Double Taxation Agreement between Spain and the Netherlands

Double Taxation Agreement between Spain and the Netherlands

In the Costa del Sol there is an important colony of Dutch nationals who have chosen our country as their permanent residence. The good climate and the friendliness of the population are important attractions that they have taken into account to settle in our country.

 

Once a “foreigner” becomes a tax resident in our country (by residing for more than 183 days a year), he/she must comply with his/her tax obligations, which are exactly the same as those that a Spanish national must comply with. However, when this “tax resident in Spain” obtains income from another foreign country, he/she must take into consideration the provisions of the Double Taxation Agreement that Spain has signed with the country of the source of the income, in order to avoid double taxation situations, given that sometimes this income must be taxed in the country from which it originates.

Today we would like to talk a little about the Double Taxation Agreement signed between Spain and the Netherlands.

 

As mentioned above, in order to find out how a tax resident (individual) should be taxed in Spain on income from the Netherlands, we must refer not only to the provisions of Spanish tax legislation but also to the provisions of the Double Taxation Agreement signed between the two countries.

 

We will proceed to a brief summary of the most common types of income that could be obtained by a Spanish tax resident whose source of origin is the Netherlands, and how they should be taxed.

 

1. Lease of real estate located in the Netherlands (article 6 of the DTC)

Article 6 of the IDC provides that income from immovable property can be taxed in the Country in which the property is located. In other words, the income that a tax resident in Spain obtains from renting a property located in the Netherlands could be taxed in the Netherlands.

 

Note: The fact that the DTC establishes that this income could be subject to taxation in the Netherlands does not mean that it must necessarily be taxed in the Netherlands, as it may be considered “exempt” in that country or it may be treated differently than in Spain, but the simple fact that the agreement states “may be subject to taxation in the Netherlands” means that it will be exempt from taxation in Spain.

 

Article 25.3 of the DTA establishes that this type of income would be subject to Spanish income tax, but would be “exempt”. In other words, you will not have to pay tax in Spain (IRPF) on the income you have obtained from the rental of the property located in the Netherlands, but this income (exempt income) will have to be taken into account for the purpose of calculating the tax rate at which that resident person will have to pay IRPF on other types of income that he/she may receive (increase the marginal tax rate applicable to other income).

 

  • Example:

Let us imagine that a tax resident in Spain has obtained rental income from a property located in the Netherlands in the amount of €100,000 per year, and has paid tax in the Netherlands on that rental in the amount of €2,500. Let us assume that this person has obtained an annual income in Spain as a “professional – lawyer” in the amount of €20,000 per year, with €3,000 withheld from his salary.

 

If that person had not had any rental income, the applicable personal income tax rate for his professional income in Spain would be around 21%, but given that he must compute the rental income obtained in the sum of €100,000, the tax rate applicable to that income as a “professional” would be around 45% (the marginal tax scale increases as the income to be computed for its calculation is higher).

 

2. Imputation of real estate income from real estate located in the Netherlands (Article 6 DTC)

Article 6 of the Double Taxation Convention between Spain and the Netherlands provides that income from real estate can be taxed in the Country where the property is located. In other words, the “presumed” real estate income that a tax resident in Spain can obtain from the ownership of a property located in the Netherlands could be subject to taxation in the Netherlands.

 

This situation is similar to the one described in section 1. An individual resident in Spain who owns a property in the Netherlands does not have to declare the presumed income attributable to his or her personal income tax return.

 

Given that a property located in the Netherlands does not have a cadastral value (given that this is a concept applicable and defined by Spanish regulations), the imputation of real estate income to be taken into account for the purposes of increasing the marginal rate applicable in the Spanish personal income tax return, we understand that by application of the provisions of article 85 LIRPF, would be calculated using this formula (1.1% x 50% acquisition price of the property).

 

This imputed income, according to the Double Taxation Agreement between Spain and the Netherlands, will be exempt from paying tax in Spain, but will be taken into account for the purposes of calculating the applicable marginal rate of personal income tax in the event that the taxpayer has to declare other types of non-exempt income.

 

The example would be similar to that given in the case of renting.

