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The Spanish Lawyer Online
The Spanish Lawyer Online

Antonio Flores’ Blog

Thoughts about laws and regulations which affect foreigners in Spain

Spanish taxes: Panama papers and the “Modelo 720”

April 17th, 2016

Following the publication of what appears to be a massive 11.5 million leaked documents from a Panama law firm, MossackPanamaPapersModelo720 Fonseca, this small Central American territory will no longer be remembered for its Canal or the country that the U.S. invaded in 1989.

It must be said, for the record, that in most modern jurisdictions it is not illegal to either have an offshore bank account, an offshore company or both. What is against the law is to be a resident of a [tax-wise] ‘normal’ country and have money, interests, shares or any other valuables hidden from the country where one pays taxes regularly; in an offshore jurisdiction or under the mattress.

Only in Spain, according to the 2015 Tax Control Plan by the AEAT (Spanish Tax Office), 7,000 taxpayers are already in the investigation stage on whom the Tax Agency has indications that either they had to present form 720 and did not do so or they did not declare their foreign assets correctly. With the Panama Papers scandal, this number will certainly double.

As far as Spain is concerned, it is interesting to note that offshore companies do provide a very significant degree of anonymity. In fact, offenders have generally been caught by tip-offs, police raids on law firms on occasion of fraud investigations or massive document leaks -such as the Panama Papers-. Unfortunately for many those caught, tax evasion came tied in with money laundering since these are connected crimes.

Offshore fans or nostalgics of appealing names such as Belize, Cayman or Seychelles need to once and for all accept that fiscal or planning has nothing to do with fictitious residencies and other forms of concealment.

One can have millions stashed away via a Turks and Caicos company, a boat in the name of a Madeira-registered entity and the villa via a Gibraltar offshore vehicle, provided they are properly declared in the country of residency. And there is no tailored or ‘bespoke’ tax advice or planning that will substitute this obligation.


Tax Law , , ,

New Andalusia Rental Law: Compliance and Fines

February 25th, 2016

Regional and local press has extensively covered the enactment of the new rules governing rented accommodation. The rules, under the title Decreto 28/2016, de 2 de febrero, de las viviendas con fines turísticos y de modificación del Decreto 194/2010, de 20 de abril, de establecimientos de apartamentos turísticos, has failed to elaborate on two important aspects: what does compliance really entail and what are the fines for non-compliance?

  1. In respect to compliance, the rules obliges owners to offer clients –among other requirements- the following: license of occupancy, rooms with adequate ventilation and darkening devices (shutters or similar), sufficient furniture and necessary appliances, touristic information whether in hard copy or electronic, of data for the area (bus schedules, close-by parking facilities, medical facilities in the vicinity and a plan of the town), complaint form, first aid kit, bed linen, cutlery and crockery adequate to the size and requirements of the property (and a replacement set for each). As if not enough, the law says owners will have to have a telephone number available to tenants where they can call to resolve any incidences, an instruction manual for kitchen appliances, details of the use of communal facilities and property equipment, as well as details on access of pets to the property and information on potential restriction for smokers and a few other requirements.But whilst some of the above are clear, the meaning of ambiguous words such as “adequate”, “sufficient” and “necessary” can widely differ depending on who you ask. Attending these grey areas is a pressing requirement.
  2. The fine system is also not clear. The 2016 Act refers to a 2011 Rural Accommodation Act for elucidation of what fines are applicable. Some scaremongers have enjoyed spreading the belief that if you do not register, you will be fined up to 150,000 Euros. The reality is that failing to register their properties can “only” be fined between 2,000 and 18,000 Euros, the heavier monster fine of “up to 150k” being reserved for other contraventions i.e. unlawful discrimination or obstructing inspectors on duty.

Interestingly, the Act does not address the fines for failing to comply with one or more elements within the the long list on point a), for instance: missing spoons, dirty linen or insufficient first aid kit.

The experience in Catalunya and the Balearics regions, where similar rules apply, shows us that lack of registration is attracting the vast majority of fines, with little or no precedent in respect to the degree or correctness of compliance.

