EC Commission v Kingdom of Spain.- Spanish Non Resident Tax Discrimination

PRLog (Press Release) – Jun 07, 2008 – The international tax firm based in Spain, Konsilia at http://www.konsilia.es  has been instructed to act against the Spanish Tax Agency by some of their non resident clients claiming capital gain taxes unlawfully paid. The claim involves Spanish property sales following the publication of the Non Resident Income Tax Act (Ley 41/1998 de 9 de Diciembre) up to 31st December 2006.

The claim is based on the statutory application of ECJ case Law in any EU member state. The specific ruling is Case C-562/07,  which addresses an action brought on 19 December 2007 by the EC Commission — Commission of the European Communities v Kingdom of Spain

The ECJ decision rules against the Spanish discriminatory tax treatment of EC non resident regarding Capital Gains Tax paid up to 31st December 2006.  During those years Spain treated capital gains tax paid under a clear discriminatory regimen for non residents.

Non residents were taxed at a flat rate of 35%, while residents were taxed according to the Spanish Income Tax progressive scale, for assets owned for less than a year, and a flat 15% rate if  the assets had been owned for more than a year.

This unfavorable tax regime for non residents remained until 31st December 2006. In 2006 the government passed Law 35/2006, establishing a 18% flat tax rate for all capital gains arising from disposals made by both residents and non-residents alike. However, no statutory provisions were made to correct the discriminatory regime applied to non residents up to 31st December 2006.

The Commission, on December 2007, referred Spain to the ECJ, on the grounds that the higher tax
burden on non-residents is discriminatory in nature and restricts freedom of movement for
workers and the free movement of capital, as provided for in Articles 39 and 56 EC and
Articles 28 and 40 of the EEA agreement.

The case is now clearly settled and Spain will need to comply with the decision. Before considering any action it is essential to consider the merits of each case with a qualified European Tax Lawyer, specialized in Spanish tax litigation.