TAX PRACTICE GROUP Multi-Jurisdictional Survey TAX DESK BOOK

Transcription

1 SPAIN Introduction TAX PRACTICE GROUP Multi-Jurisdictional Survey TAX DESK BOOK CONTACT INFORMATION Rafael Vargas / José Gabriel Martínez Uría Menéndez Príncipe de Vergara Madrid Spain rva@uria.com / jgm@uria.com 1. Please give a brief overview of the types of taxes imposed in your jurisdiction (i.e., direct and indirect taxes and their components.) Spain has a fairly complex tax system with a wide variety of direct and indirect taxes applicable to both individuals and legal entities. The majority of Spanish taxes are imposed by the Spanish Central Administration, although certain taxes are levied by the Autonomous Communities (Comunidades Autónomas) and the Municipalities (Ayuntamientos). Certain Autonomous Regions (namely, the Basque Country and Navarra) have their own tax systems. The Spanish general tax system and main sources of tax law may be summarized as follows: National taxes a) Direct taxes - Individual Income Tax (Impuesto sobre la Renta de las Personas Físicas), governed by Law 35/2006, of November 28, 2006.

2 - Corporate Income Tax (Impuesto sobre Sociedades), governed by Royal Legislative Decree 4/2004, of March 5, Non-Residents Income Tax (Impuesto sobre la Renta de No Residentes), governed by Royal Legislative Decree 5/2004, of March 5, Wealth Tax (Impuesto sobre el Patrimonio), governed by Law 19/1991, of June 6, Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones), governed by Law 29/1987, of December 18, b) Indirect taxes - Transfer Tax and Stamp Duty (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados), governed by Royal Legislative Decree 1/1993, of September 24, Value Added Tax (Impuesto sobre el Valor Añadido), governed by Law 37/1992, of December 28, Insurance Premium Tax (Impuesto sobre las Primas de Seguro), governed by Law 13/1996, of December 30, Hydrocarbon Retail Sales Tax (Impuesto sobre las Ventas Minoristas de Determinados Hidrocarburos), governed by Law 24/2001, of December 27, Special Taxes (Impuesto Especiales), governed by Law 38/1992, of December 28, Autonomous Communities taxes The main source of income for the Spanish Autonomous Communities are the National taxes partially or totally transferred to them pursuant to Law 21/2001, of December 27, Depending on the relevant tax transferred, the Autonomous Communities may have different competences over them: they may be entitled just to a portion of the taxes collected by the Central Administration or they even may regulate some of the main features of the tax, such as the applicable tax rate. Therefore, with respect to some taxes, the Autonomous Community within Spain where the taxable event takes place may be very relevant since the tax consequences could differ from one region to another. 1 Although recent amendments in the Wealth Tax Law, introduced with effects as of January 1, 2008, have almost eliminated the tax. 2 The taxes which have been totally transferred by the Central Administration to the Autonomous Communities are the following: Wealth Tax, Transfer Tax and Stamp Duty, Inheritance and Gift Tax and certain special taxes.

3 Also, Autonomous Communities may create and impose their own taxes, although these have not been relevant in quantitative terms up to now. Local taxes The general terms of the taxes listed below are contained in the Royal Legislative Decree 2/2004, of March 5, 2004 (Ley Reguladora de las Haciendas Locales). Within that general legal framework, however, the Municipalities may regulate some of the features of these taxes: - Real Estate Tax (Impuesto sobre Bienes Inmuebles). - Business Tax (Impuesto sobre Actividades Económicas). - Vehicles Tax (Impuesto sobre Vehículos de Tracción Mecánica). Local Tax on the Increase of the Value of the Urban Land (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana). INCOME TAXES AS APPLIED TO BUSINESS ENTITIES AND INDIVIDUALS Calculation of Income/ Profit Taxes 2. How is the taxable base determined? The taxable income for Corporate Income Tax ( CIT ) purposes is based on the accounting result, calculated in accordance with the Spanish Generally Accepted Accounting Principles 3, although adjusted as specifically set forth in the CIT Law. In principle, taxpayers subject to the Spanish Individual Income Tax ( IIT ) (i.e. any individual which is deemed to be resident for tax purposes in Spain) are taxed on their worldwide income and capital gains (and losses) obtained during the relevant calendar year. For the purposes of determining the taxable income of the individual and, therefore, its final tax liability, the sources of income of the taxpayer must be divided into two different categories: 1. On one side, the so-called general income, which comprises: (i) employment income, (ii) real estate income, (iii) income from movable capital (except for that classified as saving income, as defined below), 3 A new Spanish Accounting Chart was enacted with effects as of January 1, In line with EU regulations, the new Spanish Accounting Chart is inspired by, although not equivalent to, the IFRSs.

