Spain: Protocol to treaty with Mexico will enter into force in September 2017

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Spain, on July 7, 2017, published the new protocol to the tax treaty with Mexico. The new protocol will enter into force on September 27, 2017. The protocol, signed on December 17, 2015, amends several parts of the countries’ 1992 tax treaty.

Under the protocol there is no withholding tax rate on dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends. For shareholdings below 10% a maximum withholding tax rate of 10% applies. The withholding tax on interest payments is reduced under the protocol from 15% to 10%, though the rate is reduced further to 4.9% for financial institutions and to 0% for pension funds and other listed entities.

The protocol introduces a most-favored nation clause whereby if Mexico in the future enters into a tax treaty with certain countries that have lower withholding tax rates, those rates will automatically apply.

Spain: Lower House approves 2017 Budget

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Spain’s lower house on 1 June 2017 approved the delayed 2017 national budget. The budget was presented on April 4th 2017. There is no significant change on direct taxation. A 10% reduced rate of VAT is expected to apply to specific product supplies of goods and services currently taxed at 21%.

Spain and Cape Verde sign double taxation agreement

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Spain and Cape Verde signed a double tax agreement on 05 June 2017. The agreement provides for tax treatment appropriate to the circumstances of taxpayers carrying out activities at the international level, providing a framework of legal and fiscal security that fosters economic exchanges between the two countries and facilitates cooperation between the respective tax authorities.

The agreement includes an article on exchange of information in line with the OECD Model Agreement, allowing a wide exchange of tax information, including bank information, between Spain and Cape Verde.

Spain publishes new form for reporting related-party and tax haven transactions

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Spain’s Tax Agency has recently published a draft order approving Form 232 for reporting related-party transactions and transactions and situations that involve countries and territories considered to be tax havens.

The deadline for filing Form 232 has been set generally in May. All controlled transactions with the same related party, regardless of their individual amounts must be reported if the total amount of the transactions exceeds EUR 250,000. Additionally, the same type of individual transactions entered into in a given tax period with the same individual or related entity using the same valuation method and in an amount exceeding EUR 100,000 at arm’s length value,  also must be reported.

Negotiations to update DTA between Japan and Spain

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Japan’s Ministry of Finance announced on 24 April 2017, that the governments of Japan and Spain will begin negotiations to amend their existing tax treaty (1974) for the Avoidance of Double Taxation with respect to Taxes on Income. The first round of negotiations will take place from April 25 in Tokyo.

Spain: Ministry of finance and public administration approve new CIT prepayment forms

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Ministerial Order HFP/227/2017 of 13 March 2017 was gazette on 15 March 2017. The order approves the model 202 to make payments fractionated on account of the tax and the tax on the income of non-resident permanent establishments and entities in regime of income allocation constituted abroad with presence in Spanish territory, and the model 222 for payments fractionated on account of tax in the tax consolidation system and sets the General conditions and the procedure for their electronic submission.

DTA between Russia and Spain: Russia clarifies taxation of dividends paid to non-resident

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The Russian Ministry of Finance (MoF) on 22 February 2017, issued Guidance Letter No. 03-08-05/73316 of 7 December 2016, clarifying the taxation under the Russia – Spain Income and Capital Tax Treaty of the dividends derived by a Spanish company.

According to article 7(4) of the Tax Code, with regard to income derived from Russia and paid to a non-resident who is not the beneficial owner of that income, if the person paying the income has been informed that the recipient is not the beneficial owner of the income, the provisions of the tax treaty between Russia and the resident state of the beneficial owner will apply.

Further, article 312( 1.1) of the Tax Code also states that a look-through approach applies where the recipient of the dividends acknowledges that it is not the beneficial owner of the dividend income and thus tax treaty provisions apply to another person who is the beneficial owner of the dividend income and who has directly invested in the Russian company.

Under article 10(2)(a) of the Treaty, dividends paid by a company which is a resident of a contracting state to a resident of the other contracting state may be taxed at 5% in the contracting state of which the company paying the dividends is a resident and according to the laws of that state, if the recipient is the beneficial owner of the dividends, provided that both of the following conditions are met: (i) if the beneficial owner is a company (other than a partnership) which has invested at least 100,000 ECU (EUR 100,000) or the equivalent amount in any other currency in the capital of the company paying the dividends; and (ii) those dividends are exempt from tax in the other contracting state.

The MoF said that in order to apply the reduced 5% rate under the Treaty, the Spanish company must directly invest at least EUR 100,000 or the equivalent amount in any other currency in the capital of the Russian company paying the dividends.