Property , ,

Inheritance Tax in Andalucia

February 11th, 2016

According to the Spanish right-wing party PP, 40,000 Andalusian families relocate to Madrid every year looking for a more favourable inheritance tax (IHT) treatment. The socialist-run Revenue and Public Administration Council has disputed this and state that records show that in 2015, there are no more than 81 Andalusian families that have moved ‘abroad’ within Spain, and only 17 have done so to Madrid.

If we consider that the above data is offered by bitterly opposed political parties, the truth –first victim of the debate- must lie somewhere in between the quoted figures. But there is no denying that IHT in Andalucia, compared to other regions in Spain i.e. Madrid, is seriously onerous.

As an example, a 40-year old person registered in Andalusia (or any EU-EEA resident inheriting in this region) that receives by way of inheritance 200k Euro, will pay 28,250 Euro to the Tax Office, whereas a Madrid-based inheritor will only have to part with 285 Euros.

In addition, the method to apply the 175k Euro allowance is wholly imperfect due to defective law drafting. The consequence of this is that a person receiving estate under the €175k allowance (by the way 97% of cases in 2015) from his/her parents will be exempt from IHT but if that same person receives a further say 25k (as in the first case), he/she will be slapped with a 28k Euro tax bill!

This “tax bracket creep” is one of the great challenges faced by Maria Jesus Montero -Revenue Counsellor of the Andalusian Government- for 2016. Conservatives, led by PP party, are all for eliminating IHT altogether between parents and children, irrespective of the size of the estate, on the remaining 3% tax returns.

Dealing with that relatively small 3% gap will avoid the proliferation of illegal tax evasion schemes -using foreign companies or equity release mortgages-, uncertain avoidance loopholes -nervously waiting 4 years and 6 months for statute of limitation to kick in- or outright rejection of inheritances, such as when the taxes to be paid are higher than the equity on those properties.

Inheritance ,

Spanish Limited Company or Self-Employed: 7 things to know

February 4th, 2016

  1. The One-Man Band Company: if you are a singer, a real estate agent with no employees or a dentist and you set up a limited company to pay less tax, you have a problem. The Directorate General of Taxes has stated that a company –consisting of a single shareholder who also is the director- that is unable to trade without the direct participation of owner/director, is in fact a shell or ‘simulated’ company.The main consequence is that the Tax Office will deem the person acting through company as self-employed, for tax purposes. To avoid this, a company must have enough human and material resources to operate irrespective of owner/director. In 2014, the Tax Office initiated 1.919 full inquiries in connection to this type of fraud. 
  2. Limited vs Personal Liability: the acronym S.L. stands for “Sociedad Limited”, which suggests companies will protect the entrepreneur should things go wrong (save for fraud). Self-employed do not enjoy such protection and are personally liable with present and future assets for losses incurred in the course of the business activity.
  3. Growth expectations: an entrepreneur that intends to grow cannot operate as a sole trader. As the business increases its turnover, so do the associated risks. Self-employed operators without corporate protection will risk less and, as a consequence, expand at a slower pace (which may not be a bad thing after all).
  4. Dealing with monies: Sole traders will have direct access to the proceeds of the business activity whereas in a company, the director (or the shareholders) cannot just dip into the account when in need of cash. In the latter case, it is important to note that any money received by the company belongs to the company and legally, to draw cash out, the director will have to issue a salary (“nomina”) or take out a dividend, both of which are taxable.
  5. Costs: Setting up as a sole trader will not attract cost whereas a company will cost anything from €600 to €1400 Euros, depending on various variables: share capital, legal assistance, choice of Notary Public etc.
  6. Professional Image: In some businesses and industries, having a limited company will provide a more professional image. If you are doing business with larger companies, you may find that they prefer to deal only with limited companies rather than sole traders or partnerships.

Companies , , ,

Madrid Courts Rule in Favour of British Investors Against Spanish Banks

January 29th, 2016

shutterstockSpanishPropertyDevelopmentBanco Popular, BBVA, Banco Mare Nostrum and Valencian Building Society S.G.R. have been ordered to pay over 2 million Euros, plus interest, to 40 British investors represented by Lawbird Legal Services.