4 (iv) business income and (v) capital gains not deriving from the transfer of assets or rights. 2. On the other side, the saving income, which includes: (i) capital gains deriving from the transfer of assets or rights, (ii) interest, (iii) dividends and (iv) income deriving from insurance operations (to the extent that such income does not qualify as employment income). 3. What revenues are included? Please see answer to the question above. 4. What deductions are allowed? Business expenses are generally deductible as long as they are properly recorded in the taxpayer s books and are not classified as not deductible by the CIT Law. All fixed assets, excluding land, may be depreciated for tax purposes and official guidelines establish maximum annual rates and maximum periods of depreciation, calculated on the basis of the useful life of the asset. Generally speaking, straight-line depreciation is the method used, applicable to the acquisition cost of the asset, however, other methods are also permitted. The amortization of intangible assets (patents, trademarks, software, etc.) is also deductible for tax purposes, within certain limits. Goodwill is considered a deductible expense, provided that it has not been artificially created in a transaction between related parties and that certain requirements are met (namely, to register a reserve in the books of the company equal to the amount of the goodwill deducted for tax purposes). Finally, tax depreciation (up to 5% per year) of the financial goodwill resulting from acquisitions of stakes in non-spanish companies may also be available provided that certain requirements are met. The expenses that the taxpayer is allowed to deduct in order to determine his taxable base will depend on the type of income obtained by the taxpayer. As a general rule, the treatment for the expenses linked to each source of income will be the following: (i) For the determination of the net employment income, the IIT Law establishes that the only deductible expenses will be the following: Social Security contributions or other compulsory contributions to general mutual benefit funds for public employees. Deductions due to retired public employee rights.

5 Contributions to orphanages or similar entities. (ii) Trade union dues and bar association membership fees, under certain conditions and up to certain limits. Some legal defense expenses related to litigation between employer and employee, up to Euro 300 per year. In addition to those deductibles expenses, the taxpayer may apply certain reductions, as follows: General employment income reductions (from Euro 2,652 to 4,080, depending on the amount of net employment income obtained). 40% reduction applicable to the employment income generated during a period of more than 2 years. Other reductions applicable upon the obtaining of certain type of employment income (such as disability pensions or retirement benefits). As a general rule, all the expenses necessary to obtain real estate income will be deductible (including the annual depreciation of the real estate). Also, specific reductions may be applicable on income generated during a period of more than two years (40% reduction) and on income derived from dwelling rental (50% or 100% if the lessee is younger than 35 years and its annual income is higher than Euro 7,381.33). (iii) With respect to income from movable capital, the taxpayer will be allowed to deduct the management and deposit expenses of negotiable securities and, in the event of income obtained from the provision of technical assistance, lease of movable assets, mines or from subleasing, the expenses necessary to obtain it and, if applicable, the amount of the depreciation borne by items or rights from which the income derives. Again, a 40% reduction may be applicable to any income generated during a period of more than two years. (iv) Finally, as a general rule, there are no limitations for the deduction of expenses necessary to obtain the business income (i.e. income derived from the development of a professional activity). A 40% reduction will apply if the business income is generated during a period exceeding two years. 5. What are the major expenses that are not deductible? Deductibility is expressly excluded, among others, for returns of equity, expenses arising from the accounting of the CIT itself, criminal and administrative fines and penalties, gifts and certain donations. The CIT Law also includes a rule regarding the

6 non-deductibility of expenses in connection with services performed by persons or entities resident in tax havens or paid through tax havens, unless evidence of the existence of the service is provided. Only the expenses described in our answer to question 10 above are deductible from the taxable income of the individual. Other expenses will not be deductible for tax purposes. 6. What are the applicable federal rates? The general CIT rate is 30%. Certain credit institutions and insurance companies are subject to a reduced 25% tax rate, whilst some collective investment institutions are subject to a 1% tax rate. Likewise, certain pension funds are taxed at a 0% tax rate whereas some oil companies are taxed at a 35%. Finally, companies with a turnover in the previous year lower than Euro 8 million can apply a reduced tax rate of 25% for the first Euro 120, of taxable base. The federal rates applicable to the general income portion of the taxable income of the individual are the following: Taxable base- Tax liability Remaining taxable Tax rate Up to Euro -Euro base -Up to Euro , % 17, , , % 33, , , % 53, , Onwards 27.13% 7. What are the applicable state and/ or other local rates? N/A

7 The applicable Autonomous Communities rates applicable to the general income portion of the taxable income of the individual are the following: Taxable base- Tax liability Remaining taxable Tax rate Up to Euro -Euro base -Up to Euro , % 17, , , % 33, , , % 53, , Onwards 15.87% 8. What are the applicable capital gains rates and base, if different and concessional tax treatment in case of business re-organization such as amalgamation, slump sale, demerger, etc? Capital gains obtained by a Spanish company are subject to CIT as ordinary income at the general 30% CIT rate. However: (i) A 12% tax deduction is available in relation to capital gains resulting from the transfer of fixed assets (whether tangible or intangible) used to perform a business activity which have been used for at least one year during any of the three years prior to the transfer, provided that the proceeds are reinvested within a certain time period (if only part of the proceeds are reinvested, the tax deduction is partially available). This type of tax deduction is also applicable to capital gains derived from the transfer of shares in companies, 5% of which is owned by the transferring company, subject to the same reinvestment requirement. (ii) Taxation of capital gains arising out of certain corporate reorganizations, including those affecting shares and/or assets, whether or not constituting a branch of activity, may be deferred, subject to the compliance with some specific requirements. (iii) In the event of transfers of shares of a Spanish company, and provided that the Spanish resident shareholder company has held a minimum 5% interest in the capital or net equity of the Spanish subsidiary for at least one year, then such shareholder will be entitled to a full tax credit on the CIT payable on the part of the capital gain equivalent to the retained earnings generated by the Spanish subsidiary during the time the seller was a shareholder thereof, pro rata to the participation of the seller in the capital or net equity of the Spanish subsidiary.