 

3. Dividends obtained from a company located in the Netherlands (article 10 of the Double Taxation Agreement between Spain and the Netherlands)

Those dividends obtained by the tax resident in Spain from a company located in the Netherlands will be taxed in Spain, and also in the Netherlands (at the maximum rate of 15%). However, a double taxation deduction may be applied in Spain when filing the personal income tax return, i.e. the amount paid in the Netherlands may be deducted.

 

4. Interest (Article 11 DTC)

Similar to point 3 (dividends) with the particularity that the maximum rate of taxation in the Netherlands should be 10%.

 

Double Taxation Agreement between Spain and the Netherlands

 

5. Sale of real estate in the Netherlands – capital gain (article 14 DTC)

Article 14 of the Double Taxation Convention between Spain and the Netherlands provides that gains derived from the disposal of real estate can be taxed in the Country where the real estate is located. In other words, the profit obtained by a tax resident in Spain from the sale of a property in the Netherlands could be subject to taxation in the Netherlands.

 

Article 25.3 of the DTC establishes that this type of income or gain is exempt from taxation in Spain, but it must be computed for the purposes of calculating the tax rate at which that resident person must pay personal income tax on other types of income of the same category (capital gains).

 

Note: The fact that the DTA establishes that this profit could be taxed in the Netherlands does not mean that it must necessarily be taxed in the Netherlands, as it is possible that in that country it could be considered “exempt” or have a different tax treatment to that which it could have in Spain. If, for whatever reason, the capital gain is not taxed in the Netherlands, it will continue to be “exempt” from taxation in Spain.

6. Sale of shares or participations (article 14 CDI)

The capital gain obtained on the sale of shares or participations in a Dutch company will be taxed in Spain.

 

According to article 25.2 CDI, in the event that this gain is also subject to taxation in the Netherlands, according to its domestic legislation, the taxpayer may deduct in the tax return to be filed in the Netherlands, the tax that would be payable in Spain on this capital gain.

 

7. Retirement pension (articles 19 and 20 Double Taxation Agreement between Spain and the Netherlands)

If a resident in Spain receives a pension from the Netherlands, a distinction must be made:

 

  • Pensions received for retirement (non-public workers) are only taxed in Spain.

 

  • Pensions paid directly by the Dutch State, as a result of having been a civil servant, could in certain cases be taxed in the Netherlands, and would be exempt in Spain. In any case, it is necessary to request a certificate from the Dutch administration, which certifies whether the pension is exempt from taxation in the Netherlands.

 

 Netlex advisors in Marbella encourage you to contact our professional advisors if you have any doubts or questions regarding the Double Taxation Agreement between Spain and the Netherlands.

 

SOURCE OF INFORMATION:

  • Double taxation agreement between Spain and the Netherlands.
  • Tax consultation DGT V1595-14
  • Tax consultation DGT V1993-16
Double Taxation Agreement

Application of Double Taxation Agreement

A Double Taxation Agreement (DTA) is a bilateral international treaty signed between two States, whereby they determine the way in which the income obtained in the second signatory country by the citizens of the first country is subject to the tax system of the second country and vice versa, i.e. how the income obtained in the first signatory country by the citizens of the second country is subject to taxation in the tax system of the first signatory country.

 

Not all countries have signed DTAs (although most of them have), which can generate a significant disadvantage for taxpayers residing in one country who obtain income from another country with which they have not signed a DTA, given that in such cases the income could be subject to taxation in both countries.

 

Based on the assumption that a tax resident in a given country must report in his personal income tax return all the income he has received during the year, including income from other countries on which he may have had to pay tax abroad, the DTA is the legal instrument that makes it possible to regulate the mechanisms to prevent the same source of income from being taxed twice.

 

In any Double Taxation Agreement we can distinguish:

  1. A definition of the concept of tax resident in a country.
  2. An explanation of the income that will be subject to the agreement.
  3. A specification of the country where the income is to be taxed. In DTAs, it is possible that the same income may be subject to taxation in both countries.

 

A mechanism to correct double taxation, so that the same source of income is not taxed in both countries (double taxation method).

