New procedures approved for providing proof of tax residence of foreign pension funds and collective investment vehicles

Spain - 10 / 25 / 2019

Spain Tax Commentary

The aim is to remove obstacles faced by some entities for accessing exemptions due to difficulty to prove their tax residence.

Royal Decree 595/2019, of October 18, 2019 amending the Nonresident Income Tax Regulations (Royal Decree 1776/2004, of July 30, 2004) was published in the Official State Gazette on October 19. It sets out a new special system for providing proof of the tax residence of certain pension funds and collective investment vehicles when claiming the exemption allowed in article 14.1c of the revised law on the same tax (Legislative Royal-Decree 5/2004, of March 5, 2004).

This is the exemption allowed for (i) interest and other income obtained on the transfer to third parties of own capital and for (ii) capital gains obtained on movable property (with a few exceptions), in cases where this income is obtained without a permanent establishment by residents in other EU member states or by permanent establishments of those residents located in another EU member state.

The new special system has been set up to provide mechanisms that will remove the customary obstacles for accessing that exemption caused by the difficulty to prove the tax residence of certain types of entities which as a general rule do not have a legal-tax personality.

For these purposes three types of entities able to claim this special regime are defined:

Pension funds equivalent to those defined in the revised Spanish law on pension funds and pension plans (Legislative Royal Decree 1/2002, of November 29, 2002) and permanent establishments of those pension funds.
Collective investment vehicles (UCITS) under Directive 2009/65/EC of the European Parliament and of the Council, of 13 July 2009, on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS Directive).
Alternative collective investment vehicles subject to an authorization, registration or administrative supervision regime and managed as described in Directive 2011/61/EU of the European Parliament and of the Council, of 8 June 2011, on alternative investment fund managers and amending Directives 2003/41/EC, the UCITS Directive and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.

The following procedures for providing proof of tax residence have now been defined:

For pension funds and their permanent establishments:

As a general rule proof of tax residence must be provided by way of a statement made by their representatives that they are in compliance with the statutory requirements laid down for these entities, according to the form that will be approved for the purpose.
For occupational retirement schemes under Directive 2016/2341 of the European Parliament and of the Council, of 14 December 2016, on the activities and supervision of institutions for occupational retirement provision, proof must be provided by way of a certificate issued by the competent authority in the state where the scheme is established, specifying, among other characteristics, that it is as an occupational retirement fund authorized or registered according to that Directive.

For collective investment vehicles under the UCITS Directive:

If they are not treated as look-through entities for tax purposes, proof must be provided by way of a certificate issued by the competent authority of their home member state according to the UCITS attestation provided in Annex II to Commission Regulation (EU) No 584/2010, of 1 July 2010, implementing the UCITS Directive.
For collective investment vehicles receiving look-through entity tax treatment, the exemption apply to their members according to their proportional interests (i.e. to those entitled to the exemption), where they were members on December 31 of the year before the year the income was obtained.

The entity receiving the income can determine the residence of those members according to annex I and annex II of Council Directive 2011/16/EU, of 15 February 2011, on administrative cooperation in the field of taxation.

Proof of look-through entity tax status and of the members’ percentage interests mentioned must be provided by way of a statement by the representative, according to the form that will be approved for the purpose. The collective investment vehicle must obtain the attestation mentioned above in all cases.

For alternative collective investment vehicles managed by alternative investment fund managers, the following alternatives are available:
1. Those not having look-through entity tax status:

A certificate issued by the competent authority of the member state in which it is established, which must state, among other characteristics, that it is managed by a management company -or self-managed- that is authorized according to Directive 2011/61/EU.
A statement signed by the representatives of the collective investment vehicle or of its management company, according to the form that will be approved for the purpose.

b. Where they have look-through entity tax status the procedure to be implemented is that described above in relation to the collective investment vehicles under the UCITS Directive that receive that treatment as look-through entities.

It is expected that this system will in practice simplify the proof of tax residence for the entities mentioned, and by doing so remove the difficulties caused by these schemes often not having a legal-tax personality.

The new system came into force on October 20, 2019.