8 (iv) Capital gains triggered by a Spanish company on the sale of shares in a foreign subsidiary will be exempt from CIT under the participation exemption regime on foreign source capital gains and dividends, provided that: (a) The Spanish company holds a minimum 5% interest in the capital or net equity of the foreign subsidiary or, alternatively, as it refers to first tier foreign subsidiaries, the acquisition value of the interest in the foreign subsidiary amounts to 6 million Euro 4. Foreign participations will be considered to have been held by the Spanish company from the date when they were held by other companies pertaining to the same consolidated group for accounting purposes. (b) The Spanish company directly or indirectly has held such interest in the foreign subsidiary for at least one year. (c) The foreign subsidiary is subject to and not exempt from a tax similar in nature to the Spanish CIT (this requirement will be deemed met if the foreign subsidiary resides in a tax treaty country with an exchange of information clause) and it is not resident in a tax haven country or jurisdiction (unless within the EU and if the subsidiary has been incorporated for valid economic reasons and is engaged in an active trade or business). (d) The foreign subsidiary is engaged in an active trade or business outside of Spain. The foreign subsidiary must be actively and primarily engaged in an active trade or business carried out abroad. Certain passive income may be generated by the foreign subsidiary to the extent that it does not exceed 15% of its total turnover. In general, any trade or business is eligible to the extent that the foreign subsidiary has sufficient material and human resources to perform such trade or business activity. Requirements (c) and (d) must have been met throughout the total holding period. Foreign taxes on the capital gain will not be creditable against the Spanish CIT. Losses triggered on the transfer of a foreign subsidiary are fully tax deductible. Saving income (which includes capital gains derived from the transfer of assets or rights) will be taxed at a flat 18% tax rate. 9. How are operating losses handled? 4 In this latter case, the Spanish company must opt to be subject to the special tax regime of the Spanish holding companies (Entidad de Tenencia de Valores Extranjeros or ETVE ).

9 Losses can be carried forward for the 15 (immediately succeeding) years after the losses have been generated, although for newly created enterprises the period will start to run from the first period in which a taxable profit is obtained. Loss carrybacks are not allowed. Negative income included within the general income portion of the taxable income of the individual can only be offset against positive income of the same nature generated in the same year. Negative income included within the saving income portion of the taxable income of the individual can be offset against positive income of the same nature generated in the same year. The excess, if any, can be offset against the saving income generated during the following four years. 10. How are capital losses handled? Please, see our answer to question 15 above. Capital losses arising out of the transfer of assets could be offset against capital gains of the same nature obtained in the same year. Any excess can be offset against the positive balance of the capital gains and losses generated during the next four years. Capital losses not derived from the transfer of assets can be offset against capital gains of the same nature obtained in the same year and against the positive balance of the general income, up to 25% of such balance. Any excess can be offset against the positive balance of the capital gains and losses generated during the next four years. Territorial Rules 11. What are the residence rules? In accordance with article 8 of the CIT Law, a company will be resident for tax purposes in Spain if any of the following circumstances is met: (i) the company has been incorporated in accordance with the laws of Spain; (ii) the corporate domicile of the company is located in Spain; or (iii) the place of effective management of the company is located in Spain.

10 In addition, the Spanish Tax Authorities shall be entitled to treat as resident in Spain for tax purposes those foreign entities which are resident in a tax haven or in a low tax jurisdiction provided that (a) its main assets are located in Spain or its main assets are rights which have to be exercised in Spain or (b) its main business activity is developed in Spain. This rule would not apply if the foreign entity evidences to the Spanish Tax Authorities that the management of the foreign entity is effectively carried out in its territory of residence and that the incorporation of the entity and the development of its activities took place due to valid economic reasons and sound business reasons, other than the mere management of shares or assets. As a general rule, only those individuals that are deemed to be resident in Spain for tax purposes will be subject to the IIT. An individual will be deemed to be resident in Spain for tax purposes in the following cases: (a) The taxpayer is physically present in Spanish territory for more than 183 days in the calendar year. Temporary absences are disregarded when determining the number of days spent by the individual in Spain, unless the individual provides evidence of its tax residence in another country. (b) In the event of taxpayers alleging to be resident in jurisdictions classified as tax havens under Spanish law, the Spanish Tax Authorities may require the taxpayer to provide evidence of its stay in such tax haven jurisdiction during more than 183 days in the calendar year. The main centre or base of the taxpayer s business or professional activities or economic interests is in Spain, either directly or indirectly. In the absence of proof to the contrary, it is assumed that an individual is resident in Spain if his/her spouse/husband (from whom he/she is not legally separated) and dependent children are habitually resident in Spain. Finally, non-resident individuals who are seconded to Spain due to labour reasons and as a consequence of the length of their stay in Spain become residents for tax purposes in Spain, can elect to be taxed in Spain as a non-resident (i.e. in accordance with the provisions of the Spanish Non-Residents Income Tax Law), provided that certain requirements are met. 12. Is worldwide income taxed? Yes.