 

We must start from the fact that a “Spanish” taxpayer must report in his personal income tax return all the income he has obtained worldwide, whether or not he has paid tax abroad, and that all Double Taxation Conventions are not the same.

 

Double Taxation Agreement

 

In general terms, and depending on the configuration of the DTA, double taxation can be corrected in two ways:

  1. By declaring the foreign source of income as income in the personal income tax return, and once the calculation of the tax payable has been made, deduct the tax payment made abroad.
  2. Declaring the source of foreign income as income in the personal income tax return (for information purposes) but not paying tax on this income because it is considered to be “exempt’‘ from taxation, although it counts for other purposes.

 

In our professional experience we have been able to observe that there is the possibility of an income not being taxed in either of the 2 countries (country of residence of the taxpayer, and country of origin of the income), when the applicable mechanism to avoid double taxation is to declare an income exempt, a circumstance that we are going to explain with the following example:

 

 Article 25.3 of a Double Taxation Agreement signed by Spain with a European Union country that we will call “country x” states:

When a resident in Spain obtains income or possesses assets which, in accordance with the provisions of this Agreement, may be subject to taxation in country x, Spain, except for the provisions of number 4, will exempt this income or assets from tax, but in order to calculate the tax corresponding to the remaining income or assets of this resident it may apply the same tax rate that would apply if the aforementioned income or assets had not been exempted.

 

 

In a “country x” its tax law states that both residents and non-residents are not taxed on capital gains from the sale of real estate, even though we are talking about a type of income that could have been taxable in that country, as it is in most European countries.

 

This means that if a tax resident in Spain sells a real estate property located in country x, having obtained a capital gain, this profit will not be taxed in that country because its internal tax regulations so provide, and neither will it pay tax in Spain according to the provisions of article 25.3 of the Double Taxation Agreement. (Binding Tax Query)

 

From Netlex advisors in Marbella, our recommendation, when applying a Double Taxation Agreement, is to carefully analyse the article referring to the method for eliminating double taxation, and in case of any doubt, consult an expert tax advisor who can clarify any doubts you may have.

marriage regime lawyers economists Spain

The marriage regime in Spain of professional partners: lawyers and economists

Who has never heard someone say “I am married in a marriage regime of separation of assets”?

The first thought that a person outside the professional or legal field might have on hearing this phrase would be: why do they do it, is there not enough love or trust in that couple to maintain a regime of community of acquisitions? These questions are quite logical, since most people are aware that in “community of acquisitions” all assets and rights (also obligations) generated and/or acquired during the duration of the matrimonial property regime belong to both spouses, even if only one of them works (solidarity regime).

 

Let us imagine the case of a husband who is a lawyer and/or economist and his wife who is a housewife and/or a worker with a much lower salary than her husband. One might ask, wow, if that couple divorces, the wife will be left with “just enough”, perhaps she will get a compensatory pension and/or alimony, but the assets earned by the husband will be all hers.

 

The above argumentation is not without reason. However, we must say that, on most occasions, it is not the “lack of love or trust” but rather the opposite, as the purpose would be to create a “protective cushion” so that the entire marital assets do not respond to the payment of possible future debts that could accrue through the professional activity of the “lawyer/economist spouse”.

 

When a couple is married in community of acquisitions, all the assets of the marital partnership could be liable for the payment of debts generated by one of the spouses, whereas if they are married in a marriage regime of separation of assets, only the assets belonging to that debtor would be liable. The professional activity carried out by certain professionals, such as lawyers and economists or tax advisors, are high-risk professional activities, given that in the event that they commit professional negligence, they could be held liable for the payment of amounts that have had to be previously assumed by their clients for work not carried out with the diligence that could be demanded of them.

 

It is true that, on most occasions, professionals have taken out civil liability insurance to cover this type of contingency, however, on many occasions having such an insurance policy does not fully guarantee that they are safe. Therefore, as a second line of defense to safeguard their marital assets, they decide to define their marriage regime as separation of assets. While this regime is in force, it is usual for the spouse who accumulates resources to transfer part of them to the other spouse with the sole objective of balancing assets between them, applying a principle of “justice” in the distribution of marital tasks. Currently, in Andalusia, a 99% tax bonification is applicable to donations made between spouses.