The rulings were received on the same day and refer to investors who had paid large deposits on off-plan properties in El Pinet, in Alicante, and Costa Palatinum, in Murcia.

Court number 1 in Madrid wrote the following arguments on deciding the outcome:Banco Popular had issued two bank guarantees, one for 19 mm Euros and a further one for 4.4 mm Euros.

  • S.G.R. had too issued a guarantee for 5 mm Euros.
  • Banco Pastor had offered the developer a counter-bank guarantee which, according to the Judge, amounted to a collective policy to insure off-pan deposits.

For its part, the Appeal Court in Madrid (Section 25) held, in support of the investors, that:

  • A recent Supreme Court ruling had concluded that for the 57/1968 Act to apply, the off-plan property should be used for family living accommodation purposes, whether temporary, accidental or circumstantial. This includes “touristic apartments” as they are to be used by the owners as holiday homes, irrespective of their use as an investment for the most part of the year.
  • The developer had voluntarily submitted to the 57/1968 Act by producing a general bank guarantee that specifically referred to the Act.
  • Off-plan property buyers in Spain have an “inalienable right” to have their off-plan deposit underwritten, rights that cannot be waived by banks who, having issued a collective insurance cover failed however to grant individual policies to buyers.

 Banks have been ordered to pay the Courts the designated amounts, or face enforcement proceedings.

Both rulings are available to readers who so request a copy (less information deemed confidential at Lawbird’s discretion).

Litigation, Property , , , ,

Tenancy Agreements in Spain: the 11-month property rental contract

January 20th, 2016

This title of this post infers the existence of a type of residential rental contract that lasts for 11 months, no more but no less. And to a certain extent, if you had just landed in certain parts of Spain and you’d met up with property professionals (real estate agents mostly) there would be no reason to not believe that an 11-month contract –short term or holiday rental- is distinct from a 1-year plus contract –long term-.

At the same time, there appears to be an informal network of non-legal practitioners who are routinely consulted by people with legal problems and have, by reiteration, created parallel pseudo laws (and even case law) that, quite simply, do not exist in real life. And the 11-month contract is one ‘legislative’ creation of these “Costa” lawmakers as it does not exist as a standalone contract type. 

The following bullet points will help understand the current situation with urban rental contracts:

  • There are only 2 types of urban rental contracts: residential rental contracts and non-residential rental contracts (which includes short term/holiday lets, commercial, etc.).
  • Duration of residential rental contracts can be freely agreed between the parties. If the agreed term is below 3 years, the contract will be automatically extended on expiration of contract term unless the tenant submits notice of termination of contract with at least 30 days.
  • The above rule is mandatory and cannot be waived by the parties by private agreement.
  • Many residential rental contracts are disguised as short term, and consequently many short term contracts will be treated as residential by the Courts.
  • The Spanish Supreme Court has stated that irrespective of the name given to the contract or the term agreed by the parties, if the tenant had a requirement for a habitual and family domicile to take care of his/her permanent and essential needs (and that of the family), the contract will be deemed residential and therefore the 3-year rule will apply.

Likewise, the short-term nature of the contract refers to not the duration but to the reason and purpose of occupation of the property, it being determined by its brevity.

Means to prove that a short term contract is in reality a residential one are, for example, the tenant(s) having a job wherever he/she lives or running a company, children’s school enrollment, registration with the Town Hall (‘empadronamiento’) etc.

Property , ,

Unregulated IFAs (Independent Financial Advisers) and Unauthorized Insurance Companies

January 4th, 2016

Much has been written about unregulated IFAs operating in Spain. In 2012, The European Commission was considering setting up an ombudsman to help expat victims reclaim against these firms and the Spanish regulators -the CNMV (financial investment) and the DGS (insurance) – regularly post warnings about unregistered operators.

The CNMV is particularly proud of its achievements in the supervisory arena. Its website boasts the following: “Spain enjoys a modern, efficient regulatory and surveillance system, but we must continue working to perfect it. Our regulatory and surveillance system is among the most advanced in the world, and the CNMV is determined to maintain its quality.”

