August 03, 2011
Royal Decree amends reporting obligations on preferred shares and
debt instruments issued under Law 13/1985
On 1 August 2011, Royal Decree 1145/2011, of 29 July, which amends
specific provisions of Royal Decree 1065/2007, entered into force (“RD
1145/2011”). Among other articles, RD 1145/2011 modified
article 44 of Royal Decree 1065/2007, that sets out the reporting
obligations applicable to preference shares and debt instruments issued
under Additional Provision Two of Law 13/1985 (“2nd AD”)[1].
RD 1145/2011 derives from the wording given to section 3 of the 2nd
AD by Law 4/2008, which reduces the scope of investors who must submit
specific information to the Spanish tax authorities. From the date such
provision came into force, only residents in Spain for tax purposes are
covered[2].
Amendments to the reporting obligations
1. Scope of application
The new procedures apply to interest deriving from preference shares
and debt instruments to which the 2nd AD refers, including debt
instruments issued at a discount for a period equal to or less than
twelve months.
2. Investors entitled to receive gross payments (free of
withholding tax)
No withholding tax will be applied to income derived from securities
that are originally registered with a clearing house located in the
Spanish territory, provided that the owners of such securities are:
(a) Non-residents in Spain, or
(b) Residents in Spain that are Corporate Income Tax (CIT) taxpayers.
Investors resident in Spain that are Individual Income Tax (IIT)
taxpayers will receive the corresponding income net of the applicable
Spanish withholding tax.
Income derived by all investors, whether resident in Spain or not,
from securities originally registered with the entities that manage
clearing systems located outside Spain, that are recognised by Spanish
law or by the law of another OECD country (such as DTC, Euroclear or
Clearstream), will be paid free of Spanish withholding tax.
3. The content of the declaration and the entities obliged to
issue it
The right of investors to receive the gross payment of the relevant
income is subject to the issue of certain statements —which must be
delivered to the issuer under the terms explained below— with the
content and under the terms detailed below:
In the case of securities originally registered with a Spanish
clearing house, the entities that have the securities registered in
their securities account on behalf of third parties, as well as the
entities that manage the clearing systems located outside Spain that
have an agreement with the Spanish clearing system, must present a
statement including the following information:
- Identification of the securities.
- Total amount of the income.
- Amount of the income corresponding to residents in Spain that are
IIT taxpayers.
- Amount of the income that must be paid gross.
In the case of securities originally
registered in clearing systems located outside Spain, the paying agent
appointed by the issuer must submit a statement, in accordance with the
form attached as annex to RD 1145/2011, with the following information:
a) Identification of the securities; and
b) Total amount of the income corresponding to
each clearing house located outside Spain.
These obligations refer to the total amount paid to investors through
each foreign clearing house, with a breakdown of the amounts paid to
investors acting through other foreign clearing houses that have an
agreement with the former (as is the case with both Euroclear and
Clearstream with DTC).
4. Term to submit the statements; withholding obligations
The statements mentioned above must be submitted on the business day
immediately before the date on which the interest is payable or, in the
case of securities issued at a discount, the business day immediately
before the redemption date of such securities. The statements must
reflect the situation at the close of business of that same day.
In the case of interest payments, the failure to submit the relevant
statement will result in the issuer or its authorized paying agent being
liable to pay the corresponding interest net of the applicable Spanish
withholding tax (this is currently at the rate of 19%).
Notwithstanding the above, if on or before the 10th day of the month
following the month in which the interest is payable, the relevant
entity submits the statement, the issuer or its authorized paying agent
will refund the amount withheld in excess, as soon as it receives the
statement.
5. General reporting obligations of Spanish issuers
RD 1145/2011 states that the procedures described above will apply,
without prejudice to the reporting obligations set out in the tax laws
concerning issuers and financial intermediaries resident in Spain that
act as depositaries of securities, with respect to individuals or
companies resident in Spain that own securities in accordance with such
entities’ registers.
Preliminary Comments
The practical consequences of the entry into force of RD 1145/2011
are as yet unclear and will require an in-depth analysis of the Royal
Decree, for the following reasons:
1. Firstly, as noted above, RD 1145/2011 seems to
establish an exception to the withholding obligation for investors
resident in Spain that are IIT taxpayers and obtain income deriving from
securities issued under the 2nd AD and that are originally registered in
a foreign clearing system.
This exception, which is not referred to as such in RD 1145/2011 but
derives from the provisions commented above, seems to give a more
prejudicial treatment to individual investors resident in Spain that
choose to invest in Spanish Public debt or in Spanish private debt
deposited with Iberclear, which, as explained above, will be subject to
Spanish withholding tax on account of IIT on income derived from such
securities. This is contrary to the provisions applying to individual
investors resident in Spain that acquire securities deposited in foreign
clearing houses through non-Spanish intermediaries, who will benefit
from the withholding exemption mentioned above.
If this is the case, it also seems remarkable that the Royal Decree
does not establish a procedure that, in the case of securities
originally registered with a Spanish clearing house (Iberclear), allows
determination of the proportion of such securities owned by Spanish
resident individual investors and, therefore, the proportion of the
total income subject to withholding tax.
2. In addition, clarification is required as to what
are the general reporting obligations set out in the tax laws concerning
issuers and financial intermediaries resident in Spain that act as
depositaries of securities (referred to in section 8 of article 44 of
Royal Decree 1065/2007), which will remain applicable for Spanish
residents who own securities regardless of the new procedures
established by RD 1145/2011.
In this regard, with respect to issuers, we understand that such
reporting obligations are those established in article 42 of Royal
Decree 1065/2007 (referred to in article 43 of said Royal Decree), by
virtue of which, credit and financial entities and establishments, other
financial intermediaries and any individual or company, among others,
must submit a return regarding specific transactions involving financial
assets to the Spanish tax authorities on an annual basis. Such
information includes the complete identification of the parties acting
in the transactions, the capacity in which they act, their name, surname
or company name, address and tax identification number, as well as the
class and number of securities or assets, and the amount, date and
income deriving from each transaction.
This article states that this reporting obligation will be complied
with, in relation to transactions subject to withholding tax, once the
corresponding annual summary of withholdings is filed. However, this
exception does not seem to apply to the securities referred to in the
new article 44 of Royal Decree 1065/2007, and, in particular, to those
securities originally registered with a foreign clearing house, which
income, as explained above, will be exempt from withholding tax for any
type of investor which may acquire them, whether resident in Spain or
otherwise.
* * *
This memorandum is for general information purposes only and is
not intended to be nor shall it be deemed to be, or constitute legal
advice. For more information, please contact the following persons at
Uría Menéndez:
Jesús López Tello / Víctor M. Martín
Samaniego
Lawyers
Tel: +(34) 91 5860385 / 91 5860654
E-mail address: jlt@uria.com / vmm@uria.com
[1] RD 1145/2011 also sets out the regime applicable to interest
derived from Spanish public debt negotiated in the Public Debt Market in
book entry forms, which will not be addressed in this newsletter.
[2] This regime also applies to non-residents that act through a
permanent establishment in Spain, which are treated similarly to CIT
taxpayers. For the sake of clarity, we will refer exclusively to
investors resident in Spain.
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