 

The marriage regime of professional partners: lawyers and economists

 

Seen the above, there are three lines of defense that any businessman or professional should try to minimize any future “negative” contingency due to their professional activity in the marital estate. The first is to take out civil liability insurance, the second is to choose a marital regime of separation of assets, and the third is to donate assets to the spouse before unpaid debts could accrue in the future. This last line of gifting, in some cases taken up in court rulings, has been considered to be an asset stripping in case of future debts, so that one should be very cautious in doing so. This is the reason why, from our point of view, it would make much more sense to apply a special matrimonial property regime, which is not usually used in Spain, but which would avoid the fact of making “continuous” donations between spouses to balance the assets of both (in the case of having opted for the matrimonial regime of separation of property). This special regime is called the matrimonial regime of participation.

 

The matrimonial regime of participation is the one in which each spouse acquires the right to share in the profits obtained by his/her partner during the time the matrimonial regime has been in force. It must be expressly granted by marriage contracts.

 

This regime would be a “hybrid” between the separation of assets regime and the community of acquisitions regime, in the sense that while this participation regime lasts, the marriage is governed by the rules of the separation of assets regime, and upon its termination (which may occur at the will of the parties, or when the marriage is dissolved) the profits generated by both spouses, during the time that this regime has been in force, must be distributed equally between both spouses. This would avoid having to donate assets from one spouse to the other, or at least reduce them considerably.

 

If the marriage is under the community of acquisitions regime, and the decision is taken to modify it to the participation regime, it would be advisable to proceed to the liquidation of the matrimonial assets (separating the assets), so that the assets and rights that correspond exclusively to “both spouses” from the beginning of this regime are well defined, in order to avoid that part of the assets previously existing (in matrimonial property) could respond to the payment of possible future liabilities of the professional or business spouse.

 

Netlex advisors in Marbella will be pleased to assist you with any queries you may have in relation to the different matrimonial property regimes in Spain.

 

valuation agreements

Linking of valuations carried out by other administrations. Previous valuation agreements

Today we are going to deal with a very interesting subject, and with fiscal transcendence, the valuation agreements.

 

As many of you know, in Andalusia it is possible to calculate (through the website of the JUNTA DE ANDALUCIA) the minimum tax value of properties located in Andalusia (both urban and rustic), for the purpose of settling the Transfer Tax and Stamp Duty (I.T.P), and the Inheritance and Gift Tax (I.S.D).

 

The above statement should be qualified according to the specific case:

  • If the declared value of a property (in public deed), is higher than the minimum tax value, the taxpayer is obliged to declare, for the purposes of payment of I.T.P and/or I.S.D the value stated in the deed, thereby avoiding the risk of receiving a check from the Junta de Andalucía.

 

  • If the declared value of a property (in a public deed) is the same as the minimum value for tax purposes, the taxpayer can declare the value stated in the deed for the payment of I.T.P. and/or I.S.D., thus avoiding the risk of being checked by the Junta de Andalucía.

 

  • If the declared value of a property (in public deed) is lower than the minimum fiscal value, the taxpayer must declare, for the purpose of payment of I.T.P and/or I.S.D., the minimum fiscal value, if he wants to avoid receiving an inspection check, and an additional liquidation, with interests for delay, and in some cases with a penalty.

 

Through the website of the Junta de Andalucía, it is possible to know the minimum tax values of the properties for the purposes of payment of the Transfer Tax and Stamp Duty, and Inheritance and Gift Tax.

 

https://www.juntadeandalucia.es/agenciatributariadeandalucia/ov/valoracion/valoracion.htm

 

It is important to point out that there are two types of valuations, an “informative” valuation and a “binding” valuation.

 

To obtain the binding valuation, as we have been able to verify by accessing the web application, it is necessary to have an electronic signature and the request must be made by the owner of the “property”.

 

The “binding” report obtained would be valid for 3 months, and should be included in the public deed of transfer of the property in question (purchase, sale, capital increase, donation…).

