GLOBAL TAX WEEKLY

a closer look

ISSUE 90 | JULY 31, 2014

SUBJECTS TRANSFER PRICING INTELLECTUAL PROPERTY VAT, GST AND SALES TAX CORPORATE
TAXATION INDIVIDUAL TAXATION REAL ESTATE AND PROPERTY TAXES INTERNATIONAL FISCAL
GOVERNANCE BUDGETS COMPLIANCE OFFSHORE
SECTORS MANUFACTURING RETAIL/WHOLESALE INSURANCE BANKS/FINANCIAL INSTITUTIONS
RESTAURANTS/FOOD SERVICE CONSTRUCTION AEROSPACE ENERGY AUTOMOTIVE MINING AND
MINERALS ENTERTAINMENT AND MEDIA OIL AND GAS
EUROPE AUSTRIA BELGIUM BULGARIA CYPRUS CZECH REPUBLIC
DENMARK ESTONIA FINLAND FRANCE GERMANY GREECE
HUNGARY IRELAND ITALY LATVIA LITHUANIA LUXEMBOURG MALTA NETHERLANDS POLAND
PORTUGAL ROMANIA SLOVAKIA SLOVENIA SPAIN SWEDEN SWITZERLAND UNITED KINGDOM
EMERGING MARKETS ARGENTINA BRAZIL CHILE CHINA INDIA ISRAEL MEXICO RUSSIA SOUTH
AFRICA SOUTH KOREA TAIWAN VIETNAM CENTRAL AND EASTERN EUROPE ARMENIA AZERBAIJAN
BOSNIA CROATIA FAROE ISLANDS GEORGIA KAZAKHSTAN MONTENEGRO NORWAY SERBIA TURKEY
UKRAINE UZBEKISTAN ASIA-PAC AUSTRALIA BANGLADESH BRUNEI HONG KONG INDONESIA
JAPAN MALAYSIA NEW ZEALAND PAKISTAN PHILIPPINES SINGAPORE THAILAND AMERICAS BOLIVIA
CANADA COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA PANAMA PERU PUERTO RICO
URUGUAY UNITED STATES VENEZUELA MIDDLE EAST ALGERIA BAHRAIN BOTSWANA DUBAI EGYPT
ETHIOPIA EQUATORIAL GUINEA IRAQ KUWAIT MOROCCO NIGERIA OMAN QATAR SAUDI ARABIA
TUNISIA LOW-TAX JURISDICTIONS ANDORRA ARUBA BAHAMAS BARBADOS BELIZE BERMUDA
BRITISH VIRGIN ISLANDS CAYMAN ISLANDS COOK ISLANDS CURACAO GIBRALTAR GUERNSEY ISLE OF
MAN JERSEY LABUAN LIECHTENSTEIN MAURITIUS MONACO TURKS AND CAICOS ISLANDS VANUATU
COUNTRIES AND REGIONS

FEATURED ARTICLES

ISSUE 90 | JULY 31, 2014

The New Spanish Exit Tax

On Unrealized Gains Made By
Individuals Moving Abroad
by Mariano Gomariz, Tax Partner at ECIJA
Barcelona oce
Contact: mgomariz@ecija.com, T. +34 933 808
255, www.ecija.com
In 2013, the European Court of Justice (hereinafter, ECJ) released a decision conrming that the
Spanish corporate income tax rules imposing immediate taxation on unrealized gains that had accrued in Spanish territory prior to an exit to another EU member state were in breach of EU law.
The Court conrmed the existence of an obstacle
to the freedom of establishment based on the fact
that Spain does not impose immediate taxation
in similar situations when the transfer takes place
within Spanish territory.
In response to the ECJ decision, the 2014 Spanish
Budget Law established that when a Spanish entity
or a permanent establishment transfers its residence
to an EU country, the exit tax arising therefrom
may be deferred until the assets are sold or otherwise transferred by the migrating entity.
Recently, and going one step further, the Spanish
Government released a draft bill which introduces
a totally new provision regarding the taxation of
unrealized gains made by Spanish tax resident individuals switching their tax residency.

The most relevant features of this new anti-avoidance measure read as follows:
(i) The anti-avoidance measure applies in all those
cases in which the taxpayer changes his/her
Spanish tax residency;
(ii) The loss of residency implies that the individual
will be taxed on the unrealized gains arising
from holdings in all types of companies and
collective investment institutions regardless of
its location;
(iii) The calculation of the unrealized gain will
be determined by the positive di erence
between the market value of the shares and
their acquisition cost.
(iv) The rule will be applicable to all taxpayers
which have been Spanish tax residents of Spain
for at least ve years within the 10 years prior
to their departure from the country provided
that any of the following circumstances are met:
a. The market value of the shares held exceeds
a joint value of EUR4m;
b. The holding percentage in the entity is
over 25 percent and the market value of
the shares exceeds an amount of EUR1m;
25

(v) Unrealized gains will be taxed at the at rate

established in the Spanish Personal Income Tax
Law (i.e., 27 percent in 2014, 24 percent in 2015,
and 23 percent in 2016 and onwards) and will
be allocated to the last tax year to be declared.
The new exit tax system encompasses two special
regimes for the deferral of the tax liability arising
from the application of the anti-avoidance provision. Those regimes are applicable in any of the following situations:
(i) When the change of residency is a consequence of a temporary labor assignment to
a non-blacklisted jurisdiction.
(ii) When the residency is moved to another
country of the EU or the European Economic
Area (EEA) with which an eective exchange
of information exists, the gain will only need
to be declared if in the subsequent 10 years
from the ling of the last Spanish tax return
any of the following circumstances exist:
the shares are sold;
the individual loses his/her residency in the
EU or in the EEA.
The application of the aforementioned deferral cases is subject to the taxpayer notifying to the Spanish Tax Authorities his/her choice for this special

regime, the unrealized gain which may be subject

to taxation, the country of residency, and the maintenance of the ownership of the shares.
The new exit tax does not apply to individuals taxed
under the special regime for foreign workers posted to
Spanish territory (i.e., Expat Status). In this case, the
computation of the ve-year period will start from the
rst year in which the special regime is not applicable.
The Law does not clarify the implications of the
new provision in many situations, such as, for instance, in case of individuals who already owned
the shares at the time of acquiring Spanish tax residence. In our opinion this may create uncertainty,
thus jeopardizing the use of Spain as a jurisdiction
to canalize international investments and discouraging the relocation of businesses and high net
worth individuals to Spanish territory.
For those who may be aected by the new provision, it is of the utmost importance to analyze in detail the potential implications and eventually adopt
the appropriate measures. We will closely monitor
the legislative proposals within the parliamentary
discussions, but special attention should be paid to
action that may be advisable to adopt before the
new rules enter into force.

26