the Companies Act establishes a new scenario for the accrual of exit tax, which is intended to cover situations of organisational restructuring of multinational groups in which not an isolated element, but the activity of the permanent establishment itself is transferred.

(ii)International Tax Transparency (art 100 LIS)

The international tax transparency regime regulates the obligation to include certain positive income obtained by non-resident entities in the corporate income tax base.

Under the aforementioned Directive, a number of amendments are introduced, including the extension of the scope to include Permanent Establishments abroad and the inclusion of holding entities in the regime as well.

3. Tax havens

The legal reform renames tax havens as "tax havens".non-cooperative jurisdictions"We will have to wait for the approval of the Ministerial Order that will determine which countries will fall under the concept of non-cooperative jurisdictions.

They are defined as those countries and territories characterised by opacity and lack of transparency due to the absence of applicable mutual assistance rules, the attraction of profits without real economic activity or low or no taxation.

4. Amendments to the Personal Income Tax Fraud Prevention Law

The following are amended succession agreementswhich are a frequent type of agreement in foral laws (Galicia, Aragon, Navarre, Catalonia, etc.) and are commonly known as "inheritance in life".

Under such succession agreements, a person undertakes, before his death, to hand over to another person(s) certain assets and rights upon his death, and it may even be agreed that the assets will be handed over at the time the agreement is concluded, while the "testator" is still alive.

From a legal point of view, the Supreme Court has already ruled that succession agreements are acquisitions of property mortis causa notwithstanding the fact that the patrimonial effect anticipates the death of the transferor.

And, fiscally, these agreements have a very beneficial treatment because, according to the DGT's change of criteria, they are treated as a transfer mortis causa and, therefore, the exemption provided for in article 33 of the Personal Income Tax Law regarding the non-existence of capital gains on transfer mortis causa is applicable to them, also allowing the acquisition values of the assets to be updated at the time of signing the inheritance agreement.

However, with this reform, the Inland Revenue will regulate sales of assets by the beneficiaries of the inheritance pact when they transfer these assets before the previous transferors have passed away, i.e. when they sell the inheritance during their lifetime before the death of the previous owner.

In this way, it is regulated that the acquisition value and date of acquisition to be taken into consideration for the purpose of potential transmission, is that which the property that was the subject of the succession agreement had in the deceased's estate.This is provided that it is transferred before the death of the "testator".

For practical purposes, such inheritance agreements are often agreed in inheritances from parents to children, so the Inland Revenue intends to change the way in which capital gains are calculated when children sell those assets "inherited" from their parents before their parents have died.

In a numerical example, until now, a father could transfer a flat he acquired for 50,000 euros to his son under the inheritance pact with the updated value at the date of signing the inheritance pact, for example 200,000 euros. And if the son transferred the property without the father having died, the son would be taxed on the updated value of the property when it was transferred to him (200,000 euros).

However, with this reform, in a similar case, the child will have to take as acquisition value the amount of 50,000 euros, being able to use the updated value of 200,000 euros only if the father had died before said transfer, thus equalling the tax treatment in the rest of Spain where there are no foral civil law or inheritance agreements.

At forthcoming publications we will analyse the other regulatory changesThe Commission has adopted a number of measures, some of which relate to taxation procedure, can be very interesting including for disciplinary proceedings currently in progress.

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