11 13. Tax credits - Are there tax credits relating to legal dispositions other than provisions in Double Taxation Treaties, on the possibility of deducting taxes paid abroad, or any others? CIT Law establishes methods under which relief from double taxation may be obtained in connection with dividends and capital gains derived from resident subsidiaries (internal double taxation relief) and income deriving from non-resident subsidiaries (international double taxation relief). (i) Internal double taxation relief: With respect to dividends distributed by Spanish companies, the Spanish shareholder company is entitled to a tax credit amounting to 50% of the CIT liability on the gross dividend received. The tax credit will be 100% when the following conditions are met: (i) the shareholder owns, directly or indirectly, 5% of the share capital or equity of the company paying the dividend and (ii) such shares have been held without interruption for one year before the dividend becomes due (this one year period may be completed after the dividend distribution takes place). (ii) With respect to capital gains realised upon the transfer of shares in Spanish companies, and provided that the Spanish shareholder company has held a minimum 5% interest in the capital or net equity of the Spanish subsidiary for at least one year, then such shareholder will be entitled to a full tax credit on the CIT payable on the part of the capital gain equivalent to the retained earnings generated by the Spanish subsidiary during the time the seller was a shareholder thereof, pro rata to the participation of the seller in the capital or net equity of the Spanish subsidiary. International double taxation relief: As a general rule, foreign source dividends and capital gains are subject to the standard CIT tax rate. However, dividends and capital gains received by a Spanish company from a foreign subsidiary will be exempt from CIT under the participation exemption regime provided that the requirements described in our answer to question 14 (iv) are met. In the event of dividends, and contrary to what would be the case with respect to foreign source capital gains, it is sufficient that such requirements are met at the time of generation of the profits of the foreign subsidiary which are distributed as foreign source dividend to the Spanish resident shareholder company. In this case, however, foreign withholding taxes on the dividends or capital gains will not be creditable against the Spanish CIT. Alternatively, should the participation exemption regime not be applicable, the Spanish resident shareholder will be entitled to a tax credit on the Spanish CIT payable on the foreign source dividend equivalent to the underlying

12 income tax paid by the foreign subsidiary (and any lower tier subsidiary) on the profits distributed to the Spanish shareholder in the form of dividends. The tax credit may not exceed the Spanish CIT that would have been payable on Spanish source dividends. The tax credit will only be available if the Spanish shareholder holds a minimum 5% interest in the capital or net equity of the foreign subsidiary and to the extent that it has hold such interest in the foreign subsidiary for at least one year or, alternatively, if the one year holding requirement is met after the dividend has been received (and the same requirements will apply with respect to lower tier subsidiaries, if the tax credit relates to income tax paid by the latter). Additionally, any foreign withholding taxes on the dividends (or any other type of income obtained by the Spanish entity) will be creditable against the Spanish CIT, again, limited to the Spanish CIT that would have been payable on that income should it have been from a Spanish source. The IIT Law contains measures to avoid the internal double taxation with respect to dividends received by a Spanish individual from Spanish companies. In particular, Spanish individuals (as well as individuals resident in a EU member state) benefit from an annual Euro 1,500 exemption on Spanish source dividends. On the other hand, Spanish resident individual may benefit from a tax credit to avoid international double taxation on foreign source income and capital gains, limited to the Spanish IIT that would have been payable on that income should it have been from a Spanish source. Withholding Taxes 14. What are the rates on dividends for withholding taxes? As a general rule, dividends paid by a Spanish resident company to a Spanish resident company will be subject to withholding tax, at a 18% tax rate. Withholding tax, however, will not be applicable when the recipient of the dividends is entitled to a 100% full tax credit to avoid the internal double taxation (please, see our answer to question 19 above). There will be no withholding tax either on payments of dividends among companies within the same tax consolidated group. Generally, dividends paid by a Spanish entity to a Spanish resident individual are subject to a 18% withholding tax.

13 However, Spanish resident individuals benefit from an annual Euro 1,500 exemption on Spanish source dividends (no withholding tax either will be applied on that Euro 1,500 amount). 15. What are the rates on royalties for withholding taxes? As a general rule, royalties paid by a company resident in Spain to another company resident in Spain will not be subject to withholding tax. As a general rule, royalties paid by a company resident in Spain to a Spanish resident individual will be subject to a 18% withholding tax. 16. What are the rates on interest for withholding taxes? As a general rule, interest paid by a Spanish resident company to a Spanish resident company will be subject to withholding tax, at a 18% tax rate. Withholding tax, however, will not be applicable when the recipient of the interest are credit entities or financial credit entities (Establecimientos Financieros de Crédito) resident in Spain and registered with the Bank of Spain or permanent establishments in Spain of non-spanish credit entities. There will be no withholding tax either on payments of interest among companies within the same tax consolidated group. As a general rule, interest paid by a company resident in Spain to a Spanish resident individual will be subject to a 18% withholding tax. 17. What are the rates of withholding tax on profits realized by a foreign corporation? As a general rule, dividends paid by a Spanish resident company to its non-resident shareholder are subject to withholding tax in Spain at a 18% rate or at the reduced rate provided for in the applicable (if any) convention for the avoidance of double taxation. Under the EU Parent-Subsidiary Directive, as implemented in Spain, dividends paid to a company resident in the EU and holding a participation in the Spanish company equal to or higher than 10%, are exempt from withholding tax when such participation has been held for more than 1 year. This exemption is denied if the