Whatever the surveillance system the CNMV is working on to perfect, its methodology has failed to prevent the activities of not just unregulated IFAs but also, unauthorized insurance companies.

Let’s take the example of Old Mutual (former Royal Skandia), a FTSE100 company “overseeing 319.4bn assets under management for more than 16 million customers worldwide (as at 30 September 2015).”

In Spain, Old Mutual operates via the companies Old Mutual International Life Ireland Limited (Dublin) and Old Mutual Wealth Life & Pensions Limited (Southampton), the only group companies authorized by the DGS. On the Costa del Sol, Old Mutual is known for it has been offering a life assurance policy called “Executive Investment Bond” (EIB), a bond that has incidentally lost millions to investors.

Yet for some reason, the EIB is being offered in Spain through IFAs by Old Mutual International Isle of Man Limited, a standalone company registered in the IOM but not ‘passported’ -meaning not registered in regulatory jargon- into Spain to offer any product, whether insurance or financial. And the same applied to its unauthorized predecessor Royal Skandia Life Assurance Limited (based in IOM), which too offered the “Executive Investment Bond”.

For its part, article 4.2 of the 2004 Insurance Supervisory Act states the following:

Insurance contracts and other legal arrangements subject to this law signed or agreed with an unauthorized entity, or an entity whose authorization was revoked, will be null and void. A person that having entered into a contract with it will be under no obligation pay the premium and will have a right to obtain a refund of any paid premium.

Corporate lawyers are always quick to point out that registered entities forming part of a group of companies are autonomous and separate from each other, regardless of whether they share common brand or names. To this extent, Old Mutual Isle of Man (and Royal Skandia Isle Of Man) should have been registered in Spain and where not, all of its contracts could be null and voided by Spanish Courts.

Companies, Corporate Law

Horizontal Property Act: Bribery in Spanish Communities of Owners

November 11th, 2015

Unbeknownst to most property owners, management of “communities of owners” in Spain has become a source of real corruption.

According to consumers’ organizations, 30% of managers of communities of owners –whether professional administrators or “presidents”- are demanding commissions of between 5%-10% from contractors and supplier companies serving these communities. Where the communities have expensive-to-run or higher maintenance facilities such as gardens, pools or security requirements, providers have larger margins to play with.

Corrupt professional administrators that engage in these practices will demand -or expect to receive- a kickback for awarding contracts, but in a rather discreet elegant manner. After all, they are professionals that get paid for their services and need to dissimulate spurious activities, which are seldom expected of them.

Corrupt presidents on the contrary don’t get paid to their jobs. They become unusually keen on governing the community, will typically behave with crass insensitivity towards ‘dissident’ owners and show despotic manners at AGMs. Often, they will weave a web of friends that are nothing but naive or uninvolved neighbours who, through ignorance, will lend them support by giving out proxies for up and coming community meetings, thus perpetuating the fraud.

These communities are generally teetering on the brink of bankruptcy.

The Spanish Criminal Code can deal with these individuals, if they are uncovered. This is what article 286 states under the title “Corruption between private individuals”:

Whoever, personally or through an intermediary, promises, offers or grants executives, directors, employees or collaborators of a trading company or any other firm, partnership, foundation or organization an unfair benefit or advantage of any nature, in order for the to favour him or a third party against others, breaching their obligations in acquisition or sale of goods or in hiring of professional services, shall be punished with a sentence of imprisonment of six months to four years, special barring from practice of industry or commerce for a term from one to six years and a fine of up to three times the value of the value of the profit or advantage obtained.

But where they are not uncovered, there is only one solution: naive and uninvolved neighbours have to wise up and get involved, whether they live in these complexes permanently or occasionally, replace these corrupt presidents or administrators and establish transparent practices for every provider bidding process (sealed bidding being the fairest and most secure).

Property , , , , ,

Alicante Court Orders Banco Popular to pay €2.1 million to 60 British off-plan property investors

November 8th, 2015

A Court in Alicante has ordered Banco Popular to pay €2.1 million Euros to British investors, plus interest since payment of the deposits, following a failed property investment. According to the ruling issued a 10 days ago the investors, all of them from the United Kingdom, bought off-plan properties in the development known as Fortuna Golf, promoted and built by Promociones Eurohouse 2010 S.L., currently in the process of being wound up.