 

If you do not have an electronic signature, do not have the cadastral references of the property, or are not authorised (according to the web platform) to obtain this “binding” valuation, there is another possibility to obtain it, which would be to submit a written request to the tax agency of Andalusia. The forms for this procedure (at least for rustic properties) are not usually available on the website of the Junta de Andalucía, so it would be necessary to apply for it at any of the delegations of the Junta, or at the offices.

 

On most occasions, the “advisors” limit themselves to requesting an “informative” valuation (without electronic signature), as they consider (which is true) that by applying this value obtained through the Junta’s web platform, the client will not receive a complementary liquidation from the Junta de Andalucía, however, they forget about the possibility that other tax administrations (for example the tax office) do not accept this “informative” value.

 

Previous valuation agreements

 

 

The problem is that this “informative” valuation is not binding for it to be accepted by another administration, so at Netlex we always advise our clients to request a “binding” valuation, for two reasons:

 

  • Because it is free of charge.
  • Because we consider that it could be used against possible checks carried out by other administrations (e.g. tax agency), all by virtue of the provisions of the T.E.A.C in its resolutions dated 14 May 2019, and 9 April 2019 (RG 4610/2016) which establish the binding nature for the Tax Inspectorate of the previous valuation of properties carried out by the competent body of the Autonomous Administration.

 

Let’s look at an example:

Let us imagine the case of a person who intends to contribute a property he owns, which he once acquired for the price of €100,000, to a trading company in order to use it for the economic activity of that company.

 

  • According to the valuation obtained by the Junta de Andalucía (binding valuation) the property is valued at €150,000.
  • According to the valuation obtained by an “official valuation company” the property is valued at €200,000.

 

On the basis of this information, the question arises as to which alternative would be more advisable.

 

Well, in the present case, if the taxpayer has a valuation agreement for the property, issued by the Junta de Andalucía (150,000€), which is incorporated into the deed (in this case of capital increase), even if this value is lower than that obtained through an independent expert valuation, we understand that it would be the reference value that the taxpayer should consider, both for the purposes of settling the operation in I. T.P.T., as well as for the purposes of declaring said transfer in his I.R.P.F. tax return, for the aforementioned reasons, even in the event that he would pay a lower amount of I.T.P. (Corporate Transactions), and I.R.P.F. (Personal Income Tax).

 

It seems very strange to say this, but in the case of having chosen, as the value of the transfer, the highest value obtained via real estate appraisal, this operation runs the risk of being checked and modified “upwards” by the inspection services of the state tax administration agency (I.R.P.F), and of the tax agency of the Andalusian community (I.T.P), given that this valuation obtained by an expert is not binding. It should be taken into consideration that the experts of the tax administration can use several methodologies to value the properties, and each methodology gives a different value, however, we consider that they would have their hands “tied” to alter this valuation, if the taxpayer uses a previous binding administrative valuation carried out by the autonomous administration.

 

In our experience, the valuation obtained through the application provided by the Junta de Andalucía, for those properties that have a cadastral reference, is usually lower than the one provided by the real estate valuers, which is why it is a tool to be taken into account by any tax advisor.

 

However, obtaining prior administrative valuations would not be the appropriate way to value properties in certain cases, in which it would be advisable to hire the services of a real estate appraiser.

 

At Netlex asesores, we offer our clients real estate appraisal services, through opinions issued by independent experts.

Insolvency Proceeding in Spain

Insolvency Proceeding in Spain: Reinstatement Actions and Creditor Fraud

An insolvency proceeding in Spain is a legal procedure that arises when a natural or legal person becomes insolvent and is unable to meet all the payments owed, and requires the assistance of the Commercial Court.

 

This procedure is a way used by companies to try to revive their financial situation, as through an insolvency agreement, and by reaching an agreement so that the majority of the insolvency creditors waive full payment of their credit (waivers), it is sometimes possible to revive a company.

 

It is true that in practice, it is a procedure mostly requested by companies whose financial situation is difficult to repair, being the main way used by the company’s administrators to liquidate and dissolve a company, avoiding, as far as possible, being held liable for the non-payment of outstanding debts by the company.