14 stake is directly or indirectly ultimately controlled by a non EU person or entity, unless the EU direct parent company evidences active management of the participation or similar activities to those run by the Spanish subsidiary. 18. Please list any other rates on withholding taxes that we should be aware of. N/A Tax Returns and Compliance 19. What is the taxable reporting period? The fiscal year for CIT purposes coincides with the financial year of the Spanish company. The fiscal year for IIT purposes coincides with the calendar year. 20. What are the due dates for the filing of tax returns? CIT returns must be filed during the first twenty five calendar days following the sixmonth period after the end of the relevant fiscal year. Therefore, for instance, if the fiscal year coincides with the calendar year (i.e. it ends on December 31), the CIT return would have to be filed during the first twenty five days of the month of July of the following year. The tax returns must be filed within the period elapsing, generally, within the months of May and June of the relevant calendar year. 21. What are the key compliance requirements? (i) CIT returns resulting in a positive tax liability must be filed with any financial entity authorized by the Spanish Tax Administration to collect taxes on their behalf (generally, most of the Spanish banks qualify for these purposes). (ii) CIT returns resulting in zero or negative tax liability (and, therefore, in the obligation by the Tax Authorities of reimbursing funds to the taxpayer) will be

15 filed with any financial entity authorized by the Spanish Tax Administration to collect taxes on their behalf (if the taxpayer wants the reimbursement to be made by means of wire transfer to its bank account) or with any office of the Spanish Tax Administration (if there is not reimbursement to be made -when the tax liability is equal to zero- or when the reimbursement is to be made by means of check). (i) Tax returns resulting in a positive tax liability must be filed with any financial entity authorized by the Spanish Tax Administration to collect taxes on their behalf (generally, most of the Spanish banks qualify for these purposes). (ii) Tax returns resulting in a negative tax liability may be filed either with any financial entity authorized by the Spanish Tax Administration to collect taxes on their behalf or with any office of the Spanish Tax Administration. 22. Are there any other requirements that we should be aware of regarding tax returns and compliance? During the first 20 days of the months of April, October and December, the Spanish companies have to make payments on account of their final CIT liabilities. N/A INDIRECT TAXES 23. Are there any indirect taxes in your jurisdiction? Yes, Spain has implemented on its internal legislation the EU Directives on Value Added Tax. 24. How does it operate? Is it a VAT or a sales tax? The structure and scope of the Spanish Value Added Tax ( VAT ) system are similar to those applicable in other countries of the EU. As a general rule, VAT is levied on transfers of goods made or services provided by entrepreneurs, on certain intra EU acquisitions and on the import of goods. In the Canary Islands, Ceuta and Melilla (Spanish enclaves in northern Africa) no VAT is applicable (although other specific indirect taxes are levied).

16 Goods are generally deemed to be supplied in Spain if transfer of ownership takes place in Spain. Services are deemed to be provided in Spain if the provider has its place of business in Spain, with certain exceptions such as legal, financial, advertising or consulting services, inter alia. Acquisitions from other EU countries are subject to a special regime: normally, VAT is paid in the country of origin in connection with non-commercial intra-eu transactions, whereas VAT is levied in the country of destination on commercial intra-eu transactions. Taxable persons charging VAT on their transactions are entitled to deduct the tax borne within a taxable period ( input VAT ) from the tax collected ( output VAT ) within the same period. Any excess of output VAT must be paid to the tax authorities; and any excess of input VAT can either be set off against future output VAT or refunded at the end of the next fiscal year (end of the calendar year). In this regard, a taxpayer supplying a combination of both exempt and taxable goods or services is normally entitled to recover a pro rata of input VAT. VAT taxpayers must file the corresponding tax returns (tax returns 390 or 392 when the turnover of the previous fiscal year of the taxpayer exceeds Euro 6 million) and pay in the VAT due either on a quarterly basis (on or before the 20th of April, July, October and January of each year) or on a monthly basis if their turnover of the previous fiscal year exceeds Euro 6 million (on or before 20th of each month, except the return corresponding to July which must be filed between August the first and September the 20th, and the last one of the year that should be filed on or before the 30th of January). Additionally, a summary return of VAT must be filed annually, on or before January 30th of the following year. Finally, please note that Spanish VAT Law establishes a special procedure under which taxpayers not established in Spain can obtain a refund of the VAT borne on the transactions performed by them within a taxable period. This VAT refund is limited to States (other than EU members) whereby reciprocity can be evidenced. The Spanish Tax Authorities have recognized such reciprocity with Canada, Japan, Monaco, Norway and Switzerland. 25. How is the taxable base determined? The general rule is that the taxable is equal to the amount paid for the good delivered or for the service rendered. The VAT Law sets forth certain specific rules for particular transactions (e.g. those where the price is paid in kind, those where different deliveries or goods and provisions of services are involved, those between related parties, etc.).

