INSIGHT: Spanish Tax Measures in Response to COVID-19

On March 14, 2020, the Spanish government declared a State of Emergency by limiting the free circulation of citizens, and prohibited the opening of all commercial sectors except for essential products and a few other exceptions. On March 22, 2020 the State of Emergency was extended for a further two weeks, so Spanish residents will be housebound until April 11 at least.

Such an unprecedented health crisis with economic consequences comes with new legal measures, and tax is no exception.

Tax Measures

New measures include:

• suspension of a range of deadlines on proceedings underway, not concluded by March 18, which will be extended until the end of the State of Emergency. Such suspension includes payments of tax debts from settlements with the Spanish tax authorities, for replying to requests, submitting appeals, enforcement of real estate guarantees, statute of limitations;
• measures to expedite customs clearance;
• indirect tax exemption for mortgage novations requested by vulnerable persons, in particular, benefiting from the moratoriums stated by the Royal Decree;
• taxpayers to receive notifications via the electronic inbox (a virtual room where taxpayers interact with the STA) and keep fulfilling their duties for the Immediate Supply of Information for value-added tax (VAT) purposes.

Also, individual and small- and medium-sized companies (turnover under approximately 6 million euros ($6.5 million) ) are entitled to postpone tax debt payments (withholding taxes, VAT or corporate income tax (CIT)) for six months, until May 30. This apparent good news is neither automatic nor unlimited. The taxpayer must request the deferral, which is limited to 30,000 euros and is not entirely free, since no late interest will accrue for the first three months but will for the latter three.

In addition, most regions in Spain with tax competence have passed, or are intending to approve, specific measures under their competences such as transfer tax, inheritance and gift taxes and local taxes.

It is fair to say that the COVID-19 tax package has been in development for a short time but the measures neither cover all taxpayers nor support the liquidity issues most taxpayers are currently facing.

Business and tax associations are constantly requesting further steps: some tax professionals have advocated a filling and payment extension, but with no news, so far.

There is no doubt paying taxes is essential but so is boosting the current economic situation. Is the lack of tax leniency an isolated case in Spain? Not really; some of our European counterparts show tax leniency, such as Belgium, Germany, Switzerland and The Netherlands.

OECD Influence

COVID-19 is a global problem but a domestic approach is not sufficient. Therefore, it would be wise to know what is of importance to the Organization for Economic Co-operation and Development (OECD). Papers published recently with suggestions, rather than recommendations, by the OECD, include:

• extension of deadlines to file tax returns and to make tax payments;
• deferral of payments;
• remitting penalties and interests;
• debt payment plans;
• suspending debt recovery;
• quicker refunds;
• provide tax certainty; and
• audit policies.

Also, the OECD is calling for, among other tax policies, a waiver on social security contributions and payroll taxes, especially for the hard-hit sectors, tax reliefs for workers in health and other emergency related sectors, VAT, customs or excise duties deferrals on importations, simplifying VAT reliefs on bad debts, adjusting advance payments to final tax liability, generosity on carry-forward framework.

Where To From Here?

The debate is now on the table and we are witnessing tax and legal changes almost daily. The nature of the measures to come is as unpredictable as the COVID-19 pandemic itself. So far, the Spanish government has provided some measures to deal with the COVID-19 outbreak and it is likely that a few more will come in the upcoming weeks.

It will be interesting to see whether the sacred Spanish deadlines of June 30 (personal income tax) or July 25 (CIT) change for the first time in years or whether extraordinary measures on carry-forward, advance payments, etc. are implemented for all Spanish taxpayers.

Javier Blázquez is a Senior Associate at Baker McKenzie, Spain.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.