In July 2021, Law 11/2021 of 9 July was published in Spain, on measures to prevent and combat tax fraud, transposing Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market, and amending various tax and gambling provisions.
Among other relevant amendments in the area of taxation, the law modified the tax regime for open-ended investment funds (SICAVs) by tightening the requirements for benefitting from the favourable 1% corporate income tax regime that currently exists.
Hence, Article 29.4.a) of the Corporate Income Tax Act was amended, which establishes the application of a reduced rate of 1% as opposed to the general rate of 25% for those SICAVs that comply with the requirement of having a minimum of 100 shareholders, with additional requirements to be met as from 1 January 2022:
- (i) To be considered a shareholder for these purposes, it is necessary to hold shares of an amount of €2,500 or more and, in the case of compartmentalised SICAVs, of €12,500 or more.
- (ii) The minimum number of shareholders requirement must be met for at least three quarters of the tax period.
Furthermore, whereas previously the regulatory body (CNMV) was responsible for verifying compliance with the requirements for benefitting from the reduced taxation, now the Tax Administration will be responsible for this verification.
The legal modification seeks to guarantee a favourable taxation of 1% for only those SICAVs which have a truly collective vocation, since, in practice, most SICAVs in Spain have one or several main shareholders holding practically all the capital while the remaining shareholders hold a symbolic stake, therefore distorting the open and collective nature that justifies the favourable reduced taxation. It is important to note that the legal modification has not affected Non-UCITS (Hedge Funds), Master Feeder structures or Exchange-Traded funds (ETFs).
The new requirements take effect from 1 January 2022, meaning that SICAVs that do not meet these requirements for benefitting from the reduced rate of 1% must be wound up and liquidated during 2022 and carry out all the necessary formalities for their removal from the register before 30 June 2023. The Law has established a transitional regime with a special tax regime. Essentially: i) the 1% rate is maintained during 2022 for SICAVs that are liquidated until the date of their removal from the register and ii) their shareholders will not be taxed on the gains that become apparent upon liquidation of the SICAV as long as they are reinvested in Spanish IICs (Collective Investment Undertakings) or SICAVs that comply with the new requirements until 31 July 2023.
A large number of SICAVs were liquidated this year, with the members investing their capital mainly in investment funds, merging with other SICAVs or setting them up in other countries, in particular Luxembourg, where taxation is similar to that in Spain.
From the perspective of the claims raised in recent years related to withholding taxes on dividends obtained by non-resident investment funds in Spain, invoking the violation of Art. 63 CJEU, this legal modification does not entail a substantial change. On the one hand, the legal modification only affects SICAVs, not hedge funds, master feeder structures or ETFs (which are regulated by other requirements). On the other hand, the focus of the current legal debate is whether the applicable Spanish legislation as it is currently drafted, is itself discriminatory as it does not provide for a mechanism to enable 1% taxation for non-resident non-UCITS funds, thus calling into question whether it is appropriate to demand of non-resident investment funds strictly the same requirements as those that are demanded of resident funds. Lastly, it should be recalled that, since 2010, non-resident UCITS funds have been taxed at 1% and have only had to prove their UCITS status with a certificate to that effect, without having to comply with other requirements (regarding the number of members or unit-holders or minimum capital, etc.).
If you wish to discuss this topic, please contact: ARCO Abogados, Barcelona
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