17 26. What are the applicable rates? VAT rates depend on the type of goods delivered or services provided. The standard rate is 16%. A 7% reduced tax rate is applicable, inter alia, to sport activities, food, health products, housing, entertainment services, hotels and restaurants, or agricultural services. Finally, a 4% super-reduced rate applies, inter alia, to some essential goods and books. 27. Are there any exemptions? Yes, there are. The transfer and provision of certain goods and services, such as certain transfers of real estate, financial transactions or the transfer of securities are exempt from Spanish VAT. 28. Are there any other taxes such as debit or financial transactions taxes enforced in you jurisdiction? Yes, there are other indirect taxes in Spain. The main ones are the following: Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) The Spanish Transfer Tax is levied on the transfer of rights and assets located in Spain as well as on the creation of security interests and other rights in rem, provided that such transactions are not subject to Spanish VAT (i.e. normally, when no entrepreneur is involved in the transfer or in a VAT-exempt real estate transaction). Transfer Tax on the transfer of real estate is levied at different rates depending on the Autonomous Community where the real estate is located. If no specific rate is set forth, a 7% rate is levied on the value of the real estate. Finally, under certain conditions, the transfer of shares of real estate companies may also be subject to Transfer Tax. Transfer Tax is payable by the acquirer of the assets and is not recoverable. Capital Tax (Impuesto sobre Operaciones Societarias) The incorporation, capital increases/reductions and share premium contributions are, as a general rule, subject to a 1% percent Capital Tax in Spain. The tax is generally payable by the Spanish company. Please note, however, that restructuring transactions and in-kind contributions to the capital of Spanish companies are not subject to Capital Tax. Stamp Duty (Impuesto sobre Actos Jurídicos Documentados)

18 Spanish Stamp Duty is levied on: (i) (ii) The granting of notarial deeds with a valuable object, provided that the deed can be registered with the Spanish Commercial Registry, the Land Registry, the Industrial Property Registry or the Moveable Assets Registry. Tax rates range from 0.5% to 2% and are applied to the value stated in the document. The issue of bills of credit, promissory notes and other draft documents in those cases when the document implies a transfer of funds (función de giro). A document meets this requirement if (i) it evidences the transfer of funds; (ii) it implies a payment order; or (iii) it is issued to the order of the receiver (a la orden). The tax due is determined by applying a sliding scale to the face amount of the document. The issue of certain administrative documents. PARAFISCAL CONTRIBUTIONS 29. Are there any parafiscal contributions (i.e. social security, science and/ or technology)? Yes, there are. In accordance with the Spanish labor law, contributions to the Spanish social security system must be made, as explained in our answer to the question below. 30. How do they operate? Spanish social security system covers all Spanish nationals who reside and perform their activities in Spain, as well as foreigners with work and residence authorisations. Spanish nationals who do not reside in Spain are also covered under certain circumstances. Social security benefits include health care, disability, family protection, maternity leave, paternity leave, risk during pregnancy or lactation, retirement pensions, unemployment insurance and payments in the event of loss of husband, spouse or parents. Social Security is mainly financed through contributions made by employers and employees. Social security contributions are calculated using the monthly salary received by the employee plus any annual amounts which are not within the amount paid on a monthly basis. The Spanish Government annually establishes the maximum and minimum amount used to calculate social security contributions and the percentages which must be assumed by employers and employees. For year 2009,

19 the maximum contribution base is Euro 3, per month. As a general rule, employers must contribute at a rate of 29.90% and employees at a rate of 6.35%. In addition to the abovementioned rates, employers must contribute to the Social Security for employees professional contingencies (i.e. contingencies that arise from work related accidents or professional illnesses). The specific percentages to be applied by the companies mainly depend on the principal activity of each company (with some exceptions), ranging approximately between 0.90% and 7.75%. 31. How is the taxable base determined? Please see above. 32. What are the applicable rates? Please see above. 33. Are there any exemptions? Please see above. INHERITANCE AND GIFT TAXES 34. Are there inheritance taxes, gift taxes or any other taxes like Wealth Tax, etc.? Yes, Spanish has an Inheritance and Gift Tax in place, which will be described in more detail in our answers to the questions below. There is also a Spanish Wealth Tax, although with effects as of January 1, 2008, the Wealth Tax Law was amended in order to introduce a 100% tax deduction creditable against the final Wealth Tax liability and in order to eliminate any filing obligation for the taxpayer. As a result, it can be concluded that, in practice, the Spanish Wealth Tax has already been eliminated. 35. If you answered yes to the question above, please describe what triggers the requirement for the tax, what the rate of tax is, and what is included in the taxable base. Spanish Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones, IGT ) is a tax charged by the Spanish Autonomous Communities on the acquisition by