 

One of the peculiarities of the insolvency proceedings is the power of the insolvency administrator to study and analyse all the transactions of economic importance carried out by the company in the last two years. After analysing them during this period, operations of dubious origin could be detected, or which could be considered to be detrimental to the company’s creditors, for example, if the company had sold a property to one of the company’s partners for a price lower than the normal market value. In this case, the insolvency administrator has the power to request the Commercial Court to “rescind” (annul) such transactions on the grounds that they are detrimental to the company’s assets (assets), in accordance with Article 71.1 of the Insolvency Act, and this power would also be available to the creditors.

 

From our experience in Insolvency Proceeding in Spain, we are aware that the insolvency administrators usually limit the study of what has happened in the insolvent company to the last two years, in order to study the possibility that the company may have carried out some operation that could be “reintegrated” or annulled.

 

However, the provisions of Article 71.6 of the Insolvency Act itself should not be forgotten, which states:

 

 “The exercise of the rescission actions will not prevent the exercise of other actions to challenge the debtor’s acts that are appropriate in accordance with the law, which may be exercised before the insolvency judge, in accordance with the rules of standing and procedure contained in the following article”

 

In other words, in addition to the bankruptcy rescission action itself under Article 71.LC, there are other contestation actions, all of which are included in the Civil Code, which could also be exercised within an insolvency proceeding, including REVOCATION IN FRAUD OF CREDITORS OR PAULIANA ACTION, which would cover the study of operations carried out in fraud of creditors, within a time frame of 4 years, of which I will try to give a brief introduction.

 

Insolvency Proceeding

 

Revocation of acts in fraud of creditors (Pauliana Action)

Revoking an act or contract means, quite simply, going back on it in order to render it ineffective. This is the broad concept of revocation, which implies the restoration of the debtor’s assets to the state they were in before the alteration produced in them by a fraudulent act, which is intended to remove them from the liabilities hanging over them.

 

The pauliana action is a measure for the preservation of the debtor’s assets and, therefore, protective of claims. It is referred to in Art. 1.111 C.C. in paragraph 2 when it states that the creditors “may also contest the acts that the debtor has carried out in fraud of his right”.

 

This action refers to the possibility that the creditors, after having pursued the assets in possession of the debtor, in order to realise what is owed to them, may challenge the acts that the debtor has carried out in fraud of the creditors’ rights. In other words, they can try to revoke the fraudulent sales made by the debtor and try to have the goods sold returned to the creditor’s assets so that they can be used to pay the creditors’ claims.

 

The purpose of the revocatory action, as defined by the Civil Code, is to deprive fraudulent acts of alienation carried out by the debtor of their effectiveness. Likewise, given the influence of Roman Law, this action is also called “pauliana”, as it was formulated by the Roman Jurisconsult Paulo.

 

ALBALADEJO states that “the effect of the pauliana is not exactly to revoke the attacked act, but rather that it does not count against the creditor who exercises it”.

 

It is regulated in articles 1.111 and 1.291 and subsequent articles of the C.C., as well as some others of the Code itself and the Mortgage Law, and unlike the bankruptcy rescission, the period for its interposition is not two years but four.

 

According to the STS of 27/11/1991 (appeal no. 2415/1989): the pauliana action is simply one of the remedies that the Law grants to creditors to request the competent judicial bodies to annul the acts of disposal of their assets carried out by the debtors in fraud of their rights when they cannot have other means to achieve this end.

 

The STS of 31/5/1999 (no. 485; appeal no. 3402/1994) also adds: The rescissory action for creditor fraud has been conceived in doctrine and jurisprudence as a remedy in extremis to avoid the damage that a fraudulent act causes to the creditor’s credit. For this, the requirement of the existence of the credit prior to the allegedly fraudulent act must be met, although it may be later if it is proven that the act was executed in consideration of and to the detriment of the future credit.

 

At Netlex asesores we are experts in corporate tax planning and the design of strategies to prevent and/or reverse the insolvency of companies.