January 5, 2023
Spain implements temporary bank levy
On 28 December 2022, the Spanish Government published in the Official Spanish Gazette (BOE for its acronym in Spanish) Law 38/2022 of 27 December 2022that establishes a temporary levy on energy and on credit institutions and financial credit establishments and which creates the temporary solidarity tax on large fortunes and modifies certain tax regulations (the Law).
The Law creates a new levy "ex novo" that will be applicable to credit institutions and financial credit establishments operating in the Spanish territory whose total gross income from interest and commissions in 2019 (pre-Covid) was equal to or greater than €800 million.
Credit institutions and financial credit establishments subject to this levy should pay in September 2023, with an advance payment due in February, 4.8% of the sum of the net margin on interest and commissions for the immediately preceding year.
The nature of the levy is temporary, with an initial duration of two years (2023 and 2024). The Government will evaluate, subsequently, its maintenance on a permanent basis.
The amount of the payment and its advanced payment will not be considered as a tax-deductible expense for Corporate Income Tax purposes.
Last July, the Socialist and Unidas Podemos parliamentary groups submitted a new draft law to the Congress of Deputies to establish, among other things, a new temporary levy on credit institutions and financial credit establishments (EFCs) in order to “capture" the extraordinary profits obtained by the credit institutions derived from the rise in the interest rates and to reinforce the so-called “pacto de rentas.”
On 28 December 2022, the Spanish Government published in the BOE the Law that establishes the new levy on credit institutions and EFCs, which will have the legal nature of a non-tax public economic levy and will be applicable to those credit institutions and EFCs operating in the Spanish territory whose total gross income from interest and commissions is equal to or greater than €800 million.
According to estimates made by the Ministry of Finance and Public Function, this benefit is expected to raise approximately €1,500 million.
The regulation of the new levy raises serious doubts as to its compatibility with the principles and rights guaranteed by the Spanish Constitution of 1978 as well as with European Union (EU) law.
Nature of the levy
The levy has been established with the legal nature of a non-tax public economic levy and is governed by the provisions of the Law that regulates it and, supplementarily, by Law 47/2003, of 26 November (General Budgetary Law) and Law 58/2003, of 17 December (General Tax Law).
This legal configuration is not trivial, since it affects not only its legal framework or the rights and obligations of those obliged to pay the levy, but also the general principles applicable to it and, therefore, the potential means of appeal, should, its constitutionality be questioned.
The amount of the levy, including its advanced payment, will not be considered a tax-deductible expense for the purposes of determining the taxable base for Corporate Income Tax purposes.
Territorial and temporal scope
The levy will apply to the Spanish territory.
The levy will enter into force on 1 January 2023, and it is expected to be in force temporarily for the years 2023 and 2024. Notwithstanding the foregoing, the Law itself provides that in the last quarter of the 2024 fiscal year, the Government will evaluate whether it will be maintained on a permanent basis.
Entities subject to the levy
Credit institutions and EFCs operating in the Spanish territory whose total interest and commission income for 2019, calculated in accordance with the accounting regulations applicable to them, is equal to or greater than €800 million, will be obliged to pay the levy.
This amount will be understood to refer to the tax group when the entity belongs to a tax group or to the mercantile group, as the case may be.
The wording of the Law is not clear in relation to the obligated entities:
The basis for calculating the levy will be the sum of the net interest income (interest received minus interest paid) and the net commissions income (collected minus paid) derived from the activity carried out in Spain that appears in the profit and loss account of the obligated entities for the calendar year prior to the year in which the obligation to pay arises, calculated in accordance with the applicable accounting regulations.
In other words, to determine the levy for 2023, the net margin on interest and commissions for 2022 should be considered, and for the levy for 2024, the net margin on interest and commissions for 2023 should be considered.
Again, the wording of the Law is not clear. In particular, in relation to the levy base, some of the following questions, among others, could be raised:
The above questions are just a few examples of interpretative doubts that could have an impact not only on the definition of the levy base but also on the definition of the objective scope of the levy.
The amount payable will be the result of applying the rate of 4.8% to the levy base (the sum of the net margin of interest and commissions).
Accrual and payment of the levy
The payment obligation will arise on the first day of the calendar year, i.e., 1 January 2023 (for year 2023).
The levy must be paid during the first 20 calendar days of September of each year.
An advance payment of 50% of the total levy to be paid during the first 20 calendar days of February of each year is also foreseen, which will be deducted from the final amount to be paid for the year. Given the possible difficulty for the entities to know the exact amount of the sum of the net margin of interest and commissions during this period, it is provided that this amount can be estimated according to a reliable calculation method.
Prohibition of charge back
It is expressly forbidden to charge back the levy to third parties (i.e., clients or customers), either directly or indirectly.
Failure to comply with this prohibition will be considered a very serious infringement and will be penalized with a proportional pecuniary fine of 150% of the amount charged back.
This infringement will not be of a tax nature and will be subject to the general administrative sanctioning regime.
It is established that the Spanish Competition (Antitrust) Regulator responsible for enforcing competition law (Comisión Nacional de los Mercados y la Competencia) will monitor compliance with this requirement and will be in charge of any penalty procedure.
The levying, management, verification and collection of the levy is attributed to the corresponding bodies of the Central Delegation for Large Taxpayers of the State Tax Administration Agency (Delegación Central de Grandes Contribuyentes de la Agencia Estatal de Administración Tributaria).
The hearing and public information process has been initiated for the Draft Order to approve the forms for self-assessment and advance payment of this levy, Form 797, "Temporary levy on credit institutions and financial credit establishments. Self-settlement" and Form 798, "Temporary levy on credit institutions and financial credit establishments. Advance payment," and to establish the conditions and procedure for its submission.
As mentioned above, it can be contended that the new regulation may infringe principles and rights recognized by the Spanish Constitution of 1978, such as legal certainty, the prohibition of arbitrariness of the public authorities, freedom of enterprise or the principle of legality in sanctioning matters. Likewise, it may contravene the regulation of the financial system of the EU as well as the principle of free competition.
Those obliged to pay cannot appeal directly against the Law but they can challenge it by means of challenging the Order to approve the forms which is currently in the public information process as well as, in any case, by challenging their own self-assessments with respect to both the advance payment and the payment of the levy.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Abogados, S.L.P., Madrid