20 individuals of assets or rights by means of a gift or inheritance (i.e. on a free basis, without consideration). No IGT is levied with respect to acquisitions made by legal entities (those acquisitions will be subject to the Spanish CIT or to the Spanish Non-Residents Income Tax, as applicable). The elimination of the IGT charged in connection with inheritance and gifts among members of the same family is currently being discussed and analyzed in Spain. In this respect, some Autonomous Communities (Madrid, Valencia, Islas Baleares, Castilla-La Mancha, Castilla y León, La Rioja, etc.) have reduced IGT on gifts between relatives as a prior step to eliminating this tax. As advanced, IGT is applicable to: (i) (ii) (iii) the acquisition of assets or rights by means of a gift or by any other means provided that it is on a free basis; the acquisition of assets or rights through inheritance or by any other means of succession; and amounts obtained by the beneficiaries of life insurance policies if the contracting party is not the beneficiary. The persons liable to pay IGT are: (a) the inheritors in case of mortis causa transfers; (b) the recipient or beneficiary, in the event of gifts or any other equivalent transfer; and (c) the beneficiary, in the case of a life insurance policy. Spanish resident taxpayers are liable for this tax for all assets and rights acquired by them, irrespective of the place where the assets or rights are located or should be considered exercisable. Non-resident individuals are subject to tax if the assets or rights received are located or are exercisable within the Spanish territory or, with respect to assets deriving from life insurance policies, when they are paid by a Spanish resident insurance entity. In the event of mortis causa acquisitions, the taxpayer must self assess the tax and file the applicable return within the six months following the death of the transferor. Under special circumstances, it is possible to apply for an extension of this six-month period, although in such a case (a) the Spanish Tax Authorities will assess the tax due and (b) interests for delayed payment will be accrued as from the end of the sixmonth period onwards. In the case of gifts, the taxpayer must self assess tax and file the applicable return within thirty days following the acquisition. Tax returns must be filed: (a) with the tax authorities of the Autonomous Community where the deceased individual was resident, in the case of mortis causa transfers; (b) with the tax authorities of the Autonomous Community where the recipient is resident, in the case of gifts; or (c) before the Spanish Central Tax Administration, when the taxpayer is not resident in Spain.

21 In the case of self assessment of the tax liability, tax is payable within the term established for filing the return (i.e., six months in the case of mortis causa transfers and thirty days for gifts). When the tax authorities are in charge of assessing the tax due, payment is to be made within the month following the notification of the tax due. Tax rates are determined by the Autonomous Communities. As a general rule, rates range from 7.65% to 34%. There are additional coefficients which are to be applied on the tax due. These coefficients depend on the kinship between the acquirer and the donor or the deceased and the prior net wealth of the acquirer. In the case of mortis causa transfers, the taxable amount attributed to each inheritor is the market value of the goods or rights received, reduced by the amount of the charges and liabilities assumed, if any. The law establishes reductions depending on the kinship with the deceased and the age of the inheritor. In this regard, some Autonomous Communities have included important reductions. In the case of gifts, the taxable amount is the market value of gifts and rights, minus any charges and debts assumed. Finally, in the case of life insurance benefits, the taxable amount is the amount received by the beneficiary. Please note that under certain requirements, the acquisition of a family business will benefit from a 95% tax credit of its total value, provided that the acquirer holds the family business for at least ten years. OTHER MATTERS 36. Are there any tax incentives granted for various matters such as research and development, investment in certain industries/ areas, etc.? Yes, there are. 37. If so, please indicate if there are any of the following: anti-deferral regimes; transfer pricing provisions; tax avoidance measures like legislated General Anti- Avoidance Rules, etc.; controlled foreign companies regulations; thin capitalization rules Transfer pricing provisions: According to the CIT Law, Spanish companies are obliged to assess transactions with related parties on an arm s length basis.

22 In order to determine the fair market value of the transaction, and following the OECD guidelines, the Law sets forth that the parties will use any of the following methods: the comparable uncontrolled price method, the cost plus method, the resale price method, the profit split method or the transactional net margin method, the first three being preferential in use. Additionally, the parties will have to produce and keep appropriate documentation in order to evidence to the Spanish Tax Authorities, as the case may be, the valuation used. The Tax Authorities could impose penalties in two different situations: (i) when the taxpayer does not comply with the mentioned documentation obligations and (ii) when the taxpayer complies with the documentation obligations but the value of the transaction used by the taxpayer is not the one resulting from the documentation provided to the Authorities. Finally, in order to resolve the issue of transfer pricing on a preliminary basis, the CIT Law provides for the possibility of submitting to the authorities a preliminary proposed valuation of transactions between related parties (Advance Pricing Agreements). Legislated General Anti-Avoidance Rules: Section 15 of the Spanish General Tax Law (Ley General Tributaria) permits the Spanish tax authorities to request the relevant tax liability resulting from applying the rule corresponding to the usual or proper acts and agreements, when the taxable event is completely or partially avoided or the tax base or the tax liability is reduced through the performance of acts or agreements: (i) that individually considered, or taken as a whole, are obviously artful or nonappropriate for the consecution of the result achieved, and (ii) that no further juridical or economic relevant effects are achieved other than the tax savings and those effects corresponding to the usual or appropriate acts or agreements. Additionally, under Section 16 of the Spanish General Tax Law, the Spanish tax authorities may also attack simulated transactions. CFC rules: Spanish companies are subject to Controlled Foreign Corporation ( CFC ) rules. Under the CFC rules, certain income generated by a foreign entity in which the Spanish company holds a minimum 50% participation in its capital, equity, Profit & Loss or voting rights, qualifies as taxable income of the Spanish company if, in addition, such income: (i) qualifies as tainted income (such as financial income or passive real estate income, amongst others); and (ii) is subject to a lower tax than 75% of the Spanish CIT which would have been payable. The Spanish company is not required to recognize tainted income obtained by its EU affiliates to the extent that it evidences before the Spanish Tax Authorities that the