Buyers paid a deposit of around 30% of the purchase price but, when completion was due, units were only half built and works had been indefinitely halted.

Accordingly, buyers decided to claim from guaranteeing bank Banco Popular, who had issued a collective bank guarantee but given individual guarantee certificates to only some investors.

In their defense, the bank argued that the collective guarantee had been limited by quantum and therefore, any claims exceeding this limit could not be –legally- met.

Lawbird Legal Services S.L. argued that the invocation of qualifying conditions or limitations was against consumer protection regulations, namely Act 57/1.968, and that deposits should be guaranteed in any event and regardless of private conventions reached between developer and bank.

For instance, the ruling confirms that it is beyond logic and abusive to subject the validity of the collective guarantee to the issuing of an individual guarantee certificate as, by not meeting this obligation, the bank would be able to easily deny liability.

The Court also stresses that “it was clear that the intention of the Banco Popular and Promociones Eurohouse S.L. was to underwrite customers’ deposits in the event of default and this is exact what happened”.

Lawbird-based lawyer Luis Gonzalez Ordoñez had personally visited the site on occasion of the filming of a TV programme, Comando Actualidad, aired on state-owned television channel TVE-1.

The case has been extensively covered by national press.

The ruling can been appealed.

Litigation , , , , , ,

Abusive Language and Name-Calling in Spain

October 2nd, 2015

Using threatening, abusive or insulting language against a person can be a costly exercise if your ‘victim’ decides to see you in court.

Repetitive use of bad language, the specific circumstances in which it is hurled (private or public) and, more importantly, your choice of words may all aggravate the outcome.

But how do law courts evaluate the level of seriousness and what are the words that will secure a fine, or even a conviction, if reported to the courts and/or the police?

The Spanish Criminal Code, for obvious reasons, has not compiled a list of offending language but has left it to the general public and society to quantify the degree of the insult. As the courts speak for society in this respect, let’s see what they say:

Cordoba Court: Levied a €60 fine for a name-caller who labelled the victim ‘conceited’, ‘manipulating’, ‘blackmailer’, ‘arrogant’ and ‘a bumpkin.’

Burgos Court: Fined a drunken reveler €60 for calling someone ‘lowlife’, ‘son of bitch’ and‘scumbag’.

Barcelona Appeal Court: Fined an ex-wife for hurling abuse at her former husband. Her choice of words – ‘fucking coward’, ‘shyster’ and ‘crook’ – secured her a €100 fine.

Ciudad Real Court: Slapped a €900 fine on a bill sticker for posting notices in strategic points of a village with the following wording: ‘Juan the crook, Juan the swindler, Juan the thief. He claims poverty and buys himself a new car.’

Supreme Court: Fined a policewoman €1,600 and ordered payment of €6,000 in moral damages for calling a colleague a ‘family tradition whore who has secured promotions thanks to her leg-opening skills’.

Supreme Court: Ordered three regular guests attending aTelecinco gossip show to pay €120,000 to a celebrity for hurling the following colourful words and phrases: ‘two-faced’, ‘embittered’, ‘clown’, ‘coward’, ‘swindler’, ‘clumsy’, ‘son of a bitch’, ‘daft’, ‘lacking in class’, ‘pork parents deliver swines’ (Spanish saying), ‘villager’, ‘illiterate’, ‘silly cow’, ‘hustler’. The size of the compensation was in proportion to the prime time exposure enjoyed by the show.

In the following case, a disgruntled litigant who was serving a prison sentence sent a letter to the deciding Judge with the following content: ‘Complaint directed to the Magistrate so that everyone knows that you are one drug-trafficker, arms smuggler, corrupt queer, I would kill you for free if I could you son of a bitch.’

The level of the fine – €360 – was in sharp contrast to the 15-month term of imprisonment also imposed for the death threat, with publicity, as the sentencing Judge understood that the letter was openly distributed in prison, where the felon was already serving time.

Litigation , , , ,