International Tax Law Conflicts on Residence of Individuals & Spanish Impatriate Tax Regime

Transcription

1 1 International Tax Law Conflicts on Residence of Individuals & Spanish Impatriate Tax Regime Rome, November 24, 2017 Sonia Velasco 24/11/2017

2 TAX RESIDENCE 24/11/2017 2

3 24/11/ TAX RESIDENCE: SPANISH DOMESTIC REGULATIONS Under Spanish regulations, individuals are Spanish tax residents for a calendar year (no split tax year) if they satisfy either: The presence test: their stay in Spain exceeds 183 days in a calendar year. The economic center test: their center of economic activities or interest is located in Spain. Rebuttable presumption: their spouse and dependent children are tax residents in Spain.

4 24/11/ SPANISH TAX RESIDENCE: THE PRESENCE TEST Number of days of physical presence No internal guidelines or regulations. OECD (art 15) days of physical presence : A day during any part of which the taxpayer is present counts as physical presence. Days spent in transit in the State of activity are excluded. Number of sporadic absences : Treated as days spent in Spain, EXCEPT if individuals prove tax residency in another country. Proof of residence: tax residence certificate vs. other means of proof. Inheritance & Gift Tax: the 183 days of physical presence counted in relation to the 365 days prior to the date of death or of the execution of a gift.

5 24/11/ SPANISH TAX RESIDENCE: THE ECONOMIC CENTER TEST Each country must be compared to Spain individually (not vs all other). No internal guidelines or regulations: the only guidelines can be found in regulations that determine tax residence between autonomous region communities*. The economic center is where the individual obtains the higher portion of the taxable base as follows: Portion of employment income (obtained where the workplace is located). Income and capital gains from immovable property (where they are located). Income from economic activities (business or professional). *Criteria to determine tax residence between autonomous regions differs from criteria for tax residence in Spain. The center of economic interest is subsidiary from the presence test criteria.

6 24/11/ SPANISH TAX RESIDENCE: THE ECONOMIC CENTER TEST Factors generally considered by Spanish courts: Main source of income is Spain Taxpayer s assets located in Spain Taxpayer s business managed from Spain Existence of labor contracts in Spain Membership of a board of directors in Spain Ownership of real estate or movable property in Spain Bank accounts in Spain

7 24/11/ TAX RESIDENCE: TAX TREATY TIE-BREAKING RULES Tax Treaty (art. 4): if resident in both States, tie-breaking rules: Permanent home available; or Center of vital interests; or Habitual abode; or Nationality; otherwise, Mutual agreement by the competent authorities. MLI/Directive 2017/1852/UE

8 24/11/ SARAMAGO CASE: Spanish Supreme Court (April 2012) SPAIN Residence Permit Home at disposition Income from: - Spanish companies - Professional activity Spouse Tax resident in Spain under the presence and economic center test PORTUGAL Tax Residence Certificate Home at disposition Income from: - Publishing house - Authors Association Other family: Children and grandchildren Tax resident according to tax residence certificate Tie-breaking rules Spain vs. Portugal 1. House at disposition: in both States. Spanish High Court s opinion is that is required an substantial use (utility bills, others). 2. Vital interest: Spanish High Court s opinion is that the economic ties are more relevant than the personal ties. SPAIN

9 SPANISH IMPATRIATE TAX REGIME 24/11/2017 9

10 24/11/ SPANISH IMPATRIATE TAX REGIME Tax residence: No Spanish tax resident during the 10 previous years. Applicable to transfer of residence as a consequence of: Employment contract with a resident/non-resident company, or for a PE of a non-resident company: (a) new employment relationship, or (b) transfer by a foreign employer with a transfer letter. Appointment as director of a Spanish company, with a shareholding < 25%. Permanent establishment: no income received through a PE in Spain Applicable the tax year in which the individual becomes tax resident + 5 years (total 6 years).

11 24/11/ SPANISH IMPATRIATE REGIMEN: TAXATION Employment income worldwide: GENERAL INCOME TAX RATES From 0 to 600,000 24% From 600, % Spanish source: interest, dividends and capital gains SAVINGS INCOME TAX RATES From 0 to 6,000 19% From 0 to 6, to 50,000 21% From 50, % Other Spanish source income (i.e., real estate): fixed rate 24% Tax credit to avoid double taxation on employment income earned abroad (up to 30%).

12 24/11/ SPANISH IMPATRIATE TAX REGIME: OTHER ISSUES Wealth tax limited to net Spanish situs assets. General exemptions: depending on the autonomous region. E.g., Madrid 100% allowance. Other exemptions applicable: family businesses and certain works of art. No disclosure of assets and rights held abroad (Form 720). Accounts in financial institutions abroad. Securities, rights, insurance and income deposited, managed or earned abroad. Real estate assets and rights on real estate located abroad.

13 24/11/ SPANISH IMPATRIATE TAX REGIME: OTHER ISSUES No exit tax: No obligation to declare latent capital gains for certain assets when individual transfers residence outside of Spain. The 10-year period (within the previous 15) starts counting from the date the impatriate regimen is no longer applicable. Inheritance and gift taxes: the regime is not applicable. Limited liability for social security: Possibility to continue with home-country social security. Maximum monthly social security base ( 3, monthly).

14 24/11/ CASE STUDY Mr. X < 25% Family own business An entrepeneur moves to Spain to work for a newly incorporated subsidiary carrying out intra group services UK SPAIN Intra-group services Mr. X Labor contract The requirement to move to Spain because of an employment agree is considered fulfilled even if the Spanish Company works mainly for its foreign parent company (recent tax rulings confirm such interpretation, CV ).

15 24/11/ CASE STUDY UK CO. Software developer moves to Spain to work for the UK company from Spain. Opinion of Spanish Tax Authorities (not official): Employment Relationship with the PE Permanent establishm ent Employment Relationship with the UK Co. No PE in Spain to be check on a case by case basis- The employee can work for a foreign employer. * Permanent establishment issues to be carefully analyzed.

16 24/11/ PIT: TAX RATES FOR SPANISH TAX RESIDENTS Resident individuals are liable to personal income tax (PIT) in respect of their worldwide income and capital gains. General Income: progressive tax rates of 19%-45%. Savings income: progressive rate of 19%-23%. Savings income: Dividends, interests, capital gains and payments from investment in insurance policies.

17 17 Sonia Velasco Este documento es meramente expositivo y debe ser interpretado conjuntamente con las explicaciones y, en su caso, con el informe elaborado por Cuatrecasas sobre esta cuestión This document is merely a presentation and must be interpreted together with any explanations and opinions drafted by Cuatrecasas on this subject Este documento é uma mera exposição, devendo ser interpretado em conjunto com as explicações e quando seja o caso, com o relatório/parecer elaborada pela Cuatrecasas sobre esta questão 24/11/2017