The theory says that one of the best ways to attract foreign capital is to adopt in some cases a reduced level of taxes and, above all, provide legal certainty. This purpose of attracting foreign investment for measures inspired Holders of Foreign Securities Institutions (holding companies) or Spanish holdings that were adopted in Spain in the second half of the nineties and led to the development in our country’s holdings by multinational enterprise groups. But something is changing, notes the head of the Research Group of Financial and Tax UC3M Zornoza Juan Perez, who said that in recent years the Spanish government is reviewing the tax status of these entities holdings to limit some of the benefits they get, considering that they are committing abuses, which could cause some damage to the Spanish economy.
The holdings are shares in the capital of other entities and the key advantage enjoyed by our country is, in theory, when these entities distribute dividends to the holding, the dividends they receive from foreign shares is exempt from tax in Spain. In addition, the holding company in turn distributes profits to shareholders are not resident in Spain are also exempt from taxation in our country. “This income from holdings are exempt from tax in Spain and there is no avoiding double taxation,” says Zornoza, is Professor of Financial and Tax UC3M.
In recent years, researchers at the University of Madrid have observed that this change does not respond to a decision of the legislature, but an administrative policy. “There are some court decisions that put the manifiestese administrative conduct of the administration, always based on the assessment of alleged abuse situations,” they say. In this sense, for example, the case that the buyouts are carried out by holding almost always financed on credit, creating a tax deductible expense. “In many cases – explains Zornoza – the Spanish administration is discussing the deduction of these expenses, thus, is removing a portion of the tax benefits of the system of holding companies as it was originally conceived, generating enormous uncertainty for investors foreigners who have decided to use this formula to attract investment in Spain, “he concludes.
The main suggestions made by researchers about the application is based on the rules of the rule of law. “It is obvious, but it is necessary to emphasize, given the lack of understanding that we suffer tax authorities and, sometimes, our courts, when dealing with international taxation,” declare. What should not occur in this context, they say, is that the legislature establish a system, from which they derive certain tax benefits, the Administration then remove all or part of these benefits to apply anti-abuse rules in a very questionable and since then are inappropriate in an international context. “If legislators want the interest paid when purchasing shares that give rise to exempt income are not deductible, you have to do is say so and change the law, because while it does so, the duty of government is to respect according to its spirit and in a framework that guarantees legal certainty for investors, “said Zornoza. “Otherwise – added – we will witness a slow decline of the scheme by holding out this form of investment in Spain, with some damage to our economy.”