23 incorporation and operative of the EU affiliate is carried out for valid economic reasons and that the EU affiliate is engaged in an active trade or business. Thin cap rules: The thin capitalization rules apply to financing arranged by a resident entity with related non-resident entities. When the net interest-bearing debt, be it direct or indirect, of a Spanish entity with one or more related individuals or entities not resident in Spain exceeds three times the entity s equity (excluding profit or loss for the year), interest accruing on the excess is deemed to be a dividend distribution. Therefore, interest paid over the maximum allowed ratio is not considered a deductible item for tax purposes and is subject to dividend withholding tax in the same way as an ordinary dividend (and also subject to the potential dividend withholding tax exemptions). The Spanish entity may submit proposals to the tax authorities to apply a coefficient other than the three-to-one debt-to-equity ratio. The proposals must be based on the financing which the Spanish entity would have been able to obtain from unrelated persons or entities under normal market conditions. The thin-cap rules do not apply when the non-resident lender is resident in an EU member state other than a tax-haven jurisdiction. 38. List the countries in which there are tax treaties. This could impact the withholding taxes on various distributions and to the extent possible, please itemize them below. Please include the impact upon withholding on compensation, interest, dividends or other distributions for each country listed. Currently, Spain has entered into 62 conventions for the avoidance of double taxation with the following countries: Algeria, Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Bulgaria, Canada, Chile, China, Croatia, Cuba, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Morocco, Norway, New Zealand, Netherlands, Philippines, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, former Soviet Socialist Republics (except for Russia) 5, South Africa, Sweden, Switzerland Thailand, Tunisia, Turkey, United Arab Emirates, United Kingdom, USA, Venezuela, and Vietnam. Spain has also signed treaties regarding Inheritance Tax with Greece, Sweden and France, and treaties regarding taxation on air and sea navigation with Argentina, Ireland, Chile, Venezuela and South Africa. 5 Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.

24 The following chart summarizes the relevant treaty rates on dividends, interest and royalties: Spain Treaty Partner Dividends (%) Interest (%) Royalties (%) Algeria 5/ /7 (a) Argentina 10/15 0/12.5 (b) 3/5/10/15 (c) Australia Austria 10/ Belgium 0/ Bolivia 10/ Brazil 15 10/15 10/15 (d) Bulgaria 5/ Canada /10 (e) Chile 5/10 5/15 (f) 5/10 (g) China (P.R.C.) (h) Croatia 0/ Cuba 5/ Czech Republic 5/ Ecuador 15 5/10 (i) 5/10 (j) Egypt 9/ Estonia 5/15 0/10 (k) 5/10 (l) Finland 10/ France 10/ Germany 10/ Greece 5/ Hungary 5/ Iceland 5/ India /20 (m) Indonesia 10/ Iran 5/ Ireland /8/10 (n) Israel 10 5/10 (o) 5/7 (p) Italy /8 (q) Japan 10/ Korea (R.O.K.) 10/ Latvia 5/ /10 (r) Lithuania 5/ /10 (s) Luxembourg 10/ Macedonia 5/ Malaysia 0/5 10 5/7 (t) Malta 0/5 (u) 0 0 Mexico 5/15 10/15 (v) 10

25 Spain Dividends Interest Royalties Treaty Partner (%) (%) (%) Morocco 10/ /10 (w) Netherlands 5/10/ New Zealand Norway 10/ Philippines 10/15 10/15 (x) 10/15/20 (y) Poland 5/ Portugal 10/ Romania 10/ Russia 5/10/ Saudi Arabia 0/5 5 8 Slovakia 5/ Slovenia 5/ former Soviet Socialist Republics (except for Russia) /5 South Africa 5/ Sweden 10/ Switzerland 0/ Thailand 10 10/15 (z) 5/8/15 (aa) Tunisia 5/15 5/10 (bb) 10 Turkey 5/15 10/15 (cc) 10 United Arab Emirates 5/ United Kingdom 10/ United States 10/15 0/10 (dd) 5/8/10 (ee) Venezuela 0/ /10 (ff) 5 Vietnam 7/10/ Footnotes to the chart: (a) The 14 percent rate applies to literary, artistic, and scientific copyright royalties; the 7 percent rate applies in all other cases. (b) The 0 percent withholding tax rate applies to interest paid on the sales of industrial, commercial, and scientific equipment. (c) The 3 percent rate applies to news royalties; the 5 percent rate applies to literary, theatrical, musical, and artistic work copyright royalties; the 10 percent rate applies to patent royalties and to commercial, industrial, and scientific equipment and information royalties; the 15 percent rate applies in other cases. (d) The 10 percent rate applies to literary, artistic, and scientific work copyright royalties; the 15 percent rate applies in other cases. (e) The reduced withholding tax rate applies to artistic copyright royalties. 6 Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.