Executive summary

On 10 July 2021, the Anti-Tax Fraud Law (Law 11/2021, dated 9 July 2021) (the Law) was published in the State Official Gazette.

The first draft of this Law was published for public consultation on 23 October 2018.

This Law includes, among a number of other measures, the proposal to prevent Spanish tax resident individuals from benefiting from the Spanish deferral regime (the so-called traspasos regime) on gains/losses triggered upon the transfer to or from European Union (EU) exchange traded funds (ETFs), as further explained below.

Detailed discussion

Background

The Spanish Personal Income Tax (PIT) Law¹ provides for the so-called traspasos regime. Under this regime, capital gains (and losses) obtained by individuals subject to Spanish PIT and arising from the transfer or redemption of shares/units in qualifying collective investment vehicles (CIV) can be deferred if the amount obtained upon such transfer or redemption is effectively reinvested in the acquisition or subscription of different shares or units of qualifying Spanish CIV or European UCITS² CIVs.

In particular, under such tax regime the Spanish individual investor is entitled to defer sine die the taxation on income or losses obtained under a qualifying transfer or redemption of shares/units in CIVs until a subsequent transfer or redemption that is not protected by a tax roll-over/deferral regime takes place.

As a consequence, the newly acquired or subscribed shares/units inherit the tax value and acquisition date as the shares or units transferred or redeemed by the PIT taxpayer.

The Spanish PIT Law currently in force expressly sets forth that this special regime does not apply if the transfer or reimbursement consists of shares and participations from Spanish ETFs (irrespective of the Spanish ETF being an origin fund, destination fund or both).

In turn, the Spanish PIT Regulations provide for an exemption from the obligation to withhold on the redemption/transfer of the shares or units of the Spanish ETF.³

However, the Spanish tax authorities have interpreted in the past that:

• An EU ETF is not a qualifying fund if listed on the Spanish stock exchange.⁴
• Conversely, an EU ETF is a qualifying fund for the purposes of the traspasos regime if the listing of the qualifying EU ETF takes place on an EU stock market other than the Spanish stock exchange. Nevertheless, such ETF is not covered by the exemption from the obligation to withhold, only applicable to Spanish ETFs. Hence, the distributor must report the transaction for withholding tax purposes.⁵

Therefore, currently, in accordance with the Spanish tax authorities’ view, the criterion to determine whether an EU ETF is a qualifying fund for the purposes of the traspasos regime is its listing on the Spanish stock exchange.

Amendments

The scope of funds that qualify for the traspasos regime is narrowed, disallowing the traspasos regime of the investment (or divestment) in both Spanish and EU ETFs going forward.

Additionally, it is expected that the exemption from Spanish withholding tax will also be extended, so it applies to both Spanish and EU ETFs.

Impact

This change will be effective as from 1 January 2022.

The Law includes a grandfathering provision to protect the traspasos regime regarding investments in EU ETFs –that are not listed in Spain- made before 1 January 2020, if the proceeds derived from the transfer or redemption are not reinvested in the acquisition of shares in EU ETFs.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid

• Araceli Sáenz de Navarrete | araceli.saenzdenavarretecrespo@es.ey.com
• Tatiana de Cubas Buenaventura | tatianade.cubasbuenaventura@es.ey.com

Ernst & Young LLP (United States), Spanish Tax Desk, New York

• Jose A. (Jano) Bustos | joseantonio.bustos@ey.com
• Isabel Hidalgo | isabel.hidalgo.galache1@ey.com
• Andres Carracedo | andres.carracedo.insua1@ey.com

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Endnotes

1. Law 35/2006, on the Spanish Personal Income Tax, dated November 28, 2006 (the Spanish PIT Law).
2. Undertakings for the Collective Investment in Transferable Securities: A system to allow mutual funds and other investment vehicles to operate throughout the EU.
3. Article 75.3.i) of the Royal Decree 439/2007, of 30 March, which approves the Personal Income Tax Regulations and modifies the Pension Plans and Funds Regulations, approved by Royal Decree 304/2004, of 20 February 2007.
4. Binding ruling V0713-06 of 12 April 2006.
5. Binding ruling V4596-16, de 27 October 2016.