SPAIN Law and Practice Contributed by: Álvaro Checa, Miguel Checa, José María Vargas-Machuca Reyes and Andrea Fernández Grymierski, KINSHIP
9.2 Recent Developments Affecting Planning Vehicles Recent developments in Spain continue to reflect a substance-over-form approach by the Spanish Tax Administration and the courts in relation to wealth and succession planning structures. A particularly recent development concerns the treatment of contributions made to the matrimonial property regime by one of the spouses. The Spanish Supreme Court rejected the administrative interpreta- tion under which the contribution by one spouse of a private asset to the community property regime for no consideration could be subject to either GT or transfer tax. The Court held that such a contribution is not subject to transfer tax and cannot be taxed under GT in the hands of the community property estate, as only individuals or entities expressly provided for by law may qualify as taxable persons, and no such provision exists in respect of the community property regime as a separate patrimony. The Court further clarified that this situation must not be confused with a lifetime transfer made directly by one spouse in favour of the other spouse. In the context of private foundations, two recent bind- ing rulings from the Spanish Tax Administration on private interest foundations establish that distributions from foundations to beneficiaries are subject to GT, a position already established in administrative doc- trine (as described in 9.1 Choice of Planning Vehicle ). However, the rulings clarify that such taxation requires the existence of animus donandi, which must be dem- onstrated. This interpretation may allow for distribu- tions to be subject to income tax instead of GT, which can be less burdensome – and in certain cases even non-taxable under special tax regimes applicable to individuals. 10. Fiduciary Regulation, Standards and Taxation 10.1 Corporate and Professional Fiduciaries As common law trusts are an unknown legal institu- tion in Spain, there is no licensing regime applicable to trustees as such.
(the “Directorate-General”) has explicitly confirmed that private foundations cannot be registered as own- ers of real estate in Spain, on the basis that holding property constitutes the pursuit of a permanent activ- ity in Spain, and it would require a prior registration in the Registry of Foundations, which is not possible. By contrast, Spanish authorities have shown more flexibility in permitting the establishment in Spain of foreign non-profit corporations. In particular, the Directorate-General has admitted UK non-profit cor- porations to be registered in the Spanish Companies Registry by means of a secondary establishment. From a Spanish tax perspective, there are no specific rules or case law that regulate the tax treatment of either foreign private foundations or trusts. The only guidance available to date is that issued by the Spanish Tax Administration through binding rul- ings, which are binding on the tax office but not on the taxpayer, according to which the legal title held by the trustee under foreign law must be disregarded for Spanish tax purposes and the trust fund should, as a general rule, be attributed to the settlor while he or she is still alive, or to the beneficiaries once the settlor has passed away. This matter is analysed in further detail in 10.2 Taxation of Trusts . In relation to private foundations, the separate legal personality of the vehicle may be respected, with the result that the assets contributed are, in principle, owned for tax purposes by the foundation and thus outside the estate of the founder. Distributions made by private foundations to Spanish tax resident ben- eficiaries are, in the view of the Spanish Tax Admin- istration, subject to IHT and GT as transfers between unrelated parties to which the tax reliefs provided for next-of-kin transfers would not be applicable and thus potentially taxable at effective tax rates up to 80%. However, where, in light of the foundation’s character- istics, the founder retains formal or de facto control or maintains economic rights over the assets or income, the foundation may be treated as akin to a company.
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